sbv2za
Registration No. 333-126288
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Lifevantage Corporation, formerly Lifeline Therapeutics, Inc.
(Name of small business issuer in its charter)
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Colorado
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6770
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90-0224471 |
(State or Jurisdiction of Incorporation or
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(Primary Standard Industrial
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(I.R.S. Employer Identification Number) |
organization)
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Classification Code Number) |
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6400 South Fiddlers Green Circle
Suite 1970
Greenwood Village, Colorado 80111
(720) 488-1711
(Address and telephone number of principal executive offices)
Gerald J. Houston
Chief Financial Officer
6400 South Fiddlers Green Circle
Suite 1970
Greenwood Village, Colorado 80111
(720) 488-1711
(Name, address and telephone number of agent for service)
Copy of all communications to:
Alan Talesnick, Esq.
Melissa L. Mong, Esq.
Patton Boggs LLP
1660 Lincoln Street, Suite 1900
Denver, Colorado 80264
(303) 830-1776
Approximate date of commencement of proposed sale to the public: As soon as practicable
after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering.
o
If any of the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than
securities offered only in connection with dividend or interest reinvestment plans, check
the following box. þ
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the
following box. o
CALCULATION OF REGISTRATION FEE
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Title of Each Class of |
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Proposed Maximum |
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Proposed Maximum |
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Securities to be |
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Amount to |
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Offering Price |
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Aggregate |
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Amount of |
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Registered |
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be Registered (1) |
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Per Unit (2) |
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Offering Price (2) |
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Registration Fee (3) |
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Common Stock, Series
A, $0.001 par value
per share |
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6,322,001 |
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9.60 |
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60,691,210 |
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Previously Paid |
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Common Stock, Series
A, underlying Bridge
Warrants |
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1,592,569 |
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9.60 |
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15,283,507 |
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Previously Paid |
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Common Stock, Series
A, underlying Unit
Warrants |
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4,000,016 |
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9.60 |
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38,400,154 |
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Previously Paid |
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Common Stock, Series
A, underlying
Placement Agent
Warrants |
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409,281 |
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9.60 |
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3,929,098 |
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Previously Paid |
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TOTAL |
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12,323,867 |
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Previously Paid |
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(1) |
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In addition to any securities that may be registered hereunder, we are also
registering an indeterminable number of additional shares of our common stock, pursuant
to Rule 416 under the Securities Act of 1933, as amended, that may be issued to prevent
dilution resulting from stock splits, stock dividends, or similar transactions
affecting the shares to be offered by the selling stockholders. |
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Estimated solely for purposes of calculating the registration fee in accordance with
Rule 457(c) under the Securities Act of 1933, as amended (the Act), based on the
average of the bid and ask prices for the Registrants common stock as reported on the
OTC Bulletin Board on June 28, 2005. |
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A registration statement fee of $13,925 was previously submitted with the Companys
Registration Statement on Form SB-2 filed on June 30, 2005. |
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE
NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT
WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE
IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
The information in this prospectus is not complete and may be changed. The selling security
holders may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer to sell
these securities and neither the selling security holders nor we are soliciting offers to
buy these securities in any state where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED December 29, 2006
PROSPECTUS
LIFEVANTAGE CORPORATION, FORMERLY
LIFELINE THERAPEUTICS, INC.
12,323,867 SHARES OF SERIES A COMMON STOCK
This prospectus relates to the sale by certain stockholders of Lifevantage Corporation
of up to 12,323,867 shares of our Series A common stock $0.001 par value per share. The
shares of our Series A common stock covered hereby include 6,322,001 shares held by the
selling stockholders named in this prospectus, and shares that may be issued to, and
transferred by, the selling stockholders upon exercise of 2,001,850 of our warrants to
purchase Series A common stock for a price of $2.00 per share and 4,000,016 of our warrants
to purchase Series A common stock for $2.50 per share.
Our common stock is quoted on the OTC Bulletin Board under the symbol LFLT. On
October 13, 2006 the closing bid and ask prices for one share of our common stock were $0.80
and $0.85, respectively, as reported by the OTC Bulletin Board website. These
over-the-counter quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions. Lifevantage
Corporation manufactures Protandim®.
These securities are speculative and involve a high degree of risk. You should
consider carefully the Risk Factors beginning on Page 5 of this prospectus before making a
decision to purchase our stock.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is ________, 2006
TABLE OF CONTENTS
Lifevantage Corporation has not authorized anyone to give any information
or make any representation about the offering that differs from, or adds to, the
information in this Prospectus or the documents that are publicly filed with the
Securities and Exchange Commission. Therefore, if anyone does give you
different or additional information, you should not rely on it. The delivery of
this Prospectus does not mean that there have not been any changes in
Lifevantage Corporations condition since the date of this Prospectus. If you
are in a jurisdiction where it is unlawful to offer to purchase or exercise the
securities offered by this Prospectus, or if you are a person to whom it is
unlawful to direct such activities, then the offer presented by this Prospectus
does not extend to you. This Prospectus speaks only as of its date except where
it indicates that another date applies.
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PROSPECTUS SUMMARY
This summary presents selected information from this Prospectus. You should carefully
read this entire Prospectus and the documents to which the Prospectus refers in order to
understand this offering. See Additional Information.
Lifevantage Corporation, formerly Lifeline Therapeutics, Inc.
Lifevantage Corporation (Lifevantage or the Company), formerly Lifeline
Therapeutics, Inc. (Lifeline Therapeutics) was formed under Colorado law in June 1988
under the name Andraplex Corporation. Subsequent to June 1988, the Companys only asset
consisted of 91 undeveloped residential lots in the town of Lawrence, Colorado. The
undeveloped residential lots were carried in our financial statements at a value of
approximately $25,000. We amended our name to Yaak River Resources, Inc. in January 1992
and to Lifeline Therapeutics, Inc. in October 2004. In November 2004, we executed a quit
claim deed to this property in exchange for forgiveness of debt. On November 21, 2006, the
shareholders approved an amendment to the Articles of Incorporation, which included a name
change from Lifeline Therapeutics, Inc. to Lifevantage Corporation. Note that references
to Lifeline Therapeutics, Inc. may exist in this Prospectus and that Lifevantage
Corporation and Lifeline Therapeutics, Inc. are the same corporate entity.
For the period from July 2003 (Lifevantages inception) to June 2005, the Company had
been in the development stage. The Companys activities from the inception of Lifevantage
until February 2005 consisted primarily of organizing the Company, developing a business
plan, formulation and testing of product and raising capital. In late February 2005, the
Company began sales of its product Protandim® and commenced principal planned operations.
Accordingly, the Company is no longer in the development stage.
Our principal place of business is 6400 South Fiddlers Green Circle, Suite 1970,
Greenwood Village, CO 80111, telephone (720) 478-1711, fax (720) 488-1722, or email at
info@Protandim.com. Our website is www.lifelinetherapeutics.com. Lifevantage and
its officers, directors, and significant shareholders, file reports with the Securities and
Exchange Commission under the Securities Exchange Act of 1934.
Capitalization. As a result of the Reorganization (described below), we have
a complex equity capital structure. This is summarized in the following table as of
October 13, 2006.
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Pro-Forma |
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Fully Diluted |
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Shares as of October 13, 2006 |
Series A Common Stock (1) |
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22,118,034 |
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Series B Common Stock (2) |
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0 |
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Preferred Stock (3) |
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0 |
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Bridge Warrants issued
exercisable at $2.00 per
share (4) |
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1,592,569 |
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Unit Warrants issued
exercisable at $2.50 per share
(4) |
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4,000,016 |
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Placement Agent Warrants issued exercisable
at $2.00 per share (4) |
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409,281 |
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Compensatory Securities |
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1,874,428 |
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Total Issued and Outstanding Series A Shares
assuming all options and warrants are
exercised |
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29,994,328 |
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The Series A common stock is entitled to vote. When we use the term common stock
in this Prospectus, we intend to refer only to the Series A common stock. There are
250,000,000 shares of Series A common stock authorized. See Description of
Securities, below. |
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On November 21, 2006, the shareholders approved the Amended and Restated Articles of
Incorporation, which eliminate the Series B common stock. At the time of the
shareholder approval, no shares of Series B common stock were outstanding. |
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There are 50,000,000 shares of preferred stock authorized and no shares outstanding.
See Description of Securities, below. |
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These warrants expire April 18, 2008, unless exercised. We cannot offer any
assurance that any warrants will be exercised. |
Reorganization. On October 26, 2004, we completed a reorganization by which
we acquired approximately 81% of the outstanding common stock of Lifeline Nutraceuticals
Corporation (Lifeline Nutraceuticals or LNC), a privately-held Colorado corporation
that was formed in July 2003 (the Reorganization). In the Reorganization:
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We issued 15,385,110 shares of our common stock (representing about 94% of
our outstanding common stock after the Reorganization) to eleven persons in
exchange for their ownership interest in Lifeline Nutraceuticals. |
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We agreed to exchange $240,000 in new promissory notes for a like amount of
convertible debt obligations of Lifeline Nutraceuticals. |
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We agreed to exchange $559,000 in new promissory notes for a like amount of
bridge loan note obligations of Lifeline Nutraceuticals. |
Subsequent Activities. In March 2005, we completed the acquisition of the
remaining minority shareholder interest in Lifeline Nutraceuticals by issuing to that
person (Michael Barber) 1,000,000 shares of the Companys common stock. Mr. Barber also
entered into a covenant not to compete with us for which we paid $250,000.
After the completion of the Reorganization, we raised additional capital through the
issuance of bridge warrants to accredited investors. As a result of commitments made to
the holders of the bridge warrants, on April 18, 2005, we issued to them warrants to
purchase 1,592,569 shares of common stock (Bridge Warrants), which are exercisable at
$2.00 per share through April 18, 2008.
We closed a private placement of our securities in two closings, dated April 18, 2005
and May 18, 2005. In that placement, we issued units to accredited investors for cash and
exchange of bridge loan notes. Each unit consisted of 10,000 shares of our common stock
and a warrant (Unit Warrant) to purchase 10,000 shares of our common stock for $2.50,
exercisable through April 18, 2008. After deducting commissions of $498,563 paid to
Keating Securities, LLC (Keating Securities), a $75,000 non-accountable expense allowance
paid to Keating Securities, and a fee to the escrow agent, we received net proceeds of
approximately $4,400,000. In that private placement:
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We issued 1,507,202 shares of our common stock and an equal number of
Unit Warrants to satisfy a majority of the principal and interest
obligations, $3,014,404, to holders of outstanding bridge loan notes
(Bridge Notes) issued by Lifeline Nutraceuticals before, and by Lifeline
Therapeutics, predecessor to Lifevantage Corporation, after, the
Reorganization; |
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We issued 2,492,814 shares of our common stock and an equal number of
Unit Warrants to persons who invested a total of $4,985,627 in cash; and |
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We issued warrants to purchase 404,281 shares of our common stock to
Keating Securities and warrants to purchase 5,000 shares of our Common stock
to The Scott Group, our placement agents, exercisable at $2.00 per share
through April 18, 2008 (the Placement Agent Warrants). |
We used $170,733 of the net proceeds from this offering for repayment of the Bridge
Notes that were not converted in the private placement ($160,000 in principal and $10,733
interest), approximately $278,400 for costs associated with the Bridge Warrant offering,
and $140,000 for a finders fee to The Scott Group.
We also issued 536,081 shares of our common stock to satisfy principal and interest
obligations to holders of $240,000 of new promissory notes issued in the Reorganization.
History. From 1993 through 1998, the Company was a development-stage
enterprise that sought to engage in the mining of gold and other precious and base metals.
Toward that objective, the Company acquired a number of mining properties located in or
near the Yaak Mining district in Lincoln County, Montana.
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Together with its other activities, the Company sought to obtain financing for
development and operating purposes. Those efforts, however, failed to raise adequate
working capital from outside sources. An insufficiency of capital, combined with
regulatory impediments, prevented commencement of significant mining operations. The
Company disposed of its mining properties in July of 1999.
In September of 1999, the Company acquired 91 unimproved lots located in Teller
County, Colorado. The lots are zoned for residential development, and comprise a total of
approximately 4.7 acres of land. They are located in Pikes Peak region approximately six
miles by road from the historic mining town of Cripple Creek, Colorado, and
approximately 40 miles by highway from the Colorado Springs metropolitan area. The Company
acquired this real estate from Donald J. Smith, who is the former President and a Director
of the Company. In connection with the purchase, the Companys board of directors deemed
the real estate acquired to have a total value of $162,000. The purchase price was paid in
the form of approximately 23,000,000 shares of our common stock. In the fourth quarter of
the year ended December 31, 2000, management reached a determination that it would not be
feasible for the Company to develop its real estate and the Company disposed of such
assets.
Our Business
We developed our product, Protandim®, a proprietary blend of ingredients that has
(through studies on animals and humans) demonstrated the ability to enhance SOD in brain,
liver, and blood, the primary battlefields for oxidative stress. Protandim® is marketed as
a dietary supplement as defined in Section 3 of the Dietary Supplement Health and
Education Act of 1994 (DSHEA), codified as § 201(ff) of the Federal Food, Drug, and
Cosmetic Act (FFDCA) (21 U.S.C. § 321(ff)). The name Protandim® is derived from:
promoting the tandem co-regulation of two of the bodys anti-oxidant enzymes (SOD and
CAT). Protandim® and the related intellectual property are owned by our subsidiary
Lifeline Nutraceuticals.
One of the paradoxes of life is that the molecule that sustains aerobic life, oxygen,
is not only fundamentally essential for energy metabolism and respiration, but it causes
many diseases and degenerative conditions. Oxidative stress is widely believed to play a
key role in the aging process and the bodys defenses against oxidative stress and free
radicals decrease with age, resulting in numerous age-related ailments and diseases.
Oxidative stress results from the fact that we breathe air and utilize oxygen to
generate energy. Unfortunately a small percentage of the oxygen we utilize generates toxic
oxygen free radicals that damage the cells and tissues of the human body and consequently
negatively impact our general health. Oxidative stress refers to the cellular and tissue
damage caused by chemically reactive oxygen radicals formed as a natural consequence of
cellular metabolism. These reactive oxygen species (ROS) and free radicals can be elevated
under a wide variety of conditions, including radiation, UV light, smoking, excessive
alcohol consumption, certain medical conditions such as neurodegenerative diseases and
diabetes, and advancing age.
Elevated ROS levels inflict structural damage to nucleic acid, lipid and carbohydrate
and protein components of cells, thereby directly contributing to or exacerbating tissue
dysfunction, disease and age-related debilitation. Normally, cellular anti-oxidant enzymes
serve to inactivate ROS and maintain their levels at those compatible with normal cell
function. Important among these enzymes are Superoxide Dismutase (SOD) and Catalase (CAT).
However, the levels of these protective anti-oxidant enzymes decrease with age and are
also reduced in a number of disease conditions.
SOD is the bodys most effective natural anti-oxidant. SOD works in conjunction with
CAT, and under some circumstances the balance may be important. A by-product of SODs
potent anti-oxidant activity is Hydrogen Peroxide, a dangerous substance that needs to be
subsequently converted into water and oxygen by CAT. Together, these three enzymes
constitute the first line of defense and repair for the body. Scientists have long
realized that increasing our levels of SOD and CAT is the key to fighting oxidative stress,
disease and aging.
Current SOD and CAT oral supplements can neither:
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be absorbed; nor |
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work in conjunction with each other in one safe, orally-available pill. |
For the period from July 1, 2003 (inception) to June 30, 2005, Lifeline Nutraceuticals
was in the development stage. Nutraceuticals activities from inception until February
2005 consisted primarily of organizing Nutraceuticals, developing a business plan,
formulation and testing of product and raising capital. In late February 2005, the Company
began sales of its product Protandim® and commenced principal planned operations.
Accordingly, the Company is no longer in the development stage.
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The Offering
Lifevantage is not offering any securities pursuant to this Prospectus. The selling
security holders named below (see The Selling Security Holders) are offering the
following:
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6,322,001 shares of our common stock currently held by the Selling Security Holders; |
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1,592,569 shares of our common stock underlying our outstanding Bridge Warrants; |
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4,000,016 shares of our common stock underlying our outstanding Unit Warrants; and |
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409,281 shares of our common stock underlying our outstanding Placement Agent Warrants. |
Each of the foregoing was or will be issued as a restricted security as that term is
defined in Rule 144 adopted by the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the Securities Act). The exercise of the warrants is not
included in this Prospectus. Holders may exercise the warrants only pursuant to an
exemption from registration under the Securities Act of 1933 and applicable state law, if
an exemption is available.
We will not receive any proceeds from the sale of common stock by the Selling Security
Holders pursuant to this prospectus.
A Note About Forward-Looking Statements
In our effort to make the information in this Prospectus more meaningful, this
Prospectus contains both historical and forward-looking statements. All statements other
than statements of historical fact are forward-looking statements within the respective
meanings of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements in this Prospectus reflect the current
expectations of our management concerning future results and events.
The forward-looking statements are not statements of historical fact, but may use such
terms as may, expects to and other terms denoting future possibilities.
Forward-looking statements include, but are not limited to, those statements relating to
our future development, development of our intellectual property or products we expect to
be developed from our intellectual property, financial condition, and our ability to
acquire the additional financing necessary to undertake business operations as contemplated
in this Prospectus. The accuracy of these and other statements in this Prospectus cannot
be guaranteed as they are subject to a variety of risks which are beyond our ability to
predict or control; these Risk Factors and the other factors described in this Prospectus
and information incorporated by reference may cause actual results to differ materially
from our estimates contained in this Prospectus or in the documents incorporated by
reference herein.
Forward-looking statements involve known and unknown risks, uncertainties and other
factors that may cause our actual results, performance or achievements to be different from
any future results, performance and achievements expressed or implied by these statements.
You should review carefully all information, including the financial statements and the
notes to the financial statements included in this Prospectus. In addition to the factors
discussed under Risk Factors, the following important factors could affect future
results, causing the results to differ materially from those expressed in the
forward-looking statements in this Prospectus:
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our working capital shortage, which has been aggravated by additional research, development, and marketing expenses
necessary to expand our existing and new business lines; |
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demand for, and acceptance of, our materials; |
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changes in development, distribution, and supply relationships; |
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the impact of competitive products and technologies and no assurance as to the validity of our intellectual property rights; |
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dependence on future product development; |
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the possibility of future customer concentration; |
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our dependence on key personnel; |
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the volatility of our stock price and the potential adverse impact on our market which may be caused by future sales of
restricted securities; |
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the possibility of environmental violations relating to our business activities and products; and |
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the impact of new technologies. |
These factors are not necessarily all of the important factors that could cause actual
results to differ materially from those expressed in the forward-looking statements in this
Prospectus. Other unknown or unpredictable factors also could have material adverse
effects on our future results. The forward-looking statements in this Prospectus are made
only as of the date of this Prospectus and we do not have any obligation to publicly update
any forward-looking statements to reflect subsequent events or circumstances. We cannot
assure you that projected anticipated events, objectives, goals or other planned or desired
results will occur or otherwise be achieved.
RISK FACTORS
You should carefully consider each of the following risk factors and all of the other
information provided in this prospectus before purchasing our common stock. The risks
described below are those we currently believe may materially affect us. The future
development of Lifeline Therapeutics and its technology is and will continue to be
dependent upon a number of factors. You should consider the following information as
well as the more detailed information concerning Lifeline Therapeutics and its subsidiary
contained elsewhere in this Prospectus. An investment in our common stock involves a high
degree of risk, and should be considered only by persons who can afford the loss of their
entire investment.
Risk Factors Relating to the Company, our Lack of Operating History, our Management, and
our Financial Condition
We have a lack of operating history and lack of revenues from operations.
We did not generate any significant revenues from the sale of Protandim®
until the last six months of fiscal 2005. For the fiscal years ended June 30, 2004
and 2005, we generated revenues of $0 and $2,353,795, respectively. Although Lifeline
Nutraceuticals incorporated in July 2003, and even though we have expended in excess of
$12,800,000 in research and development activities and overhead expenses since July 2003,
we do not have any significant operating history. We commenced sales of our only product,
Protandim®, in February 2005, and for the fiscal year ended June 30, 2005, we
incurred a net loss of $5,822,397 and for our fiscal year ended June 30, 2006, we incurred
a net loss of $2,734,501. If cash generated from operations is insufficient to satisfy our
liquidity requirements, we may seek to sell additional public or private equity securities
or obtain debt financing. Additional financing may not be available at all or, if
available, may not be obtainable on terms favorable to us. If we are unable to obtain
additional financing needed if and when cash generated from operations is insufficient to
satisfy our liquidity requirements, we may be required to reduce the scope of our planned
operations, which could harm our business, financial condition and operating results.
Additional financing may also be dilutive to our existing shareholders.
There is no assurance that we will be successful in expanding our operations and, if
successful, managing our future growth.
We increased the scale of our operations by spending the funds available from the
completion of our private placement of our Series A common stock in May 2005. This
increase in scale and expansion of our operations resulted in higher operating costs. If
we are unable to generate revenues that are sufficient to cover our increased costs, our
results of operations will be materially and adversely affected. We may experience periods
of rapid growth, including increased staffing levels. Any such growth will place a
substantial strain on our management, operational, financial and other resources, and we
will need to train, motivate, and manage employees, as well as attract sales, technical,
and other professionals. Any failure to expand these areas and implement appropriate
procedures and controls in an efficient manner and at a pace consistent with our business
objectives would have a material adverse effect on our business, financial condition, and
results of operations.
Government regulators and regulations could adversely affect our business.
The formulation, manufacturing, packaging, labeling, advertising, distribution, and
sale of our product, as well as other dietary supplements, are subject to regulation by a
number of federal, state, and local agencies, including but not limited to the FDA and the
FTC. See Item 1 Business Government Approval and Regulations. These agencies have a
variety of procedures and enforcement remedies available to them, including but not limited
to:
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Initiating investigations; |
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Issuing warning letters and cease and desist orders; |
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Demanding recalls; |
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Initiating adverse publicity; |
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Requiring corrective labeling or advertising; |
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Requiring consumer redress and/or disgorgement; |
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Seeking injunctive relief or product seizures; |
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Initiating judicial actions; and |
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Imposing civil penalties or commencing criminal prosecution. |
Federal and state agencies have in the past used these types of remedies in regulating
participants in the dietary supplement industry, including the imposition by federal
agencies of monetary redress in the millions of dollars. Adverse publicity related to
dietary supplements may result in increased regulatory scrutiny, undermine or eliminate the
acceptance of our product by consumers and lead to the initiation of private lawsuits.
Product recalls could result in unexpected expense of the recall and any legal proceedings
that might arise in connection with the recall.
Our failure to comply with applicable laws could also subject us to severe legal
sanctions that could have a material adverse effect on our business and results of
operations. Specific action taken against us could result in a material adverse effect on
our business and results of operations. Furthermore, a state could interpret product
claims that are presumptively valid under federal law are nonetheless illegal under that
states regulations.
Future laws or regulations may hinder or prohibit the production or sale of our existing
product and any future products.
We may be subject to additional laws or regulations in the future, such as those
administered by the FDA, FTC, or other federal, state, or local regulatory authorities.
See Item 1 Business Government Approval and Regulations. Laws or regulations that we
consider favorable may be modified or repealed. Current laws or regulations may be amended
or interpreted more stringently. The FDA has proposed extensive good manufacturing
practice regulations for dietary supplements. We are unable to predict the nature of such
future laws, regulations or interpretations, nor can we predict what effect they may have
on our business. Possible effects or requirements could include, but are not limited to,
the following:
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The reformulation of products to meet new standards; |
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Additional ingredient restrictions; |
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|
Additional claim restrictions; |
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The recall or discontinuance of products unable to be reformulated; |
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Imposition of additional good manufacturing practices and/or record keeping requirements; |
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Expanded documentation of the properties of products; and |
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Expanded or different labeling or scientific substantiation. |
Any such requirements could have material adverse effects on our business, financial
condition or results of operations.
Unfavorable publicity could materially hurt our business and the value of your investment.
We are highly dependent upon consumers perceptions of the safety, quality and
efficacy of our products, as well as products distributed by other companies. Future
scientific research or publicity may not be favorable to our industry or any particular
product, or consistent with earlier research or publicity. Future reports or research that
are perceived less favorably or that question such earlier research could have a material
adverse effect on us. Because of our dependence upon consumer perceptions, adverse
publicity associated with illness or other adverse effects resulting from the consumption
of our product or any similar products distributed by other companies could have a material
adverse impact on us. Such adverse publicity could arise even if the adverse effects
associated with such products resulted from failure to consume such products as directed.
We may be unable to counter the effects of negative publicity concerning the efficacy of
our product. Adverse publicity could also increase our product liability exposure.
We are and will continue to be subject to the risk of investigatory and enforcement action
by the FTC, which could have a negative impact upon the price of our stock.
We will always be subject to the risk of investigatory and enforcement action by the
FTC based on our advertising claims and marketing practices. The FTC routinely reviews
product advertising, including websites, to identify significant questionable advertising
claims and practices. The FTC has brought many actions against dietary supplement
companies based upon allegations that applicable advertising claims or practices were
deceptive and/or not substantiated. If the FTC initiates an investigation, the FTC can
initiate pre-complaint discovery that may be nonpublic in nature. Such an investigation:
(i) may be very expensive to defend, (ii) may be lengthy, and (iii) may result in an
adverse ruling by a court, administrative law judge, or in a publicly disclosed consent
decree.
6
The dietary supplement market is highly competitive.
The market for the sale of dietary supplements is highly competitive. Our competitors
could have greater financial and other resources available to them and possess better
manufacturing, distribution and marketing capabilities. As the dietary supplement industry
grows and changes, retailers may align themselves with larger suppliers who may be more
financially stable, market a broad portfolio of products or offer better customer service.
Increased competition or increased pricing pressure could have a material adverse effect on
our results of operations and financial condition. Among other factors, competition among
manufacturers, distributors and retailers of dietary supplements is based upon price.
Because of the high degree of price competition, we may not be able to pass on increases in
raw material prices to our customers. If a competitor reduces their price in order to gain
market share or if raw material prices increase and we are unable to pass along the cost to
our customers, our results of operations and financial condition could be materially
adversely affected.
Our business is susceptible to product liability claims, which could adversely affect our
results of operation and financial condition.
The manufacture and sale of any product for human consumption raises the risk of
product liability claims if a customer alleges an adverse reaction after using the product.
These claims may derive from the product itself or a contaminant found in the product from
the manufacturing, packaging, sales process or even due to tampering by unauthorized third
parties. Even with the product liability/completed operations insurance we have obtained,
there will be a risk that insurance will not cover our potential exposure completely or
would fail to cover a particular claim, in which case we may not have the financial
resources to satisfy such claims. In addition, certain damages in litigation, such as
punitive damages, are not covered by our insurance policy. The payment of claims would
require us to use funds that are otherwise needed to conduct our business and make our
products. In the event that we do not have adequate insurance or other indemnification
coverage, product liability claims and litigation could have a material adverse effect on
our results of operation and financial condition.
Consumers of our products may not feel noticeable physiological differences after taking
Protandim®.
Consumers of our product may not feel noticeable physiological differences after
taking Protandim®. One of our marketing challenges is educating consumers about
Protandims® benefits and encouraging continued use of the product. Although
one of our on going initiatives is finding a home test or other approach to measuring
Protandims® physiological benefits, there can be no assurances that such a test
or approach will be developed or that we will be able to educate consumers about
Protandims® benefits. Consequently, consumers may not continue to purchase our
product, which would have a material adverse affect on our business, financial condition
and results of operation.
We have no manufacturing capabilities and we are dependent upon a third party to
manufacture our product.
We are dependent upon our relationship with an independent manufacturer to fulfill our
product needs. We currently only use one manufacturer for our product. Accordingly, we
are dependent on the uninterrupted and efficient operation of this manufacturers facility.
Our ability to market and sell our product requires that our product is manufactured in
commercial quantities, without significant delay and in compliance with applicable federal
and state regulatory requirements. In addition, we must be able to have our product
manufactured at a cost that permits us to charge a price acceptable to the customer while
also accommodating any distribution costs or third-party sales compensation. If our
current manufacturer is unable for any reason to fulfill our requirements, or seeks to
impose unfavorable terms, we will have to seek out other contract manufacturers which could
disrupt our operations and have a material adverse effect on our results of operation and
financial condition. Competitors who perform their own manufacturing may have an advantage
over us with respect to pricing, availability of product, and in other areas through their
control of the manufacturing process.
Raw material for our product may be difficult to obtain or expensive.
Our third party manufacturer acquires the raw materials necessary for the manufacture
of Protandim®. We cannot assure you that suppliers will provide the raw
materials our manufacturer needs in the quantities requested, at a price we are willing to
pay or that meet our quality standards. The failure to supply raw materials or changes in
the material terms of raw material supply arrangements could have a material adverse effect
on our results of operations and financial condition. We are also subject to potential
delays in the delivery of raw materials caused by events beyond our control, including
labor disputes, transportation interruptions, weather-related events, natural disasters or
other catastrophic events, and changes in government regulations. Any significant delay in
or disruption of the supply of raw materials could, among other things, substantially
increase the cost of such materials, require reformulation or repackaging of products,
require the qualification of new suppliers, or result in our inability to meet customer
demands.
7
Raw materials account for a significant portion of our manufacturing costs.
Significant increases in raw material prices could have a material adverse effect on our
results of operations and financial condition.
We depend on a limited number of significant customers and the loss of any of them could
negatively affect our business.
Our largest customers are General Nutrition Distribution, LP (GNC) and CVS/pharmacy
(CVS) and the loss of GNC or CVS as customers, or a significant reduction in purchase
volumes, would have a material adverse effect on our financial condition.
In addition, pursuant to our agreement with GNC, sales are made on a sale or return
basis whereby product can be returned by GNC customers for a full refund. The Company has
sufficient history with GNC to estimate the rate of product returns and has begun to
recognize revenue and costs related to these shipments on a sell-through basis. GNCs
return policy could permit consumers to return a greater percentage of our product than
selling Protandim® through different retail operations, which in turn could
negatively impact our revenues and results of operation.
In July 2006, Lifevantage entered into a purchase order arrangement with CVS for the
sale of Protandim® throughout the CVS store network. Among other terms of this
arrangement, we have agreed that CVS may withhold up to one-half of its payment for the
Protandim® until certain sell-through parameters are met. Since the Company
does not have sufficient history with CVS to reasonably estimate the sell-through of
Protandim® within the CVS store network, 50% of the revenue and related cost has
been deferred. The Company will recognize this deferred revenue and related cost of sales
when it obtains sufficient sell-through information to reasonably estimate the amount of
future returns. If product sell-through parameters from CVS are not met, our revenues and
results of operations could be adversely affected.
Product returns may adversely affect our business.
Product returns are part of our business. In addition to the sale or return policy
applicable to sales through GNC described above, we offer a 30-day, money back
unconditional guarantee to all direct sales customers.
We record allowances for product returns at the time we ship the product. We base
these accruals on the historical return rate since the inception of our selling activities,
and the specific historical return patterns of the product. Our return rate since the
inception of selling activities is approximately 2% of sales. We replace returned product
damaged during shipment wholly at our cost, which historically has been negligible. We
cannot guarantee, however, that future return rates or costs associated with returns do not
increase.
To date, product expiration dates have not played any role in product returns, and we
do not expect they will in the future because it is unlikely that we will ship product with
an expiration date earlier than the latest allowable product return date. There can be no
guarantee, however, that product returns related to expiration dates will not increase in
the future.
We currently depend on a single product for our revenue.
Protandim® is currently the only product we sell and, as such, we cannot
rely on a broad portfolio of other products to support our operations in the event we
experience any difficulty with the manufacture, marketing, sale or distribution of
Protandim®. We cannot assure you that Protandim® will maintain its
popularity or growth.
Worsening economic conditions may adversely affect our business.
The demand for dietary supplements tends to be sensitive to consumers disposable
income. Therefore, a decline in general economic conditions may lead to our consumers
having less discretionary income with which to purchase such products. This could cause a
reduction in our projected revenues and have a material adverse effect on operating
results.
We may face limited availability of additional capital.
Should we need to borrow money from financial institutions or other third parties in
the future, the cost of capital may be high. Traditional debt financing may be unavailable
and we may have to seek alternative sources of financing, including the issuance of new
shares of stock or preferential stock that could dilute current shareholders. There can be
no guarantee that we could successfully complete such a stock issuance or otherwise raise
additional capital.
We could be exposed to certain environmental liabilities due to our past operations and property
ownership.
Between 1993 and 1999, we owned mining properties in the Yaak River mining district of
Montana. The Company maintained these mining properties pursuant to Montana law, but never
conducted any mining operations or
8
ore processing. Prior to completing the Reorganization,
LNC management and consultants reviewed the records of this prior ownership and certain
publicly available records relating to the properties. The State of Montana Department of
Environmental Quality (DEQ) believed that the properties may contain residues from past
mining. Since we have not performed on-site environmental studies to evaluate the
environmental circumstances of these properties, there is a risk
that there may be material environmental liabilities associated with our former
property interests in Montana for which we may be liable, however we cannot provide a
reasonable estimate of such risk.
In addition, until November 10, 2004, we owned 91 lots in Lawrence, Colorado. We are
not aware of any environmental liabilities with respect to these lots as the party
acquiring the property assumed any environmental liability to which the property might be
subject. Nonetheless, there is a risk that a governmental agency or a private individual
may assert liability against us for violation of environmental laws related to the
ownership of this property.
Risks Related to Our Intellectual Property and Obsolescence
Our intellectual property rights are valuable, and any inability to protect them could
reduce the value of our products and brand.
We have attempted to protect our intellectual property rights in Protandim®
through a combination of trade secrets, confidentiality agreements, patents, and other
contractual provisions. William Driscoll and Paul Myhill, the original inventors of
Protandim®, have assigned all patent filings to LNC and the assignment has been
filed with the United States Patent and Trademark Office (USPTO). Our intellectual
property is covered by three U.S. utility patent applications on file in the USPTO. A
Patent Cooperation Treaty (PCT) International Patent Application is also on file. These
patent applications claim the benefit of priority of seven U.S. provisional patent
applications. There is no guarantee that these patent applications will be approved. The
loss of our intellectual property rights in our Protandim® product could permit
our competitors to manufacture their own version of our product which could have a
materially adverse effect on our revenues. Even considering our existing patent
applications and any others that we may apply for, patents only provide a limited
protection against infringement, and patent infringement suits are complex, expensive, and
not always successful.
If we do not continue to innovate and provide products that are useful to consumers, we may
not remain competitive, and our revenues and operating results could suffer.
Scientists, research institutions, and commercial institutions are making advances and
improvements in nutritional supplements and issues relating to oxidative stress and aging
very quickly, both domestically and internationally. It is possible that future
developments may occur, and these developments may render Protandim®
non-competitive. We believe that our future success will depend in large part upon
our ability to develop, commercialize, and market products that address issues relating to
aging and oxidative stress, and to anticipate successfully or to respond to technological
changes in manufacturing processes on a cost-effective and timely basis. The development
and commercialization process, particularly relating to innovative products, is both
time-consuming and costly and involves a high degree of business risk. The success of new
products or product enhancements is subject to a number of variables, including developing
products that will appeal to customers, accurately anticipating consumer needs, pricing a
product competitively and complying with laws and regulations. We cannot guarantee that
our continuing development efforts will be successful or that consumers will accept any new
products. The failure to successfully launch or gain distribution for new product
offerings or product enhancements could have a material adverse effect on our results of
operations and financial condition.
If we are unable to protect our proprietary information against unauthorized use by others,
our competitive position could be harmed.
Our proprietary information is critically important to our competitive position and is
a significant aspect of the products we provide. We generally enter into confidentiality
or non-compete agreements with our employees and consultants, and control access to, and
distribution of, our documentation and other proprietary information. Despite these
precautions, these strategies may not be adequate to prevent misappropriation of our
proprietary information. Therefore, we could be required to expend significant amounts to
defend our rights to proprietary information in the future if a breach were to occur.
Other parties might claim that we infringe on their intellectual property rights.
Although the dietary supplement industry has historically been characterized by
products with naturally occurring ingredients in capsule or tablet form, recently it is
becoming more common for suppliers and competitors to apply for patents or develop
proprietary technologies and processes. We cannot assure you that third parties will not
assert intellectual property infringement claims against us despite our efforts to avoid
such infringement. To the extent
9
that these developments prevent us from offering
competitive products in the marketplace, or result in litigation or threatened litigation
against us related to alleged or actual infringement of third-party rights, these
developments could have a material adverse effect on our results of operations and
financial condition.
Risk Factors Relating to our Common Stock
Our management and large shareholders exercise significant control over our Company and may
approve or take actions that may be adverse to your interests.
As of October 13, 2006, our named executive officers, directors, and 5% stockholders
beneficially owned approximately 66% of our voting power. For the foreseeable future, to
the extent such shareholders vote all their shares in the same manner, they will be able to
exercise control over many matters requiring approval by the board of directors or our
shareholders. As a result, they will be able to:
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Control the composition of our board of directors; |
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Control our management and policies; |
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Determine the outcome of significant corporate transactions, including
changes in control that may be beneficial to shareholders; and |
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Act in each of their own interests, which may conflict with, or be different
from, the interests of each other or the interests of the other shareholders. |
Our common stock may be classified as penny stock and is extremely illiquid, so investors
may not be able to sell as much stock as they want at prevailing market prices.
Our common stock is subject to additional disclosure requirements for penny stocks
mandated by the Penny Stock Reform Act of 1990. The SEC Regulations generally define a
penny stock to be an equity security that is not traded on the Nasdaq Stock Market and has
a market price of less than $5.00 per share. Depending upon our stock price, we may be
included within the SEC Rule 3a-51 definition of a penny stock and our common stock may be
considered to be a penny stock, with trading of our common stock covered by Rule 15g-9
promulgated under the Securities Exchange Act of 1934. Under this rule, broker-dealers who
sell or effect the purchase of such securities to persons other than established customers
or in certain exempted transactions, must make a special written disclosure to, and
suitability determination for, the purchaser and receive the purchasers written agreement
to a transaction prior to sale. The regulations on penny stocks limit the ability of
broker-dealers to sell our common stock and thus may limit the ability of purchasers of our
common stock to sell their securities in the secondary market. Our common stock will not
be considered penny stock if our net tangible assets exceed $5,000,000 or our average
revenue is at least $6,000,000 for the previous three years.
The average daily trading volume of our common stock on the over-the-counter market
was approximately 33,600 shares per day over the fiscal year ended June 30, 2006. If
limited trading in our stock continues, it may be difficult for investors to sell their
shares in the public market at any given time at prevailing prices.
Our stock price may experience future volatility.
The trading price of our common stock has historically been subject to wide
fluctuations. The price of our common stock may fluctuate in the future in response to
quarter-to-quarter variations in operating results, material announcements by us or
competitors, governmental regulatory action, conditions in the dietary supplement industry,
or other events or factors, many of which are beyond our control. In addition, the stock
market has historically experienced significant price and volume fluctuations which have
particularly affected the market prices of many dietary supplement companies and which
have, in certain cases, not had a strong correlation to the operating performance of such
companies. In addition, our operating results in future quarters may be below the
expectations of securities analysts and investors. In such events, the price of our common
stock would likely decline, perhaps substantially.
USE OF PROCEEDS
We will not receive proceeds from the sale of shares under this prospectus by the
selling security holders.
DILUTION
We are not selling any common stock in this offering. The selling security holders
are current stockholders of Lifevantage. As such, there is no dilution resulting from the
common stock to be sold in this offering.
10
SELLING SECURITY HOLDERS
The securities are being offered by the named selling security holders below. The
table below assumes the immediate exercise of all warrants to purchase common stock,
without regard to other factors that may determine whether such rights of conversion or
purchase are exercised. These factors include but are not limited to the other rights
associated with the terms of the warrant agreements, whether there is a specific
exemption to registration under federal and state securities laws for the exercise, and the
specific exercise price of the securities held by each selling security holder and its
relation to the market price.
The selling security holders may from time to time offer and sell pursuant to this
prospectus up to an aggregate of 6,322,001 shares of our common stock now owned by them,
1,592,569 shares of common stock issuable to them upon the exercise, at $2.00 per share, of
the Bridge Warrants, 409,281 shares of common stock issuable to them upon the exercise, at
$2.00 per share, of the Placement Agent Warrants, and 4,000,016 shares of common stock
issuable to them upon the exercise, at $2.50 per share, of the Unit Warrants. Through
October 13, 2006, approximately 645,000 shares of the common stock held by the selling
security holders have been sold. Of the 6,322,001 shares of our common stock originally
held by the selling security holders, (i) one selling security holder acquired 1,000,000
shares of common stock in connection with the Reorganization, (ii) one selling security
holder acquired 500,000 shares of common stock as grants of common stock, (iii) eight
selling security holders acquired 245,734 shares of common stock pursuant to Assignments
and Stock Powers with Mr. Driscoll, the Companys former President, CEO, and director, and
(iv) the remaining selling security holders acquired 4,576,267 shares of common stock
pursuant to the private placements discussed herein. The selling security holders may,
from time to time, offer and sell any or all of the shares that are registered under this
prospectus, although they are not obligated to do so.
We do not know when or in what amounts the selling security holders may offer the
shares described in this Prospectus for sale. The selling security holders may decide not
to exercise any warrants or sell any of the shares that this Prospectus covers. Because
the selling security holders may offer all or some of the shares pursuant to this
Prospectus, and because there are currently no agreements, arrangements or understandings
with respect to the sale of any of the shares that the selling security holders will hold
after completion of the offering, we cannot estimate the number of the shares that the
selling security holders will hold after completion of the offering. However, for purposes
of the following tables, we have assumed that, after completion of the offering, the
selling security holders will hold none of the securities that this Prospectus covers.
The following table sets forth, to the Companys best knowledge and belief, with
respect to the selling security holders:
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the number of shares of common stock beneficially owned as of
October 13, 2006 and prior to the offering contemplated hereby, |
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the number of shares of common stock eligible for resale and to be
offered by each selling security holder pursuant to this prospectus, |
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|
the number of shares owned by each selling security holder after
the offering contemplated hereby, assuming that all shares eligible for resale
pursuant to this prospectus actually are sold, |
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the percentage of shares of common stock beneficially owned by
each selling security holder after the offering contemplated hereby, and |
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in notes to the table, additional information concerning the
selling security holders, including any NASD affiliations and any
relationships, excluding non-executive employee and other non-material
relationships, that a selling security holder had during the past three years
with the registrant or any of its predecessors or affiliates. |
11
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|
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|
Percentage |
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|
|
|
|
|
|
|
|
|
|
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|
of Shares |
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|
Number of |
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|
|
|
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|
|
of |
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|
Shares of |
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|
|
|
|
Number |
|
Common |
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|
Common |
|
|
|
|
|
of Shares |
|
Stock |
|
|
Stock |
|
Number of |
|
Owned |
|
Owned |
|
|
Owned Before |
|
Shares To Be |
|
After |
|
After |
Selling security holders(A) |
|
Offering(B) |
|
Offered(C) |
|
Offering |
|
Offering |
Aaseby, Joel |
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|
75,765 |
|
|
|
75,765 |
|
|
|
|
|
|
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0 |
% |
Anderson, Charles R. & Stacy J. |
|
|
15,000 |
|
|
|
15,000 |
|
|
|
|
|
|
|
0 |
% |
Andrews, Jeff L. (1) |
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|
40,000 |
|
|
|
40,000 |
|
|
|
|
|
|
|
0 |
% |
Arrington, G. William |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Atlis Accredited Capital (51) |
|
|
27,021 |
|
|
|
27,021 |
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|
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|
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0 |
% |
Bansali, Abe |
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|
39,360 |
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|
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39,360 |
|
|
|
|
|
|
|
0 |
% |
Barber, Michael |
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|
425,000 |
|
|
|
425,000 |
|
|
|
|
|
|
|
0 |
% |
Barish, Michael S. |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
0 |
% |
Bartoletti, Andy |
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|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Bartoletti, Mike |
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|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
0 |
% |
Bates, Timothy G. & Lisa G. |
|
|
92,099 |
|
|
|
92,099 |
|
|
|
|
|
|
|
0 |
% |
Baz, Javier W. (2) |
|
|
1,110,725 |
|
|
|
990,725 |
|
|
|
120,000 |
|
|
|
1 |
% |
Beard, William J. & R. Jean, CO-TTEES, FBO
William J. & R. Jean Beard UA DTD
07/24/81(31) |
|
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120,000 |
|
|
|
120,000 |
|
|
|
|
|
|
|
0 |
% |
Beeman Insurance Agency Inc. (32) |
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|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
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0 |
% |
Boatright, Mark |
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|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Botti, John |
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|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0 |
% |
Bradley, John |
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|
210,850 |
|
|
|
10,000 |
|
|
|
200,850 |
|
|
|
1 |
% |
Britton, Joseph C. |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Brown, Robert |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Brown, David H. |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Campbell, Delores |
|
|
15,493 |
|
|
|
15,493 |
|
|
|
|
|
|
|
0 |
% |
Card, Allyce M. |
|
|
30,510 |
|
|
|
30,510 |
|
|
|
|
|
|
|
0 |
% |
Charles, David |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
0 |
% |
Childers, Robert L. |
|
|
50,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
0 |
% |
Cohen, Robert L. (3) |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Colleran, Timothy P. |
|
|
54,973 |
|
|
|
54,973 |
|
|
|
|
|
|
|
0 |
% |
Conn, Michael L. |
|
|
80,816 |
|
|
|
80,816 |
|
|
|
|
|
|
|
0 |
% |
Coors, Joe Jr. (4) |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
0 |
% |
Crapo, James D. & Kathleen D. (5) |
|
|
624,000 |
|
|
|
50,000 |
|
|
|
574,000 |
|
|
|
3 |
% |
Dannhausen, Norma J. |
|
|
39,525 |
|
|
|
39,525 |
|
|
|
|
|
|
|
0 |
% |
Dartois, Leon B. |
|
|
30,495 |
|
|
|
30,495 |
|
|
|
|
|
|
|
0 |
% |
Datsopolous, Joan |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0 |
% |
Datsopoulos, Milton |
|
|
152,877 |
|
|
|
152,877 |
|
|
|
|
|
|
|
0 |
% |
De La Rosa, Carlos |
|
|
30,000 |
|
|
|
30,000 |
|
|
|
|
|
|
|
0 |
% |
Dean, David J. & Luane I |
|
|
76,275 |
|
|
|
76,275 |
|
|
|
|
|
|
|
0 |
% |
Dexter, John |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Dihle, Joshua |
|
|
6,661 |
|
|
|
6,661 |
|
|
|
|
|
|
|
0 |
% |
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Number of |
|
|
|
|
|
|
|
|
|
of |
|
|
Shares of |
|
|
|
|
|
Number |
|
Common |
|
|
Common |
|
|
|
|
|
of Shares |
|
Stock |
|
|
Stock |
|
Number of |
|
Owned |
|
Owned |
|
|
Owned Before |
|
Shares To Be |
|
After |
|
After |
Selling security holders(A) |
|
Offering(B) |
|
Offered(C) |
|
Offering |
|
Offering |
Dihle, Kelsey |
|
|
6,661 |
|
|
|
6,661 |
|
|
|
|
|
|
|
0 |
% |
Dillon, Jack C. |
|
|
53,292 |
|
|
|
53,292 |
|
|
|
|
|
|
|
0 |
% |
Dimaio, Michael |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Disesa, William & Julie |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Brad Dobski, Revocable Trust(33) |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
0 |
% |
Donnelley II, Elliot |
|
|
32,723 |
|
|
|
32,723 |
|
|
|
|
|
|
|
0 |
% |
Donnelly, Lloyd |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
0 |
% |
Douglas, Donald R. |
|
|
4,000 |
|
|
|
4,000 |
|
|
|
|
|
|
|
0 |
% |
Sterling Trust Company Cust F.B.O. Donald
Richard Douglas IRA 78393 |
|
|
6,000 |
|
|
|
6,000 |
|
|
|
|
|
|
|
0 |
% |
Erigero, Gregory J. |
|
|
40,000 |
|
|
|
40,000 |
|
|
|
|
|
|
|
0 |
% |
Martin Samuel & Mary C. Favero CO-TTEE,
Favero Family Trust DTD 06/02/98 |
|
|
30,510 |
|
|
|
30,510 |
|
|
|
|
|
|
|
0 |
% |
Carol Stolpe & Walter Featherly |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Ferber, Valerie |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Francis, Nicholas D. |
|
|
50,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
0 |
% |
G2 Holding Corporation (6) |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0 |
% |
Gadola, Larry P. & Christine L. |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
GERDZ Investment Limited Partnership
RLLLP(34) |
|
|
20,374 |
|
|
|
20,374 |
|
|
|
|
|
|
|
0 |
% |
GGV Investors LLC(35) |
|
|
45,792 |
|
|
|
45,792 |
|
|
|
|
|
|
|
0 |
% |
Gibson, James H. |
|
|
30,594 |
|
|
|
30,594 |
|
|
|
|
|
|
|
0 |
% |
Goldberg, Marvin |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
0 |
% |
Goldstein, Joel & Elaine |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0 |
% |
Grandfield, Jay & Amanda(7) |
|
|
30,000 |
|
|
|
30,000 |
|
|
|
|
|
|
|
0 |
% |
Grasch, David A. |
|
|
50,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
0 |
% |
Gugino, Girard A. |
|
|
25,243 |
|
|
|
25,243 |
|
|
|
|
|
|
|
0 |
% |
Hadley, Barbara |
|
|
115,589 |
|
|
|
115,589 |
|
|
|
|
|
|
|
0 |
% |
Hallmark, B. Douglas & Marie |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Hammond, Theodore A. & Carol J. |
|
|
39,330 |
|
|
|
39,330 |
|
|
|
|
|
|
|
0 |
% |
Harlow, Thomas E. |
|
|
38,139 |
|
|
|
38,139 |
|
|
|
|
|
|
|
0 |
% |
Harris, David |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Harutunian, Alfred |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0 |
% |
Delaware Charter Guarantee & Trust
Custodian FBO Kenneth D.Haxby |
|
|
50,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
0 |
% |
Hazelet, John |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0 |
% |
Hazelet, Robert P. |
|
|
62,884 |
|
|
|
62,884 |
|
|
|
|
|
|
|
0 |
% |
Hazelet, Robert P. Jr. |
|
|
30,000 |
|
|
|
30,000 |
|
|
|
|
|
|
|
0 |
% |
He, Song (8) |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
0 |
% |
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Number of |
|
|
|
|
|
|
|
|
|
of |
|
|
Shares of |
|
|
|
|
|
Number |
|
Common |
|
|
Common |
|
|
|
|
|
of Shares |
|
Stock |
|
|
Stock |
|
Number of |
|
Owned |
|
Owned |
|
|
Owned Before |
|
Shares To Be |
|
After |
|
After |
Selling security holders(A) |
|
Offering(B) |
|
Offered(C) |
|
Offering |
|
Offering |
Hendrickson, Mark |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0 |
% |
Hendrickson, Mark & Celeste |
|
|
39,609 |
|
|
|
39,609 |
|
|
|
|
|
|
|
0 |
% |
Delaware Charter Guarantee & Trust
Custodian F.B.O. Mark Hendrickson Roth
IRA |
|
|
60,906 |
|
|
|
60,906 |
|
|
|
|
|
|
|
0 |
% |
Hendrickson, Robert L. |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Hipsher, Michael |
|
|
54,255 |
|
|
|
54,255 |
|
|
|
|
|
|
|
0 |
% |
Hollis, Stephen H. |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0 |
% |
Hopper, Richard M. |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Hornbecker, Greg |
|
|
61,020 |
|
|
|
61,020 |
|
|
|
|
|
|
|
0 |
% |
Iseman, Andrew J. & Shelly D. (9) |
|
|
50,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
0 |
% |
Jaro, Sara J. |
|
|
206,899 |
|
|
|
206,899 |
|
|
|
|
|
|
|
0 |
% |
Juarez, Ben (10) |
|
|
60,000 |
|
|
|
60,000 |
|
|
|
|
|
|
|
0 |
% |
JW Holdings Corporation(36) |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
0 |
% |
Kacludis, Dean |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Keating, Michael J. (8) |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Keating, Timothy J. (8) |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
0 |
% |
Kerstien, Tom |
|
|
7,617 |
|
|
|
7,617 |
|
|
|
|
|
|
|
0 |
% |
Fiserv ISS & CO FBO Michael
Kieler(37) |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Pensco Trust Company Custodian FBO Kirkham,
Brian |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
0 |
% |
Koustas, Gus J. |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Koustas, Nicholas |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Kovacich, John D. |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
0 |
% |
Kuney, John R. |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Lapidus, Robert & Donna Lapidus |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Larson, Kenneth (13) |
|
|
38,529 |
|
|
|
38,529 |
|
|
|
|
|
|
|
0 |
% |
Laskowski, Joe |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Lewand, Chris |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0 |
% |
Lewis, Dorothy M. |
|
|
45,000 |
|
|
|
45,000 |
|
|
|
|
|
|
|
0 |
% |
Lewis, Martha |
|
|
30,000 |
|
|
|
30,000 |
|
|
|
|
|
|
|
0 |
% |
Lewis, Paul W. |
|
|
40,543 |
|
|
|
40,543 |
|
|
|
|
|
|
|
0 |
% |
Lifeline Orphan Foundation(50) |
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
0 |
% |
Lippa, David |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Lucas, Robert C. |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0 |
% |
Lyday, Carl (10) |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Madison, H. Reed(14) |
|
|
105,133 |
|
|
|
105,133 |
|
|
|
|
|
|
|
0 |
% |
Sterling Trust Company, Custodian FBO
Harold Reed Madison (14) |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Number of |
|
|
|
|
|
|
|
|
|
of |
|
|
Shares of |
|
|
|
|
|
Number |
|
Common |
|
|
Common |
|
|
|
|
|
of Shares |
|
Stock |
|
|
Stock |
|
Number of |
|
Owned |
|
Owned |
|
|
Owned Before |
|
Shares To Be |
|
After |
|
After |
Selling security holders(A) |
|
Offering(B) |
|
Offered(C) |
|
Offering |
|
Offering |
Madison, Ralph P. |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Manovich, Dave |
|
|
280,537 |
|
|
|
280,537 |
|
|
|
|
|
|
|
0 |
% |
Manrique, Hernando |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0 |
% |
Mara, William |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Martin, Robert |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Masta, Michelle A. & David D. |
|
|
39,546 |
|
|
|
39,546 |
|
|
|
|
|
|
|
0 |
% |
May, Roger P. |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
McGregor, Daniel |
|
|
176,879 |
|
|
|
176,879 |
|
|
|
|
|
|
|
0 |
% |
Pensco Trust Co Cust. FBO Daniel B.
McGregor-Roth IRA, A/C #MC1BR |
|
|
51,740 |
|
|
|
51,740 |
|
|
|
|
|
|
|
0 |
% |
Sterling Trust Company Custodian FBO McIntyre,
Dr. James F. |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
McLeod, Bill |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
McLuckie, Tracy & David(15) |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Menk Family Investments, LLC (38) |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
MGL Holding LLC (39) |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0 |
% |
Millennium Connection, LLC(40) |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
0 |
% |
Miller, Andrew |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Mills, Michael J. |
|
|
304,770 |
|
|
|
304,770 |
|
|
|
|
|
|
|
0 |
% |
Mista, Paul |
|
|
105,282 |
|
|
|
105,282 |
|
|
|
|
|
|
|
0 |
% |
Mitchell, Michael P. |
|
|
30,543 |
|
|
|
30,543 |
|
|
|
|
|
|
|
0 |
% |
Mlinarski, Dan (10) |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Moyle, Heather (10) |
|
|
15,000 |
|
|
|
15,000 |
|
|
|
|
|
|
|
0 |
% |
Murphy, Eve (10) |
|
|
8,034 |
|
|
|
8,034 |
|
|
|
|
|
|
|
0 |
% |
Nelson, Sally & Kevin Nelson |
|
|
371,846 |
|
|
|
50,486 |
|
|
|
321,360 |
|
|
|
1 |
% |
Ossello, Guy J. |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Ossellos of Butte Profit Sharing Trust, FBO
Guy J. Ossello, Guy J. Ossello Trustee, DTD
1974 |
|
|
60,537 |
|
|
|
60,537 |
|
|
|
|
|
|
|
0 |
% |
Ossello, Jack L. |
|
|
30,543 |
|
|
|
30,543 |
|
|
|
|
|
|
|
0 |
% |
Ossello, Mark |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Sterling Trust Company, Custodian FBO Steve
Ossello(16) |
|
|
30,000 |
|
|
|
30,000 |
|
|
|
|
|
|
|
0 |
% |
James Dascalos & Steve Ossello Tenants in
Common(16) |
|
|
30,477 |
|
|
|
30,477 |
|
|
|
|
|
|
|
0 |
% |
Ossello, Steven J.(16) |
|
|
97,906 |
|
|
|
97,906 |
|
|
|
|
|
|
|
0 |
% |
Paoli, David R. |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Parish, Beth |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Perkins, Daniel S. & Patrice M. (17) |
|
|
50,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
0 |
% |
Peterson, Jerry |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Peterson, Phillip C. (18) |
|
|
39,822 |
|
|
|
39,822 |
|
|
|
|
|
|
|
0 |
% |
Peterson, William F. & Nancy E. |
|
|
252,262 |
|
|
|
252,262 |
|
|
|
|
|
|
|
0 |
% |
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Number of |
|
|
|
|
|
|
|
|
|
of |
|
|
Shares of |
|
|
|
|
|
Number |
|
Common |
|
|
Common |
|
|
|
|
|
of Shares |
|
Stock |
|
|
Stock |
|
Number of |
|
Owned |
|
Owned |
|
|
Owned Before |
|
Shares To Be |
|
After |
|
After |
Selling security holders(A) |
|
Offering(B) |
|
Offered(C) |
|
Offering |
|
Offering |
Pettit, C. Alan & Karen M. |
|
|
40,000 |
|
|
|
40,000 |
|
|
|
|
|
|
|
0 |
% |
Pihl, Jo & Doug(19) |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Pollack, Walter & Barbara |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Pool, Thomas A. |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
0 |
% |
Potter, David H. & Lise B. |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Pyramid Partners, LP (20) |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
0 |
% |
Race Place Investments Corporation, LLC
(21) |
|
|
50,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
0 |
% |
Ranieri, Rose |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
0 |
% |
Ridgway, Hugh Randolph |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Rogers, Kyle L. (8) |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rocky Mountain Pulmonary & Critical Care
Profit Sharing Plan F.B.O. Robert J.
Lapidus (53) |
|
|
38,181 |
|
|
|
38,181 |
|
|
|
|
|
|
|
0 |
% |
Salinas, Melissa D. (8) |
|
|
1,015 |
|
|
|
1,015 |
|
|
|
|
|
|
|
0 |
% |
Samuel, Don (10) |
|
|
7,700 |
|
|
|
7,700 |
|
|
|
|
|
|
|
0 |
% |
Leah Kaplan-Samuels & Leonard Samuels JTWROS |
|
|
250,000 |
|
|
|
250,000 |
|
|
|
|
|
|
|
0 |
% |
Santana Partners, LLC(41) |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Sauber, Gregory G. |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Savage, Marshall |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
0 |
% |
Trust Management, Inc Cust FBO Molly M
Scharig, IRA(22) |
|
|
2,000 |
|
|
|
2,000 |
|
|
|
|
|
|
|
0 |
% |
Trust Management, Inc Cust FBO Terry D
Scharig, IRA(22) |
|
|
3,000 |
|
|
|
3,000 |
|
|
|
|
|
|
|
0 |
% |
Scheffler, Kelly L. |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Schmitz, Jeffrey |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0 |
% |
Schmitz, Richard V. (23) |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0 |
% |
Schweiger, Frederic M. (8) |
|
|
15,000 |
|
|
|
15,000 |
|
|
|
|
|
|
|
0 |
% |
Scott, Stephen (24) |
|
|
2,500 |
|
|
|
2,500 |
|
|
|
|
|
|
|
0 |
% |
Severance, H. Leigh(25) |
|
|
1,088,506 |
|
|
|
1,028,506 |
|
|
|
60,000 |
|
|
|
0 |
% |
Seymour, Eugene H. |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
0 |
% |
Shader, Scott & Anna |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Shatwell, G. Kenneth |
|
|
7,629 |
|
|
|
7,629 |
|
|
|
|
|
|
|
0 |
% |
Shazam Stocks, Inc. (42) |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0 |
% |
Simonson, Gerry |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Skalkowski, Steven M. (10) |
|
|
60,000 |
|
|
|
60,000 |
|
|
|
|
|
|
|
0 |
% |
Solly, Pamela A. (8) |
|
|
1,000 |
|
|
|
1,000 |
|
|
|
|
|
|
|
0 |
% |
Stegemoeller, Sarah |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Streets, Carol H. (26) |
|
|
1,004,250 |
|
|
|
|
|
|
|
1,004,250 |
|
|
|
5 |
% |
RBC Dain Rauscher Custodian F.B.O. Carol H.
Streets Roth IRA(26) |
|
|
43,816 |
|
|
|
43,816 |
|
|
|
|
|
|
|
0 |
% |
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Number of |
|
|
|
|
|
|
|
|
|
of |
|
|
Shares of |
|
|
|
|
|
Number |
|
Common |
|
|
Common |
|
|
|
|
|
of Shares |
|
Stock |
|
|
Stock |
|
Number of |
|
Owned |
|
Owned |
|
|
Owned Before |
|
Shares To Be |
|
After |
|
After |
Selling security holders(A) |
|
Offering(B) |
|
Offered(C) |
|
Offering |
|
Offering |
Streets, Daniel(26) |
|
|
258,911 |
|
|
|
54,661 |
|
|
|
204,250 |
|
|
|
1 |
% |
Streets, Daniel Trustee (26) |
|
|
600,000 |
|
|
|
|
|
|
|
600,000 |
|
|
|
3 |
% |
RBC Dain Rauscher F.B.O. Jeffrey A. Streets
IRA |
|
|
93,009 |
|
|
|
93,009 |
|
|
|
|
|
|
|
0 |
% |
Strohmeier & Associates Profit Sharing Plan -
Luis M. Strohmeier(27) |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0 |
% |
Stonedahl, Dale |
|
|
26,220 |
|
|
|
26,220 |
|
|
|
|
|
|
|
0 |
% |
Taft, Alex(28) |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Tafoya, Duane H. |
|
|
39,984 |
|
|
|
39,984 |
|
|
|
|
|
|
|
0 |
% |
Tafoya, Gerald W. |
|
|
39,984 |
|
|
|
39,984 |
|
|
|
|
|
|
|
0 |
% |
Talesnick, Alan(29) |
|
|
50,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
0 |
% |
Thompson, Jack R. |
|
|
152,877 |
|
|
|
152,877 |
|
|
|
|
|
|
|
0 |
% |
Timberman, Si |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
0 |
% |
Toscani, Luca (8) |
|
|
50,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
0 |
% |
Toy, Thomas C. |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Ulland, William |
|
|
38,109 |
|
|
|
38,109 |
|
|
|
|
|
|
|
0 |
% |
Uncompagre Enterprises, Ltd. (43) |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Vicis Capital Master Fund(44) |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
0 |
% |
Wallace Family Partnership(45) |
|
|
50,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
0 |
% |
Walters, William & Julie |
|
|
39,483 |
|
|
|
39,483 |
|
|
|
|
|
|
|
0 |
% |
Weiner, Lili |
|
|
30,000 |
|
|
|
30,000 |
|
|
|
|
|
|
|
0 |
% |
Weiner, Norton D. |
|
|
311,530 |
|
|
|
311,530 |
|
|
|
|
|
|
|
0 |
% |
Werner, Greg (10) |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0 |
% |
Wexler, Richard (24) |
|
|
154,762 |
|
|
|
154,762 |
|
|
|
|
|
|
|
0 |
% |
White Sand Investor Group LP(46) |
|
|
154,504 |
|
|
|
154,504 |
|
|
|
|
|
|
|
0 |
% |
WMS Enterprises (52) |
|
|
11,690 |
|
|
|
11,690 |
|
|
|
|
|
|
|
0 |
% |
Wood, George F. |
|
|
252,715 |
|
|
|
252,715 |
|
|
|
|
|
|
|
0 |
% |
Wood, George Tod |
|
|
50,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
0 |
% |
Wrolstad, Carol |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
0 |
% |
Wrolstad, Christopher(30) |
|
|
79,680 |
|
|
|
79,680 |
|
|
|
|
|
|
|
0 |
% |
UBS Financial Services Inc. Cust FBO
Christopher S. Wrolstad SEP IRA(30) |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0 |
% |
W & O Enterprises, LLC(47) |
|
|
91,800 |
|
|
|
91,800 |
|
|
|
|
|
|
|
0 |
% |
YT2K, Inc. (48) |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0 |
% |
Zindel Enterprises LLLP(49) |
|
|
30,000 |
|
|
|
30,000 |
|
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
14,763,666 |
|
|
|
11,678,956 |
|
|
|
3,084,710 |
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
(A) |
|
It is our understanding that any selling security holder that is an affiliate of
a broker-dealer purchased the securities offered hereunder in the ordinary course of
business, and at the time of the purchase, had no agreements or understanding to
distribute the securities. |
|
(B) |
|
Includes shares underlying warrants held by the selling security holder that are
covered by this prospectus. |
|
(C) |
|
The number of shares of common stock to be sold assumes that the selling
security holder elects to sell all the shares of common stock held by the selling security
holder that are covered by this prospectus. |
|
(1) |
|
NASD member, affiliated with Keating Securities |
|
(2) |
|
Former director of Lifevantage, NASD member, affiliated with TCW
Securities. |
|
(3) |
|
Affiliated with Truenorth Securities, Inc. |
|
(4) |
|
Affiliated with J. Scott Securities. |
|
(5) |
|
Mr. Crapo is a director of Lifevantage. |
|
(6) |
|
Affiliated with Legent Clearing LLC. Guy A. Gibson, CEO, and Michael J.
McCloskey, EVP, have voting and investment control over these shares. |
|
(7) |
|
Mr. Grandfield is a registered representative for American Express. |
|
(8) |
|
Affiliated with Keating Securities. |
|
(9) |
|
Mr. Iseman is affiliated with Janus Distributors LLC. |
|
(10) |
|
Acquired securities included in this Prospectus pursuant to Assignment
and Stock Power with Mr. Driscoll, the Companys former President, CEO, and director. |
|
(13) |
|
Registered representative and Vice President Investments with RBC Dain
Rauscher. |
|
(14) |
|
Registered representative for Keating Securities.
|
|
(15) |
|
Ms. McLuckie is a registered representative for Kirlin Securities. |
|
(16) |
|
Mr. Ossello is a NASD member and provided the Company with investment
banking services. |
|
(17) |
|
Mr. Perkins is a registered representative for Askar Corp. |
|
(18) |
|
Registered representative for Morgan Stanley. |
|
(19) |
|
Ms. Pihl is a registered representative for Feltl & Co. |
|
(20) |
|
Mr. Perkins, president of Pyramid Partners, LP, is a registered
representative for Askar Corp. R.W. Perkins, managing partner, has voting and investment
control over these shares. |
|
(21) |
|
Mr. Krejci, director of the Company, is the manager and majority
interest holder in Race Place Investments Corporation, LLC and has voting and investment
control over these shares. |
|
(22) |
|
Mr. Scharig is a NASD member. |
|
(23) |
|
Affiliated with First Matrix Investment, Inc. |
|
(24) |
|
Affiliated with The Scott Group. |
|
(25) |
|
Former director of Lifevantage. Includes 1,073,275 shares of common
stock held or controlled by Mr. Severance, 1,013,275 of which are registered under this
prospectus. Also Includes 15,231 Shares of common stock held by Mr. Severances wife
which are registered under this prospectus. |
|
(26) |
|
Daniel Streets is a former director and employee of Lifevantage. Carol
H. Streets is the wife of Daniel Streets. Total beneficial ownership is 1,906,977 which
includes 858,911 shares of common stock held by Mr. Streets and 1,048,066 shares of common
stock held by Mr. Streets wife. |
|
(27) |
|
NASD member, registered representative for AXA Advisors, LLC.
|
|
(28) |
|
Financial advisor for UBS Financial Services Inc. |
|
(29) |
|
Partner at Patton Boggs LLP, which performs legal services for us from
time to time. |
|
(30) |
|
Registered representative for Keating Securities. |
|
(31) |
|
William J. Beard and R. Jean Beard, trustees, have voting and
investment control over the shares. |
|
(32) |
|
Dean Kacludis has voting and investment control over the shares. |
|
(33) |
|
Brad Dobski, grantor and trustee, has voting and investment control
over the shares. |
|
(34) |
|
Robert J. Zappa, general partner, has voting and investment control
over the shares. |
|
(35) |
|
John Van Heuvelen, manager, has voting and investment control over
the shares. Mr. Van Heuvelen is a director and Chairman of the Board of Lifevantage. |
|
(36) |
|
James H. Watson, Jr., president and owner, has voting and investment
control over the shares. |
|
(37) |
|
Michael Kieler, individual retirement account holder, has voting and
investment control over the shares. |
|
(38) |
|
Thomas A. Menk and Lori A. Menk, managers, have voting and investment
control over the shares. |
|
(39) |
|
Marlo M. Covo and N. Gabriel Tolchensky, principals, have voting and
investment control over the shares. |
|
(40) |
|
Patrick Mitchell, managing partner, has voting and investment control
over the shares. |
|
(41) |
|
Anthony M. Giordano and Danny E. Strand, managing members, have
voting and investment control over the shares. |
18
|
|
|
(42) |
|
Ken Weiner, president, has voting and investment control over the
shares. |
|
(43) |
|
Caron Harte, secretary and treasurer, has voting and investment
control over the shares. |
|
(44) |
|
Richard Han, portfolio manager, and Shad Stastney, and John Succo,
managing directors, have voting and investment control over the shares. |
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(45) |
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James B. Wallace, general partner, has voting and investment control
over the shares. |
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(46) |
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Elliott Donnelly II, president, Owen M. Donnelly, treasurer, and
Marshall S. Donnelly, secretary, officers of The White Sand Investment Corp., general
partner, have voting and investment control over the shares. |
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(47) |
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Chris Wrolstad and Steve Ossello, managers, have voting and
investment control over the shares. |
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(48) |
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Richard Muller, CEO, has voting and investment control over the
shares. |
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(49) |
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Stephen Walko and Joni Walko have voting and investment control over
the shares. |
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(50) |
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Paul Myhill, trustee, has voting and investment control over the
shares. |
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(51) |
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Gordon Dihle has voting and investment control over the shares. |
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(52) |
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Reed Madison, Chris Wrolstad, and Steve Ossello have voting and
investment control over the shares. |
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(53) |
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Robert J. Lapidus, Dennis Clifford, Philip; Emrie, & Anthony Mannina
are trustees. |
19
PLAN OF DISTRIBUTION
Each of the selling security holders and any of their pledges, assignees, and
successors-in-interest may, from time to time, offer and sell the shares of common stock
included in this Prospectus. Holders of warrants may exercise those warrants only pursuant
to an exemption from registration if an exemption is available at the time. Once exercised,
the shares of common stock underlying the warrants may be sold pursuant to the terms of this
Prospectus. To the extent required, we may amend and supplement this Prospectus from time
to time to describe a specific plan of distribution.
Each selling security holder will act independently in making decisions with respect to
the timing, manner, and size of each sale. Each selling security holder has advised us that
he, she or it may make these sales at prices and under terms then prevailing or at prices
related to the then current market price. The selling security holders have advised us that
they may also make sales in negotiated transactions, including pursuant to one or more of
the following methods:
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purchases by a broker-dealer as principal and resale by such broker-dealer for
its own account pursuant to this Prospectus; |
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ordinary brokerage transactions and transactions in which the broker solicits
purchasers; |
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block trades in which the broker-dealer will attempt to sell the shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction; |
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an over-the-counter distribution in accordance with the rules of the OTC Bulletin Board; and |
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in privately negotiated transactions. |
In connection with distributions of the shares or otherwise, the selling security
holders have advised us that each may:
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enter into hedging transactions with broker-dealers or other financial
institutions, which may in turn engage in short sales of the shares in the course
of hedging the positions they assume; |
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sell the shares short and redeliver the shares to close out such short
positions; |
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enter into option or other transactions with broker-dealers or other financial
institutions which require the delivery to them of shares that this Prospectus
offers, which they may in turn resell; and |
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pledge shares to a broker-dealer or other financial institution, which, upon a
default, they may in turn resell. |
In addition, the selling security holders may sell any shares that qualify for sale
pursuant to Rule 144, rather than pursuant to this Prospectus.
In effecting sales, broker-dealers or agents that the selling security holders engage
may arrange for other broker-dealers to participate. Broker-dealers or agents may receive
commissions, discounts or concessions from the selling security holders in amounts that the
parties may negotiate immediately prior to the sale. However, under the NASD rules and
regulations, such broker-dealers may not receive a commission or discount in excess of 8%
for the sale of any securities registered hereunder. Keating Securities (or its affiliates)
may execute transactions for the sale of the securities offered by the Prospectus on behalf
of any selling security holder, however the Company is not aware of any current arrangement
between Keating Securities and any selling security holder. To the extent that Keating
Securities executes any transactions on behalf of any selling security holder, it may be
deemed to be an underwriter.
In offering shares that this Prospectus covers, the selling security holders, and any
broker-dealers and any other participating broker-dealers who execute sales for the selling
security holders, may qualify as underwriters within the meaning of the Securities Act of
1933 in connection with these sales. Any profits that the selling security holders realize,
and the compensation that they pay to any broker-dealer, may qualify as underwriting
discounts and commissions.
In order to comply with the securities laws of some states, the selling security
holders must sell the shares in those states only through registered or licensed brokers or
dealers. In addition, in some states the selling security holders may sell the shares only
if we have registered or qualified those shares for sale in the applicable state or an
exemption from the registration or qualification requirement is available and the selling
security holder complies with the exemption.
20
We have advised the selling security holders that the anti-manipulation rules of
Regulation M under the Exchange Act of 1934 may apply to sales of shares in the market and
to the activities of the selling security holders and their affiliates. In addition, we
will make copies of this Prospectus available to the selling security holders for the
purpose of satisfying the Prospectus delivery requirements of the Securities Act. The
selling security holders may indemnify any broker-dealer that participates in transactions
involving the sale of the shares against liabilities, including liabilities arising under
the Securities Act.
At the time a selling security holder makes a particular offer of shares we will, if
required, file a post-effective amendment to the registration statement covering those
shares and/or distribute a Prospectus supplement that will set forth:
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the number of shares that the selling security holder is offering; |
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the terms of the offering, including the name of any underwriter, dealer or agent; |
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the purchase price paid by any underwriter; |
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any discount, commission and other underwriter compensation; |
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any discount, commission or concession allowed or reallowed or paid to any dealer; and |
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the proposed selling price to the public. |
We have agreed to indemnify the selling security holders against claims and losses due
to material misstatements or omissions made by us (and not by the selling security holders)
in this Prospectus. Each of the selling security holders has agreed to indemnify us against
claims and losses due to material misstatements or omissions made by them.
BUSINESS
Because we want to provide you with more meaningful and useful information, this
Prospectus contains certain forward-looking statements (as that term is defined in section
21E of the Securities Exchange Act of 1934, as amended). These statements reflect our
current expectations regarding our possible future results of operations, performance, and
achievements. These forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Wherever possible, we have tried to identify these forward-looking statements by using
words such as anticipate, believe, estimate, expect, plan, intend, and similar
expressions. These statements reflect our current beliefs and are based on information
currently available to us. Accordingly, these statements are subject to certain risks,
uncertainties, and contingencies, which could cause our actual results, performance, or
achievements to differ materially from those expressed in, or implied by, such statements.
We have described these risks, uncertainties and contingencies under Risk Factors and
Managements Discussion and Analysis of Financial Condition or Plan of Operation.
We have no obligation to update or revise any such forward-looking statements in order
to reflect events or circumstances occurring after the date of this report.
Overview of Lifevantage and Lifeline Nutraceuticals
Lifevantage Lifevantage Corporation was formed under Colorado law in June 1988
under the name Andraplex Corporation. We amended our name to Yaak River Resources, Inc.
in January 1992, to Lifeline Therapeutics, Inc. in October 2004, and to Lifevantage
Corporation in October 2006. Our principal place of business is at Suite 1970, 6400 South
Fiddlers Green Circle, Greenwood Village, CO 80111, telephone (720) 478-1711, fax (720)
488-1722. The reports filed with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 by Lifevantage and its officers, directors, and significant
shareholders are available for review on the SECs EDGAR website
at www.sec.gov.
The Reorganization. Prior to October 26, 2004, our only asset for a number of
years had been 91 undeveloped residential lots in the town of Lawrence, Colorado, which is
near Victor, Colorado. On October 26, 2004, the undeveloped residential lots were carried
in our financial statements at a value of approximately $25,000. On November 10, 2004 we
executed a quit claim deed to this property to Donald Smith, one of our shareholders, in
exchange for Mr. Smiths forgiveness of approximately $20,000 that we owed to Donald Smith,
and we recorded a loss on disposition of approximately $5,000. Mr. Smith also assumed any
environmental liability related to the residential lots.
On October 26, 2004, we acquired approximately 81% of the outstanding common stock of
Lifeline Nutraceuticals, a privately-held Colorado corporation that was formed in July 2003.
In this Reorganization:
21
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We issued 15,385,110 shares of our Series A common stock (representing about
94% of our outstanding common stock after the reorganization) to eleven persons
in exchange for their ownership interest in Lifeline Nutraceuticals. |
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We agreed to exchange $240,000 in new promissory notes for a like amount of
convertible debt obligations of Lifeline Nutraceuticals. |
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We agreed to exchange $559,000 in new promissory notes for a like amount of
bridge loan note obligations of Lifeline Nutraceuticals. |
As a result of the Reorganization described above, Lifevantage owned 81% of the
outstanding common stock of Lifeline Nutraceuticals. Subsequent to the Reorganization, in
March 2005 we completed the acquisition of the remaining minority shareholder interest in
Lifeline Nutraceuticals. Lifeline Nutraceuticals owns and has developed the intellectual
property that has resulted in the development of Protandim®.
Our Business Model. The primary operational components of our business are
outsourced to companies that we believe possess a high degree of professionalism and
achievement in their particular field of endeavor. One advantage of outsourcing we hope to
achieve is a more direct correlation of the costs we incur to our level of product sales
versus the relatively fixed costs of building our own infrastructure to accomplish these
same tasks. Another advantage of this structure is to minimize our commitment of resources
to the human capital required to successfully manage these operational components.
Outsourcing also provides additional capacity without significant advance notice and often
at an incremental price lower than the unit prices for the base service.
Product Overview. We developed our product, Protandim®, a proprietary blend of
ingredients that has (through studies on animals and humans) demonstrated the ability to
induce two protective enzymes, superoxide dismutase (SOD) and catalase (CAT) in brain,
liver, and blood, the primary battlefields for oxidative stress. Protandim® is intended to
combat oxidative stress to the human body by producing SOD and CAT. Oxidative stress refers
to the cellular and tissue damage caused by chemically reactive oxygen radicals formed as a
natural consequence of cellular metabolism. Oxidative stress is widely believed to play a
key role in the aging process, and the bodys defenses against oxidative stress and free
radicals decrease with age. Protandim® is marketed as a dietary supplement as defined in
Section 3 of the Dietary Supplement Health and Education Act of 1994 (DSHEA), codified as
§ 201(ff) of the Federal Food, Drug, and Cosmetic Act (FFDCA) (21 U.S.C. § 321(ff)). The
name Protandim® is derived from: promoting the tandem co-regulation of two of the bodys
anti-oxidant enzymes (SOD and CAT). Protandim® and the related intellectual property are
owned by our subsidiary Lifeline Nutraceuticals.
Oxidative stress results from the fact that we breathe air and utilize oxygen to
generate energy. Unfortunately a small percentage of the oxygen we utilize generates toxic
oxygen free radicals that damage the cells and tissues of the human body and consequently
negatively impact our general health. Oxidative stress refers to the cellular and tissue
damage caused by chemically reactive oxygen radicals formed as a natural consequence of
cellular metabolism. These reactive oxygen species (ROS) and free radicals can be elevated
under a wide variety of conditions, including radiation, UV light, smoking, excessive
alcohol consumption, certain medical conditions such as neurodegenerative diseases and
diabetes, and advancing age.
Elevated ROS levels inflict structural damage to nucleic acid, lipid and carbohydrate
and protein components of cells, thereby directly contributing to or exacerbating tissue
dysfunction, disease and age-related debilitation. Normally, cellular anti-oxidant enzymes
serve to inactivate ROS and maintain their levels at those compatible with normal cell
function. Important among these enzymes are Superoxide Dismutase (SOD) and Catalase (CAT).
However, the levels of these protective anti-oxidant enzymes decrease with age and are also
reduced in a number of disease conditions.
SOD is the bodys most effective natural anti-oxidant. SOD works in conjunction with
CAT, and under some circumstances the balance may be important. A by-product of SODs
potent anti-oxidant activity is Hydrogen Peroxide, a dangerous substance that needs to be
subsequently converted into water and oxygen by CAT. Together, these three enzymes
constitute the first line of defense and repair for the body. Scientists have long realized
that increasing our levels of SOD and CAT is the key to fighting oxidative stress, disease
and aging.
Current SOD and CAT oral supplements can neither:
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be absorbed; nor |
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work in conjunction with each other in one safe, orally-available pill. |
We have retained The Chemins Company of Colorado Springs, Colorado (Chemins) to
produce Protandim® under a contract manufacturing agreement dated February 26, 2004 and
amended January 17, 2005. This agreement with Chemins has a continuous term, but may be
terminated by either party upon 90 days written notice. Under the agreement:
22
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Chemins ordered and received the raw materials required for one million
bottles of Protandim®. |
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we paid Chemins to acquire bottling and packaging materials and to commence
manufacturing 500,000 bottles of Protandim®. |
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Chemins delivers product to us based on our purchase orders and additional
payments. Through June 30, 2006, Chemins had shipped or delivered approximately
289,000 bottles of Protandim® to our fulfillment center and retail distributors.
As of June 30, 2006, an additional 211,000 bottles remain to be shipped from the
initial 500,000 bottle order. |
Through June 30, 2006 we have paid Chemins approximately $1,800,000 for the above delivered
bottles, which includes the deposit for the purchase of raw materials and packaging
materials for a total of one million bottles of Protandim®. An additional $800,000 will be
paid to Chemins for the remaining product.
Chemins has significant experience in manufacturing dietary supplements. Its plant
complies with the cGMP (current good manufacturing practices) for foods in general.
Currently there are no specific cGMPs for dietary supplements. While we currently have a
contract with Chemins in place, we cannot assure you that this manufacturer will continue to
supply our product to us in the quantities we require or at all.
We currently accept orders for Protandim® through our website (www.protandim.com) and
through a call center utilizing a toll-free number (1-8PROTANDIM or 1-877-682-6346). The
toll-free number is answered by Convergys, Inc. (Convergys), with which we have contracted
to provide call center services. Convergys will answer sales calls for us on an
around-the-clock basis. Orders are shipped from United Parcel Service (UPS), our
fulfillment center. UPS offers package tracking by toll-free number or online so that our
customers or our customer service department can determine the disposition of a shipment of
any product that was not received by the customer.
Customer service calls to another toll-free number (1-877-488-1711) will be answered in
our offices in Greenwood Village, Colorado. It is our desire to hear from our customers
directly, especially concerning issues they may have with our product or questions that may
be more technical in nature than those to which we want the call center to respond. Our
employees are available to respond to our customers needs, answer questions, track
packages, provide refunds, if necessary, and process sales orders.
Subsequent to June 30, 2005, the Company has also sold Protandim® in retail stores.
The Scientific Platform
What does Protandim® do?
Protandim® is designed to induce your body to produce more of its own catalytic
anti-oxidants, and to decrease the process of lipid peroxidation, an indicator of oxidative
stress. Each component of Protandim® has been selected on its ability to meet these
criteria. Low, safe doses of each component ensure that unwanted additional effects that
might be associated with one or another of the components are not seen with the formulation.
Results of the Pre-Clinical Test in Mice with Protandim-RD
Brief Summary: Four groups of mice were supplemented with a research formulation of
Protandim® (Protandim-RD) containing eight components. The mice received either control
diet, or diet supplemented with the anticipated human dosage, three times, or ten times that
amount. After 23 days, the mice showed a dose-dependent increase in SOD in red blood cells
of that amount, up to 25% and in liver of up to 45%.
More importantly, lipid peroxidation (as measured by thiobarbituric acid reactive
substances, (TBARS)) decreased in a dose-dependent fashion by up to 75% in plasma, by up
to 66% in liver, and by up to 97% in the brain. TBARS measures the oxidation of lipids
included in cell membranes. Oxidation of the cell membrane is one of the indicia of the
aging process.
Conclusion: We believe that this study is consistent with the thesis that Protandim®
can significantly reduce oxidative stress in young healthy animals.
Results of a Human Study with Protandim®
Brief Summary: Twenty-nine normal, healthy human subjects ranging in age from 20 to 78
received the final formulation of Protandim®, now containing five components (one capsule,
675 mg daily). Blood was drawn for analysis at 0, 30 and 120 days. Some of the subjects
took no other anti-oxidant supplements, while others continued to take vitamin C and/or
vitamin E and/or multivitamins they had been taking before they enrolled in the study.
Lipid peroxidation in the plasma was measured by TBARS. After 30 days of Protandim®
supplementation, plasma TBARS declined significantly, more so in the older subjects (about
69%) than in the younger subjects (about 30%). The age-
23
dependent increase seen prior to supplementation was no longer present. The average
TBARS concentration decreased to 0.95 micromolar, a level that one would expect to see in a
15 year old.
After 120 days of Protandim® supplementation, red blood cells analyzed for SOD and CAT
showed statistically significant increases in SOD of 30% (p < 0.01) and in CAT of 54% (p
< 0.002).
Conclusion: We believe that this study is consistent with the thesis that Protandim®
can reduce oxidative stress in healthy humans as they age, and that the reduction may be
significant. Based on the studies to date, there is evidence that lipid peroxidation
decreases as a result of human use of Protandim® supplements. Although there can be no
assurance, we believe that the significant increases of the anti-oxidant enzymes (SOD and
CAT in humans) suggest that the operative mechanism is increased scavenging of reactive
oxygen intermediates by the bodys native anti-oxidant enzymes. The modest but significant
increase in serum urate is consistent with this mechanism.
The Global Dietary Supplement Market
According to the Nutrition Business Journal, the worldwide supplement market is over
$60 billion as reflected in the following chart:
Global Dietary Supplement Market 2003
(Retail Sales in Billions of U.S. Dollars)
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Vitamins |
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Herbals |
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Area or |
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& |
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Sports & |
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Region |
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Minerals |
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Botanicals |
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Specialty |
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TOTALS |
United States |
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8,410 |
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4,200 |
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7,210 |
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19,820 |
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Western Europe |
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5,900 |
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6,220 |
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2,970 |
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15,090 |
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Japan |
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4,220 |
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2,900 |
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2,960 |
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10,080 |
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Canada |
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580 |
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400 |
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330 |
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1,310 |
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China |
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1,900 |
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2,400 |
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600 |
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4,900 |
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Rest of Asia |
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1,360 |
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1,760 |
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1,040 |
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4,160 |
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Latin America |
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800 |
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310 |
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360 |
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1,470 |
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Australia/New Zealand |
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600 |
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360 |
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340 |
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1,300 |
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Russia/Eastern Europe |
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500 |
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290 |
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450 |
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1,240 |
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Middle East/Africa |
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440 |
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220 |
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160 |
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820 |
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TOTALS |
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24,710 |
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19,060 |
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16,420 |
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60,190 |
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Source: Nutrition Business Journal, Supplement Business Report, 2004
Target Market
Our primary target markets for Protandim® are 1) health and wellness markets, and 2)
elderly populations. We are marketing Protandim® in the United States in media targeted
toward these age groups. We plan to test specific targeted messages within younger market
segments. Demographically, the more specific initial segments within these age categories
would include higher-educated, higher-income individuals who already espouse a healthy
lifestyle and have some attributes of consumers concerned about their wellness. With
increased awareness and media support, we believe the demographic appeal can be broadened to
more mainstream consumers and persons within lower socio-economic strata.
Competition
Although we believe that Protandim® reflects a unique product in the nutraceutical and
pharmaceutical industries, there are a number of potential competitors to Protandim®.
Vitamin C, vitamin E, Coenzyme Q-10 and other sources of exogenous anti-oxidants are
often considered competitors of Protandim®. We believe these substances should not be
considered competitors because they are oxygen radical scavengers and are not enzymatic,
meaning they do not work within the cells of the human body. Our research indicates that
Protandim® generates intra-cellular anti-oxidants, such as SOD and CAT, within the cells of
the body. Oxygen
24
is consumed by the mitochondria which is where oxidative stress is at its worst. We
believe that the bodys internal anti-oxidant enzymes, produced at homeostatic levels
provide a better defense against oxidative stress than exogenous sources of anti-oxidants.
There are many companies performing research into anti-oxidants, and these companies
are intensely competitive. At least one entity is currently marketing a direct competitor
to Protandim®, and it is highly likely that one or more additional entities will develop,
purchase or license from a third party, competitive products along the lines of our focus.
Thus, we expect that we will be subject to significant competition that will intensify as
these markets develop.
Many of our actual and potential competitors have longer operating histories and
possess greater name recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we do. As the dietary supplement industry grows
and changes, retailers may align themselves with larger suppliers who may be more
financially stable, market a broad portfolio of products or offer better customer service.
Competition with companies of this nature could materially adversely affect our business,
operating results, or financial condition.
Product Liability and Other Insurance
We have product liability insurance coverage for our Protandim® product that we believe
is adequate to protect us. We have also obtained commercial property and liability
coverages as well as directors and officers liability insurance.
Intellectual Property, Patents, and Royalty Agreements
Protandim® is a proprietary, patent-pending dietary supplement formulation
for enhancing SOD and CAT. The patent applications protecting this formulation are listed
below and have been assigned to our subsidiary, Lifeline Nutraceuticals.
We will protect our intellectual property and license rights through patent protection,
trade secrets, and contractual protections, and intend to develop a strong brand identity in
the Protandim® mark. Although we do not currently license our intellectual
property to any third parties, we may choose to provide such licensing arrangements in the
future to provide a potential new revenue source.
Our intellectual property is covered, in part, by three U.S. utility patent
applications on file in the USPTO. A PCT International Patent Application is also on file.
These patent applications claim the benefit of priority of seven U.S. provisional patent
applications listed below and are directed to compositions, methods, and methods of
manufacture. The earliest filing date for this family is March 23, 2004. If issued, the
expected term is through March 23, 2025 assuming there are no term extensions. These patent
applications include:
U.S. Provisional Patent Applications*
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U.S. Application Serial Number 60/555,802, filed on March 23, 2004 (expired); |
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U.S. Application Serial Number 60/590,528, filed on July 23, 2004 (expired); |
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U.S. Application Serial Number 60/604,638, filed on August 26, 2004 (expired); |
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U.S. Application Serial Number 60/607,648, filed on September 7, 2004 (expired); |
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U.S. Application Serial Number 60/610,749, filed on September 17, 2004 (expired); |
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U.S. Application Serial Number 60/643,754, filed on January 13, 2005; |
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U.S. Application Serial Number 60/646,707, filed on January 25, 2005; and |
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U.S. Application Serial Number 60/758,814, filed on January 13, 2006. |
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* |
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Provisional Patent applications expire within 12 months of the filing
date of the application. Applications were filed within the 12 months resulting
in no forfeiture of either priority date or rights to intellectual property. |
U.S. Utility Patent Applications
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U.S. Application Serial Number 11/088,323, filed on March 23, 2005
and claiming the benefit of priority to all the above-referenced
U.S. provisional patent applications. |
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U.S. Application Serial Number 11/216,313, filed on August 31,
2005 and claiming the benefit of priority of U.S. Application
Serial Number 11/088,323, filed on March 23, 2005, as well as all
the above-referenced U.S. provisional patent applications. |
25
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U.S. Application Serial Number 11/216,514, filed on August 31,
2005 and claiming the benefit of priority of U.S. Application
Serial Number 11/088,323, filed on March 23, 2005, as well as all
the above-referenced U.S. provisional patent applications. |
We do not anticipate final grant or denial of the above-referenced U.S. utility
applications prior to April 2007.
PCT International Patent Applications
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PCT Application Serial Number PCT/US2005/009783, filed on March 23, 2005 and
claiming the benefit of priority to seven of the above-referenced U.S. provisional
patent applications. This application is scheduled for National Phase filing on or
before September 23, 2006. |
Trademark. We have applied for protection of the PROTANDIM® trademark in
Canada, Japan, Taiwan, South Korea, China and European Community. PROTANDIM® is
registered on the Principal Register of the USPTO as U.S. Reg. No. 2,999,080. Common law
rights are also in force in the U.S. and Canada. We do not know with reasonable certainty,
the timing of the final grant or denial of the applications for registration of
PROTANDIM® in Canada, Japan, Taiwan, China, European Community, or South Korea.
Governmental Approval and Regulations
The formulation, manufacturing, packaging, labeling and advertising of
Protandim® currently are subject to regulation by federal agencies, including the
Food and Drug Administration (FDA), the Federal Trade Commission (FTC), and also by
various federal, state and local agencies. In addition, the distribution and sale of
Protandim® is subject to FDA, FTC and federal, state and local regulation. In
particular, although the Company is not currently required to obtain FDA or FTC approval to
sell Protandim®, the FDA, pursuant to the Federal Food, Drug, and Cosmetic Act
(FFDCA), which includes the Dietary Supplement Health and Education Act (DSHEA),
primarily regulates the formulation, manufacturing, packaging, and labeling of the product,
while the FTC primarily regulates the advertising and marketing of the product.
Protandim® is marketed as a dietary supplement as defined in the DSHEA.
The DSHEA is intended to promote access to safe, quality dietary supplements and information
about dietary supplements. The U.S. Congress has amended the FFDCA several times with
respect to dietary supplements, in particular by the DSHEA. In 1994, the DSHEA established
a new framework governing the composition and labeling of dietary supplements. With respect
to composition, the DSHEA defined dietary supplements as including vitamins, minerals,
herbs, other botanicals, amino acids, and other dietary substances for human use to
supplement the diet, as well as concentrates, constituents, extracts, or combinations of
such dietary ingredients. Under the DSHEA, a dietary supplement that contains a new
dietary ingredient (defined as a dietary ingredient not marketed in the United States
before October 15, 1994) must have a history of human use or other evidence of safety
establishing that it is reasonably expected by the manufacturer to be safe prior to
marketing the product. The manufacturer of a dietary supplement must notify the FDA at
least 75 days before marketing products containing new dietary ingredients and provide the
FDA with the information upon which the manufacturer based its conclusion that the product
has a reasonable expectation of safety. The FDA may not accept the evidence of safety for
any new dietary ingredient, and the FDAs refusal to accept such evidence could prevent the
marketing of such dietary ingredients.
FDA Regulations Applicable to the Formulation, Manufacturing, Packaging and Labeling of
Protandim®
The DSHEA permits statements of nutritional support to be included in labeling for
dietary supplements without FDA pre-approval. Such statements may describe how a particular
dietary ingredient may affect the structure, function or general well-being of the body or
the mechanism of action by which dietary ingredients affect the foregoing. Such statements
may not state that a dietary supplement will diagnose, cure, mitigate, treat, or prevent a
disease unless such claim has been reviewed and approved by the FDA, either as a health
claim or as a claim for an approved drug. A company that uses a statement of nutritional
support in labeling must possess evidence substantiating that the statement is truthful and
not misleading. The FDA may determine that a particular statement of nutritional support
that a company wants to use is an illegal claim for an unapproved new drug or an
unauthorized version of a health claim. Such a determination might prevent a company from
making the claim.
The DSHEA also permits certain third-party literature, for example a reprint of a
peer-reviewed scientific publication, to be used in connection with the sale of a dietary
supplement to consumers without the literature being subject to regulation as labeling.
However, such literature must not be false or misleading, the literature may not promote a
particular manufacturer or brand of dietary supplement and it must include a balanced view
of the available scientific information on the subject matter, among other requirements.
While we exercise care in the dissemination of all such third party literature about
Protandim®, we cannot assure you that it would be found by the FDA to satisfy all
of these requirements. If we fail to satisfy any of these applicable requirements, the FDA
could prevent the use of certain literature and subject Protandim® to regulation
as an unapproved new drug. We could also be subject to adverse actions by other third
parties.
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We are subject to the risk that the FDA may take enforcement action against us for one
or more violations of the FFDCA. We have to comply with the FFDCA, including the DSHEA, and
all applicable FDA regulations. Any allegations of non-compliance may result in
time-consuming and expensive defense of our activities. An enforcement action could include
a warning letter that informs us of alleged violations, such as selling a misbranded
product, an adulterated product, or an unapproved new drug. Although we would be entitled
to take corrective action in response to any such warning letter, the fact that a warning
letter had been issued to us from the FDA would be made available to the public. That
information could affect our relationships with our investors, vendors and consumers. The
FDA could also initiate many additional types of enforcement actions that would be far more
detrimental to our business than the issuance of a warning letter, including actions for
product seizure, inspection and/or criminal prosecution. Because we are not required to
submit all product labeling to the FDA before we sell our dietary supplement, we cannot give
any assurance that FDA enforcement action will not occur.
FTC Regulations applicable to the Advertising and Marketing of Protandim®
Advertising and marketing of products is subject to regulation by the FTC under the
Federal Trade Commission Act (FTC Act). Section 5 of the FTC Act prohibits unfair methods
of competition and unfair or deceptive acts or practices in or affecting commerce. Section
12 of the FTC Act provides that disseminating any false advertisement pertaining to drugs or
foods, which would include dietary supplements, is an unfair or deceptive act or practice.
Under the FTCs Substantiation Doctrine, an advertiser is required to have a reasonable
basis for all express and implied product claims before the claims are made. Failure to
adequately substantiate claims may be considered either deceptive or unfair practices.
Pursuant to this FTC requirement, we are required to have adequate substantiation for all
material advertising claims made for our products. The FTC routinely reviews advertising
and websites to identify significant questionable advertising claims and practices, and
competitors often inform the FTC when they believe other competitors are violating the FTC
Act. If the FTC initiates an investigation to determine the support for a claim, the FTC
can initiate pre-complaint discovery that may be nonpublic in nature. Such an investigation
may (i) be very expensive to defend, (ii) be lengthy, and (iii) result in one or more
adverse rulings by a court, administrative law judge, or in a publicly disclosed consent
decree.
Our telemarketing activities must comply with the FTCs Telemarketing Sales Rule, 16
CFR Part 310, and additional telemarketing and marketing statutes and regulations of the FTC
and of states. Because these activities, in general, are in the public eye and because it
may be difficult to ensure compliance with these laws and regulations by the individuals who
actually make and receive such calls, there is a risk that we could be the subject of
investigation and other enforcement activities that may be brought by the FTC and state
agencies. We regularly train and educate telemarketing representatives to correctly and
appropriately represent the product.
In addition to federal regulation in the U. S., each state has enacted its own Little
FTC Act to regulate sales and advertising and each state has enacted its own food and drug
laws. We may receive requests to supply information regarding our sales or advertising to
state regulatory agencies. We remain subject to the risk that, in one or more of our
present or future markets, our products, sales, and advertising could be found not to be in
compliance with applicable laws and regulations. If we fail to comply with these laws and
regulations, it could have a material adverse effect on our business in a particular market
or in general. In addition, these laws and regulations could affect our ability to enter
new markets.
The Bioterrorism Act
In June 2002, Congress enacted the Public Health Security and Bioterrorism Preparedness
and Response Act of 2002 (the Bioterrorism Act). The Bioterrorism Act contained new
requirements with regard to the sale and importation of food products in the United States:
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Mandatory registration with the FDA of all food manufacturers. |
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Prior notice to regulators of inbound food shipments. |
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Recordkeeping requirements, and grant of access to the FDA of applicable
records. |
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Grant of detention authority to the FDA of food products in certain
circumstances. |
Under the recordkeeping requirements, Lifeline is considered to be a nontransporter
of Protandim® and must maintain certain records required of nontransporters.
Lifeline is in the process of ensuring that all appropriate records are being kept.
Potential FDA and Other Regulation
We could become subject to additional laws or regulations administered by the FDA, FTC,
or by other federal, state, or local regulatory authorities, to the repeal of laws or
regulations that we consider favorable, such as the DSHEA, or to more stringent
interpretations of current laws or regulations. For example, the FDA is currently
developing guidance for the industry to clarify the FDAs interpretation of the new dietary
ingredient notification requirements, which may raise new and
27
significant regulatory barriers for new dietary ingredients. In addition, increased FDA
enforcement could lead the FDA to challenge dietary ingredients already on the market as
illegal under the FFDCA because of the failure to file a new dietary ingredient
notification.
In addition, the FDA has proposed final good manufacturing practices (GMP)
regulations for the dietary supplement industry. If finalized, the proposed GMPs would
require quality control provisions that are equal to or greater than GMPs for drugs and
over-the-counter products. These GMPs could result in increased expenses, changes to or
discontinuance of products, or implementation of additional record keeping and
administrative procedures. We cannot assure you that if the FDA adopts the GMPs in the form
proposed, we will be able to comply with the new regulations without incurring significant
costs.
We are not able to predict the nature of such future laws, regulations, repeals, or
interpretations, and we cannot predict what effect additional governmental regulation, when
and if it occurs, would have on our business in the future. Such developments could,
however, require reformulation of products to meet new standards, recalls, or
discontinuances of products not able to be reformulated, additional record-keeping
requirements, increased documentation of the properties of certain products, additional or
different labeling, additional scientific substantiation, additional personnel, or other new
requirements. Any such developments could have a material adverse effect on us, including
our financial condition or results of operations.
Employees
As of September 30, 2006, we had thirteen employees, including two officers, all of
which are full-time employees. We outsource our sales order call center, manufacturing and
distribution operations to minimize the number of employees we have. We may in the future
hire a few additional employees for marketing and customer service, but we have not taken
any steps to do so at the present time.
PROPERTY
Corporate Office
In August 2005, we entered a 36-month lease for our current executive offices in
Greenwood Village, Colorado. Pursuant to the agreement, we paid a $35,688 prepayment of
rent for 5,736 square feet, and monthly rents of $9,560 from December of 2005 through July
of 2006, $9,799 from August 2006 through July of 2007, and $10,038 from August 2007 through
July 2008. We also tendered a $30,144 security deposit that will be returned to the
Company, in thirds, at the beginning of the 13th, 25th and 36th months, provided we do not
breach the covenants set forth in the lease.
Warehouse Facility
We have a warehouse facility agreement with UPS, pursuant to which we lease warehouse
space from them in their climate-controlled warehouse in Denver Colorado.
Development Lots
Description. Until November 10, 2004, Lifevantage owned 91 development lots
in Lawrence, Colorado. Management evaluated the value of these properties and determined
that the total value was not greater than $25,000. In November 2004, we consummated an
agreement with a shareholder and creditor, Donald Smith, by which Mr. Smith canceled
indebtedness owed to him by Lifeline Therapeutics of about $20,000 in exchange for a
quitclaim deed conveying those lots to him. Mr. Smith also assumed any environmental
liability to which the property might be subject.
Risk of Environmental Liabilities. Lifevantage owned mining properties in the
Yaak River mining district of Montana from approximately 1993 until 1999. Lifevantage
maintained these mining properties pursuant to Montana law, but never conducted any mining
operations or ore processing at these mining properties. Prior to completing the
Reorganization, Lifeline Nutraceuticals management and consultants reviewed the records of
Lifeline Therapeutics prior ownership and certain publicly available records relating to
the properties. Based on that review, management does not believe that the former ownership
of these mining properties by Lifeline Therapeutics created any likely environmental
liability for Lifevantage under existing federal and state laws.
However, we understand that the State of Montana Department of Environmental Quality
(DEQ) is aware of the former Montana properties as having residues from past mining, but
we also believe that the DEQ does not consider these remote properties as a high priority.
Since DEQ funding is limited, the DEQ is able to address only a few high priority
properties. It is likely to be many years, if ever, before the DEQ would review these
properties. Also, it is more likely any mining residues would be addressed under a separate
DEQ program funded by the federal Surface Mining Control and Reclamation Act, which simply
resolves any residual environmental problems at mine sites and does not pursue owners or
former owners, as might be the case under the Montana state cleanup laws. Since we have not
performed on-site environmental studies to evaluate any environmental circumstances of these
former properties, there remains a risk that there
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may be material environmental liabilities associated with our former property interests
in Montana for which we may be liable, however we cannot provide a reasonable estimate of
such risk.
We are not aware of any potential for environmental liabilities on the 91 lots we owned
in Lawrence, Colorado.
LEGAL PROCEEDINGS
On December 7, 2005 an individual, Mr. John Bradley, commenced a lawsuit naming
Lifeline Therapeutics, Inc. and Lifeline Nutraceuticals Corporation, and others as
defendants in District Court, Arapahoe County, Colorado. Mr. Bradley, alleged that he was
entitled to additional compensation, in the form of approximately 450,000 shares of our
Series A common stock, for services rendered to the Company and Lifeline Nutraceuticals.
Principally, the suit alleged violations of the Colorado Securities Act, breach of contract,
and fraudulent inducement.
On January 30, 2006, we filed a Motion to Dismiss Mr. Bradleys claims with the
District Court. After written briefing and a hearing, the District Court granted this
Motion, without prejudice, on May 16, 2006.
On May 31, 2006, Mr. Bradley filed a Motion for Reconsideration of Order Granting
Defendants Motion to Dismiss, or, in the Alternative, for New Hearing. On June 14, 2006,
the Motion for Reconsideration was denied.
The Company filed a Motion for Payment of Attorneys Fees and on June 14, 2006, the
Motion was granted. In a letter dated September 1, 2006, Mr. Bradley agreed to pay certain
amounts in respect of legal fees to Lifeline Therapeutics, Inc., Lifeline Nutraceuticals
Corporation and the other defendants, and to file a stipulation and dismissal of the action.
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION OR PLAN OF OPERATION
The statements contained in this report that are not purely historical are
forward-looking statements. Forward-looking statements include statements regarding our
expectations, hopes, intentions, or strategies regarding the future. Forward-looking
statements include: statements regarding future products or product development; statements
regarding future selling, general and administrative costs and research and development
spending, and our product development strategy; statements regarding future capital
expenditures and financing requirements; and similar forward looking statements. It is
important to note that our actual results could differ materially from those in such
forward-looking statements.
Overview
This managements discussion and analysis discusses the financial condition and results
of operations of Lifevantage Corporation and its wholly-owned subsidiary, Lifeline
Nutraceuticals, Inc. (Lifeline Nutraceuticals or LNC). Lifevantage Corporation (the
Company, Lifevantage, or we, us or our) was formed as a Colorado corporation in
June 1988 under the name Andraplex Corporation. We amended our name to Yaak River
Resources, Inc. in January 1992 and to Lifeline Therapeutics, Inc. in October 2004. Our
principal place of business is at Suite 1970, 6400 South Fiddlers Green Circle, Greenwood
Village, CO 80111, telephone (720) 478-1711, fax (720) 488-1722.
At the present time, we have only a single product, Protandim®. We developed
Protandim®, a proprietary blend of ingredients that has (through studies on animals and
humans) demonstrated the ability to enhance Superoxide Dismutase (SOD) in brain, liver,
and blood, the primary battlefields for oxidative stress. Protandim®
is designed to induce the human body to produce more of its own catalytic anti-oxidants, and
to decrease the process of lipid peroxidation, an indicator of oxidative stress. Each
component of Protandim® has been selected on its ability to meet these criteria.
Low, safe doses of each component ensure that unwanted additional effects that might be
associated with one or another of the components are not seen with the formulation.
We sell Protandim® directly to individuals as well as to retail stores. We
began significant sales of Protandim® in the fourth quarter ended June 30, 2005.
In June 2005, the Company and Protandim® were discussed on a nationally-televised
news program, which led to a substantial increase in sales. Between June 2005 and August
2006, direct sales of Protandim® have declined on a monthly basis as we have not
received continuing similar national news exposure. During the fiscal year ended June 30,
2006, our expenditures related to company initiated sales and marketing activities increased
with the objective of increasing sales volume levels.
Our research efforts to date have been focused on investigating various aspects and
consequences of the imbalance of oxidants and anti-oxidants, an abnormality which is a
central underlying feature in many disorders. We intend to continue our research,
development, and documentation of Protandim® to provide credibility to the
market. We also anticipate undertaking research, development, testing, and licensing
efforts to be able to introduce additional products under the Protandim® brand
name in the future, although we cannot offer any assurance that we will be successful in
this endeavor.
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The primary operational components of our business are outsourced to companies that we
believe possess a high degree of professionalism and achievement in their particular field
of endeavor. One advantage of outsourcing we hope to achieve is a more direct correlation
of the costs we incur to our level of product sales versus the relatively high fixed costs
of building our own infrastructure to accomplish these same tasks. Another advantage of
this structure is to minimize our commitment of resources to the human capital required to
manage these operational components successfully. Outsourcing also provides additional
capacity without significant advance notice and often at an incremental price lower than the
unit prices for the base service.
Our expenditures during fiscal 2006 consisted primarily of marketing expenses,
operating expenses, payroll and professional fees, customer service, research and
development and product manufacturing for the marketing and sale of Protandim®.
During 2005, our expenditures consisted primarily of payroll expenses, operating expenses,
professional fees, continuing research and development, raw material acquisition and product
manufacturing for the prospective marketing and sale of Protandim®.
Recent Developments
Resignation of Stephen K. Onody
Mr. Stephen Onody has resigned as our Chief Executive Officer and as a member of our
Board of Directors effective December 15, 2006. Mr. Onody has agreed to provide the Board of
Directors and the Company with consulting services during the two months following his
resignation in order to assist the Board of Directors and the Company during the transition
period. At this time, our Board of Directors appointed Mr. John Van Heuvelen, the Chairman
of the Board, as the Companys interim Chief Executive Officer to fill the vacancy created
by Mr. Onodys departure. Effective December 21, 2006, the Board of Directors appointed
Mr. James J. Krejci as the Companys Chief Executive Officer. Mr. Krejci became a director
of Lifevantage in April 2005. Prior to accepting the position as the Companys CEO, Mr.
Krejci was a private investor and served as a director of the Epilepsy Foundation of
Colorado. Prior to this position, he served as Area Director and then Executive Director
for the American Diabetes Association from 2002-2004. From 1998-2002, Mr. Krejci was the
CEO and Chairman of Comtec International, Inc. Mr. Krejci has additional prior experience
in the medical industry with the 3M Company, General Electric Medical Division, and as
President of a division of the Becton-Dickinson Company. He also has extensive prior
experience in additional high tech and telecommunication startups and turnarounds with
Imagelink Technologies, Inc., International Game Technology, and Jones International
Ltd./Jones Intercable Inc. Mr. Krejci also teaches Marketing Management, Principles of
Leadership, Marketing Research and Management Theory and Practice at the University of
Phoenix Online Graduate School of Business. He received a B.S in Chemical Engineering and
an MBA in Marketing from the University of Wisconsin with the distinction of graduating
first in the MBA class.
Resignations of Javier W. Baz, H. Leigh Severance, Larry Gold and William Lister as
Directors
Effective 5:00 p.m. on December 13, 2006, each of Mr. H. Leigh Severance and Mr. Javier
W. Baz resigned as a director on the Companys Board of Directors. In addition, effective
December 20, 2006, Dr. Larry Gold resigned as director of the Companys Board, and effective
December 22, 2006, Mr. William L. Lister also resigned as a director of the Companys Board.
In none of the foregoing resignations did the director inform the Company that his
resignation was due to a dispute with the Companys management or Board of Directors.
Name Change
As previously noted, in conjunction with a modification to the Companys Articles of
Incorporation, the Companys shareholders approved a name change from Lifeline Therapeutics,
Inc. to Lifevantage Corporation.
CVS/pharmacy
In July 2006, Lifevantage entered into a purchase order arrangement with CVS/pharmacy
for the sale of Protandim® throughout the CVS drugstore chain, which includes
more than 6,100 stores throughout the United States, including the Sav-on and Osco stores
recently acquired by CVS.
As part of the launch, CVS/pharmacy will co-market Protandim® through a
variety of initiatives, including national print advertisements in over 800 publications,
in-store signage, and off-shelf merchandising.
Discussions with the Staff of the Securities and Exchange Commission
We have been in discussion with the Securities and Exchange Commission regarding, among
other issues, the accounting for the convertible debentures issued by us in 2005, as well as
the accounting for goodwill from the purchase of the minority interest of LNC in 2005. The
outcome of such discussions with the SEC resulted in adjustments to certain amounts reported
in our financial statements issued for the years ended June 30, 2006 and 2005 as well as the
current filing. These adjustments affected the presentation and classification of amounts
and costs relating to certain patents, goodwill, and additional paid-in capital on our
balance sheet. In resolving the above items with the SEC, the Company
requested the SECs determination and resolution
30
regarding
the Companys revenue recognition policy. As a result of its
discussions with the SEC, the Company determined that its revenue
recognition policy would be to utilize the
sell-through amounts from the distributor to the consumer to recognize revenue for sales to
a distributor with right of return provisions, and then apply an allowance for product
returns.
Hiring of Chief Financial Officer
On January 4, 2006, Gerald J. Houston became Chief Financial Officer of Lifevantage.
Mr. Houston replaced Mr. William B. Kutney who had served as the Companys Chief Financial
Officer since August 2005. Mr. Houston has most recently provided financial management
consulting to early stage healthcare and biotechnology companies. Prior to that, as CFO of
OpVista, Inc., an optical transport systems company based in Irvine, CA, he spearheaded the
raising of $28 million in private funding as well as establishing the financial and
administrative base of the company. He has held senior financial management positions at
ROLM Corporation, IBM, Measurex Corporation and Spacelabs Medical. He received his B.A.
from Georgetown University and M.B.A. from the Wharton School of Finance and Commerce.
Material Changes in Operating Results Three Months ended September 30, 2006 as compared to
the Three Months ended September 30, 2005
Sales We generated revenues of approximately $2,075,500 during the three months
ended September 30, 2006 and approximately $2,964,600 during the same period of the prior
fiscal year. For the three month periods ended September 30, 2006 and 2005, cost of sales
was approximately $375,600 and $596,600 resulting in a gross profit of approximately
$1,699,900 and $2,368,000, respectively. The decrease in sales and gross profit was due to
a nationally televised news program in June 2005 which led to substantial sales during the
three month period ended September 30, 2005. No similar national news exposure occurred
during the three month period ended September 30, 2006.
Gross Margin Our gross profit percentage for the three month periods ended
September 30, 2006 and 2005 was 82% and 80%, respectively. The slight increase in margin is
due to the recognition of higher margin distributor revenue during the three month period
ended September 30, 2006.
Operating Expenses Total operating expenses reported during the three month
period ended September 30, 2006 were approximately $2,535,600 as compared to operating
expenses of approximately $2,296,300 during the three month period ended September 30, 2005.
Operating expenses increased approximately $239,300 primarily due to stock-based
compensation expense under SFAS 123(R), which was adopted by the Company effective July 1,
2006.
Marketing and Customer Service Expenses Marketing and customer service expense
decreased from approximately $1,144,500 in the three months ended September 30, 2005 to
approximately $1,032,800 in the three months ended September 30, 2006. This decrease was
due to higher customer service and call center costs in the three months ended September 30,
2005 associated with the creation and ramp-up of call center and order taking capabilities.
General and Administrative Expenses Our general and administrative expense
increased from approximately $1,065,400 in the three months ended September 30, 2005 to
approximately $1,407,600 in the three months ended September 30, 2006. The increase
resulted from the adoption of SFAS 123(R) during the three month period ended September 30,
2006. During the three months ended September 30, 2006, stock related compensation was
approximately $523,900 compared to approximately $21,400 during the three months ended
September 30, 2005.
Research and Development Our research and development expenditures increased
from $-0- in the three months ended September 30, 2005 to approximately $65,700 in the three
months ended September 30, 2006 as a result of research, development, and documentation of
the efficacy of Protandim®.
Depreciation and Amortization Expense Depreciation and amortization expense
decreased from approximately $86,400 during the three months ended September 30, 2005 to
approximately $29,400 in the three months ended September 30, 2006. This decrease was due
to the amortization of a non-compete agreement prior to the beginning of the Companys first
fiscal quarter ended September 30, 2006.
Net Other Income and Expense We recognized net other income of approximately
$15,400 in the three months ended September 30, 2006 as compared to net other income of
approximately $8,500 in the three months ended September 30, 2005. This change is largely
the result of increased interest income. Interest expense, shown as netted against interest
income, is largely due to interest expense on margin debt at 1% below the prime rate.
Net Loss As a result of the revenues and expenses described above and because
of lower first fiscal quarter 2007 revenue, the Companys net loss was approximately
$(820,200) for the three month period ended September 30, 2006 compared to net income of
approximately $80,300 for the three month period ended September 30, 2005.
Our ability to finance future operations will depend on our existing liquidity
(discussed in more detail below) and, ultimately, on our ability to generate additional
revenues and profits from operations. At this time, we believe that Lifevantage has
sufficient funds to allow us to continue our planned marketing efforts and the manufacturing
and sale of
31
Protandim® through June 30, 2007. Nevertheless, even if we do generate
revenues at increasing levels, the revenues generated may not be greater than the expenses
incurred. Operating results will depend on several factors, including the selling price of
the product, the number of units of product sold, the costs of manufacturing and
distributing the product, the costs of marketing and advertising, and other costs, including
corporate overhead, which we will be incurring during that period of time.
Liquidity and Capital Resources
Our primary liquidity and capital resource requirements are to finance the cost of our
planned marketing efforts and the manufacture and sale of Protandim® and to pay
our general and administrative expenses. Our primary sources of liquidity are cash flow
from the sales of our product, proceeds from margin debt, and the sale of notes and of
common stock units in the third and fourth quarters of fiscal year 2005.
At September 30, 2006, our available liquidity was approximately $2,712,000, including
available cash and cash equivalents and marketable securities. This represented a decrease
of approximately $524,700 from the approximately $3,236,700 in cash, cash equivalents and
marketable securities as of June 30, 2006. During the three months ended September 30,
2006, our net cash used by operating activities was approximately $(1,092,200) as compared
to net cash provided by operating activities of approximately $1,453,500 during the three
months ended September 30, 2005. The Companys cash used by operating activities during the
three month period ended September 30, 2006 decreased as a result of lower sales than the
same period during the prior fiscal year.
During the three months ended September 30, 2006, our net cash provided by investing
activities was approximately $400,600, primarily due to the sale and redemption of
marketable securities available for sale. During the three months ended September 30, 2005,
we used approximately $(76,500) in investing activities, primarily due to the purchase of
equipment.
Cash provided by financing activities during the three months ended September 30, 2006
was approximately $607,000, compared to none during the three months ended September 30,
2005. Cash provided from financing activities during the three month period ended September
30, 2006 was due to proceeds from margin debt.
At September 30, 2006, we had working capital (current assets minus current
liabilities) of approximately $1,938,400, compared to working capital of approximately
$2,254,100 at June 30, 2006. The decrease in working capital was due to cash used in
operating activities.
We currently anticipate that existing cash resources will be sufficient to fund our
anticipated working capital and capital expenditure needs through at least June 30, 2007.
We base our expenses and expenditures in part on our expectations of future revenue levels
from the sale of Protandim®. If our revenue for a particular period is lower
than expected, we may take steps to reduce our operating expenses accordingly. If cash
generated from operations is insufficient to satisfy our liquidity requirements, we may seek
to sell additional public or private equity securities or obtain debt financing. Additional
financing may not be available at all or, if available, may not be obtainable on terms
favorable to us. If we are unable to obtain additional financing needed if and when cash
generated from operations is insufficient to satisfy our liquidity requirements, we may be
required to reduce the scope of our planned operations, which could harm our business,
financial condition and operating results. Additional financing may also be dilutive to our
existing shareholders.
Material Changes in Financial Condition Year ended June 30,2006 as compared to the Year
ended June 30, 2005
Sales. We generated net sales of approximately $7,165,800 during the year ended June
30, 2006 and approximately $2,353,800 during the year ended June 30, 2005 from the sale of
our product, Protandim®. This increase was due to the fact that we did not begin
significant sales of Protandim® until the fourth quarter ended June 30, 2005, and
as a consequence, sales in the first three quarters of 2005 were minimal. We sold
approximately 146,600 units of Protandim in the year ended June 30, 2006, and approximately
48,400 for the year ended June 30, 2005.
Gross Margin. Cost of sales were approximately $1,491,300 for the year ended June 30,
2006, and approximately $393,600 for the year ended June 30, 2005, resulting in a gross
margin of approximately $5,674,500, or 79%, and approximately $1,960,200, or 83%,
respectively. The change in margin is due primarily to higher fulfillment costs in the
fiscal year ended June 30, 2006.
Operating Expenses. Total operating expenses for the fiscal year ended June 30, 2006
were approximately $8,544,000 as compared to operating expenses of approximately $4,045,000
for the fiscal year ended June 30, 2005. Operating expenses consist of marketing and
customer service expenses, general and administrative expenses, research and development and
depreciation and amortization expenses, each of which increased between the fiscal year 2005
and fiscal year 2006, due to expansion of activities related to the launch of
Protandim®.
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Marketing and Customer Service Expenses. Marketing and customer service expense
increased from approximately $924,000 in fiscal year 2005 to approximately $4,260,000 in
fiscal year 2006. This increase was due to additional marketing and customer support
activity required to expand product distribution in 2006.
General and Administrative Expenses. Our general and administrative expense rose from
approximately $2,982,000 in fiscal year 2005 to $3,904,000 in fiscal year 2006. The
increase resulted from our hiring of additional staff during the last half of the fiscal
year ended June 30, 2006 to provide sufficient infrastructure to management, marketing,
operations and administration in connection with our expanded product marketing efforts, as
well as related increases in our legal expenses.
Research and Development. Our research and development expenditures increased from
approximately $38,000 in fiscal year 2005 to approximately $114,000 in fiscal year 2006 as a
result of an increase in our research, development, and documentation of the efficacy of
Protandim® for potential consumers.
Depreciation and Amortization Expense. Depreciation and amortization expense increased
from approximately $102,000 during our fiscal year ended June 30, 2005 to approximately
$265,300 in our fiscal year ended June 30, 2006. This increase was due primarily to the
amortization of a non-compete agreement during the fiscal year 2006.
Net Other Income and Expense. We recognized net other expense of approximately
$3,738,000 in fiscal year 2005 as compared to net other income of approximately $135,000 in
fiscal year 2006. This change is largely the result of a reduction of $3,300,000 in
interest expense incurred in fiscal year 2005 due to the conversion and repayment of our
convertible bridge loans issued during the fiscal year ended June 30, 2005.
Net Loss. As a result of the revenues and expenses described above and because of
significant revenue, we reduced our net loss to approximately $2,735,000 for the fiscal year
ended June 30, 2006 compared to a net loss of approximately $5,822,000 for the fiscal year
ended June 30, 2005.
Liquidity and Capital Resources
Our primary liquidity and capital resource requirements are to finance the cost of our
planned marketing efforts and the manufacture and sale of Protandim®, and to pay
our general and administrative expenses. Our primary sources of liquidity are cash flow
from the sales of our product and the sale of notes and of common stock units in the third
and fourth quarters of fiscal year 2005.
At June 30, 2006, our available liquidity was approximately $3,237,000, including
available cash and cash equivalents and marketable securities. This represented a decrease
of approximately $1,168,000 from the approximately $4,405,000 in cash, cash equivalents and
marketable securities at June 30, 2005. During the fiscal year ended June 30, 2006, we used
approximately $916,000 of cash in operations as compared to approximately $1,893,000 during
fiscal 2005. The Companys cash used by operating activities during fiscal 2006 decreased
as a result of increased sales in fiscal 2006 over fiscal 2005.
We used approximately $1,200 in cash from financing activities during fiscal year 2006,
compared to $6,801,000 of cash provided from financing activities during fiscal year 2005.
Cash provided from financing activities during fiscal year 2005 was primarily due to
approximately $2,954,000 received from notes payable and $4,400,000 in net proceeds from the
sale of our Series A common stock and warrants, offset by approximately $401,000 in debt
issuance costs and the repayment of $160,000 of loans.
During the year ended June 30, 2006, we used approximately $3,260,000 in investing
activities, primarily in the purchase of marketable securities. During the year ended June
30, 2005, we used approximately $553,000 in investing activities, primarily for patent costs
(approximately $102,000), for a non-compete agreement (approximately $250,000), and for the
purchase of equipment and software (approximately $200,000).
At June 30, 2006, we had working capital (current assets minus current liabilities) of
approximately $2,254,000, compared to working capital of approximately $5,167,000 at June
30, 2005.
We currently anticipate that existing cash resources will be sufficient to fund our
anticipated working capital and capital expenditure needs through at least June 30, 2007.
We base our expenses and expenditures in part on our expectations of future revenue levels
from the sale of Protandim®. If our revenue for a particular period is lower
than expected, we may take steps to reduce our operating expenses accordingly. If cash
generated from operations is insufficient to satisfy our liquidity requirements, we may seek
to sell additional public or private equity securities or obtain debt financing. Additional
financing may not be available at all or, if available, may not be obtainable on terms
favorable to us. If we are unable to obtain additional financing needed if and when cash
generated from operations is insufficient to satisfy our liquidity requirements, we may be
required to reduce the scope of our planned operations, which could harm our business,
financial condition and operating results. Additional financing may also be dilutive to our
existing shareholders.
33
Critical Accounting Policies
We prepare our financial statements in conformity with accounting principles generally
accepted in the United States of America. As such, we are required to make certain
estimates, judgments and assumptions that we believe are reasonable based upon the
information available. These estimates and assumptions affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the periods presented. Actual results could differ from those
estimates. Our significant accounting policies are described in Note 2 to the financial
statements. Not all of these significant accounting policies require us to make difficult,
subjective or complex judgments or estimates. We consider an accounting estimate to be
critical if 1) the accounting estimate requires us to make assumptions about matters that
were highly uncertain at the time the accounting estimate was made, and 2) changes in the
estimate that are reasonably likely to occur from period to period, or use of different
estimates that we reasonably could have used in the current period, would have a material
impact on our financial condition or results of operations.
Management has discussed the development and selection of these critical accounting
estimates with our board of directors and the audit committee has reviewed the foregoing
disclosure. In addition, there are other items within our financial statements that require
estimation, but are not deemed critical as defined above. Changes in estimates used in
these and other items could have a material impact on our financial statements.
Allowances for Product Returns. Allowances for product returns are recorded at
the time product is shipped. These accruals are based upon the historical return rate since
the inception of our selling activities, and the specific historical return patterns of the
product. Our return rate since the inception of selling activities is approximately 2% of
sales.
We offer a 30-day, money back unconditional guarantee to all direct sales customers.
As of September 30, 2006, September shipments were subject to the money back guarantee.
Returned product damaged during shipment is replaced wholly at our cost, which historically
has been negligible. As the Company has begun to recognize revenue associated with sales to
distributors, the Company has also utilized its return rate experience of 2% of sales to
estimate returns on its sales to distributors.
We monitor our return estimate on an ongoing basis and may revise the allowances to
reflect our experience. We established our allowance for product returns of approximately
$65,000 on September 30, 2006, compared to approximately $26,000 at September 30, 2005. To
date, product expiration dates have not played any role in product returns, and we do not
expect they will in the future because it is unlikely that we will ship product with an
expiration date earlier than the latest allowable product return date.
Inventory Valuation. Inventories are stated at the lower of cost or market on
a first-in first-out basis. A reserve for inventory obsolescence will be maintained and
will be based upon assumptions about current and future product demand, inventory whose
shelf life has expired and market conditions. A change in any of these variables may
require additional reserves to be taken. We had no reserve for obsolete inventory as of
September 30, 2006 because our product and raw materials have a shelf life of 3 years and
all product and raw materials were bought in the second half of fiscal 2005.
Revenue Recognition. We ship the majority of our product by United Parcel
Service (UPS) and receive payment for those shipments in the form of credit card charges.
Our return policy is to provide a 30-day money back guarantee on orders placed by customers.
After 30 days we do not refund customers for returned product. We have experienced
monthly returns approximating 2% of sales. Sales revenue and estimated returns are
recorded when the merchandise is shipped because performance by us is considered met when
shipped by UPS.
For retail customers, the Company analyzes its contracts to determine the appropriate
accounting treatment for its recognition of revenue on a customer by customer basis.
In July 2005, the Company entered into an agreement with GNC. Among other terms of the
agreement, GNC has the right to return any and all product shipped to them, at any time, for
any reason. The Company has begun to recognize revenue and its related costs during the
three month period ended September 30, 2006.
The Company recognizes revenue and its related costs when it obtains sufficient
information to reasonably estimate the amount of future returns. Accordingly, the Company
recognizes revenue associated with sales to the distributor when the product is resold by
the distributor. Prior to the three months ended September 30, 2006, all revenue and
related costs to this customer were deferred.
In July 2006, Lifevantage entered into a purchase order arrangement with CVS for the
sale of Protandim® throughout the CVS store network. Among other terms of this
arrangement, we have agreed that CVS may withhold up to one-half of its payment for the
Protandim® until certain sell-through parameters are met. Since the Company does
not have sufficient history with CVS to reasonably estimate the sell-through of
Protandim® within the CVS store network, 50% of the revenue and related cost has
been deferred. The Company will recognize this deferred revenue and related cost of sales
when it obtains sufficient sell-through information to reasonably estimate the amount of
future returns.
34
Beneficial Conversion Feature of Debt. In accordance with Emerging Issues Task
Force (EITF) No. 98-5, Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios, and No. 00-27, Application of Issue
No. 98-5 to Certain Convertible Instruments, we recognize the value of conversion rights
attached to convertible debt and equity instruments. These rights give the instrument
holder the immediate ability to convert debt into common stock at a price per share that is
less than the trading price of the common stock to the public. The beneficial value is
calculated based on the market price of the stock at the commitment date in excess of the
conversion rate of the debt and related accruing interest and is recorded as a discount to
the related debt and an addition to additional paid-in capital. The debt discount is
amortized and recorded as interest expense over the remaining outstanding period of related
debt.
Research and Development Costs. We have expensed all of our payments related
to research and development activities.
Recently Issued Accounting Standards
In December 2004, the FASB issued SFAS 123 (revised 2004) Share-Based Payments (SFAS
123(R)). This statement requires that we record stock option expense in our financial
statements based on a fair value methodology. On April 14, 2005, the Securities and
Exchange Commission announced amended compliance dates for SFAS 123(R). The SEC previously
required companies to adopt this standard no later than July 1, 2005, but the new rules now
require us to adopt FAS 123(R) starting with our first quarter of our fiscal year beginning
July 1, 2006. Additionally, in March 2005, the SEC issued Staff Accounting Bulletin No. 107
(SAB 107), which summarizes the staffs views regarding share-based payment arrangements for
public companies. We adopted SFAS 123(R) effective July 1, 2006.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets (SFAS
153), which changes the guidance in APB Opinion 29, Accounting for Nonmonetary
Transactions. This Statement amends Opinion 29 to eliminate the exception for nonmonetary
exchanges of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary
exchange has commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. SFAS 153 is effective for our fiscal year
beginning July 1, 2006. The adoption of SFAS 153 has not had a material impact on our
financial statements.
In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections. This
statement, which replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3,
Reporting Accounting Changes in Interim Financial Statements, requires that a voluntary
change in accounting principle be applied retrospectively to all prior period financial
statements presented, unless it is impracticable to do so. SFAS 154 also provides that a
change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted
for as a change in estimate effected by a change in accounting principle, and also provides
that correction of errors in previously issued financial statements should be termed a
restatement. SFAS 154 is effective for our fiscal year beginning July 1, 2006. The
adoption of SFAS 154 has not had a material impact on our financial statements.
In February 2006, the FASB issued SFAS 155, Accounting for Certain Hybrid Financial
Instrumentsan amendment of FASB Statements No. 133 and 140. This statement allows
financial instruments that have embedded derivatives to be accounted for as a whole
(eliminating the need to bifurcate the derivative from its host) if the holder elects to
account for the whole instrument on a fair value basis. SFAS 155 shall be effective for all
financial instruments acquired, issued, or subject to a remeasurement (new basis) event
occurring after the beginning of an entitys first fiscal year that begins after September
15, 2006. We anticipate that SFAS 155 will not have a material impact on our financial
statements.
In March 2006, the FASB issued SFAS 156, Accounting for Servicing of Financial
Assetsan amendment of FASB Statement No. 140. The statement addresses the recognition and
measurement of separately recognized servicing assets and liabilities and provides an
approach to simplify efforts to obtain hedge-like (offset) accounting. Entities shall adopt
this statement as of the beginning of the first fiscal year that begins after September 15,
2006. Earlier adoption is permitted as of the beginning of an entitys fiscal year,
provided the entity has not yet issued financial statements, including interim financial
statements, for any period of that fiscal year. The effective date of this statement is the
date that an entity adopts the requirements of this statement. We anticipate that SFAS 156
will not have a material impact on our financial statements.
In September 2006, Statement 157, Fair Value Measurements, was issued by the FASB and
is effective for financial statements for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. Statement 157 defines fair value,
establishes a framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. This Statement applies under
other accounting pronouncements that require or permit fair value measurements, the Board
having previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, this Statement does not require any new fair
value
35
measurements. However, for some entities, the application of this Statement will
change current practice. We anticipate that SFAS 157 will not have a material impact on our
financial statements.
In September 2006, SFAS 158, Employers Accounting for Defined Benefit Pensions and
Other Post-Retirement Plans (SFAS 158), was issued by the FASB and is effective for
financial statements for fiscal years ending after December 15, 2006. SFAS 158 improves
financial reporting by requiring an employer to recognize the overfunded or underfunded
status of a defined benefit postretirement plan (other than a multiemployer plan) as an
asset or liability in its statement of financial position and to recognize changes in that
funded status in the year in which the changes occur through comprehensive income of a
business entity or changes in unrestricted net assets of a not-for-profit organization.
This Statement also improves financial reporting by requiring an employer to measure the
funded status of a plan as of the date of its year-end statement or financial position, with
limited exceptions. We anticipate that SFAS 158 will not have a material impact on our
financial statements.
We have reviewed all other recently issued, but not yet effective, accounting
pronouncements and do not believe any such pronouncements will have a material impact on our
financial statements.
DIRECTORS AND EXECUTIVE OFFICERS
Directors and Executive Officers
The following table identifies the directors and executive officers of Lifevantage
Corporation.
|
|
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|
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|
|
|
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|
|
|
|
|
|
Beginning of Term |
Name |
|
Age |
|
Positions Held |
|
of Service |
James J. Krejci
|
|
|
64 |
|
|
Chief Executive
Officer, Director and
Member of the
Executive Committee
|
|
CEO effective
December 21, 2006,
Director since
April 2005 |
|
|
|
|
|
|
|
|
|
Gerald J. Houston
|
|
|
62 |
|
|
Chief Financial Officer
|
|
January 2006 |
|
|
|
|
|
|
|
|
|
James D. Crapo
|
|
|
63 |
|
|
Director
|
|
April 2005 |
|
|
|
|
|
|
|
|
|
John B. Van Heuvelen
|
|
|
60 |
|
|
Chairman of the Board
of Directors and
Member of the
Executive Committee
|
|
August 2005 |
|
|
|
|
|
|
|
|
|
Dr. Joe M. McCord
|
|
|
61 |
|
|
Director
|
|
February 2006 |
The
Directors serve one year terms or until their successors are elected. Audit,
nominating and compensation committees have been established. Mr. Krejci and Mr. Van
Heuvelen serve on the Audit Committee, with Mr. Van Heuvelen
acting as chairman. Dr. Crapo and Mr. Van Heuvelen serve on the
Compensation Committee with Dr. Crapo acting as chairman.
Mr. Krejci and Dr. McCord serve on the Nominating
Committee, with Dr. McCord acting as chairman. The board of
directors has appointed an executive committee currently consisting
of only Mr. Krejci and Mr. Van Heuvelen.
The principal occupations of each of our executive officers and directors for at least
the past five years are as follows:
James J. Krejci became Chief Executive Officer of the Company on December 21, 2006, and
has been a director of the Company since April 2005. Prior to becoming the Companys CEO,
Mr. Krejci was a private investor and served as a director of the Epilepsy Foundation of
Colorado. From 2002 to 2004, he served as Area Director and then Executive Director for the
American Diabetes Association. From 1998-2002, Mr. Krejci was the CEO and Chairman of
Comtec International, Inc. Mr. Krejci has additional prior experience in the medical
industry with the 3M Company, General Electric Medical Division, and as President of a
division of the Becton-Dickinson Company. He also has extensive prior experience in
additional high tech and telecommunication startups and turnarounds with Imagelink
Technologies, Inc., International Game Technology, and Jones International Ltd./Jones
Intercable Inc. Mr. Krejci teaches Marketing Management, Principles of Leadership,
Marketing Research and Management Theory and Practice at the University of Phoenix Online
Graduate School of Business. He received a B.S in Chemical Engineering and an MBA in
Marketing from the University of Wisconsin with the distinction of graduating first in the
MBA class.
36
Gerald J. Houston became Chief Financial Officer of the Company on January 4, 2006.
Before joining the Company, he has served as an independent financial and management
consultant advising management of medical, biosciences, and technology startup companies on
matters of financing, strategy, and operations. From October 2000 to December 2003, he was
chief financial officer of OpVista, Inc. an optical telecommunications equipment developer.
Prior to that he held senior financial management positions in technology companies
including SpaceLabs Medical, Inc., IBM and ROLM Corporation. Mr. Houston has a Bachelor of
Arts degree from Georgetown University and a Masters in Business Administration from the
Wharton School of the University of Pennsylvania.
John B. Van Heuvelen became a director of Lifevantage in August 2005 and became
Chairman of the Board of Directors in October 2006. In addition, Mr.Van Heuvelen served as
the Companys interim Chief Executive Officer from December 15, 2006 until Mr. Krejci was
appointed as CEO on December 21, 2006. Since June 2002, Mr. Van Heuvelen has been a member
of the Board of Directors of MasTec, Inc., and he is currently the Chairman of its Audit
Committee. Mr. Van Heuvelen spent 13 years with Morgan Stanley and Dean Witter Reynolds in
various executive positions in the mutual fund, unit investment trust, and municipal bond
divisions, including serving as president of Morgan Stanley Dean Witter Trust Company from
1993 until 1999. Since 1999, Mr. Van Heuvelen has been a private equity investor based in
Denver, Colorado. His investment activities have included private telecom and technology
firms, where he still remains active.
James D. Crapo, M.D, became a director of Lifevantage in April 2005. Dr. Crapo brings
nearly 30 years of experience in the health and science field to his new role. He served as
the Chairman of Medicine at the National Jewish Medical and Research Center from 1996 until
his sabbatical in 2004.
National Jewish is a top-rated private institution in immunology and allergic diseases
and has been rated number one nationally in pulmonary medicine by U.S. News and World Report
for the past 7 years. Dr. Crapo maintains a large research program focused on the role of
oxidants and anti-oxidants in the causation and treatment of diseases. He was the first
scientist to extend Dr. Fridovich and Dr. McCords (Director of Science for Lifeline
Therapeutics) original discovery of SOD to mammalian models of disease. SOD is the bodys
most powerful natural anti-oxidant.
Prior to coming to National Jewish, Dr. Crapo spent over 15 years as the Chief of the
Pulmonary and Critical Care Medicine Division at Duke University Medical Center. Throughout
his professional career he has been active in numerous professional societies, including
service on the NHLBI Advisory Council and serving as President of the American Thoracic
Society and President of the Fleischner Society. Dr. Crapo has authored more than 200
original scientific publications, numerous book chapters and seven textbooks.
Dr. Joe M. Mc Cord became a director of Lifevantage in February 2006. Dr. McCord
together with Dr. Irwin Fridovich discovered superoxide dismutase (SOD) in 1969. For this
work, Drs. McCord and Fridovich received the Elliot Cresson Medal of the Franklin Institute.
Previous recipients of the award, founded in 1848, include Alexander Graham Bell, Orville
Wright, Henry Ford, Wernher von Braun, Pierre and Marie Curie, and Andrei Sakharov. Dr.
McCord currently serves as Professor of Medicine, Biochemistry, and Microbiology at the
University of Colorado at Denver and Health Sciences Center (UCDHSC). Dr. McCord received a
lifetime achievement award from the Oxygen Society for outstanding contributions to the
field of free radical biology and medicine in 1997. He is Honorary President of the
International Society of Antioxidants in Nutrition and Health (ISANH). He chaired the Third
International Conference on Superoxide Dismutases: Recent Advances and Clinical
Applications, held at the Institut Pasteur in Paris in 2004, as well as earlier conferences
in the series. Dr. McCord has published articles in many scientific journals, including the
New England Journal of Medicine. As a co-discoverer of SOD and author of numerous studies
and articles on SOD, Dr. McCord is a highly regarded expert in the field.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of October 13, 2006, with respect
to each person who owned of record as of that date or is known to Lifevantage to own
beneficially more than 5% of the outstanding shares of common stock and the beneficial
ownership of such securities by each executive officer and director of Lifevantage and by
all executive officers and directors as a group.
37
|
|
|
|
|
|
|
|
|
|
|
|
|
Position with |
|
|
|
|
Name and address of |
|
Lifeline |
|
Number of |
|
Percent of |
beneficial owner |
|
Therapeutics |
|
Shares |
|
Class |
James J. Krejci (1)
6400 South Fiddlers Green
Circle, Suite 1970
Greenwood Village, CO 80111
|
|
Chief Executive Officer
and Director
|
|
|
1,116,000 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
Gerald J. Houston (2)
6400 South Fiddlers Green
Circle, Suite 1970
Greenwood Village, CO 80111
|
|
Chief Financial Officer;
|
|
|
240,000 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
James D. Crapo (3)
6400 South Fiddlers
Green Circle, Suite 1970
Greenwood Village, CO 80111
|
|
Director
|
|
|
624,000 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
Dr. Joe M. McCord
6400 South Fiddlers
Green Circle, Suite 1970
Greenwood Village, CO 80111
|
|
Director
|
|
|
1,606,800 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
John B. Van Heuvelen (4)
6400 South Fiddlers Green
Circle, Suite 1970
Greenwood Village, CO 80111
|
|
Chairman of the Board
|
|
|
155,792 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
All named executive
officers and directors as
a group (five persons)
|
|
|
|
|
3,742,592 |
|
|
|
17 |
% |
|
|
|
|
|
|
|
|
|
|
|
Javier W. Baz (5)
6400 South Fiddlers
Green Circle, Suite 1970
Greenwood Village, CO 80111
|
|
Shareholder
|
|
|
1,110,725 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
William J. Driscoll (6)
5350 Moonlight Way
Parker, CO 80134-4535
|
|
Shareholder
|
|
|
3,586,717 |
|
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
Paul R. Myhill (7)
3466 Willowrun Court
Castle Rock, CO 80109
|
|
Shareholder
|
|
|
2,853,711 |
|
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
H. Leigh Severance (8)
6400 South Fiddlers
Green Circle, Suite 1970
Greenwood Village, CO 80111
|
|
Shareholder
|
|
|
1,088,506 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
Daniel W. Streets (9)
22130 E. Costilla Drive
Aurora, CO 80016
|
|
Shareholder
|
|
|
1,906,977 |
|
|
|
9 |
% |
38
|
|
|
* |
|
Less than one percent. |
|
|
(1) |
|
This consists of an option to purchase 1,000,000 shares
of our common stock granted to Mr. Krejci on December 21,
2006 that vests over a period of three years in connection with
Mr. Krejci becoming our Chief Executive Officer and
116,000 shares are held by Race Place Investment Corporation,
LLC of which Mr. Krejci is the manager. |
|
|
|
(2) |
|
This consists of an option to purchase 240,000 shares of our common stock to
Gerald J. Houston. One-third of the stock option shall vest upon the weighted
average trading price of the Companys common stock for 90 days reaching each of
$8.00, $14.00, and $18.00. Notwithstanding the foregoing, to the extent not
previously vested, one-third of the stock option shall vest on the January 4, 2007,
and the remaining two-thirds shall vest quarterly in eight equal installments,
beginning ninety days after January 4, 2007 and ending on January 4, 2009. |
|
|
|
(3) |
|
This includes 25,000 Unit Warrants exercisable at $2.50 per share. |
|
|
|
(4) |
|
Mr. Van Heuvelen is the indirect beneficial owner of these shares, which are
held by GGV Investors, LLC. Mr. Van Heuvelen is one of three members in GGV
Investors, LLC. Mr. Van Heuvelen also owns shares through his IRA. |
|
|
|
(5) |
|
This includes 101,699 shares underlying Bridge Warrants exercisable at $2.00 per
share and 444,513 Unit Warrants exercisable at $2.50 per share. |
|
|
(6) |
|
This includes 593,450 shares held by Mr. Driscoll, 983,450 shares held in trust,
and 1,295,721 shares held by Mr. Driscolls wife. This total does not include
158,821 shares held by Mr. Driscolls adult sons and daughter-in-law, or 100,000
shares that Mr. Driscoll gifted to the Lifeline Orphan Foundation in December 2004.
In April 2005, Mr. Driscoll and his wife entered into indemnification agreements
with nine individuals, which offered shares totaling 285,904. By agreement dated
July 1, 2005, Mr. Driscoll granted a one-year irrevocable voting proxy to the
Companys board as to all of his shares and agreed to enter into a ten year voting
agreement whereby he would vote his shares as directed by the Companys board. |
|
|
(7) |
|
This includes 1,078,766 shares owned, 400,000 shares held in trust, 874,945
shares held by Mr. Myhills wife, and 500,000 shares owned by Lifeline Orphan
Foundation, of which Mr. Myhill is a trustee. Pursuant to a voting agreement
dated February 9, 2006, Mr. Myhill and his wife agreed, among other things, to vote
their shares of Series A common stock as directed by our Board of Directors until
February 7, 2016. |
|
|
|
(8) |
|
This includes 254,139 shares underlying Bridge Warrants exercisable at $2.00 per
share and 279,139 Unit Warrants exercisable at $2.50 per share. Certain of these
shares are owned indirectly through his wife or his retirement plan. A Convertible
Note was also acquired from a third party aggregating $105,467 (including accrued
interest) which was converted to 200,858 shares of common stock net of fees to
convert. |
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(9) |
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This includes 54,661 shares held by Mr. Streets directly, 600,000 shares held in
a grantor retained annuity trust with Mr. Streets as trustee, 1,004,250 shares held
by Mr. Streets wife, 43,816 shares held in his wifes Individual Retirement
Account, and includes 204,250 held by Equity First Holdings, LLC (Equity First)
pursuant to a pledge of such shares to Equity First. |
|
EXECUTIVE COMPENSATION
We did not pay any compensation to our named executive officers prior to the completion
of our reorganization in October 2004. Prior to the reorganization, Lifeline Nutraceuticals
paid compensation to its executive officers from inception (July 2003) through December 31,
2004. The following table includes all compensation paid to each named executive officer by
Lifevantage or Lifeline Nutraceuticals during the fiscal years ended June 30, 2006 and June
30, 2005.
39
SUMMARY COMPENSATION TABLE
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Annual Compensation |
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Long-Term Compensation Awards |
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Awards |
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Payout |
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Securities |
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($) |
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Underlying |
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Name and Principal |
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Fiscal |
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($) |
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Restricted |
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Options & |
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LTIP |
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All Other |
Position |
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Year |
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($) Salary |
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Bonus |
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($) Other |
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Awards |
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SARs (#) |
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Payout |
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Compensation |
Stephen K. Onody, |
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2006 |
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$ |
166,564 |
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$ |
42,000 |
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1,000,000 |
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$ |
13,221 |
(2) |
Chief Executive |
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2005 |
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Officer (1) |
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2004 |
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Gerald J. Houston, |
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2006 |
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$ |
95,000 |
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$ |
28,000 |
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$ |
25,000 |
(4) |
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240,000 |
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Chief Financial |
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2005 |
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Officer (3) |
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2004 |
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Brenda March, |
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2006 |
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$ |
280,000 |
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former Interim CEO (5) |
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2005 |
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2004 |
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William J. Driscoll, |
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2006 |
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$ |
255,000 |
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former President & |
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2005 |
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$ |
184,500 |
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$ |
500 |
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CEO (6) |
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2004 |
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$ |
90,000 |
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Paul R. Myhill |
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2006 |
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former Vice |
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2005 |
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$ |
128,500 |
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$ |
55,000 |
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President (7) |
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2004 |
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$ |
60,000 |
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(1) |
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Mr. Onody joined the Company on November 28, 2005 and his compensation for
fiscal year ended 2006 includes his salary from November 28, 2005 to year end. |
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(2) |
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Consists of $1,920 for an annual life insurance premium and $11,301 for
disability insurance premiums paid by the Company. |
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(3) |
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Mr. Houston joined the Company on January 4, 2006 and his compensation includes
his salary from January 4, 2006 to year end. |
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(4) |
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Consists of moving and relocation costs reimbursed by the Company. |
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(5) |
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Ms. March served as interim Chief Executive Officer and was terminated on
November 28, 2005. Her compensation includes the period from her start date to
November 28, 2005. |
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(6) |
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On July 1, 2005, William Driscoll resigned from his positions as our president,
chief executive officer, member of our executive committee, and member of our Board
of Directors in order to pursue other interests. On August 5, 2005, we hired,
effective July 19, 2005, Brenda March as interim Chief Executive Officer through
Tatum CFO Partners, LLP. Ms. Marchs compensation is discussed below under
Employment Agreements. On November 28, 2005, we hired Stephen K. Onody as Chief
Executive Officer. Mr. Onodys compensation is discussed below under Employment
Agreements. |
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(7) |
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On November 11, 2005, Paul Myhill resigned from his positions as our vice
president, member of our executive committee, and member of our Board of Directors.
He is no longer an employee of the Company. |
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40
Non-Compete Agreements
On July 1, 2005, we entered into an agreement with Mr. Driscoll pursuant to which Mr.
Driscoll agrees not to compete with the business activities of the Company that are in or
about any anti-oxidant or anti-oxidant therapies, products or markets, or solicit any of the
Companys customers, vendors, employees, directors, or consultants for a period of three
years, and agrees not to disclose or reveal to any person or entity any trade secrets or
confidential information of the Company or its subsidiaries. Mr. Driscoll also appoints the
Companys Board of Directors as Mr. Driscolls proxy to vote, at the discretion of the
Board, the shares of the Companys series A common stock, beneficially owned by Mr.
Driscoll. In exchange for the foregoing, the Company agreed to pay Mr. Driscoll $45,000.00,
agreed to continue to pay Mr. Driscoll a salary at his then current salary level for the
next fourteen months, and agreed to continue to provide Mr. Driscoll and his family health
insurance coverage under the Companys health insurance plan for the next fourteen months.
Employment Agreements
Brenda March
On August 5, 2005 the Company entered into an agreement, effective as of July 19,
2005, with Tatum CFO Partners, LLP (Tatum) pursuant to which Brenda March would serve as
interim Chief Executive Officer of the Company and remain a partner of Tatum. In accordance
with this agreement, the Company paid Ms. March a salary of $1,200 a day, along with
warrants to purchase 2,400 shares of common stock of the Company during each month of her
employment with the Company. The exercise price of the warrants issued to Ms. March have an
exercise period of two years, and the exercise price of the warrants equal to the volume
weighted average trading price for the Companys common stock for each Friday of the month
for which the warrants are due. The Company had no obligation to provide Ms. March with any
health or major medical benefits, stock, or bonus payments, however Ms. March was eligible
for the Company employee retirement, 401(k) plan, and for vacation and holidays consistent
with the Companys policies that apply to senior management.
In addition, for the period that Ms. March was the interim Chief Executive
Officer, the Company paid Tatum a fee of $300 a day, along with warrants to purchase 600
shares of common stock of the Company each month, with terms identical to the warrants
issued to Ms. March.
The Company may terminate the agreement with Tatum at any time upon thirty days
advance written notice. Tatum may terminate the agreement on the same terms and conditions
as the Company, except that (i) any notice of termination by Tatum cannot be delivered prior
to 30 days before the six-month anniversary of the effective date of the agreement, and (ii)
any termination by Tatum cannot be effective before the six-month anniversary of the
agreement.
On November 28, 2005, the Company terminated the agreement with Tatum in accordance
with the termination provisions and hired Stephen K. Onody as Chief Executive Officer.
Stephen K. Onody
In connection with his appointment as Chief Executive Officer, Mr. Onody entered into
an Employment Agreement with the Company effective November 28, 2005. Unless sooner
terminated pursuant to the terms of the agreement, the term of Mr. Onodys employment as
Chief Executive Officer of the Company shall be from November 28, 2005 to November 28, 2008.
Mr. Onody shall be entitled to an annual base salary of $280,000 and will be eligible to
receive an annual bonus equal to 30% of his base salary based upon meeting certain operating
and financial benchmarks to be established by the Companys compensation committee. Mr.
Onody shall also be eligible to participate in the Companys standard benefit plans and will
also be eligible for $1,000,000 in life insurance coverage. In addition, Mr.
Onody was granted an option to purchase 1,000,000 shares of the Companys common stock, with
the purchase price equal to the weighted average price for a share of the Companys common
stock on November 28, 2005. The stock option shall vest and become exercisable in the
amounts set forth below based upon the weighted average trading price of the Companys
common stock for a consecutive 90 day period:
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Portion of Option Vesting |
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Common Stock Price |
1/3 |
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$8.00 |
1/3 |
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$14.00 |
1/3 |
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$18.00 |
41
Notwithstanding the foregoing, to the extent not previously vested pursuant to the
terms of the agreement, one-third of the stock option shall vest on November 28, 2006 and
the remaining two-thirds shall vest quarterly in eight equal installments, beginning ninety
days after November 28, 2006 and ending on November 28, 2008. In the event an Event Date
(as defined in the employment agreement) occurs after November 28, 2006 and prior to
November 28, 2007, one-third of the option that has not already vested as of such date shall
immediately vest and become exercisable. In the event that an Event Date occurs after
November 28, 2007 but prior to November 28, 2008, two-thirds of the option that has not
already vested as of the Event Date shall immediately vest and become exercisable.
During the term of his employment and for a period of twenty-four months
thereafter, Mr. Onody has agreed not to, in any area in the world where the Company conducts
business, directly or indirectly own, manage, operate, control, be employed by, consult
with, or be connected in any manner with the ownership (other than passive investments of
not more than one percent of the outstanding shares of, or any other equity interest in, any
company or entity listed or traded on a national securities exchange or in an
over-the-counter securities market), management, operation, or control of any nutraceutical
business engaged in the manufacture or distribution of antioxidant pills or other products
that compete with the products the Company manufactures or distributes on the last day Mr.
Onody is employed by the Company. In addition, during this time, Mr. Onody has agreed not to
solicit employees, customers or suppliers of the Company.
If Mr. Onody is terminated without Cause (as defined in the employment agreement)
or resigns for Good Reason (as defined in the employment agreement), then the Company will
pay to Mr. Onody severance in the amount of (i) his accrued unpaid base salary to the date
of termination or resignation and any bonus earned but not paid as of that date, and (ii)
continuation of his annual base salary as of the date of termination or resignation for a
period equal to the greater of (a) the number (not to exceed twelve) of months remaining in
the employment term as of the date of termination or resignation, or (b) six months.
Notwithstanding the foregoing, if Mr. Onodys employment is terminated within 90 days of
November 28, 2005, then Mr. Onody shall be entitled to severance in the amount of (i) his
accrued unpaid base salary to the date of termination or resignation and any bonus earned
but not paid as of that date, and (ii) continuation of his annual base salary as of the date
of termination or resignation for a period equal to ninety days. During any severance
period, Mr. Onody will be eligible to participate, at the Companys cost, in all benefit
plans participated in at the time of termination. If Mr. Onody is terminated with
Cause or resigns without Good Reason, then he shall be entitled to his base salary plus any
bonus that has been approved and declared earned and payable prior to the date of such
termination.
Effective December 15, 2006, Mr. Onody has resigned as the Companys Chief
Executive Officer and as a member of the Companys Board of Directors. In connection with
his resignation, the Company has agreed to continue to pay Mr. Onody his base salary through
March 15, 2007, and will pay two months of Mr. Onodys long-term care insurance and medical
and disability insurance premiums for the period from December 15, 2006 to February 15,
2007. Mr. Onodys non-solicit and non-compete obligations under his employment agreement as
described above shall remain in full force and effect.
Gerald J. Houston
Effective January 4, 2006, Gerald J. Houston became Chief Financial Officer of
Lifevantage. Mr. Houston replaced Mr. William B. Kutney who served as the Companys Chief
Financial Officer since August 2005. Unless sooner terminated pursuant to the terms of the
agreement, the term of Mr. Houstons employment as Chief Financial Officer of the Company
shall be from January 4, 2006 to January 4, 2009. During such time, Mr. Houston shall
devote substantially all of his professional time, attention, knowledge and skills solely to
the business and interests of the Company.
Mr. Houston shall be entitled to an annual base salary of $190,000 and will be
eligible to receive an annual bonus equal to 30% of his base salary based upon meeting
certain operating and financial benchmarks to be established by the Companys compensation
committee. Mr. Houston shall also be eligible to participate in the Companys standard
benefit plans. The Company will reimburse Mr. Houston for relocation expenses up to a
maximum amount of $25,000.
In addition, Mr. Houston was granted an option to purchase 240,000 shares of the
Companys common stock, with the purchase price equal to the weighted average price for a
share of the Companys common stock on January 4, 2006. The stock option shall vest and
become exercisable in the amounts set forth below based upon the weighted average trading
price of the Companys common stock for a consecutive 90 day period:
|
|
|
Portion of Option Vesting |
|
Common Stock Price |
1/3 |
|
$ 8.00 |
1/3 |
|
$14.00 |
1/3 |
|
$18.00 |
42
Notwithstanding the foregoing, to the extent not previously vested pursuant to the
terms of the agreement, one-third of the stock option shall vest on January 4, 2007 and the
remaining two-thirds shall vest quarterly in eight equal installments, beginning ninety days
after January 4, 2007 and ending on January 4, 2009. In the event an Event Date (as defined
in the employment agreement) occurs after January 4, 2007 and prior to January 4, 2008,
one-third of the option that has not already
vested as of such date shall immediately vest and become exercisable. In the event that an
Event Date occurs after January 4, 2008 but prior to January 4, 2009, two-thirds of the
option that has not already vested as of the Event Date shall immediately vest and become
exercisable.
During the term of his employment and for a period of twenty-four months
thereafter, Mr. Houston has agreed not to, in any area in the world where the Company
conducts business, directly or indirectly own, manage, operate, control, be employed by,
consult with, or be connected in any manner with the ownership (other than passive
investments of not more than one percent of the outstanding shares of, or any other equity
interest in, any company or entity listed or traded on a national securities exchange or in
an over-the-counter securities market), management, operation, or control of any
nutraceutical business engaged in the manufacture or distribution of antioxidant pills or
other products that compete with the products the Company manufactures or distributes on the
last day Mr. Houston is employed by the Company. In addition, during this time, Mr. Houston
has agreed not to solicit employees, customers or suppliers of the Company.
If Mr. Houston is terminated without Cause (as defined in the employment
agreement) or resigns for Good Reason (as defined in the employment agreement), then the
Company will pay to Mr. Houston severance in the amount of (i) his accrued unpaid base
salary to the date of termination or resignation and any bonus earned but not paid as of
that date, and (ii) continuation of his annual base salary as of the date of termination or
resignation for a period equal to six months. Notwithstanding the foregoing, if Mr.
Houstons employment is terminated within 90 days of January 4, 2006, then Mr. Houston shall
be entitled to severance in the amount of (i) his accrued unpaid base salary to the date of
termination or resignation and any bonus earned but not paid as of that date, and (ii)
continuation of his annual base salary as of the date of termination or resignation for a
period equal to ninety days. During any severance period, Mr. Houston will be eligible to
participate, at the Companys cost, in all benefit plans participated in at the time of
termination.
If Mr. Houston is terminated with Cause or resigns without Good Reason, then he
shall be entitled to his base salary plus any bonus that has been approved and declared
earned and payable prior to the date of such termination.
Stock Option Plans
On November 21, 2006, the shareholders approved the 2007 Long-Term Incentive Plan (the
Incentive Plan) to advance the interests of the Company and its shareholders by providing
incentives to certain eligible employees who contribute significantly to the strategic and
long-term performance objectives and growth of the Company. Options to purchase
approximately 600,000 shares have been granted to various employees at a price of $0.76 per
share, vesting over a three-year period. A maximum of 6,000,000 shares of common stock can
be issued under the Incentive Plan in connection with the grant of awards.
Pursuant to the Incentive Plan, options granted prior to the adoption of the Incentive
Plan have been terminated and new options on substantially identical terms and provisions
(i.e., identical number of underlying shares, exercise price, vesting schedule, and
expiration date as the original options) have been granted. As no modifications to the
terms and provisions of the previously granted options will occur, the Company will account
for the related compensation expense under SFAS 123(R) as it did prior to the effective date
of the Incentive Plan. [There was no underwriter involved in the transaction, and the
options were issued pursuant to an exemption from the registration contained in Section 4(2)
of the Securities Act of 1933, as amended.] The Company intends on filing a Registration
Statement on Form S-8 relating to the issuance of shares of common stock under the Incentive
Plan with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended.
Compensation of Directors
We have paid each director $30,000 for each full year served as a director of the
Company. We have paid each of Messrs. Baz, Severance, and Krejci the sum of $30,000 for
their first year of service on our board of directors and $20,000 for their first year of
service on the executive committee of the board of directors (under the previous policy).
Messrs. Baz and Severance resigned as directors of the Company effective December 13, 2006.
We have paid Dr. Crapo the sum of $30,000 for his first year of service on the board of
directors. We have paid Dr. Gold the sum of $7,500 for his first quarter of service on the
board. Dr. Gold resigned as a director of the Company effective December 20, 2006.
On October 12, 2005, the Company and Mr. Baz, who was the Chairman of the board of
directors at the time, agreed that Mr. Baz will continue to serve as Chairman of the board
of directors from October 1, 2005 through September 30, 2006 with the following compensation
(in addition to the cash compensation being paid to him as a director and a member of the
executive committee of the board of directors): for each month, Mr. Baz received warrants to
purchase 10,000 shares of our
43
common stock at an exercise price equal to the volume weighted
average trading price of our common stock on the Wednesday of each month that immediately
precedes the last Thursday of that month. If that Wednesday is not a trading day, then the
exercise price will be equal to the volume weighted average trading price on the first
trading day immediately
preceding that Wednesday. Each warrant was issued at the close of business on the trading
day on which its exercise price is determined, and it will expire at the close of business
on the second anniversary of that trading day.
For the 2006 calendar year, members of the Audit Committee, Marketing Committee,
Science Committee, and Executive Committee of the Board of Directors receive options to
acquire 12,000 shares of the Companys common stock, with the Chairman of each of the Audit
Committee, Marketing Committee, and Science Committee receiving options to acquire 24,000
shares of the Companys common stock. Members of the Compensation Committee and Nominating
Committee of the Board of Directors receive options to acquire 6,000 shares of the Companys
common stock, with the Chairman of each of the Compensation Committee and Nominating
Committee receiving options to acquire 12,000 shares of the Companys common stock. Each of
these options has an exercise price of $3.37. One-twelfth of each of these options vests on
February 1, 2006, with the remainder of each option vesting in eleven equal monthly
installments on the last calendar day of each month, beginning February 28, 2006. In the
event that, for whatever reason, a committee members service on a committee is terminated,
that committee member shall lose that portion of the option that has not vested as of the
last day of such committee members service on that committee. The Chairman of the Board of
Directors of the Company is not entitled to receive any options described in this paragraph.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Since our restructuring in July 2003, we have engaged in a number of transactions that
could be considered related party transactions because they involved our officers,
directors, and their affiliates.
Stock Issuances
We issued 10,250,000 shares of Lifeline Nutraceuticals common stock to Messrs.,
Driscoll, Myhill, Barber, Micklatcher (Mr. Micklatcher was formerly a director), (Ms) Gannon
and Hahn for nominal consideration in August and December 2003 (at Lifeline Nutraceuticals
organization) at a price of $0.0005 per share. We issued 250,000 shares of our common stock
to Mr. Parkinson for nominal consideration in August 2003 (at Lifeline Nutraceuticals
organization) at a price of $0.001 per share.
We issued an additional 3,500,000 shares of Lifeline Nutraceuticals common stock at a
price of $0.001 per share to Mr. Myhill in February 2004, an additional 4,300,000 shares at
a price of $0.001 per share to Messrs. Driscoll, Myhill, Streets (former director), Betts
and Dr. McCord in May 2004, an additional 1,100,000 shares at a price of $0.001 per share to
Mr. Streets (former director) and Dr. McCord in July 2004 and an additional 4,250,000 shares
at a price of $0.001 per share to Messrs. Micklatcher, Streets (former director), Bradley,
Stevenson and Dr. McCord in August 2004. These issuances were completed prior to the
Reorganization when we were a privately held company. The above referenced shares totaling
23,650,000 were converted during the Reorganization.
In November 2004, we issued 200,000 shares to Lifeline Orphan Foundation of which Mr.
Myhill is a Trustee.
In March 2005, we acquired the remaining minority shareholder interest in Lifeline
Nutraceuticals by issuing to Michael Barber (the sole minority shareholder) 1,000,000 shares
of our common stock. We initially valued the transaction at $5.31 per share based on the
then trading price of our stock, discounted for the lack of marketability and later restated
the valuation to $2.00 per share as a result of the $2.00 pricing of the Companys private
placement offered concurrently with the transaction. Mr. Barber also entered into a
covenant not to compete with us for which we paid him $250,000.
Mr. Streets, former director, (directly and indirectly through his wifes retirement
plan) purchased Bridge Loan Notes aggregating $110,000 and converted that indebtedness in
our April private placement offering. Mr. Streets brother also participated in the Bridge
Loan notes for $60,000 and converted that indebtedness in the April 2005 private placement
offering. Mr. Severance, former director, (directly and indirectly through his wife and
retirement plan) purchased Bridge Loan Notes aggregating $510,000 and acquired Convertible
Notes from a third party aggregating $105,467 (including accrued interest). Mr. Severance
converted that indebtedness in our May 2005 private placement offering. In addition, he
invested $50,000 in the May 2005 private placement offering. Mr. Baz, former director,
purchased Bridge Loan Notes aggregating $200,000 and converted that indebtedness in the May
2005 private placement offering. In addition, he invested $685,627 in the May 2005 private
placement offering. Mr. Crapo invested $50,000 in the May 2005 private placement offering.
Mr. Krejci, indirectly through Race Place Investments Corporation, LLC, invested $50,000 in
the May 2005 private placement offering. Mr. Van Heuvelen, indirectly through GGV
Investors, LLC, purchased Bridge Loan Notes aggregating $30,000 and converted that
indebtedness in the May 2005 private placement offering. All of these transactions were on
the same terms as others per the private placement offering.
44
Employment Agreements
Messrs. Driscoll, Myhill and Streets held employment agreements that expired in
accordance with their terms on April 15, 2005. Although the agreements were approved by the
former (pre-Reorganization) members of Lifevantages board
of directors (each of them were disinterested in all of the employment agreements), it
can be argued that the terms of the employment agreement and the amount of compensation were
not negotiated at arms length.
Indemnification Agreement
Mr. and Mrs. Driscoll have agreed to indemnify us against certain obligations that Mr.
Driscoll may have incurred. Various persons alleged that Mr. Driscoll may have promised to
convey to them shares of our common stock. We believe that Mr. Driscoll has resolved these
claims personally, but the risk exists that these individuals may involve us in an attempt
to resolve these issues in or outside of court. As a result, Mr. Driscoll, joined by his
wife, has agreed to indemnify and hold us harmless from any such claims.
Lifeline Orphan Foundation
We have assisted in the establishment of the Lifeline Orphan Foundation (Foundation)
of which Paul Myhill is one of three trustees. Mr. Myhill was an executive officer of
Lifeline Nutraceuticals and Lifeline Therapeutics. The other trustees of the Foundation are
independent with respect to the Company.
To capitalize the Foundation, on November 19, 2004, we issued 200,000 shares of our
restricted Series A common stock to the Foundation. In addition, Mr. Myhill gifted 200,000
shares and Mr. Driscoll 100,000 shares to the Foundation.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 250,000,000 shares of common stock. We also
have 50,000,000 shares authorized of preferred stock with a $.0001 par value. None of the
preferred stock is issued and outstanding and we have no plans to issue any shares.
Our shareholders approved amended and restated Articles of Incorporation for
Lifevantage Corporation on November 21, 2006. These amended and restated Articles of
Incorporation eliminated the classification of our common stock into different series and
made other changes to modernize our Articles of Incorporation. The amended and restated
Articles of Incorporation included a name change from Lifeline Therapeutics, Inc. to
Lifevantage Corporation.
Description of Common Stock
Holders of our common stock are entitled to one vote for each share held of record on
each matter submitted to a vote of the stockholders. The shares of common stock have no
conversion rights or redemption provisions and include no preemptive rights or other rights
to subscribe for additional securities. Cumulative voting is not available to the holders
of common stock.
In the event of liquidation, dissolution or winding up of Lifevantage, holders of the
common stock would be entitled to receive, on a pro-rata basis, all of our assets remaining
after satisfaction of all capital preferences and liabilities. Subject to preferences that
may be applicable to any shares of preferred stock then outstanding, the holders of common
stock will be entitled to receive such dividends, if any, as may be declared by the board of
directors from time to time out of legally available funds and to share pro rata in any
distribution to the stockholders, including any distribution upon liquidation.
Description of Preferred Stock
Our Articles of Incorporation also vests the board of directors with full authority to
divide the class of preferred stock into series and to fix and determine the relative rights
and preferences of the shares of any such series. These preferences may include, among
other things:
|
|
|
the number of preferred shares to constitute such series and the distinctive
designations thereof; |
|
|
|
|
the rate and preference of dividends (if any), the time of payment of
dividends, whether dividends are cumulative and the date from which any dividend
shall accrue; |
|
|
|
|
whether preferred shares may be redeemed and, if so, the redemption price and
the terms and conditions of redemption; |
|
|
|
|
the liquidation preferences payable on preferred stock in the event of
involuntary or voluntary liquidation; |
|
|
|
|
sinking fund or other provisions, if any, for redemption or purchase of
preferred stock; |
|
|
|
|
the terms and conditions by which preferred stock may be converted, if the
Preferred stock of any series are issued with the privilege of conversion; and |
|
|
|
|
voting rights, if any. |
45
We have not created any series of preferred stock and we have no plans to do so.
Outstanding Rights to Acquire Common Stock
We issued Bridge Warrants to purchase 1,592,569 shares of Series A common stock
exercisable at $2.00 per share until their expiration date, April 18, 2008. We issued these
Bridge Warrants to all persons who were previously holders of Bridge Notes that Lifeline
Nutraceuticals had issued during 2004 and in January and February 2005. The Bridge Warrants
contain adjustment provisions upon the occurrence of stock splits, stock dividends,
reclassifications of the common stock, recapitalizations, mergers, consolidation, or like
capital adjustment affecting the common stock of the Company. In addition, the Bridge
Warrants contain adjustment provisions if the Company spins off a part of its business or
disposes its assets in a transaction in which the Company does not receive compensation, but
causes securities of another entity to be issued to security holders of the Company.
As part of the private offering, we issued Unit Warrants for 4,000,016 shares of common
stock per share to persons who invested cash or exchanged their Bridge Notes for
cancellation. These Unit Warrants are exercisable at $2.50 per share until their expiration
date, April 18, 2008. The Unit Warrants contain adjustment provisions upon the occurrence
of stock splits, stock dividends, reclassifications of the common stock, recapitalizations,
mergers, consolidation, or like capital adjustment affecting the common stock of the
Company. In addition, the Unit Warrants contain adjustment provisions if the Company spins
off a part of its business or disposes its assets in a transaction in which the Company does
not receive compensation, but causes securities of another entity to be issued to security
holders of the Company.
We also issued to Keating Securities (the placement agent for the transaction) warrants
to purchase 404,281 shares of common stock and to the Scott Group 5,000 warrants to purchase
common stock. These Placement Agent Warrants are exercisable at $2.00 per share until their
expiration date, April 18, 2008. The Placement Agent Warrants contain adjustment provisions
upon the occurrence of stock splits, stock dividends, reclassifications of the common stock,
recapitalizations, mergers, consolidation, or like capital adjustment affecting the common
stock of the Company. In addition, the Placement Agent Warrants contain adjustment
provisions if the Company spins off a part of its business or disposes its assets in a
transaction in which the Company does not receive compensation, but causes securities of
another entity to be issued to security holders of the Company. The Placement Agent
Warrants also include a provision whereby the holder may exercise the warrant by means of a
cashless exercise.
On May 13, 2005, Lifevantage offered its director of marketing options to acquire
50,000 shares of its common stock at an exercise price of $2.50 per share, exercisable
through May 31, 2008. This employee has left the Company and these options have expired.
46
Pursuant to an agreement with Tatum CFO Partners, LLP dated August 5, 2005 concerning
our interim Chief Executive Officer we issued the following warrants: (i) warrants to
purchase 936 shares of our common stock to Brenda March and warrants to purchase 234 shares
to Tatum CFO Partners, LLP with exercise prices equal to $9.85 per share, (ii) warrants to
purchase 2,400 shares to Brenda March and warrants to purchase 600 shares to Tatum CFO
Partners, LLP with exercise prices equal to $7.82 per share, (iii) warrants to purchase
2,400 shares to Brenda March and warrants to purchase 600 shares to Tatum CFO Partners, LLP
with exercise prices equal to $5.83 per share, (iv) warrants to purchase 2,400 shares to
Brenda March and warrants to purchase 600 shares to Tatum CFO Partners, LLP with the
exercise prices equal to $3.93 per share, (v) warrants to purchase 2,400 shares to Brenda
March and warrants to purchase 600 shares to Tatum CFO Partners, LLP with the exercise
prices equal to $3.90 per share, and (vi) warrants to purchase 2,400 shares to Brenda March
and warrants to purchase 600 shares to Tatum CFO Partners, LLP with the exercise prices
equal to $2.03 per share. There was no underwriter involved in the transactions, and the
warrants were issued pursuant to the exemption from registration contained in Section 4(2)
of the Securities Act of 1933, as amended.
On October 12, 2005, the Company and Mr. Baz, who was the Chairman of the board of
directors, agreed that Mr. Baz will continue to serve as Chairman of the board of directors
from October 1, 2005 through September 30, 2006 with the following compensation (in addition
to the cash compensation being paid to him as a director and a member of the executive
committee of the board of directors): for each month, Mr. Baz received warrants to purchase
10,000 shares of our common stock at an exercise price equal to the volume weighted average
trading price of our common stock on the Wednesday of each month that immediately precedes
the last Thursday of that month. If that Wednesday is not a trading day, then the exercise
price will be equal to the volume weighted average trading price on the first trading day
immediately preceding that Wednesday. Each warrant will be issued at the close of business
on the trading day on which its exercise price is determined, and it will expire at the
close of business on the second anniversary of that trading day. Pursuant to this
agreement, (i) on October 26, 2005, we issued warrants to purchase 10,000 shares of common
stock for $3.59 per share, (ii) on November 23, 2005 we issued warrants to purchase 10,000
shares of common stock for $3.54 per share, and (iii) on December 28, 2005 we issued
warrants to purchase 10,000 shares of common stock for $1.98 per share. There was no
underwriter involved in the transactions, and the warrants were issued pursuant to the
exemption from registration contained in Section 4(2) of the Securities Act of 1933, as
amended.
Pursuant to an employment agreement with Stephen K. Onody dated November 28, 2005 we
issued options to purchase 1,000,000 shares of our common stock to Stephen K. Onody with the
exercise price equal to $3.47. One-third of the stock option shall vest upon the weighted
average trading price of the Companys common stock for 90 days reaching each of $8.00,
$14.00, and $18.00. Notwithstanding the foregoing, to the extent not previously vested,
one-third of the stock option shall vest on the November 28, 2006, and the remaining
two-thirds shall vest quarterly in eight equal installments, beginning ninety days after
November 28, 2006 and ending on November 28, 2008. There was no underwriter involved in the
transactions, and the options were issued pursuant to the exemption from registration
contained in Section 4(2) of the Securities Act of 1933, as amended.
Pursuant to an employment agreement with Gerald J. Houston dated January 4, 2006 we
issued options to purchase 240,000 shares of our common stock with a purchase price equal to
$2.00 per share. One-third of the stock option shall vest upon the weighted average trade
price for the Companys common stock for 90 days reaching each of $8.00, $14.00, and $18.00.
Notwithstanding the foregoing, one-third of the stock option shall vest on January 4, 2007,
and the remaining two-thirds shall vest quarterly in eight equal installments, beginning 90
days after January 4, 2007 and ending on January 4, 2009. there was no underwriter involved
in the transaction, and the options were issued pursuant to an exemption from registration
contained in Section 4(2) of the Securities Act of 1933, as amended.
On November 21, 2006, the shareholders approved the 2007 Long-Term Incentive Plan (the
Incentive Plan) to advance the interests of the Company and its shareholders by providing
incentives to certain eligible employees who contribute significantly to the strategic and
long-term performance objectives and growth of the Company. Options to purchase
approximately 600,000 shares have been granted to various employees at a price of $0.76 per
share, vesting over a three-year period. A maximum of 6,000,000 shares of common stock can
be issued under the Incentive Plan in connection with the grant of awards.
Pursuant to the Incentive Plan, options granted prior to the adoption of the Incentive
Plan have been terminated and new options on substantially identical terms and provisions
(i.e., identical number of underlying shares, exercise price, vesting schedule, and
expiration date as the original options) have been granted.
47
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Since October 5, 2004, our common stock has been traded on the OTC Bulletin Board in
the United States, under the symbol LFLT. Prior to October 5, 2004, our common stock was
traded on the OTC Bulletin Board under the symbol YAAK. Our common stock first began
trading in the first quarter of our 1992 fiscal year.
The table below sets forth for the fiscal quarters indicated the reported high and low
sale prices of our common stock, as reported on the OTC Bulletin Board. These prices were
reported by an online service, reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions. Prices before October 5,
2004, have been adjusted to reflect the one for 68 reverse stock split accomplished on that
date. (Our fiscal year-end is June 30th.)
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|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
|
High |
|
Low |
|
High |
|
Low |
First Quarter |
|
$ |
11.75 |
|
|
$ |
4.30 |
|
|
$ |
1.36 |
|
|
$ |
0.68 |
|
Second Quarter |
|
$ |
5.75 |
|
|
$ |
1.72 |
|
|
$ |
4.00 |
|
|
$ |
2.55 |
|
Third Quarter |
|
$ |
5.95 |
|
|
$ |
1.80 |
|
|
$ |
10.60 |
|
|
$ |
2.70 |
|
Fourth Quarter |
|
$ |
2.71 |
|
|
$ |
0.46 |
|
|
$ |
20.25 |
|
|
$ |
4.00 |
|
We have not declared any dividends on any class of our equity securities since
incorporation and we do not anticipate that we will declare any dividends in the foreseeable
future. Our present policy is to retain future earnings (if any) for use in our operations
and the expansion of our business.
Holders of Common Equity
Our common stock is issued in registered form and the following information is taken
from the records of our former transfer agent, Securities Transfer, Inc. located in Dallas,
Texas and current transfer agent, Computershare Trust Company, Inc. located in Golden,
Colorado. As of October 13, 2006, we had 283 shareholders on record and 22,118,034 shares
of common stock outstanding. This does not include an unknown number of persons who hold
shares through brokers and dealers in street name and who are not listed on our shareholder
records.
Dividends
We have not declared any dividends on any class of our equity securities since
incorporation and we do not anticipate that we will declare any dividends in the foreseeable
future. Our present policy is to retain future earnings (if any) for use in our operations
and the expansion of our business.
Additional Information
As of September 30, 2006, there were 8,549,294 outstanding options and warrants to
purchase shares of common stock. As of September 30, 2006, approximately 14,750,000 shares
of common stock held by existing stockholders constitute restricted shares as defined in
Rule 144 under the Securities Act. The restricted shares may only be sold if they are
registered under the Securities Act, or sold under Rule 144, or another exemption from
registration under the Securities Act. All but 50,000 of these shares are eligible for
trading under Rule 144, except that pursuant to Rule 144, a stockholder owning more than one
percent of the total outstanding shares cannot sell, during any 90-day period, restricted
securities constituting more than one percent of the Companys total outstanding shares.
Registration
The Company has an obligation to register under this Prospectus the resale of the
Series A common stock issued in the private placement and the shares underlying the warrants
received by bridge note holders and investors in the private placement.
FINANCIAL STATEMENTS
See the Condensed Consolidated Financial Statements beginning on page F-1, Index to
Consolidated Financial Statements.
EXPERTS
The consolidated balance sheets of Lifevantage Corporation as of June 30, 2006 and
June 30, 2005 and the related consolidated statements of operations, stockholders equity
and cash flows for the years ended June 30, 2006 and 2005 have been audited by Gordon,
Hughes & Banks, LLP, independent registered public accountants, as set forth in their report
thereon.
48
LEGAL MATTERS
Patton Boggs LLP, Denver, Colorado, has acted as our counsel in connection with this
offering, including the validity of the issuance of the securities offered under this
prospectus. Attorneys of Patton Boggs own 25,000 shares, and warrants to purchase 25,000
shares, of the Companys common stock.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On December 30, 2004, the Board of Directors of Lifeline Therapeutics informed Michael
Johnson & Co., LLC that it had dismissed such firm as our independent registered public
accounting firm.
On December 30, 2004, the Board of Directors of Lifeline Therapeutics engaged Gordon
Hughes & Banks, LLP, certified public accountants, as our independent registered public
accounting firm effective immediately. Gordon, Hughes & Banks, LLP was the auditor for
Lifeline Nutraceuticals before the Reorganization occurred.
Michael Johnson & Co. LLCs reports on our financial statements for the fiscal years
ended December 31, 2002 and December 31, 2003 did not contain an adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or
accounting principle, except for the matter discussed in the next sentence. There was an
explanatory paragraph in Michael Johnson & Co. LLCs report on our financial statements
included in the Form 10-KSB for the years ended December 31, 2002 and December 31, 2003,
both of which indicated that the accompanying financial statements had been prepared
assuming that we will continue as a going concern, and Michael Johnson & Co. LLC indicated
that for both fiscal years conditions existed that raised substantial doubt about our
ability to continue as a going concern. It should be noted that Michael Johnson & Co. LLC
issued these reports about our predecessor, Yaak River Resources, Inc.
In connection with the audits of our financial statements for each of the fiscal years
ended December 31, 2002 and December 31, 2003, and as of December 30, 2004, there were no
disagreements between us and Michael Johnson & Co. on any matter of accounting principles or
practices, consolidated financial statement disclosures, or auditing scope and procedures,
which, if not resolved to the satisfaction of Michael Johnson & Co., would have caused them
to make reference thereto in connection with their report on the financial statements.
We provided to Michael Johnson & Co. LLC a copy of the disclosures and Michael Johnson
& Co. LLC furnished us with a copy of a letter addressed to the Securities and Exchange
Commission stating that Michael Johnson & Co. LLC agrees with our statements.
During our past two fiscal years and through December 30, 2004, we did not consult
Gordon, Hughes & Banks, LLP regarding the application of accounting principles to a specific
transaction, either contemplated or proposed, or the type of audit opinion that might be
rendered on our consolidated financial statements. Gordon, Hughes & Banks, LLP was the
auditor for Lifeline Nutraceuticals before the Reorganization occurred and is currently the
Companys independent registered public accounting firm.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form SB-2 under the Securities
Act for the common stock offered by this prospectus. This prospectus, which is a part of
the registration statement, does not contain all of the information in the registration
statement and the exhibits filed with it, portions of which have been omitted as permitted
by SEC rules and regulations. For further information concerning us and the securities
offered by this prospectus, please refer to the registration statement and to the exhibits
filed with it.
The registration statement, including all exhibits, may be inspected without charge at
the SECs Public Reference Room at the public reference facility of the SEC at 100 F Street,
N.E., Washington, D.C. 20549. You may obtain information on the operation of the SECs
public reference facility by calling the SEC at 1-800-SEC-0330. The registration statement,
including all exhibits and schedules and amendments, has been filed with the SEC through the
Electronic Data Gathering, Analysis and Retrieval system, and is publicly available through
the SECs Website located at http://www.sec.gov.
49
LIFEVANTAGE CORPORATION, FORMERLY
LIFELINE THERAPEUTICS, INC.
Index to Consolidated Financial Statements
F-1
Unaudited Interim Financial Statements
LIFELINE THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2006 and June 30, 2006 (Restated)
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
(Audited) |
|
|
September 30, 2006 |
|
June 30, 2006 |
|
|
|
|
|
|
(Restated*) |
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
143,560 |
|
|
$ |
228,112 |
|
Marketable securities, available for sale |
|
|
2,568,406 |
|
|
|
3,008,573 |
|
Accounts receivable, net |
|
|
390,600 |
|
|
|
107,892 |
|
Inventory |
|
|
91,969 |
|
|
|
45,001 |
|
Deferred expenses |
|
|
125,918 |
|
|
|
152,677 |
|
Deposit with manufacturer |
|
|
470,416 |
|
|
|
555,301 |
|
Prepaid expenses |
|
|
584,693 |
|
|
|
316,659 |
|
|
|
|
Total current assets |
|
|
4,375,562 |
|
|
|
4,414,215 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
254,088 |
|
|
|
245,000 |
|
Intangible assets, net |
|
|
2,199,412 |
|
|
|
2,162,042 |
|
Deposits |
|
|
325,440 |
|
|
|
316,621 |
|
|
|
|
TOTAL ASSETS |
|
$ |
7,154,502 |
|
|
$ |
7,137,878 |
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
645,137 |
|
|
$ |
613,833 |
|
Accrued expenses |
|
|
305,833 |
|
|
|
399,305 |
|
Margin debt payable |
|
|
607,487 |
|
|
|
|
|
Deferred revenue |
|
|
876,660 |
|
|
|
1,144,950 |
|
Capital lease obligations, current portion |
|
|
2,059 |
|
|
|
1,985 |
|
|
|
|
Total current liabilities |
|
|
2,437,176 |
|
|
|
2,160,073 |
|
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
|
Capital lease obligations, net of current portion |
|
|
2,603 |
|
|
|
3,146 |
|
|
|
|
Total liabilities |
|
|
2,439,779 |
|
|
|
2,163,219 |
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Preferred stock par value $.001, 50,000,000 shares
authorized, no shares issued or outstanding |
|
|
|
|
|
|
|
|
Common stock, Series A -par value $.001, 250,000,000
shares authorized and 22,118,034 issued and outstanding |
|
|
22,118 |
|
|
|
22,118 |
|
Common stock, Series B par value $.001,
250,000,000 shares authorized, no shares issued or
outstanding |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
14,542,396 |
|
|
|
14,018,487 |
|
Accumulated (deficit) |
|
|
(9,830,547 |
) |
|
|
(9,010,339 |
) |
Unrealized (loss) on securities available for sale |
|
|
(19,244 |
) |
|
|
(55,607 |
) |
|
|
|
Total stockholders equity |
|
|
4,714,723 |
|
|
|
4,974,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
7,154,502 |
|
|
$ |
7,137,878 |
|
|
|
|
*See Note 2, Summary of Significant Accounting Policies
The accompanying notes are an integral part of these condensed consolidated statements.
F-2
LIFELINE THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
September 30, |
|
|
|
|
|
2006 |
|
2005 |
|
|
|
Sales, net |
|
$ |
2,075,482 |
|
|
$ |
2,964,591 |
|
Cost of sales |
|
|
375,552 |
|
|
|
596,561 |
|
|
|
|
Gross profit |
|
|
1,699,930 |
|
|
|
2,368,030 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Marketing and customer service |
|
|
1,032,815 |
|
|
|
1,144,470 |
|
General and administrative |
|
|
1,407,626 |
|
|
|
1,065,409 |
|
Research and development |
|
|
65,683 |
|
|
|
|
|
Depreciation and amortization |
|
|
29,432 |
|
|
|
86,374 |
|
|
|
|
Total operating expenses |
|
|
2,535,556 |
|
|
|
2,296,253 |
|
|
|
|
Operating (loss) |
|
|
(835,626 |
) |
|
|
71,777 |
|
|
|
|
|
|
|
|
|
|
Other income and (expense): |
|
|
|
|
|
|
|
|
Interest income (expense) |
|
|
15,418 |
|
|
|
20,466 |
|
Other |
|
|
|
|
|
|
(11,928 |
) |
|
|
|
Net other income (expense) |
|
|
15,418 |
|
|
|
8,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(820,208 |
) |
|
$ |
80,315 |
|
|
|
|
Net income (loss) per share, basic and diluted |
|
$ |
(0.04 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic |
|
|
22,118,034 |
|
|
|
22,117,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, fully diluted |
|
|
22,118,034 |
|
|
|
24,953,510 |
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated statements.
F-3
LIFELINE THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(820,208 |
) |
|
$ |
80,315 |
|
Adjustments to reconcile net income (loss) to
net cash (used) provided by operating
activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
29,432 |
|
|
|
86,374 |
|
Stock based compensation |
|
|
523,910 |
|
|
|
21,388 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Decrease/(increase) in accounts receivable |
|
|
(282,708 |
) |
|
|
302,707 |
|
(Increase)/decrease in inventory |
|
|
(46,968 |
) |
|
|
83,283 |
|
Decrease in deferred expenses |
|
|
26,759 |
|
|
|
|
|
Decrease in deposits to manufacturer |
|
|
84,884 |
|
|
|
300,292 |
|
(Increase)/decrease in prepaid expenses |
|
|
(268,035 |
) |
|
|
99,432 |
|
(Increase) in other assets |
|
|
(8,819 |
) |
|
|
(210,002 |
) |
Increase/(decrease) in accounts payable |
|
|
31,304 |
|
|
|
(122,461 |
) |
Increase/(decrease) in accrued expenses |
|
|
(93,472 |
) |
|
|
328,335 |
|
(Decrease)/increase in deferred revenue |
|
|
(268,290 |
) |
|
|
483,840 |
|
|
|
|
Net Cash (Used) Provided by Operating Activities |
|
|
(1,092,211 |
) |
|
|
1,453,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Redemption of marketable securities |
|
|
|
|
|
|
|
|
Purchase of intangible assets |
|
|
(37,370 |
) |
|
|
(969 |
) |
Purchase of equipment |
|
|
(38,520 |
) |
|
|
(75,483 |
) |
|
|
|
Net Cash Provided (Used) by Investing Activities |
|
|
400,641 |
|
|
|
(76,452 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from margin debt |
|
|
767,378 |
|
|
|
|
|
Repayment on margin debt |
|
|
(159,891 |
) |
|
|
|
|
Principal payments under capital lease obligation |
|
|
(469 |
) |
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities |
|
|
607,018 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)/Increase in cash |
|
|
(84,552 |
) |
|
|
1,377,051 |
|
Cash and Cash Equivalents beginning of period |
|
|
228,112 |
|
|
|
3,385,205 |
|
|
|
|
Cash and Cash Equivalents end of period |
|
$ |
143,560 |
|
|
$ |
4,762,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Cash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
Acquisition of asset through capital lease |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
Cash paid for interest expense |
|
$ |
|
|
|
$ |
|
|
Cash paid for income taxes |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated statements.
F-4
LIFELINE THERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(UNAUDITED)
These unaudited Condensed Consolidated Financial Statements and Notes should be read in
conjunction with the audited financial statements and notes of Lifeline Therapeutics, Inc. as of
and for the year ended June 30, 2006 included in our Annual Report on Form 10-KSB.
Note 1 Organization and Basis of Presentation:
The condensed consolidated financial statements included herein have been prepared by us,
without audit, pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC). In the opinion of the management of Lifeline Therapeutics, Inc. (Lifeline or the
Company), these interim Financial Statements include all adjustments, consisting of normal
recurring adjustments, that are considered necessary for a fair presentation of the Companys
financial position as of September 30, 2006, and the results of operations for the three month
periods ended September 30, 2006 and 2005 and the cash flows for the three month periods ended
September 30, 2006 and 2005. Interim results are not necessarily indicative of results for a full
year or for any future period. Certain prior period amounts have been reclassified to conform with
our current period presentation.
The condensed consolidated financial statements and notes included herein are presented as
required by Form 10-QSB, and do not contain certain information included in the Companys audited
financial statements and notes for the fiscal year ended June 30, 2006 pursuant to the rules and
regulations of the SEC. For further information refer to the financial statements and notes
thereto as of and for the year ended June 30, 2006, included in the Annual Report on Form 10-KSB on
file with the SEC.
Note 2 Summary of Significant Accounting Policies:
Restatement
On March 10, 2005, the Company reached an agreement with the minority shareholder in the
Companys 81% owned subsidiary, Lifeline Nutraceuticals Corporation (LNC). The minority
shareholder was a former officer of LNC. In accordance with the terms of the agreement, the
Company exchanged 1,000,000 shares of its Series A common stock for the remaining 4,500,000 shares
of LNC, representing 19% of the outstanding shares of LNC. The closing price of the Companys
Series A common stock on March 10, 2005 was $9.00 per share. Since the Companys stock had
historically been thinly traded, this 1,000,000-share issuance represented a significant block of
the Companys total outstanding shares. Accordingly, the Company took a marketability discount to
arrive at an estimated fair value of $5.31 per share. The acquisition of the minority interest was
previously accounted for utilizing the purchase method of accounting resulting in goodwill of
$5,310,000.
On November 10, 2006, in response to comments raised by the Staff of the Securities and
Exchange Commission (SEC) concerning the Companys registration statement filed on Form SB-2 and
the Companys valuation of goodwill and intangible assets on its financial statements, and to
ensure that its financial reporting remains in full compliance with Generally Accepted Accounting
Principles, the Companys Board of Directors concluded that it was appropriate to restate the
Companys annual report on Form 10-KSB for the fiscal year ended June 30, 2006. The Board
determined that, due to a concurrent private placement of the Companys Series A common stock at
$2.00 per share at about the time of the acquisition, the acquisition cost of the minority interest
in LNC should be recorded at $2,000,000. In addition, since the Companys motivation in purchasing
the minority interest in its subsidiary was to gain control over its intellectual property, the
purchase price for the acquisition should be allocated entirely to intellectual property.
The balance sheet as of September 30, 2006 reflects the Companys reduction of goodwill from
$5,310,000 to $0, an increase of patent costs by $2,000,000 and a reduction of additional paid-in
capital by $3,310,000. The Company intends to reflect these revisions on the Companys balance
sheets as of June 30, 2006 and 2005 included in its Annual Report on Form 10-KSB for the fiscal
year ended June 30, 2006. The Company is working to complete the review and restate the financial
statements. The Company will file the restated financial statements as soon as is practicable.
The Company expects no adjustment to the income statement nor in cash expenditures as a result of
the restatement.
Consolidation
F-5
The accompanying financial statements include the accounts of the Company and its wholly owned
subsidiary, LNC. All inter-company accounts and transactions between the entities have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires us to make estimates and assumptions. Such estimates and
assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenue
and expense during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue from product sales is recognized upon passage of title and risk of loss to customers
(when product is shipped from the fulfillment facility to direct sales customers). The Company
ships the majority of its direct sales product by United Parcel Service (UPS) and receives
substantially all payment for these sales in the form of credit card charges. Sales revenue and
estimated returns are recorded when product is shipped. The Companys return policy is to provide
a 30-day money back guarantee on orders placed by customers. To date, the Company has experienced
monthly returns of approximately 2% of sales. As of September 30, 2006 and 2005, the Companys
reserve balance for returns and allowances was approximately $65,000 and $26,000, respectively.
For retail customers, the Company analyzes its contracts to determine the appropriate
accounting treatment for its recognition of revenue on a customer by customer basis.
In July 2005, the Company entered into an agreement with General Nutrition Distribution, LP
(GNC). Among other terms of the agreement, sales are subject to a provision whereby the seller
and buyer agree that all Products shall be sold on a sale or return basis whereby product can be
returned by GNC customers for a full refund. The GNC Vendor Handbook pledges a 100-percent
guarantee by GNC to the purchasers of its products and expects vendors to do the same. The
Company has begun the recognition of revenue during the current interim reporting period due to the
accumulation of historical data. The Company recognizes revenue and its related costs when it
obtains sufficient information to reasonably estimate the amount of future returns. Accordingly,
the Company recognizes revenue associated with sales to the distributor when the product is resold
by the distributor. Prior to this change, all revenue and related costs from this customer were
deferred. A total of $748,230 of revenue previously deferred was recognized from the GNC agreement
in the three months ended September 30, 2006.
In July 2006, Lifeline entered into an agreement with CVS/pharmacy (CVS) for the sale of
Protandim® throughout the CVS store network. Among other terms of the agreement,
one-half of the payment for the initial order, approximately $247,000, is withheld by CVS until
certain sell-through parameters are met. Since the Company does not have sufficient history with
CVS to reasonably estimate the sell-through of Protandim® within the CVS store network,
50% of the revenue and related cost has been deferred. The Company will recognize this deferred
revenue and related cost of sales when it obtains sufficient sell-through information to reasonably
estimate the amount of future returns.
The table below shows the effect of the change in the Companys deferred revenue and expense
for the three months ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
Deferred |
|
|
Deferred |
|
|
|
Revenue |
|
|
Expense |
|
Deferred revenue and expense as of June 30, 2006 |
|
$ |
1,144,950 |
|
|
$ |
152,677 |
|
|
|
|
|
|
|
|
|
|
Additional deferred revenue / expense in the current period |
|
|
678,960 |
|
|
|
101,627 |
|
|
|
|
|
|
|
|
|
|
Recognition of revenue from prior period GNC sales |
|
|
(748,230 |
) |
|
|
(98,268 |
) |
|
|
|
|
|
|
|
|
|
Recognition of revenue due to GNC
sell-through in the current period |
|
|
(199,020 |
) |
|
|
(30,118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue / expenses
as of September 30, 2006 |
|
$ |
876,660 |
|
|
$ |
125,918 |
|
|
|
|
|
|
|
|
Accounts Receivable
F-6
The Companys accounts receivable consist of receivables from retail distributors. Management
reviews accounts receivable on a regular basis to determine if any receivables will potentially be
uncollectible. However, as the Company had
only two retail distributors, GNC and CVS, as of September 30, 2006, and has not experienced
non-payment from these customers, the Company has no allowance for doubtful accounts. For credit
card sales to direct sales customers, the Company verifies the customers credit card prior to
shipment of product. Payment on credit cards is treated as a deposit in transit and is not
reflected as a receivable on the accompanying balance sheet. Based on information available,
management does not believe that there is justification for an allowance for doubtful accounts as
of September 30, 2006. There is no bad debt expense for the three month period ended September 30,
2006.
Earnings per share
Basic earnings (loss) per share are computed by dividing the net income or loss by the
weighted average number of common shares outstanding during the period. Diluted earnings per
common share are computed by dividing net income by the weighted average common shares and
potentially dilutive common share equivalents. The effects of potential common stock equivalents
are not included in computations when their effect is antidilutive. Because of the net loss for
the three month periods ended September 30, 2006 and 2005, the basic and diluted average
outstanding shares are the same, since including the additional shares would have an antidilutive
effect on the loss per share calculation.
Goodwill and Other Intangible Assets
The Company has adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets
(SFAS 142). SFAS 142 establishes standards for accounting for goodwill and other intangibles
acquired in business combinations. Goodwill and other intangibles with indefinite lives are not
amortized.
As of September 30, 2006 and June 30, 2006, intangible assets consisted of:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2006 |
|
|
|
|
Patent costs |
|
$ |
2,118,542 |
|
|
$ |
2,097,905 |
|
Trademark costs |
|
|
80,870 |
|
|
|
64,137 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
$ |
2,199,412 |
|
|
$ |
2,162,042 |
|
|
|
|
|
|
|
|
Stock-Based Compensation
Prior to July 1, 2006, the Company adhered to SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123). SFAS 123 provides a method of accounting for stock-based compensation
arrangements, based on fair value of the stock-based compensation utilizing various assumptions
regarding the underlying attributes of the options and stock, rather than the intrinsic method of
accounting for stock-based compensation which is proscribed in Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25). The Company adopted the
modified prospective application of SFAS 123(R), Share-Based Payment (SFAS 123(R)), for all
options and warrants issued to employees and directors during the first quarter ended September 30,
2006 and, as a result, has not restated its financial results for prior periods.
In an effort to advance the interests of the Company and its shareholders, the Company has
established its 2007 Long-Term Incentive Plan (the Plan) to provide incentives to certain
eligible employees who contribute significantly to the strategic and long-term performance
objectives and growth of the Company. The Plan is subject to shareholder approval at the November
21, 2006 shareholder meeting. Options to purchase approximately 600,000 shares have been granted
to various employees at a price of $0.76 per share, vesting over a three-year period. A maximum of
6,000,000 shares of Series A common stock can be issued under the Plan in connection with the grant
of awards.
Options granted prior to the adoption of the Plan will be terminated and new options on
substantially identical terms and provisions (i.e., identical number of underlying shares, exercise
price, vesting schedule, and expiration date as the original options) will be granted under the
Plan. As no modifications to the terms and provisions of the previously granted options will
occur, the Company will account for the related compensation expense under SFAS 123(R) as it did
prior to the effective date of the Plan.
F-7
In certain circumstances, the Company issued common stock for invoiced services, to pay
creditors and in other similar situations. In accordance with Emerging Issues Task Force 96-18
(EITF 96-18), payments in equity instruments to non-employees for goods or services are accounted
for by the fair value method, which relies on the valuation of the service at the date of the
transaction, or public stock sales price, whichever is more reliable as a measurement.
Warrants and options were granted to various consultants and directors for services rendered
during the three month period ended September 30, 2006. As the Company has adopted SFAS 123(R)
effective July 1, 2006, an adjustment to net income for compensation expense to recognize annual
vesting has been recorded under SFAS 123(R).
|
|
|
|
|
|
|
|
|
|
|
Three month period |
|
|
|
ended September 30, |
|
|
|
2006 |
|
|
2005 |
|
Net income (loss) as reported: |
|
$ |
(820,208 |
) |
|
$ |
80,315 |
|
|
|
|
|
|
|
|
|
|
Share-based employee compensation cost
included in net income (loss): |
|
|
523,910 |
|
|
|
21,388 |
|
|
|
|
|
|
|
|
|
|
Share-based employee compensation cost that
would have been included in net income if
the fair value-based method had been applied
to all awards: |
|
|
(523,910 |
) |
|
|
(54,904 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) as if the fair
value-based method had been applied to all
awards: |
|
$ |
(820,208 |
) |
|
$ |
46,799 |
|
|
|
|
|
|
|
|
|
|
Basic and fully diluted earnings per share: |
|
|
|
|
|
|
|
|
As Reported: |
|
$ |
(0.04 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
Pro forma: |
|
$ |
(0.04 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
The total unrecognized compensation expense to be recognized in the future is approximately
$3,750,000.
The fair value of the options granted in the three month periods ended September 30, 2006 and
2005 was estimated at the date of grant using the Black-Scholes option pricing model with the
following assumptions:
|
1. |
|
risk-free interest rate of between 4.71 and 4.97 percent in the three month period ended
September 30, 2006 and between 3.84 and 4.18 percent in the
three month period ended
September 30, 2005; |
|
|
2. |
|
dividend yield of -0- percent in 2006 and 2005; |
|
|
3. |
|
expected life of 2 6 years in 2006 and 2005; and |
|
|
4. |
|
a volatility factor of the expected market price of the Companys common stock
of between 185 and 211 percent in the three month period ended September 30, 2006
and between 220 and 259 percent in the three month period ended September 30, 2005. |
Reclassification
Certain prior period amounts have been reclassified to comply with current period
presentation.
Effect of New Accounting Pronouncements
In September 2006, SFAS No. 158, Employers Accounting for Defined Benefit Pensions and Other
Post-Retirement Plans (SFAS 158), was issued by the FASB and is effective for financial
statements for fiscal years ending after December 15, 2006. SFAS 158 improves financial reporting
by requiring an employer to recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year in which the changes
occur through comprehensive income of a business entity or changes in unrestricted net assets of a
not-for-profit organization. This Statement also improves financial reporting by requiring an
employer to measure the funded status of a plan as of the date of
F-8
its year-end statement or
financial position, with limited exceptions. We anticipate that SFAS 158 will not have a
material impact on our financial statements.
Note 3 Margin Debt
In order that sales of marketable securities would not have to occur before maturity to fund
short term operating needs of the Company, a margin account was established to borrow against the
marketable securities at a variable interest rate. Margin Debt payable was approximately $607,500
as of September 30, 2006, and there was none outstanding as of June 30, 2006.
Note 4 Stockholders Equity
On June 12, 2006, the Company purchased a portfolio of marketable securities primarily
comprised of corporate bonds. As of September 30, 2006, the portfolio declined in value and the
Company reported in comprehensive income an unrealized loss of $(19,244). In accordance with SFAS
115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115), the Company
accounted for the investment as available for sale securities and recorded the unrealized loss as
comprehensive income in a separate component of stockholders equity.
During the three month period ended September 30, 2006, the Company granted warrants and
options to consultants for services rendered, under EITF 96-18. Effective July 1, 2006, the
Company adopted SFAS 123(R) for employees and directors. In accordance with SFAS 123(R), payments
in equity instruments for goods or services are accounted for by the fair value method. For the
three months ended September 30, 2006 and 2005, compensation of $523,910 and $21,388, respectively,
was reflected as an increase to additional paid in capital.
In April and May 2005, the Company issued, in a private placement, units consisting of 10,000
shares of common stock and a warrant to purchase 10,000 shares of common stock for $2.50 per share,
exercisable through April 18, 2008, to accredited investors for cash and exchange of bridge loan
notes. Each unit was offered at a purchase price equal to $2.00 per share. The private placement
was made pursuant to an agreement with an investment banking firm entered into by the Company on
January 15, 2005. The securities offered in the private placement have not been registered under
the Securities Act of 1933 (the Act) or under the securities laws of any state. The securities
are restricted securities as defined in Rule 144 under the Act. The securities were offered
pursuant to an exemption from registration and may not be reoffered or sold in the United States
absent registration or an applicable exemption from the registration requirements.
Pursuant to the private placement, the Company received $4,988,811 in cash from certain
accredited investors in exchange for 2,499,764 shares of common stock and an equal number of
warrants. The Company also issued 1,507,202 shares of its common stock and an equal number of
warrants in exchange for $3,014,372 bridge notes and accrued interest. The Company paid
commissions of $508,134 plus a $75,000 expense allowance to the investment banking firm, and issued
warrants to the investment banking firm and another placement agent to purchase 409,281 shares of
common stock, exercisable at $2.00 per share through April 18, 2008. After payment of commissions,
the expense allowance, and a fee to the escrow agent, the Company received net proceeds of
$4,405,677. In conjunction with the closing of the private placement, the Company repaid bridge
notes payable with a principal balance of $160,000 and related accrued interest of $10,733 to note
holders electing to be repaid rather than exchange their notes for units in the private placement.
The Company has an obligation to register the Series A common stock issued in the private
placement and the shares underlying the warrants received by bridge note holders and investors in
the private placement. The Company filed a registration statement for these shares in June 2005
and is currently in discussions with the Staff of the Securities and Exchange Commission (See SEC
Staff Comments).
The Companys articles of incorporation authorize the issuance of preferred shares. However,
as of September 30, 2006, none have been issued nor have any rights or preferences been assigned to
the preferred shares by the Board of Directors.
Note 5 Stock Option Grants and Warrants
Stock Option Grants During the three months ended September 30, 2006, the Company
granted approximately 600,000 options to employees. No additional stock options were granted to
directors or consultants. Options outstanding grant the right to purchase shares of the Companys
Series A common stock at prices between $2.00 and $3.47 per share.
F-9
The options are not
transferable and expire on various dates through January 4, 2016. The Company adopted SFAS 123(R)
beginning July 1, 2006 for the first quarter ended September 30, 2006.
Warrants At September 30, 2006, 176,428 warrants were outstanding. There were 9,000
warrants granted during the three months ended September 30, 2006 at exercise prices ranging
between $0.76 and $0.98 with a weighted average exercise price of $0.90 and expiration dates
ranging from July 31, 2008 to September 30, 2008.
There were 10,170 warrants granted during the three months ended September 30, 2005 at
exercise prices ranging between $5.10 and $9.85 with a weighted average exercise price of $6.66 and
expiration dates ranging from July 31, 2007 to September 30, 2007.
F-10
Audited Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Lifeline Therapeutics, Inc.
Englewood, Colorado
We have audited the accompanying consolidated balance sheets of Lifeline Therapeutics, Inc.
as of June 30, 2006 and 2005 and the related consolidated statements of operations,
stockholders equity and comprehensive income, and cash flows for the years then ended.
These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion of the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no opinion. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the financial position of Lifeline Therapeutics, Inc. as of June 30,
2006 and 2005 and the results of its operations and its cash flows for the years then ended
in conformity with accounting principles generally accepted in the United States of America.
As discussed in Notes 2 and 3 to the consolidated financial statements, the Company
restated the balance sheets as of June 30, 2006 and 2005 and statements of stockholders
equity and comprehensive income for the years ended June 30, 2006 and 2005 and statement of
cash flows for the year ended 2005.
/s/ Gordon, Hughes & Banks, LLP
Greenwood Village, Colorado
August 15, 2006,
Except for Notes 2 and 3 for which the
Date is November 28, 2006
F-11
LIFELINE THERAPEUTICS, INC.
RESTATED CONSOLIDATED BALANCE SHEETS
June 30, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006 |
|
|
June 30, 2005 |
|
|
|
(Restated*) |
|
|
(Restated*) |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
228,112 |
|
|
$ |
4,405,336 |
|
Marketable securities, available for sale |
|
|
3,008,573 |
|
|
|
|
|
Accounts receivable, net |
|
|
107,892 |
|
|
|
|
|
Inventory |
|
|
45,001 |
|
|
|
219,644 |
|
Deferred expenses |
|
|
152,677 |
|
|
|
|
|
Deposit with manufacturer |
|
|
555,301 |
|
|
|
991,560 |
|
Prepaid expenses |
|
|
316,659 |
|
|
|
415,806 |
|
|
|
|
Total current assets |
|
|
4,414,215 |
|
|
|
6,032,346 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
245,000 |
|
|
|
200,944 |
|
Intangible assets, net |
|
|
2,162,042 |
|
|
|
2,268,830 |
|
Deposits |
|
|
316,621 |
|
|
|
31,192 |
|
|
|
|
TOTAL ASSETS |
|
$ |
7,137,878 |
|
|
$ |
8,533,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
613,833 |
|
|
$ |
657,528 |
|
Accrued expenses |
|
|
399,305 |
|
|
|
207,672 |
|
Deferred revenue |
|
|
1,144,950 |
|
|
|
|
|
Capital lease obligations, current portion |
|
|
1,985 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
2,160,073 |
|
|
|
865,200 |
|
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
|
Capital lease obligations, net of current portion |
|
|
3,146 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,163,219 |
|
|
|
865,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Preferred stock par value $.001, 50,000,000 shares authorized, no shares
issued or outstanding |
|
|
|
|
|
|
|
|
Common stock, Series A -par value $.001,
250,000,000 shares authorized and 22,117,992
issued and outstanding |
|
|
22,118 |
|
|
|
22,118 |
|
Common stock, Series B par value $.001,
250,000,000 shares authorized, no shares issued
or outstanding |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
14,018,487 |
|
|
|
13,921,832 |
|
Accumulated (deficit) |
|
|
(9,010,339 |
) |
|
|
(6,275,838 |
) |
Unrealized (loss) on securities available for sale |
|
|
(55,607 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
4,974,659 |
|
|
|
7,668,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
7,137,878 |
|
|
$ |
8,533,312 |
|
|
|
|
*See Note 2, Restatement and Summary of Significant Accounting Policies
The accompanying notes are an integral part of these consolidated statements.
F-12
LIFELINE THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended June 30, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
|
|
Sales, net |
|
$ |
7,165,819 |
|
|
$ |
2,353,795 |
|
Cost of sales |
|
|
1,491,332 |
|
|
|
393,551 |
|
|
|
|
Gross profit |
|
|
5,674,487 |
|
|
|
1,960,244 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Marketing and customer service |
|
|
4,259,711 |
|
|
|
923,774 |
|
General and administrative |
|
|
3,904,368 |
|
|
|
2,981,754 |
|
Research and development |
|
|
114,163 |
|
|
|
37,933 |
|
Depreciation and amortization |
|
|
265,279 |
|
|
|
101,596 |
|
|
|
|
Total operating expenses |
|
|
8,543,521 |
|
|
|
4,045,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) |
|
|
(2,869,034 |
) |
|
|
(2,084,813 |
) |
|
|
|
|
|
|
|
|
|
Other income and (expense): |
|
|
|
|
|
|
|
|
Interest income (expense) |
|
|
134,533 |
|
|
|
(100,563 |
) |
Amortization of debt and stock offering costs |
|
|
|
|
|
|
(447,132 |
) |
Beneficial conversion (expense) |
|
|
|
|
|
|
(3,185,105 |
) |
Other |
|
|
|
|
|
|
(4,784 |
) |
|
|
|
Total operating expenses |
|
|
134,533 |
|
|
|
(3,737,584 |
) |
|
|
|
Net (loss) |
|
$ |
(2,734,501 |
) |
|
$ |
(5,822,397 |
) |
|
|
|
Net (loss) per share, basic and diluted |
|
$ |
(0.12 |
) |
|
$ |
(0.33 |
) |
|
|
|
Weighted average shares outstanding, basic and diluted |
|
|
22,117,992 |
|
|
|
17,583,562 |
|
|
|
|
The accompanying notes are an integral part of these consolidated statements.
F-13
LIFELINE THERAPEUTICS, INC.
RESTATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
For the Years ended June 30, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
Series A Common Stock |
|
|
Paid In Capital |
|
|
Comprehensive |
|
|
Accumulated |
|
|
Total |
|
|
Comprehensive |
|
|
|
Shares |
|
|
Amount |
|
|
(Restated*) |
|
|
Income/(loss) |
|
|
Deficit |
|
|
(Restated*) |
|
|
Income |
|
|
Balances, July 1, 2004 |
|
|
16,374,946 |
|
|
$ |
16,375 |
|
|
$ |
207,470 |
|
|
$ |
|
|
|
$ |
(453,441 |
) |
|
$ |
(229,596 |
) |
|
|
|
|
Issuance of stock for minority interest in
subsidiary at $2.00 per share |
|
|
1,000,000 |
|
|
|
1,000 |
|
|
|
1,999,000 |
|
|
|
|
|
|
|
|
|
|
|
2,000,000 |
|
|
|
|
|
Contribution of stock to charity |
|
|
200,000 |
|
|
|
200 |
|
|
|
649,800 |
|
|
|
|
|
|
|
|
|
|
|
650,000 |
|
|
|
|
|
Conversion of debt to common stock at $0.50
per share |
|
|
536,080 |
|
|
|
536 |
|
|
|
267,504 |
|
|
|
|
|
|
|
|
|
|
|
268,040 |
|
|
|
|
|
Rights of beneficial conversion of debt |
|
|
|
|
|
|
|
|
|
|
920,662 |
|
|
|
|
|
|
|
|
|
|
|
920,662 |
|
|
|
|
|
Warrants issued with convertible debt |
|
|
|
|
|
|
|
|
|
|
2,114,443 |
|
|
|
|
|
|
|
|
|
|
|
2,114,443 |
|
|
|
|
|
Proceeds from private placement, net of
offering costs of $583,134 |
|
|
2,499,764 |
|
|
|
2,500 |
|
|
|
4,403,177 |
|
|
|
|
|
|
|
|
|
|
|
4,405,677 |
|
|
|
|
|
Conversion of debt to common stock at $2.00
per share |
|
|
1,507,202 |
|
|
|
1,507 |
|
|
|
3,012,865 |
|
|
|
|
|
|
|
|
|
|
|
3,014,372 |
|
|
|
|
|
Compensation expense associated with
stock option grants |
|
|
|
|
|
|
|
|
|
|
317,500 |
|
|
|
|
|
|
|
|
|
|
|
317,500 |
|
|
|
|
|
Warrants issued for services |
|
|
|
|
|
|
|
|
|
|
29,411 |
|
|
|
|
|
|
|
|
|
|
|
29,411 |
|
|
|
|
|
Net (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,822,397 |
) |
|
|
(5,822,397 |
) |
|
$ |
(5,822,397 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2005 |
|
|
22,117,992 |
|
|
$ |
22,118 |
|
|
$ |
13,921,832 |
|
|
$ |
|
|
|
$ |
(6,275,838 |
) |
|
$ |
7,668,112 |
|
|
$ |
(5,822,397 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
See Note 2, Restatement and Summary of Significant Accounting Policies |
The accompanying notes are an integral part of these consolidated statements.
F-14
LIFELINE THERAPEUTICS, INC.
RESTATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
For the Years ended June 30, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
Series A Common |
|
|
Stock |
|
|
Paid In Capital |
|
|
Other Comprehensive |
|
|
Accumulated |
|
|
Total |
|
|
Comprehensive |
|
|
|
Shares |
|
|
Amount |
|
|
(Restated*) |
|
|
Income/(loss) |
|
|
Deficit |
|
|
(Restated*) |
|
|
Income |
|
|
Balances, June 30, 2005 |
|
|
22,117,992 |
|
|
$ |
22,118 |
|
|
$ |
13,921,832 |
|
|
$ |
|
|
|
$ |
(6,275,838 |
) |
|
$ |
7,668,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (loss) on
securities available for
sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,607 |
) |
|
|
|
|
|
|
(55,607 |
) |
|
$ |
(55,607 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued for services |
|
|
|
|
|
|
|
|
|
|
96,655 |
|
|
|
|
|
|
|
|
|
|
|
96,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,734,501 |
) |
|
|
(2,734,501 |
) |
|
|
(2,734,501 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2006 |
|
|
22,117,992 |
|
|
$ |
22,118 |
|
|
$ |
14,018,487 |
|
|
$ |
(55, 607 |
) |
|
$ |
(9,010,339 |
) |
|
$ |
4,974,659 |
|
|
$ |
(2,790,108 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
See Note 2, Restatement and Summary of Significant Accounting Policies |
The accompanying notes are an integral part of these consolidated statements.
F-15
LIFELINE THERAPEUTICS, INC.
RESTATED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Restated*) |
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
Net (loss) |
|
$ |
(2,734,501 |
) |
|
|
$ |
(5,822,397 |
) |
Adjustments to reconcile net (loss) to net cash
(used) by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
265,279 |
|
|
|
|
3,726,833 |
|
Charitable donation of common stock |
|
|
|
|
|
|
|
650,000 |
|
Accrued interest converted to stock |
|
|
|
|
|
|
|
98,412 |
|
Loss on disposal of real estate |
|
|
|
|
|
|
|
4,784 |
|
Options issued to employee |
|
|
|
|
|
|
|
317,500 |
|
Warrants issued for services |
|
|
96,655 |
|
|
|
|
29,411 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
(Increase) in accounts receivable |
|
|
(107,892 |
) |
|
|
|
|
|
Decrease/(increase) in inventory |
|
|
174,643 |
|
|
|
|
(219,644 |
) |
Decrease/(increase) in deposits to manufacturer |
|
|
436,259 |
|
|
|
|
(991,560 |
) |
Decrease/(increase) in prepaid expenses |
|
|
99,147 |
|
|
|
|
(407,993 |
) |
(Increase) in other assets |
|
|
(285,429 |
) |
|
|
|
(25,050 |
) |
(Decrease)/increase in accounts payable |
|
|
(43,695 |
) |
|
|
|
629,309 |
|
Increase in accrued expenses |
|
|
191,632 |
|
|
|
|
109,638 |
|
Increase in deferred revenue |
|
|
1,144,950 |
|
|
|
|
|
|
(Increase) in deferred expenses |
|
|
(152,677 |
) |
|
|
|
|
|
Increase in accrued interest |
|
|
|
|
|
|
|
7,911 |
|
|
|
|
|
|
|
Net Cash (Used) by Operating Activities |
|
|
(915,629 |
) |
|
|
|
(1,892,846 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
Purchases of marketable securities |
|
|
(3,064,180 |
) |
|
|
|
|
|
Purchase of equipment |
|
|
(136,367 |
) |
|
|
|
(59,059 |
) |
Purchase of third party software |
|
|
|
|
|
|
|
(141,451 |
) |
Patent costs |
|
|
(59,879 |
) |
|
|
|
(102,138 |
) |
Payment for non-compete agreement |
|
|
|
|
|
|
|
(250,000 |
) |
|
|
|
|
|
|
Net Cash (Used) by Investing Activities |
|
|
(3,260,426 |
) |
|
|
|
(552,648 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
Collect subscription receivable |
|
|
|
|
|
|
|
18,400 |
|
Principal payments under capital lease obligation |
|
|
(1,169 |
) |
|
|
|
|
|
Proceeds from bridge loans |
|
|
|
|
|
|
|
2,954,000 |
|
Repayment of bridge loans |
|
|
|
|
|
|
|
(160,000 |
) |
Proceeds from private placements |
|
|
|
|
|
|
|
4,988,811 |
|
Payment of stock offering costs |
|
|
|
|
|
|
|
(583,134 |
) |
Payment of debt issuance cost |
|
|
|
|
|
|
|
(401,400 |
) |
Payment of stock offering costs |
|
|
|
|
|
|
|
(15,510 |
) |
|
|
|
|
|
|
Net Cash Provided (Used) by Financing Activities |
|
|
(1,169 |
) |
|
|
|
6,801,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash |
|
|
(4,177,224 |
) |
|
|
|
4,355,673 |
|
Cash and Cash Equivalents beginning of period |
|
|
4,405,336 |
|
|
|
|
49,663 |
|
|
|
|
|
|
|
Cash and Cash Equivalents end of period |
|
$ |
228,112 |
|
|
|
$ |
4,405,336 |
|
|
|
|
|
|
|
|
|
|
* |
|
See Note 2, Restatement and Summary of Significant Accounting Policies |
The accompanying notes are an integral part of these consolidated statements.
F-16
LIFELINE THERAPEUTICS, INC.
RESTATED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Restated*) |
Non Cash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
|
Acquisition of asset through capital lease |
|
$ |
6,300 |
|
|
|
|
|
|
Notes payable conversion to stock |
|
|
|
|
|
|
$ |
268,040 |
|
Bridge notes payable conversion to stock |
|
|
|
|
|
|
|
3,014,372 |
|
Warrant discount on convertible debt |
|
|
|
|
|
|
|
2,114,443 |
|
Beneficial conversion discount on debt |
|
|
|
|
|
|
|
920,662 |
|
Issuance of stock for minority interest in subsidiary (Restated*) |
|
|
|
|
|
|
|
2,000,000 |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
|
Cash paid for interest expense |
|
$ |
|
|
|
|
$ |
11,998 |
|
Cash paid for income taxes |
|
$ |
|
|
|
|
$ |
|
|
|
|
|
* |
|
See Note 2, Restatement and Summary of Significant Accounting Policies |
The accompanying notes are an integral part of these consolidated statements.
F-17
LIFELINE THERAPEUTICS, INC.
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS
Please note that these financial statements and the notes thereto do not reflect events
occurring after September 28, 2006 (the date of the original filing) with the exception of the
items discussed in Note 2, Restatement and Summary of Significant Accounting Policies, and Note
3, Acquisition of a Minority Interest in Subsidiary and Accounting for Goodwill and
Intellectual Property, below.
Note 1 Organization and Basis of Presentation:
Lifeline Therapeutics, Inc. (Lifeline Therapeutics or the Company) was formed under
Colorado law in June 1988, under the name Andraplex Corporation. The Company amended its name
to Yaak River Resources, Inc. in January 1992, and to Lifeline Therapeutics, Inc. in October
2004. The Company is in the business of manufacturing, marketing and selling its product
Protandim® to individuals throughout the United States of America. The Company
began selling to individuals during the fiscal year ended June 30, 2005 and to retail stores
beginning in fiscal year 2006. The Companys principal operations are located in Greenwood
Village, Colorado.
On October 26, 2004, the Company consummated an Agreement and Plan of Reorganization with
Lifeline Nutraceuticals Corporation (LNC), a privately held Colorado corporation, formed on
July 1, 2003. The shareholders of LNC exchanged 81% of their outstanding shares of common
stock for 15,385,110 shares of Series A common stock of the Company, which represented 94% of
the then issued and outstanding shares of the Company. The Company assumed the obligations of
LNC note holders as part of the transaction.
For legal purposes, the Company acquired LNC and is the parent company of LNC. However,
for accounting purposes, LNC is treated as the acquiring company in a reverse acquisition of
the Company. As a consequence, the financial statements presented reflect the consolidated
operations of both Lifeline Therapeutics and LNC for the two years ended June 30, 2006 and June
30, 2005 and Lifeline Therapeutics since the date of the reverse merger. For periods prior to
October 2004, the historical financial statements are those of LNC.
For the period from July 1, 2003 (LNCs date of formation) to June 30, 2005, LNC (and the
Company, following the reorganization) was in the development stage. Activities since
inception until February 2005 consisted of organizing LNC, consummation of the reorganization,
developing a business plan, formulation and testing of product, and raising capital. In late
February 2005, the Company began sales of its product Protandim® and commenced
principal planned operations. Accordingly, the Company is no longer in the development stage.
Note 2 Restatement and Summary of Significant Accounting Policies:
Restatement
Subsequent to the issuance of our June 30, 2006 consolidated financial statements, our
management determined that certain information in the consolidated balance sheets and
consolidated statements of stockholders equity and comprehensive income should be restated for
all periods presented in response to comments of the Staff of the SEC.
On November 10, 2006, in response to comments raised by the Staff of the SEC concerning
the Companys registration statement filed on Form SB-2 and the Companys valuation of goodwill
and intangible assets on its financial statements, and to ensure that its financial reporting
remains in full compliance with Generally Accepted Accounting Principles, the Companys Board
of Directors, in conjunction with the Companys independent registered accountants, concluded
that it was appropriate to restate the Companys annual report on Form 10-KSB for the
fiscal year ended June 30, 2006. The Board determined that, due to a concurrent private
placement of the Companys Series A common stock at $2.00 per share at about the time of the
acquisition, the acquisition cost of the minority interest in LNC should be recorded at
$2,000,000. In addition, since the primary purpose of purchasing the minority interest in its
subsidiary was to gain control over its intellectual property, the purchase price for the
acquisition should have been allocated entirely to intellectual property, i.e. patent costs.
This amendment restates and reclassifies intangible assets on our consolidated balance
sheets as of June 30, 2006 and 2005. The amendment also restates the consolidated statements
of stockholders equity and comprehensive income for the fiscal years ended June 30, 2006 and
2005 and statement of cash flows for the fiscal year ended June 30, 2005.
This restatement has no impact on previously reported revenue, net income, earnings per
share, or cash. This Form 10-KSB/A contains changes to Part II Item 6, Item 7, and Item 8A
to reflect this restatement. There are no other significant changes to the original Form
10-KSB other than those outlined above.
F-18
A summary of the effects of the restatement are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal year ended |
|
|
|
For the fiscal year ended |
|
|
|
June 30, 2006 |
|
|
|
June 30, 2005 |
|
|
|
|
|
|
|
Intangible Assets |
|
|
|
|
|
|
|
|
|
Patent costs as previously reported |
|
$ |
97,905 |
|
|
|
$ |
102,162 |
|
Restatement of patent costs related to the acquisition of LNC |
|
|
2,000,000 |
|
|
|
|
2,000,000 |
|
|
|
|
|
|
|
|
|
Restated patent costs |
|
$ |
2,097,905 |
|
|
|
$ |
2,102,162 |
|
|
|
|
|
|
|
|
|
|
|
Goodwill as previously reported |
|
$ |
5,310,000 |
|
|
|
$ |
5,310,000 |
|
Restatement of goodwill related to the acquisition of LNC |
|
|
(5,310,000 |
) |
|
|
|
(5,310,000 |
) |
|
|
|
|
|
|
|
|
Restated goodwill |
|
$ |
-0- |
|
|
|
$ |
-0- |
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-in-Capital |
|
|
|
|
|
|
|
|
|
Additional paid-in-capital as previously reported |
|
$ |
17,328,487 |
|
|
|
$ |
17,231,832 |
|
Restatement of additional paid-in-capital related to the
acquisition of LNC |
|
|
(3,310,000 |
) |
|
|
|
(3,310,000 |
) |
|
|
|
|
|
|
|
|
Restated additional paid-in-capital |
|
$ |
14,018,487 |
|
|
|
$ |
13,921,832 |
|
Consolidation
The accompanying financial statements include the accounts of the Company and its
wholly-owned subsidiary, LNC. All inter-company accounts and transactions between the entities
have been eliminated in consolidation.
Use of Estimates
Management of the Company has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and liabilities to
prepare these consolidated financial statements. Actual results could differ from those
estimates.
Revenue Recognition
Revenue from product sales is recognized upon passage of title and risk of loss to
customers (when product is shipped from the fulfillment facility to direct sales customers).
The Company ships the majority of its direct sales product by United Parcel Service (UPS) and
receives substantially all payment in the form of credit card charges. Sales revenue and
estimated returns are recorded when product is shipped. The Companys return policy is to
provide a 30-day money back guarantee on orders placed by customers. To date, the Company has
experienced monthly returns of approximately 2% of sales. As of June 30, 2006 and 2005, the
Companys reserve balance for returns and allowances was approximately $34,400 and $48,000,
respectively.
In July 2005, the Company entered into an agreement with General Nutrition Distribution,
LP (GNC). Among other terms of the agreement, sales are subject to a provision whereby the
seller and buyer agree that all Products shall be sold on a sale or return basis whereby
product can be returned by GNC customers for a full refund. The GNC Vendor Handbook pledges a
100-percent guarantee by GNC to the purchasers of its products and expects vendors to do the
same. Since the Company does not have sufficient history with GNC to reasonably estimate the
rate of product returns, the Company has deferred all revenue and costs related to these
shipments. The Company will recognize this deferred revenue and its related costs, classified
as deferred expense, when it obtains sufficient information to reasonably estimate the amount
of future returns. As of June 30, 2006, deferred revenue totaled $1,144,950 and related cost
of sales totaled $152,677.
Accounts Receivable
The Companys accounts receivable consist of receivables from retail distributors.
Management reviews accounts receivable on a regular basis to determine if any receivables will
potentially be uncollectible. However, as the Company had only one retail distributor, GNC, as
of June 30, 2006, and has never incurred any payment delays from this customer, the Company has
no allowance for doubtful accounts. For credit card sales to direct sales customers, the
Company verifies the customers credit card prior to shipment of product. Payment on credit
cards is treated as a deposit in transit and is not reflected as a receivable on the
accompanying balance sheet. Based on information available, management does not believe that
there is justification for an allowance for doubtful accounts as of June 30, 2006. There is no
bad debt expense for the year ended June 30, 2006.
Inventory
Inventory is stated at the lower of cost or market value. Cost is determined using the
first-in, first-out method. The Company has capitalized payments to its contract manufacturer
for the acquisition of raw materials and commencement of the
F-19
manufacturing, bottling and labeling of the Companys product. The contract with the
manufacturer can be terminated by either party with 90 days written notice. As of June 30,
2006 and June 30, 2005, inventory consisted of:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
Finished goods |
|
$ |
25,097 |
|
|
$ |
201,964 |
|
Packaging supplies |
|
|
19,904 |
|
|
|
17,680 |
|
|
|
|
|
|
|
|
Total inventory |
|
$ |
45,001 |
|
|
$ |
219,644 |
|
|
|
|
|
|
|
|
Earnings per share
Basic earnings (loss) per share are computed by dividing the net income or loss by the
weighted average number of common shares outstanding during the period. Diluted earnings per
common share are computed by dividing net income by the weighted average common shares and
potentially dilutive common share equivalents. The effects of potential common stock
equivalents are not included in computations when their effect is antidilutive. Because of the
net loss for the fiscal years ended June 30, 2006 and June 30, 2005, the basic and diluted
average outstanding shares are the same, since including the additional shares would have an
antidilutive effect on the loss per share calculation.
Research and Development Costs
The Company expenses all costs related to research and development activities as incurred.
Research and development expenses for the years ended June 30, 2006 and June 30, 2005 were
$114,163 and $37,933, respectively.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expenses for the years
ended June 30, 2006 and June 30, 2005 were $1,980,901 and $219,005, respectively.
Cash and Cash Equivalents
The Company considers only its monetary liquid assets with original maturities of three
months or less as cash and cash equivalents in accordance with SFAS 115.
Marketable Securities
The Company considers its investment in debt instruments as marketable securities. The
Company purchased a portfolio of marketable securities primarily comprised of corporate bonds.
As of June 30, 2006 the portfolio declined in value and the Company reported an unrealized loss
of $55,607 in its accompanying Statement of Comprehensive Income. In accordance with
SFAS 115, Accounting for Certain Investments in Debt and Equity Securities, the Company has
classified the investment as available for sale securities and reported the unrealized loss
in a separate component of shareholders equity as a comprehensive income item.
Investment in marketable securities are summarized as follows as of June 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Fair |
|
|
|
(Loss) |
|
|
Value |
|
As of June 30, 2006 |
|
|
|
|
|
|
|
|
Available for sale securities |
|
|
|
|
|
|
|
|
Debt securities (maturing 0 to 2 years) |
|
|
($55,607 |
) |
|
$ |
3,008,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2005 |
|
|
|
|
|
|
|
|
Available for sale securities |
|
|
|
|
|
|
|
|
Debt securities |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Deposit with Manufacturer
At June 30, 2006, the Company had a deposit of $555,301 with its contract manufacturer.
At June 30, 2005, the Company had a deposit of $991,560 with its contract manufacturer for
acquisition of raw materials and production of finished product. Throughout fiscal year 2006,
the Company offset reductions in the deposit against the trade payable to the manufacturer. As
of June 30, 2006, the trade payable to the contract manufacturer was approximately $32,000.
F-20
Shipping and Handling
Shipping and handling costs associated with inbound freight and freight out to customers
are included in cost of sales. Shipping and handling fees charged to customers are included in
sales.
Property and Equipment
Property, software, and equipment are recorded at cost. Depreciation of property and
equipment is expensed in amounts sufficient to relate the expiring costs of depreciable assets
to operations over estimated service lives, principally using the straight-line method.
Estimated service lives range from three to seven years. When such assets are sold or
otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and
any resulting gain or loss is reflected in operations in the period of disposal. The cost of
normal maintenance and repairs is charged to expense as incurred. Significant expenditures
that increase the useful life of an asset are capitalized and depreciated over the estimated
useful life of the asset. Property and equipment consist of:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
Equipment |
|
$ |
139,185 |
|
|
$ |
77,965 |
|
Software |
|
|
216,881 |
|
|
|
141,451 |
|
Accumulated Depreciation |
|
|
(111,066 |
) |
|
|
(18,472 |
) |
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
245,000 |
|
|
$ |
200,944 |
|
|
|
|
|
|
|
|
Patents
As indicated above, the primary purpose of purchasing the remaining interest in the
Companys subsidiary, LNC, was to gain control over the Companys intellectual property, i.e.
patents. As a result, the $2,000,000 purchase price is allocated entirely to patent costs.
In addition to the $2,000,000 cost of acquiring the remaining interest in LNC, the costs
of applying for patents are also capitalized and, once the patent is granted, will be amortized
on a straight-line basis over the lesser of the patents economic or legal life. Capitalized
costs will be expensed if patents are not granted. The Company reviews the carrying value of
its patent costs, periodically to determine whether the patents have continuing value
and such reviews could result in the conclusion that the recorded amounts have been impaired.
As of June 30, 2006, all patent applications were in process of approval; therefore, there was
no amortization expense for the years ended June 30, 2006 or 2005.
Impairment of Long-Lived Assets
Long-lived assets of the Company are reviewed annually as to whether their carrying value
has become impaired, pursuant to guidance established in Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
The Company assesses impairment whenever events or changes in circumstances indicate that the
carrying amount of a long-lived asset may not be recoverable. When an assessment for
impairment of long-lived assets, long-lived assets to be disposed of, and certain identifiable
intangibles related to those assets is performed, the Company is required to compare the net
carrying value of long-lived assets on the lowest level at which cash flows can be determined
on a consistent basis to the related estimates of future undiscounted net cash flows for such
properties. If the net carrying value exceeds the net cash flows, then impairment is
recognized to reduce the carrying value to the estimated fair value, generally equal to the
future discounted net cash flow. As of June 30, 2006, the Company has determined that
impairment loss has not occurred in its long-lived assets.
Goodwill and Other Intangible Assets
The Company has adopted the provisions of Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 142 establishes standards for
accounting for goodwill and other intangibles acquired in business combinations.
As noted above, the primary purpose for the purchase of the remaining interest in the
Companys subsidiary, LNC, was to gain control over the Companys intellectual property, i.e.
patents. Therefore, none of the purchase price is allocated to goodwill. As of June 30, 2006
and 2005, goodwill and other intangibles with indefinite lives are not amortized.
F-21
Intangible assets consist of:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
2006 |
|
2005 |
Patent costs |
|
$ |
2,097,905 |
|
|
$ |
2,102,162 |
|
Trademark costs |
|
|
64,137 |
|
|
|
-0- |
|
Non-compete agreement, net |
|
|
-0- |
|
|
|
166,668 |
|
Goodwill |
|
|
-0- |
|
|
|
-0- |
|
|
|
|
Intangible assets, net |
|
$ |
2,162,042 |
|
|
$ |
2,268,830 |
|
Debt issuance costs
Costs incurred in connection with obtaining financing are capitalized and amortized over
the maturity period of the debt. During 2005, debt instruments were converted into common
stock and the unamortized cost of $275,200 was charged to interest expense.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and
liabilities are measured using statutory tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities from a change in tax rates is recognized in income in
the period that includes the effective date of the change.
Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments with Off-Balance
Sheet Risk and Financial Instruments with Concentrations of Credit Risk, requires disclosure
of significant concentrations of credit risk regardless of the degree of such risk. Financial
instruments with significant credit risk include cash and marketable securities. At June 30,
2006, the Company had approximately $3,008,600 with one financial institution in an investment
management account.
Stock-Based Compensation
The Company adheres to SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No.
123 provides a method of accounting for stock-based compensation arrangements, based on fair
value of the stock-based compensation utilizing various assumptions regarding the underlying
attributes of the options and stock, rather than the intrinsic method of accounting for
stock-based compensation which is proscribed in Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees. The Company accounts for stock based
compensation to employees and directors under APB No. 25 and utilizes the disclosure-only
provisions of SFAS No. 123 for any options and warrants issued to these individuals.
The Company expects to begin using the fair value approach to account for stock-based
compensation, in accordance with the modified version of prospective application as prescribed
by SFAS No. 123(R), beginning in the first quarter of fiscal 2007. Had compensation cost for
the Companys stock option grants been determined based on the fair value at the grant date,
consistent with the recognition provisions of SFAS No. 123(R), the effect on the Companys net
loss and loss per share would be as stated in the pro forma amounts below.
In certain circumstances, the Company issued common stock for invoiced services, to pay
creditors and in other similar situations. In accordance with SFAS No. 123, payments in equity
instruments to non-employees for goods or services are accounted for by the fair value method,
which relies on the valuation of the service at the date of the transaction, or public stock
sales price, whichever is more reliable as a measurement.
Warrants and options were granted to various directors for services rendered during the
years ended June 30, 2006 and 2005. An adjustment to net income for compensation expense to
recognize annual vesting would be recorded under SFAS No. 123, on a pro forma basis, as
reflected in the following table:
F-22
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
Net (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
(2,734,501 |
) |
|
$ |
(5,822,397 |
) |
|
|
|
|
|
|
|
|
|
Less: total share-based employee
compensation determined under the fair
value method for all options granted |
|
|
(1,336,817 |
) |
|
|
(124,999 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma (loss) |
|
$ |
(4,071,318 |
) |
|
$ |
(5,947,396 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
(0.12 |
) |
|
$ |
(0.33 |
) |
|
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
(0.18 |
) |
|
$ |
(0.34 |
) |
The fair value of the options granted in fiscal year ended June 30, 2006 and 2005 was estimated at
the date of grant using the Black-Scholes option pricing model with the following assumptions:
|
1. |
|
risk-free interest rate of between 3.84 and 5.16 percent in fiscal year
2006 and 3.73 in
fiscal year 2005; |
|
|
2. |
|
dividend yield of 0 percent in 2006 and 2005; |
|
|
3. |
|
expected life of 2 3 years in 2006 and 2005; and |
|
|
4. |
|
a volatility factor of the expected market price of the Companys common
stock of
between 187 and 263 percent in 2006 and 535 percent in 2005. |
Reclassification
Certain prior period amounts have been reclassified to comply with current period
presentation.
Segments of an Enterprise and Related Information
Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS 131) replaces the industry segment approach under
previously issued pronouncements with the management approach. The management approach
designates the internal organization that is used by management for allocating resources and
assessing performance as the source of the Companys reportable segments. SFAS 131 also
requires disclosures about products and services, geographic areas and major customers. At
present, the Company only operates in one segment.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income
requires the presentation and disclosure of all changes in equity from non-owner sources as
Comprehensive Income. The Company had comprehensive income for the years ended June 30, 2006
and 2005 of ($2,790,108) and ($5,822,397), respectively.
Organization Costs
The Company accounts for organization costs under the provisions of Statement of Position
98-5, Reporting on the Costs of Start-Up Activities which requires that all organization
costs be expensed as incurred.
Effect of New Accounting Pronouncements
In February 2006, the FASB issued SFAS 155, Accounting for Certain Hybrid Financial
Instrumentsan amendment of FASB Statements No. 133 and 140. This statement allows financial
instruments that have embedded derivatives to be accounted for as a whole (eliminating the need
to bifurcate the derivative from its host) if the holder elects to account for the whole
instrument on a fair value basis. SFAS 155 shall be effective for all financial instruments
acquired, issued, or subject to a remeasurement (new basis) event occurring after the beginning
of an entitys first fiscal year that begins after September 15, 2006. We anticipate that SFAS
155 will not have a material impact on our financial statements.
In March 2006, the FASB issued SFAS 156, Accounting for Servicing of Financial Assetsan
amendment of FASB Statement No. 140. The statement addresses the recognition and measurement
of separately recognized servicing assets and liabilities and provides an approach to simplify
efforts to obtain hedge-like (offset) accounting. Entities shall adopt this statement as of
the beginning of the first fiscal year that begins after September 15, 2006. Earlier adoption
is permitted as of the beginning
F-23
of an entitys fiscal year, provided the entity has not yet
issued financial statements, including interim financial statements, for any
period of that fiscal year. The effective date of this statement is the date that an entity
adopts the requirements of this statement. We anticipate that SFAS 156 will not have a
material impact on our financial statements.
In September 2006, Statement 157, Fair Value Measurements, was issued by the FASB and is
effective for financial statements for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. Statement 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles (GAAP), and
expands disclosures about fair value measurements. This Statement applies under other
accounting pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is the relevant
measurement attribute. Accordingly, this Statement does not require any new fair value
measurements. However, for some entities, the application of this Statement will change
current practice. We anticipate that SFAS 157 will not have a material impact on our financial
statements.
Note 3 Acquisition of Minority Interest in Subsidiary and Accounting for Goodwill and
Intellectual Property
On March 10, 2005, the Company reached an agreement with the minority shareholder in the
Companys 81% owned subsidiary, LNC. In accordance with the terms of the agreement, the
Company exchanged 1,000,000 shares of its Series A common stock for the remaining 4,500,000
shares of LNC, representing 19% of the outstanding shares of LNC. As the Company was closing a
private placement of the Companys Series A common stock at $2.00 per share at about the same
time as the acquisition, the valuation of the 1,000,000 shares of Series A common stock is
valued at $2,000,000. The acquisition of the minority interest has been accounted for
utilizing the purchase method of accounting resulting in intellectual property, patent costs,
of $2,000,000. Please refer to Note 2, Restatement and Summary of Significant Accounting
Policies.
In connection with the purchase of the minority interest in LNC, the Company agreed to pay
the minority shareholder $250,000 for a non-compete agreement through March 2006. The payment
terms were $125,000 on the date of execution of the agreement and $125,000 in the form of a
note payable, which was paid on April 19, 2005. The non-compete agreement is being amortized
over the term of the agreement. Amortization expense totaled $166,668 for the year ended June
30, 2006, and $83,332 for the year ended June 30, 2005.
Note 4 Notes Payable
There were no Notes Payable outstanding to related parties or unrelated parties as of the
fiscal years ended June 30, 2006 and 2005.
During the fiscal year ended June 30, 2005, the Company issued notes payable totaling
$2,954,000, bearing interest at 10% per annum. Principal and any accrued interest was due the
earlier of one year from issuance or the closing of the proposed private placement, as
discussed in Note 5 below. Of the total amount of additional notes issued during 2005, $60,000
was from a related party. The note holders had an option to exchange all or part of the
principal and accrued interest for securities in the private placement at the private offering
price. In addition, the notes had a warrant attached to purchase shares of common stock equal
to their principal and accrued interest amount divided by the $2.00 per share offering price in
the private placement. A value for the warrants issued in connection with the debt of
$2,185,998 was recorded as a discount to the debt and an addition to equity using the
Black-Scholes valuation model. Also, because the conversion price of the debt was less than
the market value on the date of grant, an additional discount of $920,662 was recorded for the
beneficial conversion feature. The discount relating to the warrants and the beneficial
conversion feature were amortized over the term of the debt and recorded as interest expense
through the date of conversion of these notes to equity during the fourth quarter of fiscal
2005. Upon conversion, the remaining unamortized discount was charged to interest expense.
Total warrant discount and beneficial conversion feature recorded as interest expense was
$3,185,105.
Interest expense related to the related party note payable was $-0- in fiscal year ended
June 30, 2006 and $21,063 for the fiscal year ended June 30, 2005.
Note 5 Stockholders Equity
On June 12, 2006, the Company purchased a portfolio of marketable securities primarily
comprised of corporate bonds. As of June 30, 2006 the portfolio declined in value and the
Company reported an unrealized a loss of $55,607. In accordance with SFAS 115, Accounting for
Certain Investments in Debt and Equity Securities, the Company accounted for the investment as
available for sale securities and reported the unrealized loss in a separate component of
shareholders equity as a comprehensive income item.
During 2006, the Company granted warrants and options to consultants for services
rendered. In accordance with SFAS No. 123, payments in equity instruments to non-employees for
goods or services are accounted for by the fair value method. For the year ended June 30,
2006, compensation of $96,655 was reflected as an increase to additional paid in capital.
In April and May 2005, the Company issued, in a private placement, units consisting of
10,000 shares of common stock and a warrant to purchase 10,000 shares of common stock for $2.50
per share, exercisable through April 18, 2008, to accredited
F-24
investors for cash and exchange of
bridge loan notes. Each unit was offered at $2.00 per unit. The private placement was made
pursuant to an agreement with an investment banking firm entered into by the Company on January
15, 2005. The securities offered in the private placement have not been registered under the
Securities Act of 1933 (the Act) or under the securities laws of any state. The securities
are restricted securities as defined in Rule 144 under the Act. The securities were offered
pursuant to an exemption from registration and may not be reoffered or sold in the United
States absent registration or an applicable exemption from the registration requirements.
Pursuant to the private placement, the Company received $4,988,811 in cash from certain
accredited investors in exchange for 2,499,764 shares of common stock and an equal number of
warrants. The Company also issued 1,507,202 shares of its common stock and an equal number of
warrants in exchange for $3,014,372 bridge notes and accrued interest. The Company paid
commissions of $508,134 plus a $75,000 expense allowance to the investment banking firm, and
issued warrants to the investment banking firm and another placement agent to purchase 409,281
shares of common stock, exercisable at $2.00 per share through April 18, 2008. After payment
of commissions, the expense allowance, and a fee to the escrow agent, the Company received
net proceeds of $4,405,677. In conjunction with the closing of the private
placement, the Company repaid bridge notes payable with a principal balance of $160,000 and
related accrued interest of $10,733 to note holders electing to be repaid rather than exchange
their notes for units in the private placement.
The Company has an obligation to register the Series A common stock issued in the private
placement and the shares underlying the warrants received by bridge note holders and investors
in the private placement.
On November 19, 2004, the Board of Directors authorized the issuance of 200,000 shares of
the Companys Series A common stock to Lifeline Orphan Foundation, a not-for-profit
organization. The closing price of the Companys common stock that day was $3.25 and,
accordingly, the Company recorded an expense in the consolidated statement of operations for
the year ended June 30, 2005 of $650,000.
The Companys articles of incorporation authorize the issuance of preferred shares.
However, as of June 30, 2006, none have been issued nor have any rights or preferences been
assigned to the preferred shares by the Board of Directors.
Note 6 Stock Option Grants and Warrants
Stock Option Grants During the year ended June 30, 2006, the Company granted
stock options to various employees and directors of the Company. The options granted the right
to purchase shares of the Companys Series A common stock at prices between $2.00 and $3.47 per
share. The options are not transferable and expire on various dates through January 4, 2016.
The Company has not adopted SFAS 123(R) for the fiscal year ended June 30, 2006 and the pro
forma impact of SFAS 123(R) is reflected in Note 2 under Stock Based Compensation. There were
no stock option grants during the fiscal year ended June 30, 2005.
Warrants At June 30, 2006, 6,001,866 warrants granted during fiscal year ended
June 30, 2005 and 167,428 warrants granted during fiscal year ended June 30, 2006 to purchase
common stock were outstanding. The warrants granted during fiscal year ended June 30, 2005 are
at exercise prices ranging between $2.00 and $2.50 with a weighted average exercise price of
$2.33 and expiration dates ranging from April 18, 2008 to May 31, 2008. The warrants granted
during fiscal year ended 2006 are at exercise prices ranging between $0.72 and $9.85 with a
weighted average exercise price of $3.43 and expiration dates ranging from July 31, 2007 to
September 30, 2008.
F-25
The following is a summary of stock options and warrants granted for the years ended June 30,
2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise |
|
|
Options |
|
|
Warrants |
|
|
Price |
|
|
|
|
|
|
|
|
|
Outstanding and exercisable, July 1, 2004 |
|
|
|
|
|
|
|
32,136 |
|
|
|
|
3.11 |
|
Granted |
|
|
|
|
|
|
|
6,001,866 |
|
|
|
|
2.33 |
|
Cancelled |
|
|
|
|
|
|
|
(32,136 |
) |
|
|
|
3.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable, June 30, 2005 |
|
|
|
|
|
|
|
6,001,866 |
|
|
|
$ |
2.33 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,716,000 |
|
|
|
|
167,428 |
|
|
|
$ |
3.25 |
|
Cancelled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable, June 30, 2006 |
|
|
1,716,000 |
|
|
|
|
6,169,294 |
|
|
|
$ |
2.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended June 30, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average exercise price |
|
$ |
3.23 |
|
|
|
$ |
2.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining contractual life (years) |
|
|
8.0 |
|
|
|
|
1.8 |
|
|
|
|
|
|
Weighted average fair value of options and
warrants granted during 2006 |
|
$ |
3.23 |
|
|
|
$ |
3.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended June 30, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average exercise price |
|
$ |
2.50 |
|
|
|
$ |
2.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining contractual life (years) |
|
|
2.9 |
|
|
|
|
2.8 |
|
|
|
|
|
|
Weighted average fair value of options and
warrants granted during 2005 |
|
$ |
8.85 |
|
|
|
$ |
6.28 |
|
|
|
|
|
|
Note 7 Fair Value of Financial Instruments
SFAS No. 107 requires disclosures about the fair value for all financial instruments,
whether or not recognized, for financial statement purposes. Disclosures about fair value of
financial instruments are based on pertinent information available to management as of June 30,
2006 and June 30, 2005. Accordingly, the estimates presented in these statements are not
necessarily indicative of the amounts that could be realized on disposition of the financial
instruments.
Management has estimated the fair values of cash, marketable securities, accounts
receivable, accounts payable, and accrued expenses to be approximately their respective
carrying values reported in these financial statements because of their short maturities.
Note 8 Income Taxes
At June 30, 2006, the Company had a net operating loss (NOL) carry-forward of
approximately $3,300,000. At June 30, 2005, the Company had an NOL carry-forward of
approximately $1,687,000. The NOL may be offset against future taxable income, if any, until
2020. These carry-forwards are subject to review by the Internal Revenue Service.
F-26
The tax effects of temporary differences that give rise to deferred tax assets and liabilities
are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
2006 |
|
2005 |
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss carry forwards |
|
$ |
1,284,000 |
|
|
$ |
658,300 |
|
Amortization of noncompete agreement |
|
|
|
|
|
|
32,000 |
|
Contribution carryover |
|
|
260,000 |
|
|
|
269,000 |
|
Net accrued return liability |
|
|
383,000 |
|
|
|
|
|
Book/tax depreciation/amortization |
|
|
(27,000 |
) |
|
|
|
|
State income taxes |
|
|
(85,000 |
) |
|
|
|
|
Amortization of non-compete agreement |
|
|
|
|
|
|
(1,100 |
) |
|
|
|
Total deferred tax assets |
|
|
1,815,000 |
|
|
|
958,200 |
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets before valuation allowance |
|
|
1,815,000 |
|
|
|
958,200 |
|
Valuation allowance |
|
|
(1,815,000 |
) |
|
|
(958,200 |
) |
|
|
|
Net deferred tax asset |
|
$ |
|
|
|
$ |
|
|
|
|
|
The Company has fully reserved the tax benefit of the net deferred tax assets by a
valuation allowance of the same amount, because the Company has determined that the probability
of realization of the tax benefit is less than likely to occur.
The Companys actual income tax benefit differs from the expected income tax benefit
determined by applying the statutory rate of 39% (34% federal and 5% state) to the net loss due
to the following:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
Expected federal income tax benefit |
|
$ |
1,056,000 |
|
|
|
$ |
1,979,700 |
|
Amortization of debt discount |
|
|
|
|
|
|
|
(1,080,600 |
) |
Deferred revenue |
|
|
(442,000 |
) |
|
|
|
|
|
Deferred expense |
|
|
60,000 |
|
|
|
|
|
|
Book/tax depreciation difference |
|
|
(10,000 |
) |
|
|
|
|
|
Stock options for services |
|
|
(37,000 |
) |
|
|
|
(108,000 |
) |
Meals and entertainment |
|
|
(2,000 |
) |
|
|
|
(2,400 |
) |
State income tax benefit |
|
|
|
|
|
|
|
79,000 |
|
Change in prior year estimates |
|
|
|
|
|
|
|
18,900 |
|
Stock transfer fees |
|
|
(3,000 |
) |
|
|
|
|
|
Prior year A/R reserve write-off |
|
|
28,000 |
|
|
|
|
|
|
Sales returns and allowances |
|
|
(13,200 |
) |
|
|
|
|
|
Other future differences |
|
|
220,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance |
|
|
(856,800 |
) |
|
|
|
(886,600 |
) |
|
|
|
|
|
|
Net income tax benefit |
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
Note 9 Operating Lease Commitments
Effective July 1, 2004, the Company entered into a month-to-month lease for its office
facilities. The office facility lease requires monthly payments of approximately $5,400.
Included in such payments were charges each month for common area maintenance charges, property
tax, bookkeeping, insurance, and management fees.
In August 2005, the Company entered into a 36-month lease for its office facilities. The
terms of the agreement required a $35,688 prepayment of rent for 5,736 square feet, with rents
ranging from $9,560 to $10,038 over the term of the lease. Associated with this lease, the
Company also tendered a $30,144 security deposit that will be returned to the Company, in
thirds, at the beginning of the thirteenth month, twenty-fifth month and at termination of the
agreement, provided the Company does not breach any covenant set forth in the lease. The
Company continues to be responsible for payments such as maintenance charges, property tax,
bookkeeping, insurance, and management fees. Rent expense totaled $110,939 and $66,968 for the
years ended June 30, 2006 and 2005, respectively.
Future minimum lease payments under the non-cancelable leases are as follows:
F-27
|
|
|
|
|
Year ending June 30, |
|
|
|
|
2007 |
|
$ |
117,358 |
|
2008 |
|
|
119,739 |
|
2009 |
|
|
10,038 |
|
|
|
|
|
Total future minimum Lease payments |
|
$ |
247,135 |
|
|
|
|
|
Note 10 Interim Financial Results (Unaudited)
LIFELINE THERAPEUTICS, INC.
CONDENSED CONSOLIDATED QUARTERLY RESULTS
(in 000s except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
Quarter |
|
ended |
Fiscal year ended June 30, 2006 |
|
First |
|
Second |
|
Third |
|
Fourth |
|
June. 30, 2006 |
|
Sales, net |
|
$ |
2,964.6 |
|
|
$ |
1,711.7 |
|
|
$ |
1,390.6 |
|
|
$ |
1,098.9 |
|
|
$ |
7,165.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
2,368.0 |
|
|
|
1,348.7 |
|
|
|
1,094.5 |
|
|
|
863.3 |
|
|
|
5,674.5 |
|
Net income (loss) |
|
$ |
80.3 |
|
|
|
($571.0 |
) |
|
|
($670.9 |
) |
|
|
($1,572.9 |
) |
|
|
($2,734.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share,
basic and diluted |
|
$ |
0.00 |
|
|
|
($0.02 |
) |
|
|
($0.03 |
) |
|
|
($0.07 |
) |
|
|
($0.12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
Quarter |
|
ended |
Fiscal year ended June 30, 2005 |
|
First |
|
Second |
|
Third |
|
Fourth |
|
June. 30, 2005 |
|
Sales, net |
|
$ |
0.0 |
|
|
$ |
0.0 |
|
|
$ |
25.8 |
|
|
$ |
2,328.0 |
|
|
$ |
2,353.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
15.7 |
|
|
|
1,944.5 |
|
|
|
1,960.2 |
|
Net income (loss) |
|
|
($44.8 |
) |
|
|
($1,164.3 |
) |
|
|
($1,519.8 |
) |
|
|
($3,093.5 |
) |
|
|
($5,822.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share,
basic and
diluted |
|
|
($0.04 |
) |
|
|
($0.07 |
) |
|
|
($0.09 |
) |
|
|
($0.13 |
) |
|
|
($0.33 |
) |
F-28
PART II
Information Not Required in Prospectus
Item 24. Indemnification of Directors and Officers
The Articles of Incorporation of Lifevantage Corporation, formerly Lifeline
Therapeutics, Inc. (Lifevantage or LVC) include a provision that eliminates, to the
fullest extent permitted by Colorado law, the personal liability of its directors to
Lifevantage and its shareholders for monetary damages for breach of the directors fiduciary
duties. This limitation has no effect on a directors liability for:
|
(i) |
|
any breach of the directors duty of loyalty to the Corporation or to its
shareholders; |
|
|
(ii) |
|
acts of omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; |
|
|
(iii) |
|
acts specified in Section 7-108-403 of the Colorado Business Corporation
Act; or |
|
|
(iv) |
|
any transaction from which the director directly or indirectly derived any
improper personal benefit. |
Further, the indemnification rights of directors will not affect the availability of
injunctions and other equitable remedies available to Lifevantages shareholders for any
violation of a directors fiduciary duty to Lifevantage or its shareholders.
The Articles of Incorporation further authorize Lifevantage to indemnify its officers,
employees, fiduciaries or agents to the same extent as a director. Lifevantage may also
indemnify an officer, employee, fiduciary or agent who is not a director to a greater extent
than is provided in the Bylaw provisions, so long as it is not inconsistent with public
policy and it is provided for by general or specific action of its board of directors or
shareholders by contract.
The Bylaws of Lifevantage also provide for the indemnification of directors and
officers. They permit Lifevantage to enter into indemnity agreements with individual
directors, officers, employees, and other agents. These agreements, together with the
Bylaws and Articles of Incorporation, may require Lifevantage, among other things, to
indemnify directors or officers against certain liabilities that may arise by reason of
their status or service as directors (other than liabilities resulting from willful
misconduct of a culpable nature), to advance expenses to them as they are incurred, provided
that they undertake to repay the amount advanced if it is ultimately determined by a court
that they are not entitled to indemnification, and to obtain and maintain directors and
officers insurance if available on reasonable terms.
Mr. and Mrs. Driscoll have agreed to indemnify Lifevantage and its subsidiary against
certain obligations that Mr. Driscoll may have incurred. Various persons alleged that Mr.
Driscoll may have promised to convey to them shares of stock of either Lifevantage or its
subsidiary, Lifeline Nutraceuticals Corporation (LNC). Mr. Driscoll has resolved these
claims personally, but the risk exists that these individuals may involve Lifevantage or its
subsidiary in any attempt to resolve these issues in or outside of court. As a result, Mr.
Driscoll, joined by his wife, agreed to indemnify and hold Lifevantage and Lifeline
Nutraceuticals harmless from any such claims.
The Colorado statutes and the Bylaws provide for the indemnification of officers,
directors and other corporate agents in terms sufficiently broad to indemnify such persons,
under certain circumstances, for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, Lifeline therapeutics has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
Reference is made to the following documents filed as exhibits to this Registration
Statement regarding relevant indemnification provisions described above and elsewhere
herein:
|
|
|
|
|
Document |
|
Exhibit Number |
Registrants Amended and Restated Articles of Incorporation |
|
|
3.02 |
* |
Registrants Amended and Restated Bylaws |
|
|
3.03 |
* |
|
|
|
* |
|
Filed with Lifeline Therapeutics Proxy on Form 14-A (File No. 000-30489) dated October
20, 2006 and incorporated herein by reference. |
II-1
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses to be paid in connection with the
sale of the shares of common stock being registered hereby. The Selling Shareholders will
pay only those expenses directly related to the transfer of their securities. All amounts
are estimates except for the Securities and Exchange Commission registration fee.
|
|
|
|
|
Securities and Exchange Commission registration fee |
|
$ |
13,925 |
|
Accounting fees and expenses |
|
$ |
32,000 |
|
Legal fees and expenses |
|
$ |
35,000 |
|
Printing fees and expenses |
|
$ |
5,000 |
|
Blue-sky fees and expenses |
|
$ |
15,000 |
|
Transfer agent and registrar fees and expenses |
|
$ |
2,000 |
|
|
|
|
|
Fees to be paid by Selling Security Holders |
|
$ |
0 |
|
Total to be paid by Lifevantage |
|
$ |
102,925 |
|
Item 26. Recent Sales of Unregistered Securities
October 2004 Reorganization
On October 26, 2004, the Company completed a Plan and Agreement with Lifeline
Nutraceuticals Corporation (Lifeline Nutraceuticals) whereby the shareholders holding
approximately 81% of the outstanding stock of Lifeline Nutraceuticals exchanged their stock
in Lifeline Nutraceuticals for 15,385,110 shares of newly issued stock in the Company. The
newly issued shares represent approximately 94% of the outstanding stock of the Company.
In addition the Company exchanged $240,000 in new promissory notes for a like amount of
convertible debt obligations of Lifeline Nutraceuticals. The new promissory notes contain
the same privilege as the original notes to convert to shares of stock in the Company at the
rate of fifty cents per share. All note holders have converted their debt into a total of
536,081 shares of common stock.
The Company also exchanged $559,000 in new promissory notes for a like amount of bridge
note obligations of Lifeline Nutraceuticals and raised a total of $3,104,000. The bridge
notes bear interest at 10% per annum and are due the earlier of six months from the date of
the exchange or the closing of the first $1,000,000 of the Companys proposed private
placement offering. The bridge note holder also received warrants to purchase common stock
to be issued in the private placement equal to the principal amount plus interest divided by
the per-share offering price, with an exercise price equal to the offering pricing. The
warrants are exercisable for a period of three years after the closing of the offering. All
but $160,000 were exchanged for shares of common stock and Unit Warrants. The remaining
debt plus interest was paid off using the cash proceeds from the private placement.
The Company used no underwriter to complete this transaction. No finders fee,
commission, or other compensation was paid. The persons who received the Companys
securities are all persons who represented to the Company that they were accredited
investors and who were previously securities holders associated with Lifeline
Nutraceuticals.
The Company relied on the exemption from registration provided by Sections 4(2) and
4(6) under the Securities Act of 1933 for this transaction. The Company did not engage in
any public advertising or general solicitation in connection with this transaction. The
Company provided the accredited investor with disclosure of all aspects of our business,
including providing the accredited investor with the Companys reports filed with the
Securities and Exchange Commission, press releases, access to the Companys auditors, and
other financial, business, and corporate information. Based on the Companys investigation,
the Company believes that the accredited investors obtained all information regarding the
Company they requested, received answers to all questions the posed, and otherwise
understood the risks of accepting the Companys securities for investment purposes.
Acquisition of remaining portion of Lifeline Nutraceuticals
On March 10, 2005, the Company issued 1,000,000 shares of its restricted Series A
common stock to acquire the remaining 19% interest in Lifeline Nutraceuticals Corporation
from a single sophisticated investor. No fee was paid to any underwriter, placement agent,
or finder. The securities were issued to a single sophisticated investor who had
significant prior experience with LNC. The Company received no cash proceeds as a result of
the issuance of the shares. The investor assigned to LTI 4,500,000 shares he owned in LNC
(approximately 19%) in consideration for the 1,000,000 shares.
The Company relied on the exemption from registration provided by Sections 4(2) of the
Securities Act of 1933 for this transaction. We did not engage in any public advertising or
general solicitation in connection with this transaction. We provided the investor with
disclosure of all aspects of our business, including providing the investor with our reports
filed
II-2
with the Securities and Exchange Commission, our press releases, access to our auditors, and
other financial, business, and corporate information, and the investor was represented by
his personal counsel in the transaction. Based on our investigation, we believe that the
investor obtained all information regarding LTI that he requested, received answers to all
questions he and his advisors posed, and otherwise understood the risks of accepting our
securities for investment purposes.
April 2005 private placement closing
On April 19, 2005, the prior commitment to issue common stock purchase warrants (the
Bridge Warrants) to holders of bridge financing notes (Bridge Notes) issued by Lifeline
Therapeutics, Inc. (Lifeline), predecessor to Lifevantage Corporation, was quantified.
The transaction was completed effective April 18, 2005. Lifeline issued Bridge Warrants to
purchase 1,592,569 shares of Series A common stock exercisable at $2.00 per share through
April 18, 2008 to all persons who were previously holders of Bridge Notes that Lifeline had
issued during 2004 and in January and February 2005.
There was no principal underwriter in the transaction for the issuance of the Bridge
Warrants. As previously disclosed, placement agents did assist in the placement of the
Bridge Notes, but their activities were not relevant to the issuance of the Bridge Warrants.
The prior purchasers of the Bridge Notes, and therefore the persons to whom the Bridge
Warrants were issued, were all accredited investors as defined in Section 2(a)(15) of the
Securities Act of 1933 (the 1933 Act) and Rules 215 and 501(a) thereunder. Lifeline
relied on the exemption from registration provided by Sections 4(2) and 4(6) under the 1933
Act for the issuance of the Bridge Warrants, as well as Regulation D.
On April 18, 2005, Lifeline received $2,659,000 in cash and $2,469,536 in cancellation
of indebtedness from certain persons holding Bridge Notes. The transaction was completed
effective April 18, 2005. To complete the transaction, Lifeline issued: (i) 2,564,297
shares of Series A common stock at a price of $2.00 per share; and (ii) Warrants (Unit
Warrants) to purchase 2,564,297 shares of Series A common stock exercisable at $2.50 per
shares through April 18, 2008. Of the total amount raised, we received $2,659,000 in cash,
for which we issued 1,329,500 shares of Series A common stock and an equal number of Unit
Warrants. The remaining shares of Series A common stock and Unit Warrants were issued in
exchange for the cancellation of the indebtedness represented by the Bridge Notes. Lifeline
relied on the exemption from registration provided by Sections 4(2) and 4(6) under the 1933
Act for the issuance of the Bridge Warrants, as well as Regulation D.
The placement agent for the transaction was Keating Investments, LLC, 5251 DTC Parkway,
Suite 1090, Greenwood Village, Colorado 80111 (Keating). Each of the purchasers were
accredited investors as defined in Section 2(a)(15) of the 1933 Act and Rules 215 and 501(a)
thereunder. Lifeline Therapeutics paid Keating $265,900 in commissions and $75,000
non-accountable expense allowance. Lifeline also issued to the Placement Agent warrants to
purchase 159,255 shares of Series A common stock exercisable at $2.00 per share through
April 18, 2008. An additional 117,500 warrants were issued relating to bridge note
conversions.
On April 18, 2005, Lifeline Therapeutics also completed the exchange of the principal
of (in the amount of $240,000) and interest on (in the amount of $28,040) certain
outstanding convertible notes (the Convertible Notes). Lifeline Therapeutics issued
536,081 shares of its Series A common stock to the holders of the Convertible Notes pursuant
to the terms of those Convertible Notes that Lifeline Therapeutics had issued during 2003
and early 2004. There was no principal underwriter in the transaction for the issuance of
the common stock to the holders of the Convertible Notes; previously there was no placement
agent in connection with the issuance of the Convertible Notes. The prior purchasers of the
Convertible Notes, and therefore the persons to whom the Series A common stock were issued,
were all accredited investors as defined in Section 2(a)(15) of the 1933 Act) and Rules 215
and 501(a) thereunder. The Company relied on the exemption from registration provided by
Sections 4(2) and 4(6) under the 1933 Act for the issuance of common stock in exchange for
the Convertible Notes, as well as Regulation D.
May 2005 private placement closing
On May 16, 2005, Lifeline Therapeutics received $2,326,627 in cash from certain
accredited investors and $544,804 in cancellation of indebtedness from certain persons
holding Bridge Notes. To complete the transaction, the Company issued 1,435,719 shares of
Series A common stock at a price of $2.00 per share and Warrants (Unit Warrants) to
purchase 1,435,719 shares of Series A common stock exercisable at $2.50 per share until
their expiration date, April 18, 2008. Of the total amount raised, we received $2,326,627
in cash, for which we issued 1,163,314 shares of Series A common stock and an equal number
of Unit Warrants. The remaining shares of common stock and Unit Warrants were issued in
exchange for the cancellation of the indebtedness represented by the Bridge Notes. Lifeline
relied on the exemption from registration provided by Section 4(2) under the 1933 Act for
the issuance of the Series A common stock and the Unit Warrants, as well as Regulation D.
The placement agent for the transaction was Keating. Lifeline paid Keating $232,663 in
commissions with no further non-accountable expense allowance. (Lifeline previously paid
Keating a $75,000 non-accountable expense allowance as described in a Form 8-K reporting an
event of April 18, 2005.) Lifeline also issued to Keating warrants to purchase 127,526
shares of common stock exercisable at $2.00 per share until their expiration date, April 18,
2008.
II-3
Employee options
On May 13, 2005, Lifeline Therapeutics offered its director of marketing options to
acquire 50,000 shares of its common stock at an exercise price of $2.50 per share,
exercisable through May 31, 2008. The effective date of these options is the later of her
acceptance of the options or her commencement of employment. Her start date was May 23,
2005, and she accepted the options as of that date. There was no underwriter involved in
the transaction, and the options were issued pursuant to the exemption from registration
contained in Sections 4(2) and 4(6) of the 1933 Act.
Pursuant to an agreement with Tatum CFO Partners, LLP dated August 5, 2005 concerning
our interim Chief Executive Officer we issued the following warrants: (i) warrants to
purchase 936 shares of our common stock to Brenda March and warrants to purchase 234 shares
to Tatum CFO Partners, LLP with exercise prices equal to $9.85 per share, (ii) warrants to
purchase 2,400 shares to Brenda March and warrants to purchase 600 shares to Tatum CFO
Partners, LLP with exercise prices equal to $7.82 per share, (iii) warrants to purchase
2,400 shares to Brenda March and warrants to purchase 600 shares to Tatum CFO Partners, LLP
with exercise prices equal to $5.83 per share, (iv) warrants to purchase 2,400 shares to
Brenda March and warrants to purchase 600 shares to Tatum CFO Partners, LLP with the
exercise prices equal to $3.93 per share, (v) warrants to purchase 2,400 shares to Brenda
March and warrants to purchase 600 shares to Tatum CFO Partners, LLP with the exercise
prices equal to $3.90 per share, and (vi) warrants to purchase 2,400 shares to Brenda March
and warrants to purchase 600 shares to Tatum CFO Partners, LLP with the exercise prices
equal to $2.03 per share. There was no underwriter involved in the transactions, and the
warrants were issued pursuant to the exemption from registration contained in Section 4(2)
of the Securities Act of 1933, as amended.
On October 12, 2005, the Company and Mr. Baz, who was the Chairman of the board of
directors at that time, agreed that Mr. Baz will continue to serve as Chairman of the board
of directors from October 1, 2005 through September 30, 2006 with the following compensation
(in addition to the cash compensation being paid to him as a director and a member of the
executive committee of the board of directors): for each month, Mr. Baz received warrants to
purchase 10,000 shares of our common stock at an exercise price equal to the volume weighted
average trading price of our common stock on the Wednesday of each month that immediately
precedes the last Thursday of that month. If that Wednesday is not a trading day, then the
exercise price will be equal to the volume weighted average trading price on the first
trading day immediately preceding that Wednesday. Each warrant will be issued at the close
of business on the trading day on which its exercise price is determined, and it will expire
at the close of business on the second anniversary of that trading day. Pursuant to this
agreement, (i) on October 26, 2005, we issued warrants to purchase 10,000 shares of common
stock for $3.59 per share, (ii) on November 23, 2005 we issued warrants to purchase 10,000
shares of common stock for $3.54 per share, and (iii) on December 28, 2005 we issued
warrants to purchase 10,000 shares of common stock for $1.98 per share. There was no
underwriter involved in the transactions, and the warrants were issued pursuant to the
exemption from registration contained in Section 4(2) of the Securities Act of 1933, as
amended.
Pursuant to an employment agreement with Stephen K. Onody dated November 28, 2005 we
issued options to purchase 1,000,000 shares of our common stock to Stephen K. Onody with the
exercise price equal to $3.47. One-third of the stock option shall vest upon the weighted
average trading price of the Companys common stock for 90 days reaching each of $8.00,
$14.00, and $18.00. Notwithstanding the foregoing, to the extent not previously vested,
one-third of the stock option shall vest on the 11/28/06, and the remaining two-thirds shall
vest quarterly in eight equal installments, beginning ninety days after 11/28/06 and ending
on 11/28/08. There was no underwriter involved in the transactions, and the options were
issued pursuant to the exemption from registration contained in Section 4(2) of the
Securities Act of 1933, as amended.
Pursuant to an employment agreement with Gerald J. Houston dated January 4, 2006 we
issued options to purchase 240,000 shares of our common stock with a purchase price equal to
$2.00 per share. One-third of the stock option shall vest upon the weighted average trade
price for the Companys common stock for 90 days reaching each of $8.00, $14.00, and $18.00.
Notwithstanding the foregoing, one-third of the stock option shall vest on January 4, 2007,
and the remaining two-thirds shall vest quarterly in eight equal installments, beginning 90
days after January 4, 2007 and ending on January 4, 2009. there was no underwriter involved
in the transaction, and the options were issued pursuant to an exemption from registration
contained in Section 4(2) of the Securities Act of 1933, as amended.
II-4
EXHIBITS
ITEM 27 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
|
|
Exhibit |
|
|
Number |
|
Title |
|
|
|
2.01*
|
|
Plan of Reorganization between Lifeline Nutraceuticals and Yaak River Resources, Inc.
dated September 21, 2005 |
|
|
|
2.02*
|
|
Settlement and Release Agreement and Plan of Reorganization dated March 10, 2005,
between Lifeline Therapeutics and Michael Barber |
|
|
|
3.01*
|
|
Articles of Incorporation |
|
|
|
3.02*
|
|
Amended and Restated Articles of Incorporation of Lifevantage Corporation(1) |
|
|
|
3.03*
|
|
Registrants Amended and Restated Bylaws (1) |
|
|
|
5.01*
|
|
Opinion as to the Validity of the Securities |
|
|
|
10.01*
|
|
Form of Unit Warrant Certificate |
|
|
|
10.02*
|
|
Form of Bridge Warrant Certificate |
|
|
|
10.03*
|
|
Form of Placement Agent Warrant Certificate |
|
|
|
10.04*
|
|
Secured Indemnification Agreement dated February 21, 2005 by and among the Company and
William J. Driscoll and Rose Mary Driscoll |
|
|
|
10.05*
|
|
Agreement with Keating Securities |
|
|
|
10.06*
|
|
Agreement with The Scott Group |
|
|
|
10.07*
|
|
Employment Agreement with Stephen K. Onody dated November 28, 2005 |
|
|
|
10.08*
|
|
Employment Agreement with Gerald J. Houston dated January 4, 2006 |
|
|
|
10.09*
|
|
2006 Stock Option Plan |
|
|
|
10.10*
|
|
Agreement with Robert Sgarlata Associates, Inc. |
|
|
|
10.11*
|
|
Agreement with Tatum CFO Partners, LLP |
|
|
|
10.12*
|
|
Agreement with Mr. Baz effective October 12, 2005 |
|
|
|
10.13
|
|
2007 Long-Term Incentive Plan (1) |
|
|
|
10.14
|
|
Purchase Agreement with General Nutrition Distribution, LP, dated June 21, 2006 |
|
|
|
21.01*
|
|
List of subsidiary |
|
|
|
23.01
|
|
Consent of independent registered public accounting firm |
|
|
|
23.02*
|
|
Consent of Patton Boggs LLP (see Exhibit 5.01) |
|
|
|
* |
|
Previously Filed. |
|
(1) |
|
Filed with Lifeline Therapeutics Proxy on Form 14-A (File No. 000-30489) dated October 20,
2006 and incorporated herein by reference. |
UNDERTAKINGS
The undersigned registrant hereby undertakes:
1. |
|
To file, during any period in which offers or sales are being made, a post-effective
amendment to this registration statement to: |
|
(a) |
|
Include any prospectus required by section 10(a)(3) of the Securities
Act of 1933 (the Act); |
|
|
(b) |
|
Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement and notwithstanding the forgoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospects
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the Calculation of Registration
Fee table in the effective registration statement; and |
|
|
(c) |
|
Include any additional or changed material information on the plan of
distribution. |
II-5
2. |
|
For determining liability under the Act, treat each post-effective amendment as a
new registration statement relating to the securities offered, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering. |
|
3. |
|
File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of offering. |
|
4. |
|
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. |
|
5. |
|
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue. |
II-6
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this Amendment No. 4 to Registration
Statement on Form SB-2 to be signed on its behalf by the undersigned, in the City of
Greenwood Village, State of Colorado, on December 29, 2006.
|
|
|
|
|
|
|
LIFEVANTAGE CORPORATION
Colorado corporation |
|
|
|
|
|
|
|
By:
|
|
/s/ Gerald J. Houston |
|
|
|
|
|
|
|
|
|
Gerald J. Houston |
|
|
Its:
|
|
Chief Financial Officer |
In accordance with the requirements of the Securities Act of 1933, this Registration
Statement on Form SB-2 has been signed by the following persons in the capacities and on the
dates indicated.
|
|
|
|
|
By:
|
|
/s/ James K. Krejci*
|
|
December 29, 2006 |
|
|
|
|
|
|
|
James J. Krejci |
|
|
|
|
Chief Executive Officer and Director |
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
By:
|
|
/s/ Gerald J. Houston
Gerald J. Houston
|
|
December 29, 2006 |
|
|
Chief Financial Officer |
|
|
|
|
(Principal Financial and Accounting Officer) |
|
|
|
|
|
|
|
By:
|
|
/s/ James D. Crapo*
James D. Crapo
|
|
December 29, 2006 |
|
|
Director |
|
|
|
|
|
|
|
By:
|
|
/s/ John B. Van Heuvelen*
John B. Van Heuvelen
|
|
December 29, 2006 |
|
|
Director |
|
|
|
|
|
|
|
By:
|
|
/s/ Joe M. McCord*
|
|
December 29, 2006 |
|
|
|
|
|
|
|
Joe M. McCord |
|
|
|
|
Director |
|
|
|
|
|
* |
|
Signed by Power of Attorney |
II-7
EXHIBITS
|
|
|
Exhibit |
|
|
Number |
|
Title |
2.01*
|
|
Plan of Reorganization between Lifeline Nutraceuticals and Yaak River Resources, Inc.
dated September 21, 2005 |
|
|
|
2.02*
|
|
Settlement and Release Agreement and Plan of Reorganization dated March 10, 2005,
between Lifeline Therapeutics and Michael Barber |
|
|
|
3.01*
|
|
Articles of Incorporation |
|
|
|
3.02*
|
|
Amended and Restated Articles of Incorporation of Lifevantage Corporation(1) |
|
|
|
3.03*
|
|
Registrants Amended and Restated Bylaws (1) |
|
|
|
5.01*
|
|
Opinion as to the Validity of the Securities |
|
|
|
10.01*
|
|
Form of Unit Warrant Certificate |
|
|
|
10.02*
|
|
Form of Bridge Warrant Certificate |
|
|
|
10.03*
|
|
Form of Placement Agent Warrant Certificate |
|
|
|
10.04*
|
|
Secured Indemnification Agreement dated February 21, 2005 by and among the Company and
William J. Driscoll and Rose Mary Driscoll |
|
|
|
10.05*
|
|
Agreement with Keating Securities |
|
|
|
10.06*
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Agreement with The Scott Group |
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10.07*
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|
Employment Agreement with Stephen K. Onody dated November 28, 2005 |
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10.08*
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|
Employment Agreement with Gerald J. Houston dated January 4, 2006 |
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10.09*
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|
2006 Stock Option Plan |
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10.10*
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|
Agreement with Robert Sgarlata Associates, Inc. |
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10.11*
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|
Agreement with Tatum CFO Partners, LLP |
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10.12*
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|
Agreement with Mr. Baz effective October 12, 2005 |
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|
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10.13
|
|
2007 Long-Term Incentive Plan (1) |
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|
|
10.14
|
|
Purchase Agreement with General Nutrition Distribution, LP, dated June 21, 2006 |
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21.01*
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List of subsidiary |
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23.01
|
|
Consent of independent registered public accounting firm |
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23.02*
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Consent of Patton Boggs LLP (see Exhibit 5.01) |
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* |
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Previously Filed. |
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(1) |
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Filed with Lifeline Therapeutics Proxy on Form 14-A (File No. 000-30489) dated October 20,
2006 and incorporated herein by reference. |