UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2004
OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- -----------------
Commission file number: 000-30489
Lifeline Therapeutics, Inc.
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Colorado 84-1097796
------------------------------ --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
6400 South Fiddler's Green Circle, Suite 1750 Englewood, Colorado 80112
---------------------------------------------------
(Address of principal executive offices and Zip Code)
(720) 488-1711
-----------------------------
(Registrant's telephone number)
Yaak River Resources, Inc.,
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the issuer's classes of common stock, as of
February 22, 2005 is 16,574,983 shares.
LIFELINE THERAPEUTICS, INC.
(A Development Stage Company)
INDEX
-----
Page No.
--------
PART I. FINANCIAL INFORMATION
-----------------------------
The unaudited Condensed Consolidated Financial Statements for the six
months ended December 31, 2004 are attached hereto and by reference incorporated
herein. Please refer to pages F-1 through F-6 following the signature page.
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 1
Item 3: Controls and Procedures 5
PART II. OTHER INFORMATION
-------- -----------------
Signatures
Certification pursuant to Securities Exchange Act of 1934
and Sections 302 and 906 Of the Sarbanes-Oxley Act of 2002
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 2004
(unaudited) and June 30, 2004 F-1
Condensed Consolidated Statements of Operations - For the
Three Months Ended December 31, 2004 and 2003 and for the
Six Months Ended December 31, 2004 and 2003 and Cumulative
Amounts from Inception of the Development Stage through
December 31, 2004 (unaudited) F-2
Condensed Consolidated Statements of Cash Flows - For the
Six Months Ended December 31, 2004 and 2003 and Cumulative
Amounts from Inception of the Development Stage through
December 31, 2004 (unaudited) F-3
Notes to Unaudited Condensed Consolidated Financial Statements F-4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Material Changes in Financial Condition
On October 26, 2004, the Company consummated an Agreement and Plan of
Reorganization with Lifeline Nutraceuticals Corporation ("LNC") whereby the
Company newly issued 15,385,110 shares of its common stock for 81% of the
outstanding shares of LNC stock. After the exchange, the former owners of the
Company owned 6% of the outstanding shares of merged companies. The Company has
attempted to exchange all originally issued and outstanding notes, including
warrants, payable by LNC into new notes, including warrants, payable by the
Company. The Company will become a creditor of LNC to the extent of the notes
exchanged.
The accounting for the reorganization transaction is such that the prior period
financial information presented in the accompanying Condensed Consolidated
financial statements is that of LNC. The Balance Sheet as of June 30, 2004,
represents the balance sheet solely of LNC, while the balance sheet for December
31, 2004 represents the Condensed Consolidated balances for LNC and the Company,
with the Company's capital structure reflected in the Stockholders' (Deficit)
section.
The Company generated no revenues in the six month period ended December 31,
2004, however, the Company raised $664,000 through bridge loan financing and
expended all of these funds on overhead, professional fees and on continuing
research and development for its prospective marketing and sale of its
nutraceutical product, completing the reorganization, and obtaining necessary
financing.
On November 19, 2004, the Board of Directors authorized the issuance of 200,000
shares of common stock of the Company to Lifeline Orphan Foundation. The closing
price, per NASDAQ, of the Company's common stock that day was $3.25 and,
accordingly, we have recognized an expense in our Condensed Consolidated
Statements of Operations of $650,000.
The Company is currently in negotiations with the minority shareholder which, if
successfully concluded (of which there can be no assurance) may result in the
exchange of his 19% interest in the Company's subsidiary for shares of the
Company's common stock. The number of new shares to be issued, if such an
exchange was to occur, and the resulting dilution to the existing shareholders
is not known at this time. In addition, the Company is aware that a consultant
who claims a role in the reorganization transaction that occurred on October 26,
2004 may demand a finder's fee over and above compensation previously paid to
the consultant. The Company does not believe it has any obligation to either
potential claimant and will vigorously defend against any claims made
1
Material Changes in Results of Operations
Results of Operations for the Six Month Period Ended December 31, 2004 Compared
--------------------------------------------------------------------------------
to the Six Month Period Ended December 31, 2003
-----------------------------------------------
As a result of the reorganization, the accompanying Condensed Consolidated
Statements of Operations include only the operations of the Company for the
period from October 26, 2004 (the date of consummation) through December 31,
2004. The operations presented in the accompanying Condensed Consolidated
Statement of Operations is that of LNC, however, all discussion of operations
will be referred to herein as the Company's.
The Company incurred expenses and a net loss of ($1,495,489) for the six months
ended December 31, 2004 compared to ($79,058) for the same period in 2003
because of the Company's significantly greater activities undertaken during the
2004 period in connection with the pre- and post-reorganization activities as
compared to the limited corporate maintenance activities during the 2003 period.
The Company generated no revenues during this period or during the same period
in 2003. The increase in expenses and the corresponding loss is attributable to
the incurrence of $650,000 expense for the contribution of 200,000 shares of the
Company's common stock to Lifeline Orphan Foundation. (Two executives of the
Company have since also contributed a total of 300,000 of their personal share
holdings to Lifeline Orphan Foundation). Additionally, as of June 15, 2004, the
Company implemented compensation plans for its four employees and incurred
$277,233 in payroll and related expenses for the six month period ended December
31, 2004 compared to no payroll expense in the prior period. General and
administrative expenses were $273,941 in 2004 compared to $27,651 in 2003.
During 2004, we incurred significantly higher professional fees in conjunction
with the merger and activities related to financing and corporate affairs.
Commencing July 1, 2004, we incurred rental payments, under a month-to-month
leasing arrangement, of approximately $5,600 per month for office space.
Results of Operations for the Three Month Period Ended December 31, 2004
------------------------------------------------------------------------
Compared to the Three Month Period Ended December 31, 2003
----------------------------------------------------------
The Company incurred expenses and a net loss of ($1,164,259) for the three
months ended December 31, 2004 compared to ($54,564) for the same period in 2003
because of the Company's significantly greater activities undertaken during the
2004 period in connection with the pre- and post-reorganization activities as
compared to the limited corporate maintenance activities during the 2003 period.
The Company generated no revenues during this period or during the same period
in 2003. The increase in expenses and the corresponding loss is attributable to
the incurrence of $650,000 expense for the contribution of 200,000 shares of the
Company's common stock to Lifeline Orphan Foundation. (Two executives of the
Company have since also contributed a total of 300,000 of their personal share
holdings to Lifeline Orphan Foundation). Additionally, as of June 15, 2004, the
Company implemented compensation plans for its four employees and incurred
$126,234 in payroll and related expenses for the three month period ended
December 31, 2004 compared to no payroll expense in the prior period. General
and administrative expenses were $169,432 for the three months ended December
31, 2004 compared to $24,458 in 2003. During 2004, we incurred significantly
higher professional fees in conjunction with the merger and activities related
to financing and corporate affairs. Commencing July 1, 2004, we incurred rental
payments, under a month-to-month leasing arrangement, of approximately $5,600
per month for office space.
The information set forth for the Company for the six month period ended
December 31, 2004, is not representative of what we anticipate the results of
our operations to be for the future since the reorganization with Lifeline
Nutraceuticals occurred on October 26, 2004 and the initiation of sales of our
product, Protandim, which is expected to commence in March 2005.
2
Footnote 5 of the accompanying financial statements presents a Condensed
Proforma of Combined Statement of Operations for the Company and LNC as if the
Agreement and Plan of Reorganization had been consummated as of the beginning of
the periods presented. The amounts reflected therein are not materially
different from that presented in the Condensed Consolidated Statement of
Operations.
Following the consummation of the Agreement and Plan of Reorganization we do not
expect to be able to generate revenues until we have raised sufficient funds to
permit us to market our product in accordance with our plan of operations,
produce sufficient inventory to fulfill any orders that may be received, and
continue to maintain our other financial obligations. Since December 31, 2004,
we have raised an additional $2,290,000 in bridge note financing which we
believe is sufficient to allow us to commence manufacturing on an outsourced
basis, marketing and sale of our product, Protandim. The manufacturing process
has commenced, and we expect to begin sales of Protandim to a test market in
March 2005. Nevertheless, we cannot offer any assurance that we will be able to
achieve our goals as expressed above. Even if we do generate revenues, we cannot
offer any assurance that the revenues generated will be greater than the
expenses incurred. These results will depend on the selling price of the
product, the number of units of product sold, the costs of manufacturing and
distributing the product, the costs of advertising, and the other costs we will
be incurring during that period of time.
Liquidity and Capital Resources
The Company had a net working capital (deficit) at December 31, 2004 of
($521,048). The cash flow used in operations for the six month period ended
December 31, 2004 was ($603,864).
Cash and cash equivalents at December 31, 2004 were $27,295, a decrease of
$22,368 from June 30, 2004. During the six-month period ended, December 31,
2004, the Company used ($603,864) net cash in operating activities as compared
to ($91,151) for the same period 2003. This increase of cash used in operations
of was as a result of the charitable donation, payroll and related expenses and
general and administrative expenses.
Since December 31, 2004, the Company has raised $2,290,000 in bridge loan
financing from accredited investors and has expended $1,190,000 of these
funds for the production of inventory. We anticipate sales of our product to
commence before March 31, 2005 but can not be assured that cash generated from
operations in the current year will be sufficient to fund our current and
anticipated cash requirements. We have been able to raise capital in a series of
debt offerings in the past and we plan to obtain additional capital from private
placements, although it has not yet commenced and we cannot offer any assurance
that we will be able to do so.
Prior to the completion of the reorganization, which occurred on October 26,
2004, the Company had nominal assets and liabilities in excess of assets, and we
engaged in no business operations. We were wholly dependent on loans from
shareholders to permit us to meet our regulatory obligations.
We are currently able to pay our bills as they become due, however, we continue
to be dependent upon our ability to successfully complete our private placement
and initiate sales of our product to meet our obligations and to fully pursue
our business plan.
If we are not able to achieve sufficient liquidity to meet our regulatory
obligations and to pursue our business plan (which we estimate will require at
least $750,000 during the next 3 months and $3,000,000 over the next twelve
months), we may be unable to market any of our products, pay salaries to our
employees, and to retain professional advisors to assist us in complying with
our regulatory obligations.
3
GOING CONCERN
There is substantial doubt about the ability of the Company to continue as a
"going concern." The Company has not commenced sales of its product, has limited
capital, and debt in excess of $3,334,000 (as of February 22, 2005), all of
which is due within one year, approximately $600,000 in cash (as of February 22,
2005), no other liquid assets, and no capital commitments. The effects of such
conditions could easily cause the Company's bankruptcy. LNC's auditors issued a
"going concern" qualification as a part of its opinion included with LNC's June
30, 2004, audited financial statements.
Management hopes to generate revenues from sale of the Company's product and
seek and obtain equity funding for operations and to provide working capital.
Management has plans to seek capital in the form of private placements of the
Company's common stock with attached warrants. If management is not able to
obtain the necessary capital, the Company may not be able to continue as a going
concern.
PLAN OF OPERATION
Since the reorganization, the Company's focus has been to support development
and documentation of intellectual property (held by LNC) and to create products
from that intellectual property that we expect to be marketable as
non-prescription nutritional supplements for the reduction of oxidative stress
and mitigation of the adverse effects of the aging process.
We believe that our strength is our ability to bring the necessary resources
together to identify, evaluate, develop, engineer and successfully commercialize
our intellectual property. We believe that we are positioning the Company to
benefit from increasing demand for nutritional supplements that effectively
address issues relating to aging and oxidative stress.
At the present time, we may not have sufficient financial assets to carry our
business plan through to completion. We are dependent upon our ability to
generate sufficient sales revenue and/or obtaining a significant amount of
financing from our private placement (which cannot be assured) to:
o Continue our testing and analysis at University of Colorado Health
Sciences Center and documenting the results;
o Obtain governmental licenses, if any are necessary, in the United
States for the distribution of nutritional supplements such as
Protandim;
o Initiate our public relations and marketing plan designed for the
roll-out of Protandim as our initial product;
o Continue manufacturing and packaging Protandim for sale,
o Implement and continue to improve upon the web order processing system
we have developed for web based and phone order sales, and
o Market Protandim as our first product based on the clinical trial
results from the University of Colorado Health Sciences Center testing
and other work performed by consultants.
Although our first priority is to establish a branded presence and distribute
our product directly through web order and phone sales, the Company may also be
compelled to enter into distribution agreements with stores for the marketing
and distribution of Protandim, and this will likely require that we engage in
4
additional marketing efforts with prospective distributors. It is likely that
these distributors will require that they review our test reports and they may
want to perform some of their own tests.
We have also given consideration to the development of other products, such as
Protandim PET (a nutritional supplement for dogs and cat pets) and Protandim
Multi (a vitamin and mineral compound). We are only in the beginning stages of
the research and development of these products and do not have a formulation for
either of them. Consequently, we cannot offer any assurance that we will be able
to develop or market these products.
Item 3. Controls and Procedures
As required by Rule 13a - 15 under the Securities Exchange Act of 1934, within
the 90 days prior to the filing date of this report, we carried out an
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. This evaluation was carried out under the
supervision and with the participation of our Chief Executive Officer and our
Chief Financial Officer. Following this inspection, these officers concluded
that the Company's disclosure controls and procedures are effective. There have
been no significant changes in the Company's internal controls or in other
factors which could significantly affect internal controls subsequent to the
date the Company carried out its evaluation. Disclosure controls and procedures
are controls and other procedures that are designed to ensure that information
required to be disclosed in the Company reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in the
Company reports filed under the Exchange Act is accumulated and communicated to
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.
PART II Other Information
Item 1. Legal Proceedings.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Previously reported.
Item 3. Defaults upon senior securities.
Not applicable.
Item 4. Submission of matters to a vote of security holders.
Not applicable.
Item 5. Other information.
Not applicable.
Item 6. Exhibits
A. Exhibits
31.1 Certification of the principal executive officer pursuant to Rule
13a - 14(a).
31.2 Certification of the principal financial officer pursuant to Rule
13a - 14(a).
32.1 Certification of the principal executive officer pursuant to 18
U.S.C. ss.1350.
32.2 Certification of the principal financial officer pursuant to 18
U.S.C. ss.1350.
5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 24, 2005 /s/ William Driscoll
-----------------------------------
William Driscoll, President
Principal Executive Officer
Date: February 24, 2005 /s/ Daniel W. Streets
-----------------------------------
Daniel W. Streets, Treasurer
Principal Accounting Officer,
Principal Financial Officer
6
LIFELINE THERAPEUTICS, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
As of As of
December 31, June 30,
2004 2004
----------- -----------
ASSETS (Unaudited)
------
Current Assets
Cash and cash equivalents $ 27,295 $ 49,663
Prepaid expenses 6,097 7,813
Other current assets 900 --
----------- -----------
Total current assets 34,292 57,476
Property and equipment
Office equipment 40,493 18,906
Accumulated depreciation (4,009) (208)
----------- -----------
Property and equipment, net 36,484 18,698
Other Assets
Debt issuance costs, net of amortization 41,400 15,222
Deferred stock offering costs 30,510 15,000
Patents 17,431 24
Deposits 6,142 6,142
----------- -----------
Total other assets 95,483 36,388
----------- -----------
TOTAL ASSETS $ 166,259 $ 112,562
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
---------------------------------------
Current Liabilities
Accounts payable $ 18,122 $ 22,534
Accrued payroll and other expenses 57,196 56,233
Accrued interest 44,124 10,736
Convertible notes payable 240,000 240,000
Bridge notes payable, net of discount 165,392 4,670
Bridge notes payable-related party, net of discount 30,506 2,330
----------- -----------
Total current liabilities 555,340 336,503
Stockholders' (Deficit)
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, 16,574,983 and 15,385,110, respectively,
issued and outstanding 16,575 15,385
Common Stock, Series B -par value $.001, 250,000,000
shares authorized, no shares issued or outstanding -- --
Additional Paid-in Capital 1,543,273 227,165
Stock subscription receivable -- (13,050)
(Deficit) accumulated during the development stage (1,948,929) (453,441)
Total stockholders' (deficit) (389,081) (223,941)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 166,259 $ 112,562
=========== ===========
F-1
LIFELINE THERAPEUTICS, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended July 1, 2003
December 31, December 31, (Inception) Through
2004 2003 2004 2003 December 31, 2004
------------ ------------ ------------ ------------ ------------
REVENUES $ -- $ -- $ -- $ -- $ --
OPERATING EXPENSES
Payroll and payroll tax expense 126,234 -- 277,233 -- 468,802
Charitable donation of stock 650,000 -- 650,000 -- 650,000
Contributed services -- 28,500 -- 49,500 79,500
Research and development 33,414 -- 45,242 -- 59,742
General and administrative 169,432 24,458 273,941 27,651 424,076
------------ ------------ ------------ ------------ ------------
Total operating expenses 979,080 52,958 1,246,416 77,151 1,682,120
OPERATING (LOSS) (979,080) (52,958) (1,246,416) (77,151) (1,682,120)
OTHER INCOME (EXPENSE)
Interest expense (180,395) (1,606) (244,289) (1,907) (262,025)
Loss on Disposal (4,784) -- (4,784) -- (4,784)
------------ ------------ ------------ ------------ ------------
Net (loss) $ (1,164,259) $ (54,564) $ (1,495,489) $ (79,058) $ (1,948,929)
============ ============ ============ ============ ============
Basic and fully diluted (loss) per Share $ (0.07) $ (0.01) $ (0.10) $ (0.02) $ (0.21)
============ ============ ============ ============ ============
Weighted average shares outstanding 16,466,287 5,743,323 14,972,332 4,577,374 9,450,584
============ ============ ============ ============ ============
F-2
LIFELINE THERAPEUTICS, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOW
(Unaudited)
Six Months Ended July 1, 2003
December 31, (Inception) to
2004 2003 December 31, 2004
----------- ----------- -----------
Cash Flows From Operating Activities:
Net (loss) $(1,495,489) $ (79,058) $(1,948,929)
Adjustments to reconcile net (loss) to net cash
(used) in operating activities:
Depreciation 3,802 -- 4,008
Amortization of debt issuance costs 20,222 -- 22,000
Amortization of debt discount 210,900 -- 217,900
Loss on disposal of real estate 4,784 -- 4,784
Contributed Services -- 49,500 79,500
Charitable donation of common stock 650,000 -- 650,000
Changes in assets and liabilities:
Decrease (increase) in prepaid expenses and other assets 816 (63,500) (13,139)
Increase (decrease) in accounts payable and accrued expenses 1,101 1,907 90,605
----------- ----------- -----------
Total adjustments 891,625 (12,093) 1,055,658
----------- ----------- -----------
Net Cash (Used) in Operating Activities (603,864) (91,151) (893,271)
----------- ----------- -----------
Cash Flow From Investing Activities:
Patent costs (17,407) -- (17,431)
Purchase of equipment (21,587) -- (40,493)
----------- ----------- -----------
Net Cash (Used) By Investing Activities (38,994) -- (57,924)
----------- ----------- -----------
Cash Flow From Financing Activities:
Proceeds from notes payable 604,000 110,000 944,000
Proceeds from notes payable - related party 60,000 -- 110,000
Payment of debt issuance costs (46,400) -- (63,400)
Payment of stock offering costs (15,510) -- (30,510)
Sale of common stock 18,400 -- 18,400
----------- ----------- -----------
Net Cash Provided By Financing Activities 620,490 110,000 978,490
----------- ----------- -----------
Increase (Decrease) in Cash (22,368) 18,849 27,295
Cash and Cash Equivalents - Beginning of period 49,663 -- --
----------- ----------- -----------
Cash and Cash Equivalents - End of period $ 27,295 $ 18,849 $ 27,295
=========== =========== ===========
Supplemental Cash Flow Information:
Interest paid $ -- $ -- $ --
=========== =========== ===========
Taxes paid $ -- $ -- $ --
=========== =========== ===========
Non-cash investing and financing transactions in connection
with the acquisition of LTI:
Fair value of net assets acquired $ 25,275 -- --
Assumption of accrued expenses (49,330) -- --
Book value of equity 24,055 -- --
----------- ----------- -----------
Net cash paid to acquire subsidiary $ -- $ -- $ --
=========== =========== ===========
F-3
LIFELINE THERAPEUTICS, INC.
(A Development Stage Company.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Presentation of Interim Information
In the opinion of the management of Lifeline Therapeutics, Inc. (the
"Company"), the accompanying unaudited Condensed Consolidated Financial
Statements include all normal adjustments considered necessary to present
fairly the financial position as of December 31, 2004, and the results of
operations for the three months and six months ended December 31, 2004 and
2003 and for the period from inception of the Company to December 31, 2004,
and cash flows for the six months ended December 31, 2004 and 2003 and for
the period from inception of the Company to December 31, 2004. Interim
results are not necessarily indicative of results for a full year.
For the period July 1, 2003 (inception) to December 31, 2004, the Company
has been in the development stage. The Company's activities since inception
have consisted of organizing the Company, developing a business plan,
formulation and testing of product and raising capital.
The Condensed Consolidated Financial Statements and notes are presented as
required by Form 10-QSB, and do not contain certain information included in
the Company's audited financial statements and notes for the fiscal year
ended June 30, 2004.
On October 26, 2004, the Company consummated an Agreement and Plan of
Reorganization with Lifeline Nutraceuticals Corporation ("LNC") whereby the
shareholders of Lifeline Nutraceuticals Corporation exchanged 81% of their
outstanding shares of common stock for 15,385,110 Series A common shares of
the Company which represents 94% of the issued and outstanding shares. The
Company assumed the obligations of Lifeline Nutraceuticals Corporation note
holders as part of the transaction. The Company is in the process of
exchanging all originally issued and outstanding notes, including warrants,
payable by Lifeline Nutraceuticals Corporation, into new notes, including
warrants, payable by the Company.
For legal purposes, the Company acquired LNC and is the parent company of
LNC following the reorganization. However, for accounting purposes, LNC is
treated as the acquiring company in a "reverse acquisition" of the Company.
As a consequence, the financial statements through December 31, 2004
presented herein are those of LNC with exception of common stock structure
which remains that of the Company, i.e. the common stock par value and
shares of common stock authorized and outstanding. In conjunction with the
reorganization, the retained deficit of the Company at October 26, 2004 has
been eliminated and transferred to additional paid-in capital. As a result,
the accumulated deficit at December 31, 2004 and loss for the six months
ended December 31, 2004 are a result of the operations of the reorganized
company.
On September 28, 2004 the Company, formerly Yaak River Resources, Inc.,
changed its name to Lifeline Therapeutics, Inc. ("LTI") and effectuated a
68 for 1 reverse stock split wherein 67,308,857 shares became 989,873
shares. All share and per share amounts in the accompanying Condensed
Consolidated Financial Statements of the Company and notes thereto have
been retroactively adjusted to give effect to the reverse stock split.
On November 19, 2004, the Board of Directors authorized the issuance of
200,000 shares of common stock of the Company to Lifeline Orphan
Foundation. The closing price, per NASDAQ, of the Company's common stock
that day was $3.25 and, accordingly, the Company recognized an expense in
its Condensed Consolidated Statements of Operations of $650,000.
F-4
LIFELINE THERAPEUTICS, INC.
(A Development Stage Company.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Going Concern
The accompanying Condensed Consolidated Financial Statements have been
prepared in conformity with accounting principles generally accepted in the
United States, which contemplates continuation of the Company as a going
concern. There is substantial doubt about the ability of the Company to
continue as a "going concern." The Company's operations generated no income
during the current period ended and the Company's deficit is $1,948,929.
The future success of the Company is likely dependent on its ability to
attain additional capital to develop its proposed products and ultimately,
upon its ability to attain future profitable operations. There can be no
assurance that the Company will be successful in obtaining such financing,
or that it will attain positive cash flow from operations.
3. Contingent Liabilities
Although no legal proceedings have been initiated, the minority shareholder
in the Company's 81% owned subsidiary, Lifeline Nutraceuticals Corporation
has threatened litigation. In addition, the Company is aware that a
consultant who claims a role in the reorganization transaction that
occurred on October 26, 2004 may demand a finder's fee over and above
compensation previously paid to the consultant. The Company does not
believe it has any obligation to either potential claimant and will
vigorously defend against any claims made.
The Company is currently in negotiations with the minority shareholder
which, if successfully concluded (of which there can be no assurance), may
result in the exchange of his 19% interest in the Company's subsidiary for
shares of the Company's common stock. The number of new shares to be
issued, if such an exchange was to occur, and the resulting dilution to the
existing shareholders is not known at this time. If the Company is not able
to reach a settlement and the minority shareholder brings litigation, the
Company believes it has good and meritorious defenses and will vigorously
defend against any claim made.
4. Bridge Notes Payable
Gross bridge loan notes payable at December 31, 2004 $ 814,000
Less discounts on debt:
Unamortized warrant (202,338)
Unamortized beneficial conversion interest (415,764)
------------
Bridge loan notes payable, net of discount 195,898
Less bridge notes payable - related party 30,506
------------
Other bridge loan notes payable, net of discount $ 165,392
============
Since June 30, 2004, the Company issued additional notes payable totaling
$664,000, bearing interest at 10% per annum, principal and any accrued
interest is due the earlier of one year from issuance or the first closing
of the proposed private placement. Of the total amount of additional notes
issued since June 30, 2004, $60,000 was from a related party. The note
holders have an option to convert all or part of the principal and accrued
interest balance to units in the private offering into public equity at the
private offering price. In addition, the notes have a warrant attached to
purchase shares of common stock equal to their loan amount divided by the
$2.00 per share offering price in the private placement.
Since December 31, 2004, the Company issued additional notes payable
totaling $2,290,000. See Note 6.
F-5
LIFELINE THERAPEUTICS, INC.
(A Development Stage Company.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. Condensed Proforma of Combined Statement of Operations
The following Condensed Proforma represents the combined operations of
Lifeline Therapeutics Inc. and Lifeline Nutraceuticals Corporation as if
the Agreement and Plan of Reorganization had been consummated as of the
beginning of the periods presented.
Six Months Ended
December 31,
-------------------------
2004 2003
----------- -----------
Revenues $ - $ -
=========== ===========
Net (loss) $(1,536,001) $ (80,094)
=========== ===========
Weighted average shares outstanding 14,972,332 4,577,374
=========== ===========
Basic and fully diluted net loss per share ($0.10) ($0.02)
=========== ===========
6. Subsequent Events
On January 15, 2005, the Company entered into a selling agreement with an
investment banking firm. Pursuant to the agreement, Lifeline intends to
conduct a private placement of its securities on a best efforts,
minimum-maximum basis, to raise from $5,000,000 to $8,000,000. The Company
expects that the private placement will offer Units, at $20,000 per Unit,
consisting of 10,000 shares of common stock and 10,000 warrants to purchase
common stock exercisable for three years at $2.50 per share. The private
placement will be used to attempt to raise cash for payment of debt,
research and development, working capital, and other corporate purposes, as
well as to offer an exchange privilege to holders of the Company's
outstanding bridge loan financing. The Company expects to pay a selling
commission and warrants to the placement agent. The Company expects to
commence the placement in March 2005. The Units offered have not been and
will not be registered under the Securities Act of 1933 (the "Act") or
under the securities laws of any state. The Units and the shares and
warrants included within the Units will be "restricted securities" as
defined in Rule 144 under the Act. These securities will be 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.
Subsequent to December 31, 2004, the Company has received $2,290,000 in
bridge loan financing from accredited investors under the same terms and
conditions as prior bridge financing. With the bridge loan financing, the
accredited investors will be issued a number of warrants to purchase shares
of Lifeline restricted common stock equal to the principal amount of their
loan divided by $2.00. The warrants will be exercisable for three years
from the closing of the private placement at a price of $2.00 per share.
The bridge loan holders will be afforded the opportunity, in lieu of
repayment, of exchanging their notes and accrued interest, at $2.00 per
share of common stock, into a proposed private placement which is expected
to consist of Units of common stock (at $2.00 per share) and warrants
exercisable for three years at $2.50 per share.
F-6