##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-KSB/A
 (Amendment No. 1)
 (Mark One)
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the fiscal year ended June 30, 2006
 o
    
    TRANSITION REPORT UNDER 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.
  Colorado
(State or other jurisdiction of 
incorporation or organization)
    
    90-0224471
(IRS Employer
Identification No.)6400 S. Fiddlers Green Circle, #1970
Greenwood Village, Colorado
(Address of principal executive offices)
    
    80111
(Zip Code)
 (720) 488-1711
 None
 
 o
 þ o
 þ
 o þ
    o þ




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##### Table of Contents



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
    
    
    Our short operating history and lack of significant revenues from operations;
    
    Our ability to successfully expand our operations and manage our future growth;
    
    The effect of current and future government regulations and regulators on our business;
    
    The effect of unfavorable publicity on our business;
    
    Competition in the dietary supplement market;
    
    The potential for product liability claims against us;
    
    Our dependence on third party manufacturers to manufacture our product;
    
    The ability to obtain raw material for our product;
    
    Our dependence on a limited number of significant customers and a single
product for our revenue;
    
    Our ability to protect our intellectual property rights and the value of our product;
    
    Our ability to continue to innovate and provide products that are useful to consumers;
    
    The significant control that our management and significant shareholders exercise over us;
    
    The illiquidity of our common stock; and
    
    Other factors, including the other risks, uncertainties, and contingencies
under Risk Factors and Managements Discussion and Analysis or Plan of Operation in
Item 6 of Part II of this report.
  2




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##### 



TABLE OF CONTENTS
 PageAmendment No. 1 Explanatory Note
    
    
    4PART IItem 1.
    
    Description of Business
    
    
    5Item 2.
    
    Description of Properties
    
    
    14Item 3.
    
    Legal Proceedings
    
    
    14Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    15PART IIItem 5.
    
    Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchase of Equity Securities
    
    
    16Item 6.
    
    Managements Discussion and Analysis or Plan of Operation
    
    
    19Item 7.
    
    Financial Statements
    
    
    32Item 8.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    32Item 8A.
    
    Controls and Procedures
    
    
    32Item 8B.
    
    Other Information
    
    
    33PART IIIItem 9.
    

Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act
    
    
    34Item 10.
    
    Executive Compensation
    
    
    34Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    34Item 12.
    
    Certain Relationships and Related Transactions
    
    
    34Item 13.
    
    Exhibits
    
    
    34Item 14.
    
    Principal Accountant Fees and Services
    
    
    34Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  3




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Amendment No. 1 Explanatory Note
     4




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PART I
 
 ITEM 1  DESCRIPTION OF BUSINESS
 Overview
 ®
 Our Product
 ® ®
  ®
 ® ® ®
 ® ® ®
 5




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Our Business Model
 ®
 Manufacturing ®
 
    
    Chemins has ordered and received the raw materials required for one million bottles
of Protandim® and
    
    we have paid Chemins to acquire bottling and packaging materials, and to commence
manufacturing 500,000 bottles of Protandim®.
    
    Chemins delivers product to us based on our purchase orders and additional payments.
Through June 30, 2006, Chemins had shipped or delivered 289,000 bottles of
Protandim® to our fulfillment center and retail distributor, General
Nutrition Distribution, LP (GNC). As of June 30, 2006, an additional 211,000 bottles
remain to be shipped from the initial 500,000-bottle order.
 ®
  Marketing ® ®
 ®
 ®
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®
  Sales
 ® www.protandim.com
 Research and Development
 ® ®
 7




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##### Table of Contents



The U.S. Dietary Supplement Market
 Nutrition Business Journal
 
  2005 U.S. Nutrition Industry Revenues ($mil in Consumer Sales)
 2005
    
    Retail-NHF
    
    Retail-MM
    
    Mail Order
    
    MLM
    
    Practitioner
    
    Internet
    
    TotalSupplements
    
    
    7,741
    
    
    
    6,036
    
    
    
    1,287
    
    
    
    4,198
    
    
    
    1,548
    
    
    
    506
    
    
    
    21,316Natural & Organic
Foods
    
    
    11,466
    
    
    
    9,307
    
    
    
    17
    
    
    
    29
    
    
    
    6
    
    
    
    14
    
    
    
    20,840Functional Foods
    
    
    2,903
    
    
    
    23,337
    
    
    
    27
    
    
    
    213
    
    
    
    32
    
    
    
    147
    
    
    
    26,660N&O Personal
Care, etc.
    
    
    3,291
    
    
    
    757
    
    
    
    222
    
    
    
    1,962
    
    
    
    233
    
    
    
    91
    
    
    
    6,556Total
    
    
    25,401
    
    
    
    39,437
    
    
    
    1,554
    
    
    
    6,402
    
    
    
    1,819
    
    
    
    757
    
    
    
    75,372
 Nutrition Business Journal
 We believe that the growth in this market is driven by a number of factors including:o
    
    increased awareness of the health benefits of dietary supplements;o
    
    a trend toward preventive health care;o
    
    an increase in the number of older Americans; ando
    
    health care consumers interest in managing their own health needs.
 Target Market
 ® ®
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Competition
 ® ®
 ® ®
 ®
  Product Liability and Other Insurance
 ®
 Intellectual Property, Patents, and Royalty Agreements
 ®
 ®
  9




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
    
    U.S. Application Serial Number 60/555,802, filed on March 23, 2004 (expired);
    
    U.S. Application Serial Number 60/590,528, filed on July 23, 2004 (expired);
    
    U.S. Application Serial Number 60/604,638, filed on August 26, 2004 (expired);
    
    U.S. Application Serial Number 60/607,648, filed on September 7, 2004 (expired);
    
    U.S. Application Serial Number 60/610,749, filed on September 17, 2004
(expired);
    
    U.S. Application Serial Number 60/643,754, filed on January 13, 2005 (expired);
    
    U.S. Application Serial Number 60/646,707, filed on January 25, 2005 (expired);
and
    
    U.S. Application Serial Number 60/758,814, filed on January 13, 2006.
 
 *
    
    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. 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.
    
    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.
    
    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.
   
    
    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. ® ® ®
 10




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Governmental Approval and Regulations
 ® ® ® ,
 ®
 FDA Regulations Applicable to the Formulation, Manufacturing, Packaging and Labeling of
Protandim ®
  ®
 11




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®
  FTC Regulations applicable to the Advertising and Marketing of Protandim ®
    12




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The Bioterrorism Act
  1.
    
    Mandatory registration with the FDA of all food manufacturers.2.
    
    Prior notice to regulators of inbound food shipments.3.
    
    Recordkeeping requirements, and grant of access to the FDA of applicable
records.4.
    
    Grant of detention authority to the FDA of food products in certain
circumstances.
 ®
 Potential FDA and Other Regulation
    Employees
  History
  13




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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 LNC.
    
    We agreed to exchange $240,000 in new promissory notes for a like amount of
convertible debt obligations of LNC.
    
    We agreed to exchange $559,000 in new promissory notes for a like amount of bridge
loan note obligations of LNC.
 ®
 
 ITEM 2  DESCRIPTION OF PROPERTIES
 Corporate Office
 th th th
 Warehouse Facility
  Other Properties
 Development Lots.
 
 ITEM 3  LEGAL PROCEEDINGS
   14




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ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  15




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PART II
 
 ITEM 5  MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES
OF EQUITY SECURITIES
  th
 2006
    
    2005High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    11.75
    
    
    $
    4.30
    
    
    $
    1.36
    
    
    $
    0.68Second Quarter
    
    $
    5.75
    
    
    $
    1.72
    
    
    $
    4.00
    
    
    $
    2.55Third Quarter
    
    $
    5.95
    
    
    $
    1.80
    
    
    $
    10.60
    
    
    $
    2.70Fourth Quarter
    
    $
    2.71
    
    
    $
    0.46
    
    
    $
    20.25
    
    
    $
    4.00
   Stock Option Grants and Warrants
 (c) Number of securities(b) Weighted-
    
    
    remaining available for(a) Number of
    
    
    average exercise
    
    
    future issuance undersecurities to be issued
    
    
    price of
    
    
    equity compensationupon exercise of
    
    
    outstanding
    
    
    plans (excludingoutstanding options,
    
    
    options, warrants
    
    
    securities reflected inPlan Category
    
    warrants and rights
    
    
    and rights
    
    
    column (a))Equity
compensation plans
approved by
security holders
    
    
    
    
    
    $
    
    
    
    
    Equity compensation
plans not approved
by security holders
    
    
    7,885,294
    
    
    $
    $2.55
    
    
    
    1,574,000Total
    
    
    7,885,294
    
    
    $
    $2.55
    
    
    
    1,574,000
 2006 Stock Option Plan.
 16




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Interim Chief Executive Officer.
 Chairman Warrants.
 17




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##### Table of Contents



Chief Executive Officer.
 Portion of Option Vesting
    
    Common Stock Price1/3
    
    $
    8.001/3
    
    $
    14.001/3
    
    $
    18.00
  Chief Financial Officer.
  Portion of Option Vesting
    
    Common Stock Price1/3
    
    $
    8.001/3
    
    $
    14.001/3
    
    $
    18.00
  Board Members and Others
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ITEM 6  MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 You should read the following discussion and analysis in connection with our financial statements
and related notes beginning on page F-1 following Part III of this annual report.
 Restatement
  Overview
  ® ® ® ®
 ® ® ®
 19




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®
 ® ®
  ® ®
 Recent Developments
  Reorganization
   20




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Year ended June 30, 2006 Compared to the Year ended June 30, 2005
 Sales. ® ®
 Gross Margin.
 Operating Expenses. ®
 Marketing and Customer Service Expenses.
 General and Administrative Expenses.
 Research and Development. ®
 Depreciation and Amortization Expense.
 Net Other Income and Expense.
 Net Loss.
 21




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Liquidity and Capital Resources
 ®
    ®
 ®
 Critical Accounting Policies
  22




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Allowances for Product Returns
    Inventory Valuation
  Revenue Recognition
  23




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Intangible Assets  Patent Costs
  Research and Development Costs
  Recently Issued Accounting Standards
 , Accounting for Certain Hybrid Financial
Instrumentsan amendment of FASB Statements No. 133 and 140.
 , Accounting for Servicing of Financial Assetsan
amendment of FASB Statement No. 140.
 Fair Value Measurements
  24




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SEC Staff Comments
  a)
    
    1,000,000 shares issued to purchase a minority interest in Lifeline
Nutraceuticals in March 2005 should be valued at $2.00 per share instead of $5.31
per share;b)
    
    the valuation of the goodwill resulting from the transaction should be
$-0-; andc)
    
    the appropriate purchase price allocation to patent related
intellectual property should be $2,000,000.
  Risk Factors
 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. You should carefully consider
each of the following risk factors and all of the other information provided in this annual report,
including our financial statements and the related notes, before purchasing our Series A common
stock. The risks described below are those we currently believe may materially affect us. The
future development of Lifeline Therapeutics and Protandim ® is and will continue to be
dependent upon a number of factors, not all of which we can predict or anticipate. Accordingly,
the following risk factors are not necessarily all of the important factors that could cause actual
results of operations to differ materially from those expressed in the forward-looking statements
in this annual report. Other unknown or unpredictable factors also could have material adverse
effects on our business, future results of operations or financial condition. We have no obligation
and do not undertake to update or revise the following risk factors to reflect events or
circumstances after the date of this report.
 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.
 ® ®
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There is no assurance that we will be successful in expanding our operations and, if successful,
managing our future growth.
  Government regulators and regulations could adversely affect our business.
  
    
    Initiating investigations;
    
    Issuing warning letters and cease and desist orders;
    
    Demanding recalls;
    
    Initiating adverse publicity;
    
    Requiring corrective labeling or advertising;
    
    Requiring consumer redress and/or disgorgement;
    
    Seeking injunctive relief or product seizures;
    
    Initiating judicial actions; and
    
    Imposing civil penalties or commencing criminal prosecution.
   Future laws or regulations may hinder or prohibit the production or sale of our existing product
and any future products.
  26




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##### Table of Contents




    
    The reformulation of products to meet new standards;
    
    Additional ingredient restrictions;
    
    Additional claim restrictions;
    
    The recall or discontinuance of products unable to be reformulated;
    
    Imposition of additional good manufacturing practices and/or record keeping
requirements;
    
    Expanded documentation of the properties of products; and
    
    Expanded or different labeling or scientific substantiation.
  Unfavorable publicity could materially hurt our business and the value of your investment.
  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.
  The dietary supplement market is highly competitive.
  27




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Our business is susceptible to product liability claims, which could adversely affect our results
of operation and financial condition.
  Consumers of our products may not feel noticeable physiological differences after taking
Protandim ® .
 ®. ® ® ®
 We have no manufacturing capabilities and we are dependent upon a third party to manufacture our
product.
  28




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Raw material for our product may be difficult to obtain or expensive.
 ®
 We depend on a limited number of significant customers and the loss of any of them could negatively
affect our business.
  ®
 Product returns may adversely affect our business.
    We currently depend on a single product for our revenue.
 ® ® ®
 29




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Worsening economic conditions may adversely affect our business.
  We may face limited availability of additional capital.
  We could be exposed to certain environmental liabilities due to our past operations and property
ownership.
   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.
 ® ® ®
 30




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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.
 ®
 If we are unable to protect our proprietary information against unauthorized use by others, our
competitive position could be harmed.
  Other parties might claim that we infringe on their intellectual property rights.
  Risk Factors Relating to our Series A 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.
  
    
    Control the composition of our board of directors;
    
    Control our management and policies;
 31




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##### Table of Contents




    
    Determine the outcome of significant corporate transactions, including
changes in control that may be beneficial to shareholders; and
    
    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 Series A common stock could 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 stock price may experience future volatility.
  
 ITEM 7  FINANCIAL STATEMENTS
  
 ITEM 8  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 8A  CONTROLS AND PROCEDURES
 Restatement
  32




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Evaluation of Controls and Procedures
    
 ITEM 8B  OTHER INFORMATION
  33




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PART III
  
 ITEM 9  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT
  
 ITEM 10  EXECUTIVE COMPENSATION
  
 ITEM 11  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
  
 ITEM 12  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 13  EXHIBITS
  
 ITEM 14  PRINCIPAL ACCOUNTANT FEES AND SERVICES
  34




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SIGNATURES
  LIFELINE THERAPEUTICS, INC.
a Colorado corporationBy:
    
    /s/ Gerald J. Houston

     Gerald J. HoustonIts:        Chief Financial OfficerDate: November 29, 2006
 35




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Title2.1
    
    Agreement and Plan of Reorganization between Lifeline Nutraceuticals
Corporation and Yaak River Resources, Inc. dated September 21,
2004(1)2.2
    
    Settlement and Release Agreement and Plan of Reorganization dated
March 10, 2005, among Lifeline Therapeutics, Inc. Lifeline
Nutraceuticals Corporation and Michael Barber (2)3.1
    
    Articles of Incorporation of the Registrant, as amended(9)3.2
    
    Amended and Restated Bylaws of the Registrant(9)10.1
    
    Form of Unit Warrant Certificate (3)10.2
    
    Form of Bridge Warrant Certificate (3)10.3
    
    Form of Placement Agent Warrant Certificate (3)10.4
    
    Secured Indemnification Agreement dated February 21, 2005 between
Lifeline Therapeutics, Inc. and William J. Driscoll and Rosemary
Driscoll (3)10.5
    
    Interim Executive Services Agreement between Lifeline Therapeutics,
Inc. and Tatum CFO Partners, LLP dated August 1, 2005 (4)10.6
    
    Agreement between Lifeline Therapeutics, Inc. and William Driscoll
dated July 1, 2005 (4)10.7
    
    Form of Placement Agent Warrant Certificate (5)10.8
    
    Selling Agreement dated January 14, 2005 between Lifeline
Therapeutics, Inc. and Keating Securities, LLC (5)10.9
    
    Memorandum Agreement dated November 16, 2004 between Lifeline
Nutraceuticals Corporation and The Scott Group (5)10.10
    
    Lifeline Therapeutics, Inc. 2006 Stock Option Plan (5)10.11
    
    Independent Contractors Agreement dated September 1, 2005 between
Lifeline Therapeutics, Inc. and Robert Sgarlata Associates, Inc.
(6)10.12
    
    Statement regarding Javier Baz Employment Agreement (6)10.13
    
    Employment Agreement dated November 28, 2005 by and between Lifeline
Therapeutics, Inc. and Stephen K. Onody (7)10.14
    
    Employment Agreement dated January 4, 2006 by and between Lifeline
Therapeutics, Inc. and Gerald J. Houston (8)10.15
    
    Voting Agreement and Irrevocable Proxy dated July 1, 2005 between
Lifeline Therapeutics, Inc. and William Driscoll (9)10.16
    
    Voting Agreement and Irrevocable Proxy dated February 9, 2006 among
Lifeline Therapeutics, Inc., Paul Myhill and Lisa Gail Myhill
(9)10.17
    
    Manufacturing Agreement dated February 26, 2004 and amended on
February 26, 2004 between Lifeline Therapeutics, Inc. and The Chemins
Company (9)10.18
    
    Lease dated as of August, 2005 between Property Colorado OBJLW One
Corporation and Lifeline Therapeutics, Inc. (9)21.1
    
    List of subsidiary (4)31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 *
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##### Table of Contents



ExhibitNumber
    
    Title31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 *32.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 *32.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 *
 
 (1)
    
    Filed as an exhibit to Yaak River Resources, Inc.s Current Report of Form 8-K (File
No. 000-30489), filed on September 28, 2004, and incorporated herein by reference.(2)
    
    Filed as an exhibit to Lifeline Therapeutics, Inc.s Current Report of Form 8-K (File No.
000-30489), filed on March 14, 2005, and incorporated herein by reference.(3)
    
    Filed as an exhibit to Lifeline Therapeutics, Inc.s Registration Statement on Form
SB-2 (File No. 333-126288), filed on June 30, 2005, and incorporated herein by reference.(4)
    
    Filed as an exhibit to Lifeline Therapeutics, Inc.s Annual Report on Form 10-KSB (File
No. 000-30489), filed on October 13, 2005, and incorporated herein by reference.(5)
    
    Filed as an exhibit to Lifeline Therapeutics, Inc.s Registration Statement on Form
SB-2/A (File No. 333-126288), filed on February 6, 2006, and incorporated herein by
reference.(6)
    
    Filed as an exhibit to Lifeline Therapeutics, Inc.s Registration Statement on Form
SB-2/A (File No. 333-126288), filed on May 26, 2006, and incorporated herein by reference.(7)
    
    Filed as an exhibit to Lifeline Therapeutics, Inc.s Current Report on Form 8-K (File
No. 000-30489), filed on November 29, 2005, and incorporated herein by reference.(8)
    
    Filed as an exhibit to Lifeline Therapeutics, Inc.s Current Report on Form 8-K (File
No. 000-30489), filed on January 4, 2006, and incorporated herein by reference.(9)
    
    Filed as an exhibit to Lifeline Therapeutics, Inc.s Annual Report on Form 10-KSB (file
No. 000-30489), filed on September 28, 2006, and incorporated herein by reference.*
    
    Filed herewith. 37




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LIFELINE THERAPEUTICS, INC.
 Index to Restated Consolidated Financial Statements
 Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated Financial Statements:Restated Consolidated Balance Sheets as of June 30, 2006 and 2005
    
    F-3Consolidated Statements of Operations for the years ended June 30, 2006 and 2005
    
    F-4Restated Consolidated Statements of Stockholders Equity and Comprehensive Income for the years ended June 30, 2006 and 2005
    
    F-5  F-6Restated Consolidated Statements of Cash Flows for the years ended June 30, 2006 and 2005
    
    F-7  F-8Notes to Restated Consolidated Financial Statements
    
    F-9  F-21
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     /s/ Gordon, Hughes & Banks, LLP
 
 
 F-2




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##### Table of Contents



June 30, 2006
    
    June 30, 2005(Restated*)
    
    (Restated*)ASSETSCurrent assetsCash and cash equivalents
    
    $
    228,112
    
    
    $
    4,405,336Marketable securities, available for sale
    
    
    3,008,573
    
    
    
    Accounts receivable, net
    
    
    107,892
    
    
    
    Inventory
    
    
    45,001
    
    
    
    219,644Deferred expenses
    
    
    152,677
    
    
    
    Deposit with manufacturer
    
    
    555,301
    
    
    
    991,560Prepaid expenses
    
    
    316,659
    
    
    
    415,806Total current assets
    
    
    4,414,215
    
    
    
    6,032,346Property and equipment, net
    
    
    245,000
    
    
    
    200,944Intangible assets, net
    
    
    2,162,042
    
    
    
    2,268,830Deposits
    
    
    316,621
    
    
    
    31,192TOTAL ASSETS
    
    $
    7,137,878
    
    
    $
    8,533,312LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities
Accounts payable
    
    $
    613,833
    
    
    $
    657,528Accrued expenses
    
    
    399,305
    
    
    
    207,672Deferred revenue
    
    
    1,144,950
    
    
    
    Capital lease obligations, current portion
    
    
    1,985
    
    
    
    Total current liabilities
    
    
    2,160,073
    
    
    
    865,200Long-term liabilitiesCapital lease obligations, net of current portion
    
    
    3,146
    
    
    
    Total liabilities
    
    
    2,163,219
    
    
    
    865,200Stockholders equityPreferred 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
    
    
    
    22,118Common stock, Series B  par value $.001,
250,000,000 shares authorized, no shares issued
or outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    14,018,487
    
    
    
    13,921,832Accumulated (deficit)
    
    
    (9,010,339
    )
    
    
    (6,275,838
    )Unrealized (loss) on securities available for sale
    
    
    (55,607
    )
    
    
    Total stockholders equity
    
    
    4,974,659
    
    
    
    7,668,112TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    7,137,878
    
    
    $
    8,533,312
 
 F-3




---



##### Table of Contents



2006
    
    2005Sales, net
    
    $
    7,165,819
    
    
    $
    2,353,795Cost of sales
    
    
    1,491,332
    
    
    
    393,551Gross profit
    
    
    5,674,487
    
    
    
    1,960,244Operating expenses:Marketing and customer service
    
    
    4,259,711
    
    
    
    923,774General and administrative
    
    
    3,904,368
    
    
    
    2,981,754Research and development
    
    
    114,163
    
    
    
    37,933Depreciation and amortization
    
    
    265,279
    
    
    
    101,596Total operating expenses
    
    
    8,543,521
    
    
    
    4,045,057Operating (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
  F-4




---



##### Table of Contents



Additional
    
    
    AccumulatedSeries A Common Stock
    
    
    Paid In Capital
    
    
    Other Comprehensive
    
    
    Accumulated
    
    
    Total
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    (Restated*)
    
    
    Income/(loss)
    
    
    Deficit
    
    
    (Restated*)
    
    
    IncomeBalances, 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
    
    
    
    
    
    
    
    
    
    
    
    2,000,000Contribution of stock to charity
    
    
    200,000
    
    
    
    200
    
    
    
    649,800
    
    
    
    
    
    
    
    
    
    
    
    650,000Conversion of debt to common stock at
$0.50 per share
    
    
    536,080
    
    
    
    536
    
    
    
    267,504
    
    
    
    
    
    
    
    
    
    
    
    268,040Rights of beneficial conversion of debt
    
    
    
    
    
    
    
    
    
    
    920,662
    
    
    
    
    
    
    
    
    
    
    
    920,662Warrants issued with convertible debt
    
    
    
    
    
    
    
    
    
    
    2,114,443
    
    
    
    
    
    
    
    
    
    
    
    2,114,443Proceeds from private placement, net
of offering costs of $583,134
    
    
    2,499,764
    
    
    
    2,500
    
    
    
    4,403,177
    
    
    
    
    
    
    
    
    
    
    
    4,405,677Conversion of debt to common stock at
$2.00 per share
    
    
    1,507,202
    
    
    
    1,507
    
    
    
    3,012,865
    
    
    
    
    
    
    
    
    
    
    
    3,014,372Compensation expense associated with
stock option grants
    
    
    
    
    
    
    
    
    
    
    317,500
    
    
    
    
    
    
    
    
    
    
    
    317,500Warrants issued for services
    
    
    
    
    
    
    
    
    
    
    29,411
    
    
    
    
    
    
    
    
    
    
    
    29,411Net (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
    )
 
 F-5




---



##### Table of Contents



Series A Common Stock
    
    
    Additional
    
    
    AccumulatedPaid In Capital
    
    
    Other Comprehensive
    
    
    Accumulated
    
    
    Total
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    (Restated*)
    
    
    Income/(loss)
    
    
    Deficit
    
    
    (Restated*)
    
    
    IncomeBalances, June 30, 2005
    
    
    22,117,992
    
    
    $
    22,118
    
    
    $
    13,921,832
    
    
    $
    
    
    
    $
    (6,275,838
    )
    
    $
    7,668,112Unrealized (loss) on
securities available for
sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55,607
    )
    
    
    
    
    
    
    (55,607
    )
    
    $
    (55,607
    )Warrants issued for services
    
    
    
    
    
    
    
    
    
    
    96,655
    
    
    
    
    
    
    
    
    
    
    
    96,655Net (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
    )
 
 F-6




---



##### Table of Contents



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
    
    
    
    3,726,833Charitable donation of common stock
    
    
    
    
    
    
    650,000Accrued interest converted to stock
    
    
    
    
    
    
    98,412Loss on disposal of real estate
    
    
    
    
    
    
    4,784Options issued to employee
    
    
    
    
    
    
    317,500Warrants issued for services
    
    
    96,655
    
    
    
    29,411Changes 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
    )
    
    
    629,309Increase in accrued expenses
    
    
    191,632
    
    
    
    109,638Increase in deferred revenue
    
    
    1,144,950
    
    
    
    (Increase) in deferred expenses
    
    
    (152,677
    )
    
    
    Increase in accrued interest
    
    
    
    
    
    
    7,911Net 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
    
    
    
    
    
    
    18,400Principal payments under capital lease obligation
    
    
    (1,169
    )
    
    
    Proceeds from bridge loans
    
    
    
    
    
    
    2,954,000Repayment of bridge loans
    
    
    
    
    
    
    (160,000
    )Proceeds from private placements
    
    
    
    
    
    
    4,988,811Payment 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
    )
    
    
    6,801,167Increase (decrease) in cash
    
    
    (4,177,224
    )
    
    
    4,355,673Cash and Cash Equivalents  beginning of period
    
    
    4,405,336
    
    
    
    49,663Cash and Cash Equivalents  end of period
    
    $
    228,112
    
    
    $
    4,405,336
 
 F-7




---



##### Table of Contents



2006
    
    2005(Restated*)Non Cash Investing and Financing Activities:Acquisition of asset through capital lease
    
    $
    6,300
    
    
    
    Notes payable conversion to stock
    
    
    
    
    
    $
    268,040Bridge notes payable conversion to stock
    
    
    
    
    
    
    3,014,372Warrant discount on convertible debt
    
    
    
    
    
    
    2,114,443Beneficial conversion discount on debt
    
    
    
    
    
    
    920,662Issuance of stock for minority interest
in subsidiary (Restated*)
    
    
    
    
    
    
    2,000,000SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid for interest expense
    
    $
    
    
    
    $
    11,998Cash paid for income taxes
    
    $
    
    
    
    $
    
 
 F-8




---



##### Table of Contents



LIFELINE THERAPEUTICS, INC.
 
 NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS
  Note 1  Organization and Basis of Presentation:
 ®
   ®
 Note 2  Restatement and Summary of Significant Accounting Policies:
 Restatement
   F-9




---



##### Table of Contents



For the fiscal year ended
    
    
    For the fiscal year endedJune 30, 2006
    
    
    June 30, 2005Intangible AssetsPatent costs as previously reported
    
    $
    97,905
    
    
    $
    102,162Restatement of patent costs related to the acquisition of LNC
    
    
    2,000,000
    
    
    
    2,000,000Restated patent costs
    
    $
    2,097,905
    
    
    $
    2,102,162Goodwill as previously reported
    
    $
    5,310,000
    
    
    $
    5,310,000Restatement of goodwill related to the acquisition of LNC
    
    
    (5,310,000
    )
    
    
    (5,310,000
    )Restated goodwill
    
    $
    -0-
    
    
    $
    -0-Additional Paid-in-CapitalAdditional paid-in-capital as previously reported
    
    $
    17,328,487
    
    
    $
    17,231,832Restatement
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
  Use of Estimates
  Revenue Recognition
  F-10




---



##### Table of Contents



Accounts Receivable
  Inventory
  June 30,2006
    
    
    2005Finished goods
    
    $
    25,097
    
    
    $
    201,964Packaging supplies
    
    
    19,904
    
    
    
    17,680Total inventory
    
    $
    45,001
    
    
    $
    219,644
 Earnings per share
  F-11




---



##### Table of Contents



Research and Development Costs
  Advertising Costs
  Cash and Cash Equivalents
  Marketable Securities
 available for sale
  Unrealized
    
    
    Fair(Loss)
    
    
    ValueAs of June 30, 2006Available for sale securitiesDebt securities (maturing 0 to 2
years)
    
    $
    (55,607
    )
    
    $
    3,008,573As of June 30, 2005Available for sale securitiesDebt securities
    
    $
    
    
    
    $
    
 Deposit with Manufacturer
  Shipping and Handling
  F-12




---



##### Table of Contents



Property and Equipment
  June 30,2006
    
    
    2005Equipment
    
    $
    139,185
    
    
    $
    77,965Software
    
    
    216,881
    
    
    
    141,451Accumulated Depreciation
    
    
    (111,066
    )
    
    
    (18,472
    )Property and equipment, net
    
    $
    245,000
    
    
    $
    200,944
 Patents
   Impairment of Long-Lived Assets
  F-13




---



##### Table of Contents



Goodwill and Other Intangible Assets
    June 30,2006
    
    2005Patent costs
    
    $
    2,097,905
    
    
    $
    2,102,162Trademark costs
    
    
    64,137
    
    
    
    -0-Non-compete agreement, net
    
    
    -0-
    
    
    
    166,668Goodwill
    
    
    -0-
    
    
    
    -0-Intangible assets, net
    
    $
    2,162,042
    
    
    $
    2,268,830
 Debt issuance costs
  Income Taxes
  Concentration of Credit Risk
  Stock-Based Compensation
  F-14




---



##### Table of Contents



June 30,2006
    
    
    2005Net (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
    )
  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; and4.
    
    a volatility factor of the expected market price of the Companys common stock of
between 187 and 263 percent in 2006 and 535 percent in 2005.
 Reclassification
  F-15




---



##### Table of Contents



Segments of an Enterprise and Related Information
  Comprehensive Income
  Organization Costs
  Effect of New Accounting Pronouncements
 , .
 , .
 Fair Value Measurements
 F-16




---



##### Table of Contents



Note 3  Acquisition of Minority Interest in Subsidiary and Accounting for Goodwill and
Intellectual Property
   Note 4 Notes Payable
    Note 5  Stockholders Equity
 available
 F-17




---



##### Table of Contents



for sale
       Note 6  Stock Option Grants and Warrants
 Stock Option Grants
 F-18




---



##### Table of Contents



Warrants
  ExerciseOptions
    
    Warrants
    
    PriceOutstanding and exercisable, July 1, 2004
    
    
    
    
    
    
    32,136
    
    
    
    3.11Granted
    
    
    
    
    
    
    6,001,866
    
    
    
    2.33Cancelled
    
    
    
    
    
    
    (32,136
    )
    
    
    3.11Exercised
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    
    
    
    Outstanding and exercisable, June 30, 2005
    
    
    
    
    
    
    6,001,866
    
    
    $
    2.33Granted
    
    
    1,716,000
    
    
    
    167,428
    
    
    $
    3.25CancelledExercisedExpiredOutstanding and exercisable, June 30, 2006
    
    
    1,716,000
    
    
    
    6,169,294
    
    
    $
    2.55Fiscal year ended June 30, 2006:Weighted average exercise price
    
    $
    3.23
    
    
    $
    2.36Weighted average remaining contractual life (years)
    
    
    8.0
    
    
    
    1.8Weighted average fair value of options and warrants granted during 2006
    
    $
    3.23
    
    
    $
    3.43Fiscal year ended June 30, 2005:Weighted average exercise price
    
    $
    2.50
    
    
    $
    2.33Weighted average remaining contractual life (years)
    
    
    2.9
    
    
    
    2.8Weighted average fair value of options and warrants granted during 2005
    
    $
    8.85
    
    
    $
    6.28
 Note 7  Fair Value of Financial Instruments
   F-19




---



##### Table of Contents



Note 8  Income Taxes
   June 30,2006
    
    2005Deferred tax assets:Net operating loss carry forwards
    
    $
    1,284,000
    
    
    $
    658,300Amortization of noncompete agreement
    
    
    
    
    
    
    32,000Contribution carryover
    
    
    260,000
    
    
    
    269,000Net 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
    
    
    
    958,200Deferred tax liabilities
    
    
    
    
    
    
    Net deferred tax assets before valuation allowance
    
    
    1,815,000
    
    
    
    958,200Valuation allowance
    
    
    (1,815,000
    )
    
    
    (958,200
    )Net deferred tax asset
    
    $
    
    
    
    $
    
   June 30,2006
    
    
    2005Expected federal income tax benefit
    
    $
    1,056,000
    
    
    $
    1,979,700Amortization 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
    
    
    
    
    
    
    79,000Change in prior year estimates
    
    
    
    
    
    
    18,900Stock transfer fees
    
    
    (3,000
    )
    
    
    Prior year A/R reserve write-off
    
    
    28,000
    
    
    
    Sales returns and allowances
    
    
    (13,200
    )
    
    
    Other future differences
    
    
    220,000Change in valuation allowance
    
    
    (856,800
    )
    
    
    (886,600
    )Net income tax benefit
    
    $
    
    
    
    $
    
 F-20




---



##### Table of Contents



Note 9  Operating Lease Commitments
    Year ending June 30,2007
    
    $
    117,3582008
    
    
    119,7392009
    
    
    10,038Total future minimum Lease payments
    
    $
    247,135
 Note 10  Interim Financial Results (Unaudited)
 
 Fiscal YearQuarter
    
    endedFiscal year ended June 30, 2006
    
    First
    
    Second
    
    Third
    
    Fourth
    
    June. 30, 2006Sales, net
    
    $
    2,964.6
    
    
    $
    1,711.7
    
    
    $
    1,390.6
    
    
    $
    1,098.9
    
    
    $
    7,165.8Gross profit
    
    
    2,368.0
    
    
    
    1,348.7
    
    
    
    1,094.5
    
    
    
    863.3
    
    
    
    5,674.5Net 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 YearQuarter
    
    endedFiscal year ended June 30, 2005
    
    First
    
    Second
    
    Third
    
    Fourth
    
    June. 30, 2005Sales, net
    
    $
    0.0
    
    
    $
    0.0
    
    
    $
    25.8
    
    
    $
    2,328.0
    
    
    $
    2,353.8Gross profit
    
    
    
    
    
    
    
    
    
    
    15.7
    
    
    
    1,944.5
    
    
    
    1,960.2Net 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-21