UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-Q

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

For the quarterly period ended       December 31, 1998                 

Commission File Number:             0000-23721
--------------------------------------------------------------------------------

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

DELAWARE                                     #33-0539168                        
(State or other jurisdiction of             (I.R.S. Employer
incorporation or organization)              Identification Number)

10400 Trademark Street, Rancho Cucamonga, CA                                    
 (Address of Principal Executive Offices)                                       

         (909) 466-8047                                                         
Registrant's Telephone Number, Including Area Code


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
         [x] Yes           [  ] No


Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the last practicable date.

As of February 11, 1999 - Common Stock, $.001 Par Value, 11,818,403 shares



<PAGE>
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------
                                     PART I
------------------------------------------------------------------------------------------------------------------------
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                              FINANCIAL INFORMATION
------------------------------------------------------------------------------------------------------------------------
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                          ITEM I. FINANCIAL STATEMENTS
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------------------------------------------------------------------------------------------------------------------------
                                 LIFEPOINT, INC.
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
                        (A DEVELOPMENT STAGE ENTERPRISE)
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------------------------------------------------------------------------------------------------------------------------
                                 BALANCE SHEETS
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------
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                                                                                   December 31
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
                                                                                      1998                March 31
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
                                                                                   (Unaudited)              1998
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
                                       ASSETS
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                 <C>    

------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Current Assets:
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
      Cash and cash equivalents                                                         $ 322,591             $ 597,254
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
      Prepaid expenses and other current assets                                           189,500               150,150
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
              Total current assets                                                        512,091               747,404
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Property and equipment, net                                                               171,743               286,188
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Patents and other assets, net                                                              53,031                39,692
------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------==================----==================
                                                                                        $ 736,865           $ 1,073,284
--------------------------------------------------------------------------------==================----==================
------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
                   LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Current Liabilities:
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
      Accounts payable                                                                  $ 230,813             $ 119,577
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
      Accrued expenses                                                                    659,548               217,876
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
              Total current liabilities                                                   890,361               337,453
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 4)
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Stockholders' equity (deficit):
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
      Common stock, $.001 par value; 50,000,000 shares
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
        authorized, 11,779,206 and 10,497,206 issued and
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
        outstanding at December 31, 1998 and March 31, 1998,
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
        respectively                                                                       11,779                10,497
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital                                                             13,621,270            12,398,933
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Deficit accumulated in the development stage                                          (13,786,545)          (11,673,599)
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
              Total stockholders' equity (deficit)                                       (153,496)              735,831
------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------==================----==================
                                                                                        $ 736,865           $ 1,073,284
--------------------------------------------------------------------------------==================----==================
------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       2
The accompanying notes are an integral part of the financial statments.
<PAGE>

                                                                                

<TABLE>
<CAPTION>


------------------------------------------------------------------------------------------------------------------------------------
                   LIFEPOINT, INC.
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
          (A DEVELOPMENT STAGE ENTERPRISE)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
              STATEMENTS OF OPERATIONS
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------------------------------------------------------------------------------------------------------------------------------------
                     (Unaudited)
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------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                    Cumulative
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                       From
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------------------------------------------------------------------------------------------------------------------------------------
                                                For the                          For the                          October 8, 1992
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                                           Three Months Ended                Nine Months Ended                     (Inception) to
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                                               December 31                     December 31                          December 31
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                                                  1998            1997             1998             1997               1998
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>                 <C>              <C>               <C>                <C>   

Revenues                                                $ -             $ -              $ -               $ -                  $ -
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
  General and Administrative Expenses               536,557         236,488        1,194,048           407,022            3,778,596
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
  Research and Development                          259,924         150,702          818,117           851,376            6,537,218
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
  Depreciation and Amortization                      25,250          56,253          129,428           161,744              906,120
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
  Interest Expense - Parent                               -               -                -            34,530               95,790
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
  Management Fees - Parent                                -               -                -           409,838            2,089,838
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
  Interest Expense                                        -             956                -               956              119,300
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses                            821,731         444,399        2,141,593         1,865,466           13,526,862
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Loss from Operations                               (821,731)       (444,399)      (2,141,593)       (1,865,466)         (13,526,862)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Other Income/(Expense)                                4,851        (185,228)          28,647          (185,228)            (259,683)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------===============--==============--===============--================-====================
Net Loss                                          $(816,880)     $ (629,627)     $(2,112,946)      $(2,050,694)       $ (13,786,545)
---------------------------------------------===============--==============--===============--================-====================
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Earnings per Common Share:
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
  Weighted Average Common Shares
------------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------===============--==============--===============--================---------------------
    Outstanding                                  11,731,031       8,255,902       11,395,289         7,225,512
---------------------------------------------===============--==============--===============--================---------------------
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------===============--==============--===============--================---------------------
Net Loss Per Common Share                           $ (0.07)        $ (0.08)         $ (0.19)          $ (0.28)
---------------------------------------------===============--==============--===============--================---------------------
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Earnings per Common Share, Assuming
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
  Dilution:
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
    Weighted Average Common Shares
------------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------===============--==============--===============--================---------------------
      Outstanding                                15,282,298       9,343,728       14,671,047         7,668,912
---------------------------------------------===============--==============--===============--================---------------------
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Net Loss Per Common Share, Assuming
------------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------===============--==============--===============--================---------------------
  Dilution                                          $ (0.05)        $ (0.07)         $ (0.14)          $ (0.27)
---------------------------------------------===============--==============--===============--================---------------------
------------------------------------------------------------------------------------------------------------------------------------

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

------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       3
The accompanying notes are an integral part of the financial statments.
<PAGE>
<TABLE>
<CAPTION>

 -----------------------------------------------------------------------------------------------------------------------------------
                          LIFEPOINT, INC.
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                 (A DEVELOPMENT STAGE ENTERPRISE)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                     STATEMENTS OF CASH FLOWS
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------------------------------------------------------------------------------------------------------------------------------------
                            (Unaudited)
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------------------------------------------------------------------------------------------------------------------------------------

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

------------------------------------------------------------------------------------------------------------------------------------
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                                                                                                                   Cumulative
------------------------------------------------------------------------------------------------------------------------------------
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                                                                                                                      From
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                                                                                                                 October 8, 1992
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                                                                          For the Nine Months Ended              (Inception) to
------------------------------------------------------------------------------------------------------------------------------------
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                                                                       December 31                                 December 31
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                                                                           1998                1997                   1998
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                 <C>                     <C>    

Cash Flow from Operating Activities:
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Net Loss                                                            $ (2,112,946)       $ (2,050,694)           $ (13,786,545)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Adjustments to Reconcile Net Loss to Net Cash
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Used by Operating Activities:
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
        Depreciation and Amortization                                          129,428             161,744                  906,120
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
        Consulting Expense                                                     311,800                   -                  311,800
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
        Disposal of Property and Equipment                                           -             189,248                  237,976
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
        Unrealized Loss on Marketable Securities                                     -                   -                  627,512
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------------------------------------------------------------------------------------------------------------------------------------
        Amortization of Bond Discount                                                -                   -                   (4,855)
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------------------------------------------------------------------------------------------------------------------------------------
Changes in Operating Assets and Liabilities:
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      (Increase) Decrease in Prepaid Expenses and
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
        Other Current Assets                                                    50,650             (25,000)                 (65,099)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      (Increase) Decrease in Other Assets                                       (7,432)                133                  (11,768)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Decrease in Bank Overdraft                                                     -            (119,514)                       -
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Increase (Decrease) in Accounts Payable                                  111,236             (99,739)                 285,172
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Increase (Decrease) in Accrued Expenses                                  243,212              50,933                  326,088
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Net Cash Used by Operating Activities                                       (1,274,052)         (1,892,889)             (11,173,599)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
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Cash Flow From Investing Activities:
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Sale of Marketable Securities                                                  -                   -                3,285,625
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Purchases of Marketable Securities                                             -                   -               (3,908,281)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Purchases of Property and Equipment                                      (13,197)            (55,625)                (609,974)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Proceeds from Sale of Property and Equipment, Net                              -             106,241                   80,828
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Patent Costs                                                              (7,693)             (1,402)                 (46,932)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities                                          (20,890)             49,214               (1,198,734)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Cash Flow from Financing Activities:
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Sales of Common Stock                                                  1,025,000           1,600,000               11,246,226
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Expenses of Stock Offering                                                (5,736)           (100,000)              (1,681,586)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Exercise of stock options                                                  1,015                   -                    1,015
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Payment of Loan to Parent                                                      -                   -               (1,917,057)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Proceeds of Loan by Parent                                                     -                   -                1,634,762
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Proceeds of Loan Payable - Parent                                              -           1,464,811                4,715,067
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Payment of Loan Payable - Parent                                               -                   -               (1,299,782)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Proceeds of Capital Leases                                                     -                   -                  101,572
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Payments of Capital Leases                                                     -                   -                 (105,293)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Proceeds of Brokerage Loan Payable                                             -                   -                2,674,683
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Payments of Brokerage Loan Payable                                             -                   -               (2,674,683)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities                                    1,020,279           2,964,811               12,694,924
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       4
The accompanying notes are an integral part of the financial statments.
<PAGE>
<TABLE>
<CAPTION>

                         LIFEPOINT, INC.
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                 (A DEVELOPMENT STAGE ENTERPRISE)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                     STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                            (Unaudited)
                            (Continued)

                                                                                                                    From
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                                                                                                                 October 8, 1992
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                                                                 For the Nine Months Ended                       (Inception) to
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                                                                       December 31                                 December 31
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                                                                           1998                1997                   1998
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                                       <C>    

Increase (Decrease) in Cash and Cash Equivalents                              (274,663)           1,121,136                  322,591
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents - Beginning of Period                                597,254                   -                        -
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------===================--==================---======================
Cash and Cash Equivalents - End of Period                                    $ 322,591         $ 1,121,136                $ 322,591
--------------------------------------------------------------------===================--==================---======================
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
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Supplemental Disclosure of Cash Information:
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--------------------------------------------------------------------===================--==================---======================
      Cash Paid for Interest                                                       $ -               $ 956                $ 192,046
--------------------------------------------------------------------===================--==================---======================
------------------------------------------------------------------------------------------------------------------------------------

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------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Noncash Operating Activities:
------------------------------------------------------------------------------------------------------------------------------------
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      Value of Common Stock Issued (Returned) and
------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------===================--==================---======================
        Additional Paid-in Capital for Consulting Services                      53,340                   -                  203,340
--------------------------------------------------------------------===================--==================---======================
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Noncash Investing Activities:
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Value of Assets Transferred to Lessor in Lieu of
------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------===================--==================---======================
        Payment on Capital Leases                                                    -                   -                   71,405
--------------------------------------------------------------------===================--==================---======================
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Noncash Financing Activities:
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Value of Common Stock Issued and Additional
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
        Paid-in Capital for the Transfer of Assets from
------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------===================--==================---======================
        Parent                                                                       -             344,000                  781,060
--------------------------------------------------------------------===================--==================---======================
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Value of Common Stock Issued to Parent and
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
        Additional Paid-in Capital for the Forgiveness of
------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------===================--==================---======================
        Debt                                                                         -           3,082,944                3,160,502
--------------------------------------------------------------------===================--==================---======================
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
      Value of Warrants issued and to be Issued for
------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------===================--==================---======================
        Consulting Services                                                    348,460                   -                  348,460
--------------------------------------------------------------------===================--==================---======================
------------------------------------------------------------------------------------------------------------------------------------

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

</TABLE>

                                       5
The accompanying notes are an integral part of the financial statments.
<PAGE>



                                 LIFEPOINT, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1998
                                   (Unaudited)


NOTE 1  - Basis of Presentation

             In the opinion of LifePoint, Inc. (the 'Company'), the accompanying
unaudited  financial  statements  reflect all  adjustments  (which  include only
normal  recurring  adjustments  except as disclosed  below) necessary to present
fairly the  financial  position,  results of  operations  and cash flows for the
periods presented. Results of operations for interim periods are not necessarily
indicative of the results of operations for a full year due to external  factors
which are  beyond the  control of the  Company.  This  Report  should be read in
conjunction  with the  Company's  Annual Report on Form 10-K for the fiscal year
ended March 31, 1998 (the 'Annual Report').
         In February  1997,  the  Financial  Accounting  Standards  Board issued
Statement  No. 128,  Earnings per Share (FASB No. 128),  which is effective  for
annual and interim periods ending after December 15, 1997. FASB No. 128 replaced
the previously  required primary and fully diluted earnings per share (EPS) with
basic and diluted EPS.  Unlike  primary  earnings per share,  basic earnings per
share  excludes  any  dilutive  effects of  options,  warrants  and  convertible
securities.  Diluted  earnings  per  share  is very  similar  to the  previously
required  fully diluted  earnings per share.  All earnings per share amounts for
all periods have been  presented and,  where  necessary,  restated to conform to
FASB No. 128. There were no adjustments necessary to net loss in calculating the
income  available to common  stockholders  after  assumed  conversions  of stock
options and warrants that are considered to be dilutive.  The adjusted  weighted
average  shares to give effect for the  assumed  conversion  of  dilutive  stock
options and warrants is presented on the Statements of Operations.

NOTE 2. - Continuing Operations and Liquidity

             The Company has historically  incurred  recurring  operating losses
due to the  fact  that it is  still a  development  stage  enterprise  incurring
research and  development  expenses and deriving no revenues and has experienced
an ongoing  deficiency in working  capital.  The Company financed its operations
during the quarter ended June 30, 1998 from the remainder of the net proceeds of
$1,434,000  realized  from a private  placement in November  and  December  1997
pursuant to  Regulation  D under the  Securities  Act of 1993,  as amended  (the
'Securities  Act'),  which sold 3,200,000  shares of the Company's Common Stock,
$.001 par  value  (the  'Common  Stock'),  at $0.50  per  share or an  aggregate
purchase price of $1,600,000. Recognizing that such financing would only furnish
sufficient  working  capital  through July 1998, the Company  initiated a second
private placement in July 1998 pursuant to Regulation D under the Securities




                                       6
<PAGE>




                                 LIFEPOINT, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1998
                                   (Unaudited)
                                   (Continued)

NOTE 2. - Continuing Operations and Liquidity (Continued)

Act, with a minimum of 1,000,000 shares and a maximum of 5,000,000 shares of the
Common Stock at $1.00 per share.  The Company closed on the minimum of 1,000,000
shares on July 17, 1998 and, on August 26, 1998,  the Company sold an additional
25,000  shares of the Common Stock,  or an aggregate of 1,025,000  shares of the
Common Stock offered pursuant to the second private placement. The offering of a
minimum of  1,000,000  and a maximum  of  5,000,000  shares of the Common  Stock
expired by its terms on October 14, 1998  without any  additional  shares  being
sold.
           On December 15, 1998, the Company initiated a third private placement
pursuant to  Regulation  D under the  Securities  Act,  with a minimum of 25,000
shares  and a  maximum  of  600,000  shares  of  the  Series  A  10%  Cumulative
Convertible  Preferred Stock,  $.001 par value (the 'Series A Preferred Stock'),
at $10.00 per share.  The Series A Preferred Stock is convertible into shares of
the Common Stock on the basis of 20 shares of the Common Stock for each share of
the Preferred  Stock.  The security will accrue a semi-annual  dividend of $0.50
per share payable in cash or shares of the Common Stock at the Company's option.
The  Company  closed on the entire  600,000  shares on  January  21,  1999.  The
approximately $5,400,000 in net proceeds the Company received provides the funds
that,  in  management's  opinion,  will  allow the  Company to develop a working
prototype of its drugs of abuse and alcohol  testing  system using saliva as the
testing medium.
           The Company will require  additional capital to continue the research
and  development  and ultimate  manufacture  and  marketing of its product.  The
Company  estimates that, in addition to the  approximately  $5,000,000 needed to
complete the prototype of its first product, the Company will need an additional
$8,000,000  to bring  the  product  to  market.  As a result  of its  continuing
operational  losses and its continuing  capital  requirements at March 31, 1998,
there was raised  substantial doubt about the Company's ability to continue as a
going  concern.  The  financial  statements  in this  Report do not  include any
adjustments   to  reflect  the  possible   future   effects,   if  any,  on  the
recoverability and classification of assets on the amounts and classification of
liabilities that may result from the outcome of this  uncertainty.  Although the
Company's fund raising efforts will now cease temporarily, the Company will need
to




                                       7
<PAGE>




                                 LIFEPOINT, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1998
                                   (Unaudited)
                                   (Continued)

NOTE 2. - Continuing Operations and Liquidity (Continued)

continue to pursue  parallel paths for the additional  funding  needed:  private
placements, strategic partnering and a possible public offering. There can be no
assurance  that any of these  additional  sources of financing will be available
and, in such event,  the Company  will not be able to complete  its research and
development on a timely basis.
<TABLE>
<CAPTION>

NOTE 3  - Property and Equipment

           Property and equipment is summarized as follows:
                                                               December 31,         March 31,
                                                                   1998                1998
                                                             -----------------     -------------
           <S>                                               <C>                  <C>    
           
           Furniture and Fixtures                                 $ 300,699            $287,502
           Test Equipment                                           425,768             425,768
           Leasehold Improvements                                   209,155             209,155
                                                             -----  -------       ----  -------
                                                                    935,622             922,425
           Less:  Accumulated Depreciation                          763,879             636,237
                                                             -----  -------       ----  -------
                                                                  $ 171,743            $286,188
                                                                  =========            ========

</TABLE>


NOTE 4 - Commitments and Contingencies
           In June 1995,  the License  Agreement with the Department of the Navy
then held by Substance  Abuse  Technologies,  Inc.  ('SAT'),  the Company's then
parent,  was renegotiated and amended to provide for minimum annual royalties of
$100,000 per year commencing October 1, 1995 and terminating September 30, 2005.
Additional  royalties  will be paid  pursuant to a schedule  based upon sales of
products.  Through March 31, 1997, the Company  sub-licensed this Agreement from
its then parent and,  accordingly,  had  obligations  to its then parent for the
royalty payments required by the License Agreement. This license was transferred
from SAT to the Company  effective with the sale of SAT's majority  ownership of
the Common Stock on October 29, 1997. The Navy settled all past  liabilities for
the transferred license for $10,000.
           On March 3,  1998,  the  license  from  the Navy was  expanded  to an
exclusive,  worldwide  license  for all  saliva  diagnostics.  The  terms of the
license expansion are currently being negotiated.


                                       8
<PAGE>

                                 LIFEPOINT, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1998
                                   (Unaudited)
                                   (Continued)


NOTE 5 - Stockholders' Equity

         During the quarter ended December 31, 1998, the Company issued a 5-year
warrant to purchase  50,000 shares of the Common Stock at $1.08 per share to Ira
J. Mitchell as a finder's fee for $500,000 of the  $1,000,000  raised during the
Company's  second  private  placement  in July 1998.  Additionally,  the Company
issued a 5-year warrant to purchase  250,000 shares of the Common Stock at $1.15
per share,  based on the closing price on December 3, 1998, to Burrill & Company
for its work in helping the Company to establish multiple partnering  agreements
in the life  sciences  area.  As of  December  31,  1998,  there  were  warrants
outstanding to purchase 2,616,741 shares of the Common Stock.
             The LifePoint, Inc. 1997 Stock Option Plan (the 'Plan'), as adopted
by the Board of  Directors of the Company on August 14, 1997 and amended on June
5, 1998,  now  provides  for the granting of options to purchase an aggregate of
2,000,000   shares   (originally   1,000,000   shares)  of  the  Common   Stock.
Stockholders'  approval  of the Plan  was  obtained  at the  Annual  Meeting  of
Stockholders  on August 13, 1998.  Options  granted under the Plan may either be
incentive stock options  designed to meet the requirements of Section 422 of the
Internal  Revenue Code of 1986, as amended,  or  non-statutory  or non-qualified
stock options not intended to satisfy such requirements.  The exercise price per
share for incentive  stock options will not be less than 100% of the fair market
value per share of the Common  Stock on the grant  date.  For  non-statutory  or
non-qualified  stock options,  the exercise price per share may not be less than
85% of such fair market value. No option may have a term in excess of ten years.
             During the quarter ended December 31, 1998, no options were granted
pursuant to the Plan.  As of December 31,  1998,  there were options to purchase
833,333 shares held by a total of 11 employees pursuant to the Plan.






                                       9
<PAGE>




Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations.

General.

         The Company was  incorporated  on October 8, 1992 under the laws of the
State of Delaware as a wholly  owned  subsidiary  of SAT.  Effective  January 1,
1993, SAT  sublicensed or transferred to the Company certain rights or assets to
develop drug testing  products in exchange  for  3,500,000  shares of the Common
Stock. In October 1993, the Company had a public offering of the Common Stock in
which an aggregate of 1,721,900  shares was sold. As of September 30, 1997,  SAT
owned 5,575,306  shares of the Common Stock or 76.4% of the 7,297,206  shares of
the Common Stock then  outstanding.  From its inception  until October 31, 1997,
the Company was a subsidiary of SAT or otherwise  under its control.  SAT ceased
providing advances to the Company in August 1997 as a result of its inability to
secure  financing  for its own  programs.  On September  10,  1997,  SAT filed a
petition  under  Chapter  11  of  the  Federal   Bankruptcy  Code.  The  Company
temporarily suspended its product development  activities on September 19, 1997,
but did not file for bankruptcy.  The Company was able to resume such activities
on October 27, 1997 as a result of a loan by an  unaffiliated  party. On October
29, 1997,  the majority  ownership  of the Company was  transferred  from SAT to
Meadow Lane Partners, LLC. The Company is now completely independent from SAT.

         The   Company  is  a   development   stage   company   focused  on  the
commercialization  of the flow immunosensor  technology  licensed from the Naval
Research Laboratories. The flow immunosensor technology, in combination with the
focus on the use of saliva as a non-invasive test medium, will allow the Company
to develop a broadly  applicable  non-invasive,  rapid,  on-site diagnostic test
system.  The first  product under  development  is for the detection of drugs of
abuse and alcohol.  However,  other major  market  opportunities  include  rapid
diagnostic  testing  (substances  of abuse,  drug  overdose,  and heart attack),
long-term  therapeutic  drug  monitoring  to determine  efficacy and  compliance
(cardiovascular   disease,   osteoporosis),    and   wellness/health   screening
(cardiovascular disease, osteoporosis, cancer).

Liquidity and Capital Resources.

         Until  August  1997 when SAT's  inability  to secure its own  financing
caused SAT to cease  advances  to the  Company,  SAT had been the sole source of
financing to the Company since the Company's public offering of 1,721,900 shares
of the Common  Stock in October  and  November  1993,  which  netted the Company
approximately  $7,099,000.  During the  fiscal  year  ended  March 31,  1997 and
through  July  1997,  SAT  advanced  $3,426,994  to  the  Company  to  fund  its
operations,  all of which  was  subsequently  reflected  as  additional  capital
contributions from SAT.

         As a result of two loans made to the Company in  September  and October
1997  totaling   $310,000   ($10,000  from  an  officer  and  $300,000  from  an
unaffiliated source), both loans secured by a lien on the assets of the Company,
the Company  recommenced its product development on October 27, 1997. During the
third  quarter of 1997,  the  Company  repaid  the loans  from the net  proceeds
($1,434,000)  of  a  private  placement  pursuant  to  Regulation  D  under  the
Securities  Act,  which sold  3,200,000  shares of the Common Stock at $0.50 per
share or an aggregate purchase price of $1,600,000.

         The Company's management at the time of the private placement estimated
that the net  proceeds  from the private  placement  would enable the Company to
continue its operations, at the reduced level, through July 1998. Management had
actively pursued during 1998, on a parallel basis,  venture  capital,  strategic
partnering, and/or a private placement for all or part of the required funding.

         However,  because  management  recognized that it may have taken beyond
July to implement one of these long term financing possibilities,  in July 1998,
management  implemented  a private  placement of  $1,000,000 to $5,000,000 in an
effort to enable the Company to continue its operations,  including research and
development  of its  product,  until one of these long term  financing  programs
could  be 

                                       10
<PAGE>

successfully  implemented.   The  Company  received  the  minimum  of
$1,000,000  on July 16,  1998 and,  on August  26,  1998,  the  Company  sold an
additional  25,000  shares of the Common  Stock,  or an  aggregate  of 1,025,000
shares of the Common Stock offered  pursuant to this second  private  placement.
The offering of a minimum of 1,000,000 and a maximum of 5,000,000  shares of the
Common  Stock  expired by its terms on October 14, 1998  without any  additional
shares being sold.

         On December 15, 1998 the Company  initiated a third  private  placement
pursuant to  Regulation  D under the  Securities  Act,  with a minimum of 25,000
shares and a maximum of 600,000 shares of the Series A Preferred Stock at $10.00
per share. The Series A Preferred Stock is convertible into shares of the Common
Stock on the  basis of 20  shares  of the  Common  Stock  for each  share of the
Preferred  Stock.  The security is accruing a semi-annual  dividend of $0.50 per
share payable in cash or shares of the Common Stock at the Company's option. The
Company   closed  on  the  entire  600,000  shares  on  January  21,  1999.  The
approximately $5,400,000 in net proceeds the Company received provides the funds
that,  in  management's  opinion,  will  allow the  Company to develop a working
prototype of its drugs of abuse and alcohol  testing  system using saliva as the
test medium.

         The Company will require  additional  capital to continue the research,
development and ultimate  manufacture and marketing of its product.  The Company
estimates that, in addition to the  approximately  $5,000,000 needed to complete
the  prototype  of its  first  product,  the  Company  will  need an  additional
$8,000,000 to bring the product to market,  and that the product is not expected
to be launched until the third quarter of 2000 at the earliest.  Management will
need to reinitiate  funding  efforts in the future and will continue to parallel
path  an  additional  private  placement,  strategic  partnering  and  a  public
offering.

         The Company's  management  has also been  exploring the  possibility of
obtaining a strategic  partner for the Company.  To this end, the Company has an
agreement with Burrill & Company  ('Burrill'),  a San  Francisco-based  merchant
bank focused  exclusively on servicing life science  companies.  Burrill assists
its portfolio  companies in maximizing  their value  through  various  strategic
partnering  relationships.  Burrill had been engaged to  introduce  LifePoint to
potential  partners with an on-going  interest in  saliva-based  diagnostics  or
point-of-care  diagnostics and which might be otherwise interested in partnering
with or acquiring  LifePoint at an early stage.  Burrill has advised the Company
that the process to ascertain  and close with a strategic  partner may take five
months or more.  In addition,  management  believes  that a potential  marketing
partner  could be  obtained  on more  acceptable  terms  when there is a working
prototype for the instrument and the disposables  and certain  clinical data are
obtained.  Management currently anticipates that the prototype will be completed
by the first quarter of 2000 at the earliest.

         Management  had  initially  believed  that one  likely  source  for the
additional  funding would have been an investment by a venture capital  investor
or investors. Any such investment would have been likely to dilute substantially
the  stock  interest  of the  current  stockholders.  In  addition,  to make the
investment more attractive to potential venture capital  investors,  the Company
may have had to transfer its  operations  to a private  subsidiary in which such
investor or  investors  could have  invested.  This is because  venture  capital
investors  generally  prefer the vehicle of an initial public  offering as their
'out'  strategy  rather  then  investment  in the  Company by a venture  capital
investor to be likely source of funding at this time.

         Management has also pursued the possibility of an  underwritten  public
offering and has received  expressions of interest from several well-known small
national and large regional firms. These firms have suggested, however, that the
Company  wait to  conduct  such an  offering  until  the  working  prototype  is
completed  (the first quarter of 2000 at the  earliest).  There can be assurance
that stock market  conditions  would be  receptive  to a public  offering by the
Company at that timer.  In addition,  competitive  conditions  in the  substance
abuse  testing  industry at that time may make the Company  less  attractive  to
potential public investors.

                                       11
<PAGE>

         Having  successfully  consummated three private placements  pursuant to
Regulation D under the  Securities Act since December 1997, the Company may seek
to  raise  the  additional  financing  through  this  method.  As with a  public
offering,  there can be no assurance that potential investors would be receptive
to a private  placement by the Company at that time,  either  because of general
stock market condition or conditions generally in the substance abuse technology
industry.

         There  can be no  assurance  that the  Company  will be  successful  in
securing financing,  whether through a strategic partner, a public offering or a
private placement.

         The  Company  has  applied  for three  small  business  grants from the
National  Institute of Health,  in conjunction with Cedars Sinai Medical Center.
If the Company was to receive  all three  grants,  the Company may receive up to
$3,000,000 in additional  funding.  However,  there can be no assurance that the
Company will receive any of these grants.

         If all of the Common Stock  purchase  warrants and stock  options which
were outstanding on December 31, 1998 were exercised,  the Company would realize
$2,207,538 in gross proceeds.  However, there can be no certainty as to when and
if any of these securities may be exercised.  Accordingly,  management  believes
that the Company cannot rely on these exercises as a source of financing.

Results of Operations

Three Months Ended December 31, 1998 vs. December 31, 1997

         During the quarter  ended  December  31,  1998,  the  Company  incurred
$259,924 for research and development and an additional $536,557 for general and
administrative  expenses, as compared with $150,702 and $236,488,  respectively,
during the three  months  ended  December  31,  1997.  The higher  research  and
development and general and administrative  expenditures in the 1998 period were
due to the fact that,  during the same  period in  December  1997,  the  Company
ceased the  product  development  program  and, as a result,  had  significantly
reduced  expenditures  for that  period of time.  Additionally,  the general and
administrative  expenses for the three months ended December 31, 1998 included a
non-cash charge of approximately $174,000 for the grant of stock and warrants to
a financial consultant and an investor relations firm.

         The Company's  net loss during the quarter ended  December 31, 1998 was
$816,880  as  compared  with  the net loss of  $629,627  for the  quarter  ended
December  31,  1997.  The  increase  of $187,253 or 29.7% was due to the reasons
described in the preceding paragraph.

         From inception on October 8, 1992 to December 31, 1998, the Company has
incurred  $6,537,218 for research and development and $3,778,596 for general and
administrative  expenses.  Management  fees  paid to SAT  aggregated  $2,089,838
during such period.

Nine Months Ended December 31, 1998 vs. December 31, 1997

         During the nine months ended  December 31, 1998,  the Company  incurred
$818,117 for research and development  and an additional  $1,194,048 for general
and   administrative   expenses,   as  compared   with  $851,376  and  $407,022,
respectively,  during the nine months ended  December 31, 1997.  The general and
administrative  expenses for the nine months ended  December 31, 1998 are higher
because,  during the same period in 1997, significant general and administrative
expenses  were  paid to SAT as a  management  fee  and  these  expenses  are now
incurred  directly by the  Company.  During the nine months  ended  December 31,
1997, an additional $409,838 was paid to SAT as the management fee. The research
and  development  expenses  for the three  months  ended  December 31, 1998 were
higher than those in the same period during 1997 due to the fact that during the
same period in December 1997 the Company ceased the product development program.

                                       12
<PAGE>

The  Company's  net loss  during the nine  months  ended  December  31, 1998 was
$2,112,946 as compared with $2,050,694 during the nine months ended December 31,
1999.  The  increase of $62,252 or 3.0% was due to the reasons  described in the
preceding  paragraph.  Because  management  does not anticipate that the Company
will  commence  marketing  until  the  third  quarter  of 2000 at the  earliest,
management  anticipates that operating losses will continue through that date or
longer.

Forward-Looking Statements

         This  Management's  Discussion and Analysis of Financial  Condition and
Results of Operations contains forward-looking statements which involve risk and
uncertainties.  Such  forward-looking  statements reflect  management's  current
views that the necessary  financing will be available,  when needed, to complete
the research and development program,  that the product will be developed at the
contemplated cost and within the projected  timetable,  that, during the interim
period before the Company begins marketing, competitors will not begin to market
a competitive saliva-based testing product and that the other risks described in
the Annual  Report and other  filings by the  Company  with the  Securities  and
Exchange   Commission  will  not  materially   adversely  affect  the  Company's
operations.  Because there can be no assurance  that  management's  expectations
will be realized, actual results may differ.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

         Not applicable.






                                       13
<PAGE>




                                     PART II
                                OTHER INFORMATION


Item 2.  Changes in Securities and Use of Proceeds

(a)      Not applicable.

         (b) On  January  19,  1999,  the  Company  filed  an  amendment  to its
Certificate of Incorporation creating a new class of capital stock consisting of
3,000,000  shares of Preferred Stock,  $.001 par value (the 'Preferred  Stock'),
and  designated  600,000  shares  of the  Preferred  Stock  as the  Series A 10%
Cumulative  Convertible Preferred Stock (the 'Series A Preferred Stock'). A copy
of the Amendment is filed as Exhibit A to this Report and is incorporated herein
by this  reference.  The Board of Directors of the Company is  authorized by the
Amendment to designate the remaining series of the Preferred Stock, to determine
the  number of  shares  of the  Preferred  Stock in each  series  and to fix the
powers,  preferences  and  rights of each such  series  and the  qualifications,
limitations  or  restrictions  thereof.  Shares of the Series A Preferred  Stock
which have been redeemed,  converted or otherwise acquired by the Company,  upon
compliance by the Company with the provisions of the General  Corporation Law of
the State of Delaware (the 'GCL'),  have the status of  authorized  and unissued
shares  of the  Preferred  Stock  not  constituting  part of any  series  of the
Preferred  Stock,  unless the Board of Directors  elects by resolution to retain
the shares of the Series A Preferred  Stock as treasury  shares or to retire the
same and reduce the capital of the Company in accordance with the GCL.

         The Series A Preferred  Stock has priority  over the  Company's  Common
Stock,  $.001 par  value  (the  'Common  Stock'),  with  respect  to  dividends,
redemption and  liquidation or other winding up of the Company,  as well as over
any other series of the Preferred  Stock that may be created by the Board in the
future.  Certain of its rights and  privileges  are described in the  succeeding
nine subsections:

                  (i)      Dividends.

                  The  holders  of shares of the  Series A  Preferred  Stock are
entitled to  receive,  when and as  declared  by the Board of  Directors  of the
Company, out of the funds of the Company legally available therefor,  cumulative
dividends at the annual rate of $1.00 per share payable semiannually, commencing
on July 1, 1999, and thereafter on January 2 and July 1 of each year.  Dividends
began to accrue on the 600,000 shares of the Series A Preferred Stock on January
21, 1999.  See section (c) of this Item 2. The  dividends,  at the option of the
Company,  are payable in cash or in the form of shares of the Common Stock,  the
shares  to  be  valued  at  the  Average   Market  Price  (as  defined)  over  a
20-trading-day  period. Because of the priority with respect to dividends of the
Series A Preferred Stock, the foregoing dividend provision is another reason why
dividends on the Common Stock are unlikely to be paid in the foreseeable future.
However,  because of the Company's  continuing  losses and the need for funds to
pay for the Company's product development  program,  payment of dividends on the
Common Stock was not contemplated in any event.




                                       14
<PAGE>




                  (ii)     Conversion.

                  The shares of the Series A Preferred  Stock are convertible at
any time into  shares of the Common  Stock at the  conversion  price of $.50 per
share  based on a stated  value of $10.00  per share of the  Series A  Preferred
Stock.  Thus,  one share of the Series A Preferred  Stock would  convert into 20
shares of the Common  Stock.  If all  600,000  shares of the Series A  Preferred
Stock were  converted,  an  aggregate of  12,000,000  shares of the Common Stock
would be issued.  Simultaneously with the issuance of shares of the Common Stock
upon conversion,  the Company is obligated to pay accrued but unpaid  dividends,
if any. The number of shares of the Common Stock  issuable upon  conversion  and
the conversion price will be adjusted in the event of a stock dividend,  a stock
split, a reorganization, a recapitalization,  or a combination or subdivision of
the Common Stock or a similar  event.  Because,  as of February 11, 1999,  there
were 11,818,403 shares of the Common Stock outstanding, conversion of all of the
outstanding  shares of the Series A  Preferred  Stock would more than double the
number of shares of the Common Stock outstanding, thereby substantially diluting
the interests of the current stockholders.

                  (iii)    Optional Redemption.

                  The Company may at any time on or after July 1, 1999, upon not
less than 30 nor more than 60 days' notice,  redeem the Series A Preferred Stock
at $10.00 per share plus accrued but unpaid  dividends.  The Company may, at its
option,  pay the redemption  price in cash or in shares of the Common Stock (the
number of shares being  computed on the basis of the Average Market Value of the
Common Stock during the  20-trading-day  period  preceding the date of notice of
redemption).  As an  alternative to accepting the optional  redemption  payment,
whether in cash or in shares of the Common  Stock,  the holder may convert  his,
her or its shares of the  Series A  Preferred  Stock  into  shares of the Common
Stock as provided in the preceding paragraph.

                  (iv)     Mandatory Redemption.

                  In the event that the Average Market Price of the Common Stock
for any  30-day  period is $4.00 or more,  the  Company  shall call the Series A
Preferred Stock for redemption,  the redemption to be effected as if the holders
converted as provided in the second preceding subsection.

                  (v)      Voting Rights.

                  The holders of the Series A Preferred  Stock have one vote per
share to vote with the holders of the Common  Stock on the election of directors
and all other  matters  submitted  to a vote of the holders of the Common  Stock
except where the holders of the Series A Preferred  Stock have the right to vote
separately as a class. In addition,  the holders of the Series A Preferred Stock
may, voting separately as a class, elect one director if the Company defaults in
paying three consecutive semiannual dividend payments. The holders may also vote
separately as a class where provided by Delaware law, as, for example,  where an
Amendment to the Company's  Certificate of Incorporation  would adversely affect
their rights and privileges,  or where their consent is requested by the Company
(the votes of the holders of at least 66 2/3% of the  outstanding  shares  being
necessary to consent).

                  (vi)     Liquidation or Dissolution.

                  Upon any voluntary or involuntary liquidation,  dissolution or
winding  up of the  affairs  of the  Company,  each  holder of the shares of the
Series A  Preferred  Stock will be  entitled to receive out of the assets of the
Company available for distribution to stockholders an amount equal to $10.00 per
share before any payments or  distributions  will be made on the Common Stock or
any other series of the Preferred  Stock hereafter  authorized and issued.  Each
holder will also receive, as a preferential  payment, a sum equal to all accrued
but unpaid  dividends,  if any.  After payment in cash in full to the holders of
the

                                       15
<PAGE>

shares of the Series A Preferred  Stock of these  preferential  amounts such
holders  will  have no  right or claim  to any of the  remaining  assets  of the
Company.

                  A merger or  consolidation  of the  Company in which it is not
the survivor will not be deemed a liquidation,  dissolution or winding up of the
Company,  provided  that the  provision  for the  exchange  of the shares of the
Series A Preferred  Stock and for the  payment of accrued  but unpaid  dividends
thereon is made with the approval of the holders of at least 66 2/3% of the then
outstanding  shares  of the  Series  A  Preferred  Stock.  If such  approval  is
obtained,  such  provision will be binding on the remaining  holders.  Otherwise
such merger or consolidation will be deemed a liquidation of the Company.

                  (vii)    Indebtedness Limitation.

                  The Company has agreed that,  until the working  prototype for
its saliva  based  testing  product for drugs of abuse and alcohol is  completed
(currently  estimated to be January 2000 at the earliest),  it will not, without
the consent of the holders of at least 66 2/3% of the then outstanding  share of
the Series A Preferred Stock, incur indebtedness,  other than the anticipated up
to $2,000,000 in  indebtedness  at any time  outstanding  incurred in connection
with the purchasing or leasing of  manufacturing,  research and office equipment
and  facilities.  This  restriction  terminates  if the  General  Conference  of
Seventh-day  Adventists,  which is the holder of 225,000  shares of the Series A
Preferred  Stock and the largest  non-affiliated  holder of shares of the Common
Stock (1,035,000 shares as of February 11, 1999), does not exercise its right of
first  refusal,  granted  to it in  connection  with  the  sale of the  Series A
Preferred  Stock  (see  section  (c) of this Item 2), as to a  proposal  for new
equity financing.

                  (viii)   Other Required Consents.

                  The Company may not,  without the consent of the holders of at
least 66 2/3% of the outstanding  shares of the Series A Preferred Stock,  merge
or consolidate  with another  corporation or  corporations if the Company is not
the survivor.  Such consent is also  necessary  before the Company may amend its
Certificate  of  Incorporation  in a manner  which  would  alter or  change  the
preferences,  special  rights or  powers  given to the  shares  of the  Series A
Preferred Stock so as to affect such holders adversely or to authorize or create
a class or series of stock having any preference or priority which is pari passi
or superior to the shares of the Series A Preferred Stock.

         (c)      Recent Sales of Unregistered Securities

                  (i)      Private Placement

                  (1) On January 21, 1999,  which date was subsequent to the end
of the period for which this Report is filed, the Company sold 600,000 shares of
the  Series A  Preferred  Stock,  which was the  maximum  number of shares to be
offered pursuant to this private placement.

                  (2) There were no underwriters for this private placement. The
shares of the Series A Preferred Stock were offered and sold to persons who were
accredited investors as such term is defined in Rule 501(a) under the Securities
Act.

                  (3) The shares of the Series A  Preferred  Stock were sold for
$10.00 per share or an aggregate  purchase  price of  $6,000,000.  There were no
underwriting  discounts or  commissions;  however,  the Company paid as finder's
fees an  aggregate  of $592,078  (including  $420,457 to Jonathan J.  Pallin,  a
director of the Company who also serves as a financial consultant) and issued to
finders Common Stock purchase  warrants expiring January 20, 2004 to purchase an
aggregate of 447,000 shares of the Common Stock at $2.41 per share.

                                       16
<PAGE>

                  (4) The  Company  claims  that the sales were  exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
and Rule 506 of Regulation D thereunder, the sales constituting a transaction by
an issuer not involving any public offering.  The purchasers were all accredited
investors, each of whom or which gave an investment representation.

                  (5) The  shares  of the  Series  A  Preferred  Stock  are,  as
indicated in Item 2(b)(ii) to this Report, convertible into shares of the Common
Stock at a conversion  price of $.50 based on a stated value of $10.00 per share
of the  Series  A  Preferred  Stock.  Accordingly,  one  share  of the  Series A
Preferred Stock is convertible into 20 shares of the Common Stock.

                  (ii)     Finder's Warrants

                  (1) On January 21, 1999,  which date was subsequent to the end
of the period for which this Report is filed,  the Company  issued  Common Stock
purchase warrants (the 'Finder's  Warrants') to purchase an aggregate of 447,000
shares of the Common Stock.  Each Finder's  Warrant expires January 20, 2004 and
has an exercise price of $2.41 per share.

                  (2) There were no underwriters  for the grants of the Finder's
Warrants,  which were granted as finder's fees in connection  with the placement
described in paragraph (c)(i) of this Item 2, to two persons and seven entities.

                  (3) None of the  Finder's  Warrants  were sold for  cash,  the
consideration  therefor  being a finder's  fee for  obtaining  subscriptions  in
private  placement  described in paragraph (c)(i) of this Item 12 and there were
no underwriting discounts or commissions.

                  (4) The  Company  claims that each of the grants of a Finder's
Warrant was exempt from the  registration  requirements  of the  Securities  Act
pursuant to Section 4(2) thereof,  each grant  constituting  a transaction by an
issuer not involving a public offering.

         (d)      Not applicable.

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

         On January 7, 1999,  which date was subsequent to the end of the period
for which this Report is filed,  Jonathan  J.  Pallin,  a director  and then the
Chairman of the Board of the Company and the holder of  4,325,306  shares of the
Common  Stock,  Herman  Sandler,  the holder of  1,250,000  shares of the Common
Stock, Peter S. Gold, a director of the Company and the holder of 700,000 shares
of the Common Stock, and Paul Sandler,  a director of the Company and the holder
of 200,000 shares of the Common Stock, consented,  pursuant to Section 228(a) of
the GCL, to the  adoption  of the  Certificate  of  Amendment  to the  Company's
Certificate of Incorporation described in Item 2(b) to this Report. Because such
6,475,306 shares  constituted  more than 50% of the then outstanding  11,791,320
shares of the Common Stock,  the Company had obtained the necessary  consents to
filing the Certificate of Amendment pursuant to Section 242 of the GCL. Pursuant
to Section 228(d) of the GCL, the Company then caused the Transfer Agent for the
Common Stock to mail a notice to the other  stockholders of record on January 7,
1999.  Having  complied  with  the  GCL  provisions  for  consent  in  lieu of a
stockholders' meeting, the Company filed the Certificate of Amendment on January
19, 1999.

Item 5.  Other Information.

         As indicated in Item 2(b) (vii) to this Report,  General  Conference of
Seventh-day  Adventists acquired 225,000 shares of the Series A Preferred Stock,
which means that prior to  conversion,  as of February 11,  1999,  it would have
1,260,000 (including its 1,035,000 shares of the Common Stock) of the 12,043,403
votes on the  election of directors or 10.5%  thereof.  However,  if all 600,000
shares of the 

                                       17
<PAGE>

Series A Preferred Stock were converted into 12,000,000  shares of
the  Common  Stock,  it would  have  5,535,000  of the  23,818,403  votes on the
election of directors or 23.2%. If only this  stockholder  converted its 225,000
shares of the  Series A  Preferred  Stock  into  4,500,000  shares of the Common
Stock,  it would have  5,535,000  of the  16,693,403  votes on the  election  of
directors or 33.2% thereof. [All of the foregoing  calculations are based on the
assumption  that no outstanding  options or Common Stock  purchase  warrants are
exercised.

         Despite  this  increase  in the  voting  power  of  General  Conference
Corporation  of  Seventh-day  Adventists,  management  does not believe that its
acquisition  of shares of the Series A Preferred  Stock  constituted a change in
control because this stockholder reported that it acquired all of its shares for
investment  purposes  only and not for the  purpose of taking  control  over the
Company.  In  addition,  this  stockholder  has made no  request  for any  Board
representation  or otherwise to participate  in the management  functions of the
Company and has always expressed its support for current management.

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits
<TABLE>
<CAPTION>

              Number                Exhibits
                  <S>               <C>    

                  A                 Copy of Amendment to the Company's Certificate of Incorporation as filed in the State of 
                                    Delaware on January 19, 1999.

                  B                 Copy of Fifth  Amendment  dated  August  18,
                                    1998 to lease  dated  March 18,  1991 by and
                                    between Rancho Cucamonga  Business Park (now
                                    The Realty  Trust) as landlord  and SAT (now
                                    the  Company)  as  tenant,  which  lease was
                                    filed as an exhibit to SAT's  Annual  Report
                                    on Form 10-K for the fiscal year ended March
                                    31, 1996 and is incorporated  herein by this
                                    reference.

                  C                 Copy of Agreement dated December 1, 1998 between Burrill & Company and the Company.
</TABLE>

(b)      Reports on Form 8-K

              There  were no Reports on Form 8-K filed  during the  quarter  for
which this Report is filed.






                                       18
<PAGE>




                                   SIGNATURES

         Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant  has duly  caused  this  Report  to be  signed  on its  behalf by the
undersigned therein to be duly authorized.

                                                                 LIFEPOINT, INC.
                                                                    (Registrant)


     Date:    February 12, 1999                  By       /s/ Linda H. Masterson
                                               ---------------------------------
                                                              Linda H. Masterson
                                           President and Chief Executive Officer





                                       19
<PAGE>




                                 LIFEPOINT, INC.
                          Index to Exhibits Filed With
                          Quarterly Report on Form 10-Q
                     for the Quarter Ended December 31, 1998


<TABLE>
<CAPTION>

Number                   Exhibit                                                               Page
           <S>           <C>                                                                   <C>
           
           A             Copy of amendment to the Company's Certificate of Incorporation       E-2
                         as filed in the State of Delaware on January 19, 1999.


           B             Copy of Fifth  Amendment dated August 18, 1998 to Lease               E-17
                         dated    March  18,  1991,  by and  between  Rancho
                         Cucamonga  Business  Park  (now the  Realty  Trust)  as
                         landlord and SAT (now the Company) as tenant.

           C             Copy of Agreement dated December 1, 1998 between                      E-18
                         Burrill & Company and the Company.

</TABLE>


                                E-1

<PAGE>
                                                                       Exhibit A

            CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
                                       OF
                                 LIFEPOINT, INC.

It is hereby certified that:

     1.   The name of the corporation (hereinafter called the 'Corporation') is 
LifePoint, Inc.

     2.   The certificate of incorporation of the Corporation is hereby amended 
by striking out Article FOURTH thereof and by substituting in lieu of said 
Article the following new Article:

     'FOURTH: A. The total number of shares of stock (hereinafter referred 
to as the 'Capital Stock') which the Corporation shall have authority to issue 
is 53,000,000, all of which shares shall have the par value of $.001 per share, 
and the Capital Stock shall be divided into two classes:

     1.   3,000,000 of the shares shall be Preferred Stock.

     2.   50,000,000 of the shares shall be Common Stock.

     B.   The relative rights, powers, privileges, preferences, participations, 
qualifications, limitations and restrictions of the classes of the Capital Stock
are as follows:

     1.   Series A 10% Cumulative Convertible Preferred Stock

          (a)      Designation of Series.   Of the 3,000,000 shares of the 
Preferred Stock of various series that the Corporation shall be authorized to 
issue, 600,000 shares shall be available for issuance as the initial series of 
the Preferred Stock of the Corporation with the designation 'Series A 10% 
Cumulative Convertible Preferred Stock' (hereinafter called the 'Series A 
Preferred Stock'), which the Corporation shall be entitled to issue with the 
relative powers, rights, preferences and limitations hereinafter set forth in
subparagraphs Fourth B.1(b) to (i) hereof.

          (b)      Priority.   The Series A Preferred Stock shall, to the extent
of its relative rights, powers and preferences as hereinafter set forth, be 
senior to any and all classes and series of the Capital Stock now or hereafter 
created by the Corporation, including, without limitation, the other series of 
the Preferred Stock and the Common Stock.


                                      E-2
<PAGE>

     (c) Dividends.  The holders of shares of the Series A Preferred Stock shall
be entitled, when and as declared by the Board of Directors, out of the funds of
the Corporation legally available therefor,  cumulative dividends at the rate of
$1.00 per annum per share of the Series A Preferred  Stock,  in accordance  with
the provisions of this subparagraph  Fourth B.1(c) Such dividends shall be prior
and  in  preference  to any  declaration  or  payment  of  any  dividend  or any
distribution  (as  hereinafter  defined  in  subparagraph  Fourth  B.1 (c) (vii)
hereof)  on  shares of the  Common  Stock,  or any other  class or series of the
Capital Stock (including any other series of the Preferred Stock) ranking junior
to the Series A  Preferred  Stock upon  liquidation,  upon  redemption  or as to
dividends  (the Common Stock and such other class or series of the Capital Stock
hereinafter collectively referred to as the 'Junior Stock').

     (i) Payment.  Dividends on the Series A Preferred Stock shall be cumulative
and shall accrue on each share of the Series A Preferred  Stock  (whether or not
earned or declared) from day to day from the date of original  issuance (but not
earlier than the Subsequent Offering Termination Date as such term is defined in
the Corporation's Confidential Private Placement Memorandum dated as of December
15, 1998). Dividends shall be payable semiannually, in arrears, on the first day
of January  and July of each year  commencing  on July 1, 1999,  unless any such
date is a non-Business  Day, in which event the dividend shall be payable on the
next Business Day.  Dividends for any period that is less than six full calendar
months shall be pro-rated based upon a 365-day-year.  The Corporation  shall not
declare or pay the  scheduled  dividend  for any  semiannual  period  unless the
Corporation has sufficient funds legally available for such purpose.

     (ii)  Record  Date.  When the  Board of  Directors  declares  a  semiannual
dividend, the dividend shall be payable to the holders of record of the Series A
Preferred  Stock on the 15th day of the month (if a Business Day; if not, on the
next Business Day) immediately preceding the respective dividend payment date or
on such other record date as shall be fixed by the Board of Directors,  provided
that the record date shall not be more than 60 or less than 10 days prior to the
dividend payment date.
     (iii) Payment Form. At its option,  the  Corporation  may pay a dividend in
cash or in the form of shares of the  Common  Stock on the basis of the  Average
Market Price (as hereinafter  defined in this subparagraph Fourth B.1 (c) (iii))
of the Common Stock for the 20 trading  days  immediately  preceding  the record
date for such dividend.  For purposes of this subparagraph  Fourth  B.1(c)(iii),
the Average  Market Price for a  20-trading-day  period shall be  determined  as
follows:  (1) if the Common Stock shall then be listed on a national  securities
exchange  or on The  Nasdaq  Stock  Market,  Inc.  (hereinafter  referred  to as
'Nasdaq'),  whether the  National  Market  System or the  SmallCap  Market,  the
Average  Market  Price shall mean the average of the closing  sale prices on the
exchange or quoted for Nasdaq for each  trading  day during such  20-trading-day
period or (2) if the Common  Stock  shall not then be listed on an  exchange  or
quoted on Nasdaq, the Average Market Price shall mean the average of
                                      E-3
<PAGE>

the bid and asked prices for the Common  Stock in the OTC Bulletin  Board of the
National Association of Securities Dealers, Inc. (hereinafter referred to as the
'NASD'),  if so quoted,  or, if not so quoted, in the pink sheets as reported by
the National Quotation Bureau,  Inc., or other  organization  performing similar
functions  in the  over-the-counter  market,  for each  trading  day during such
20-trading-day period.

     (iv)  Accrued  and Unpaid  Dividends.  Except as set forth in  subparagraph
Fourth B.2 (c) (v) hereof or except as may be waived by the  holders of not less
than 66 2/3% of the then outstanding  shares of the Series A Preferred Stock, so
long as any shares of the Series A  Preferred  Stock  shall be  outstanding  and
unless and until all accumulated but unpaid  dividends on the Series A Preferred
Stock shall have been paid or provided for, then (1) no dividends shall be paid,
whether in cash or property,  nor shall any  distribution be made, on the Junior
Stock (other than  dividends or  distributions  on the Common Stock in shares of
the Capital Stock of the Corporation or subscription rights, options or warrants
to subscribe for or purchase shares of any such Capital Stock); (2) no shares of
the Junior  Stock shall be redeemed,  purchased  or  otherwise  acquired for any
consideration  by the Corporation  (except by conversion  into, or exchange for,
shares of the Junior Stock); and (3) the Corporation shall not distribute to the
holders of the Junior Stock any assets upon liquidation,  dissolution or winding
up of the Corporation.

     (v) Partial Payment.  Notwithstanding the provisions of subparagraph Fourth
B.1 (c) (iv)  hereof,  the Board of  Directors  may  declare  the  payment  of a
dividend on the Series A Preferred  Stock in an amount less than all accumulated
but unpaid dividends  thereon provided that the Corporation has sufficient funds
legally available for such purpose.

     (vi)  Interest.  If the  dividends  on any shares of the Series A Preferred
Stock shall be in  arrears,  the  holders  thereof  shall not be entitled to any
interest thereon or any other sum of money in lieu thereof.

     (vii) Definition of Distribution.  For purposes of this subparagraph Fourth
B.1 (c), unless the context otherwise  requires,  'distribution'  shall mean the
transfer of cash or property without  consideration,  whether by way of dividend
or  otherwise,  payable  other than in shares of the Capital  Stock  (other than
redemptions as set forth in subparagraph Fourth B.1 (d) hereof or repurchases of
shares of the Common Stock held by employees or consultants  of the  Corporation
upon  termination  of  their  employment  or  services  pursuant  to  agreements
providing  for  such  repurchase)  for  cash or  property,  including  any  such
transfer, purchase or redemption by a subsidiary of the Corporation.
                  
     (d)      Redemptions.

     (i) Optional  Redemption.  The Corporation  may, but shall not be obligated
to, redeem, in whole or in part (but only in multiples of 500 shares unless the

                                      E-4
<PAGE>

holder owns less than 500 shares), shares of the Series A Preferred Stock at any
time on or after July 1, 1999 at a  redemption  price of $10.00 per share,  plus
all accrued but unpaid dividends to the date of redemption (hereinafter referred
to as the 'Optional Redemption Date') designated in the Notice of Redemption (as
hereinafter defined in subparagraph  Fourth B.1 (d) (v) hereof),  payable in the
Board's  discretion  in cash or in the form of shares of the Common Stock on the
basis of the Average  Market  Price of the Common  Stock for the 20 trading days
immediately  preceding the date of the Notice of Redemption,  the Average Market
Price being determined  pursuant to subparagraph  Fourth B.1 (c) (iii) hereof in
the same manner as for a dividend in shares of the Common Stock.  Each Notice of
Redemption shall be mailed,  not less than 30 nor more than 60 days prior to the
Optional Redemption Date, to each holder of record of the shares of the Series A
Preferred  Stock to be redeemed at his,  her or its address as it appears in the
records of the Corporation. Payment of the accrued but unpaid dividends shall be
made in the manner provided in subparagraph Fourth B.1 (c) (iii) hereof.

     (ii) Partial Optional  Redemption.  To the extent that less than all of the
outstanding  shares of the Series A Preferred Stock are to be redeemed  pursuant
to subparagraph Fourth B.1 (d) (i) hereof,  then the following  provisions shall
be applicable:

(1)  The number of shares to be  redeemed  shall be  determined  by the Board of
     Directors of the  Corporation  and, if the shares of the Series A Preferred
     Stock  are held by more than one  stockholder  on the  Optional  Redemption
     Date, the Corporation  shall redeem from each stockholder a pro rata number
     of shares which, for each  stockholder,  shall be calculated by multiplying
     (a) the  total  number  of shares  of the  Series A  Preferred  Stock to be
     redeemed  pursuant  to  subparagraph  Fourth  B.1 (d) (i) on such  Optional
     Redemption  Date by (b) a fraction,  the numerator of which shall equal the
     number of shares of the Series A Preferred Stock owned by such  stockholder
     on such Optional  Redemption  Date and the denominator of which shall equal
     the total  number of shares of the  Series A  Preferred  Stock  issued  and
     outstanding on such Optional Redemption Date.

(2)  The  Corporation  shall issue and deliver to the holder,  at the expense of
     the  Corporation,  a  certificate  for the shares of the Series A Preferred
     Stock not redeemed.

     (iii) Mandatory Redemption.  So long as any of the Series A Preferred Stock
shall be  outstanding,  if the Average Market Value (as  hereinafter  defined in
subparagraph  Fourth B.1 (d) (iv)  hereof) of the Common  Stock is $4.00 or more
per  share  for a period  of 30 days,  the  Corporation  shall,  by a Notice  of
Redemption  to the  holders  of the  then  outstanding  shares  of the  Series A
Preferred  Stock in the  manner  provided  in  subparagraph  Fourth  1.b (d) (v)
hereof,  call such shares for redemption as of a date not less than ten nor more
than 30 days after the date the Notice is given
                                      E-5
<PAGE>

(hereinafter  referred to as the 'Mandatory  Redemption Date') and, in lieu of a
cash  payment,  shall issue shares of the Common Stock to the holders as if they
had converted,  pursuant to subparagraph Fourth B.1 (f) hereof, on the Mandatory
Redemption  Date.  Each Notice of  Redemption  shall be mailed to each holder of
record of the shares of the Series A Preferred  Stock at his, her or its address
as it appears in the records of the Corporation.

     (iv) Average Market Price.  For the purpose of subparagraph  Fourth 1.b (d)
(iii) hereof,  the Average  Market Price for a 30-day period shall be (1) if the
Common Stock shall be listed on a national securities exchange or on Nasdaq, the
average of the  closing  sales  prices on the  exchange or quoted for Nasdaq for
each trading day during such 30-day  period or (2) if the Common Stock shall not
be listed on an exchange  or quoted on Nasdaq,  the average of the bid and asked
prices for the Common Stock in the OTB Bulletin Board of the NASD, if so quoted,
or, if not so quoted,  in the pink sheets as reported by the National  Quotation
Bureau,  Inc.,  or  other  organization  performing  similar  functions  in  the
over-counter market, for each trading day during such 30-day period.

         (v)      Notice of Redemption.   The Notice of Redemption shall state:

(1)  the redemption  date (which,  if the required date is a  non-Business  Day,
     shall be the next Business Day);

(2)  the number of shares of the Series A Preferred Stock to be redeemed and, if
     less than all of the shares  held by such  holder are to be  redeemed,  the
     number of such shares of such holder to be redeemed;

(3)  the redemption price per share and the aggregate redemption price;

(4)  the accumulated but unpaid dividends to be paid with the redemption  price;
     and

(5)  the place or places where such shares are to be surrendered  for payment of
     the redemption price.

Neither failure to mail any such notice to one or more holders nor any defect in
such Notice of Redemption  shall effect the  sufficiency of the  proceedings for
redemption as to the other holders.

     (vi) Termination of Rights.  Unless the Corporation shall have defaulted in
the payment of the redemption price, (1) from and after each redemption date all
dividends on the shares of the Series A Preferred  Stock  called for  redemption
shall  cease to accrue  and (2) on such  redemption  date (a) all  rights of the
holders  of such  shares  of the  Series  A  Preferred  Stock  shall  cease  and
terminate, except the right to

                                      E-6
<PAGE>

receive  the  redemption  price  of  the  Series  A  Preferred  Stock  upon  the
presentation and surrender to the Corporation of the  certificates  representing
the same and the right to  convert,  pursuant  to  subparagraph  Fourth  B.1 (f)
hereof,  on or prior to such  redemption  date;  (b) such shares of the Series A
Preferred Stock shall not thereafter be transferred  (except with the consent of
the  Corporation)  on the books of the  Corporation;  and (c) such shares of the
Series A Preferred  Stock shall not be deemed to be outstanding  for any purpose
whatsoever.

     (vii)  Status of Redeemed  Shares.  Shares of the Series A Preferred  Stock
which have been redeemed or reacquired in any manner  (including upon conversion
in accordance with  subparagraph  Fourth B.1 (f) hereof) shall,  upon compliance
with any applicable  provisions of the General  Corporation  Law of the State of
Delaware  (hereinafter referred to as the 'GCL,' which definition as used herein
shall include any successor statute), have the status of authorized and unissued
shares  of the  Preferred  Stock  not  constituting  part of any  series  of the
Preferred  Stock,  unless the Board of Directors  elects by resolution to retain
the shares of the Series A Preferred  Stock that were  redeemed or reacquired as
treasury  shares or to retire the same and reduce the capital of the Corporation
in accordance with the GCL.

     (viii) Deposits in Trust. If the Corporation shall deposit, as a trust fund
with any bank or trust company having a capital surplus and undivided profits of
at  least  $25,000,000,  a sum  sufficient  to  redeem  on the  date  fixed  for
redemption  thereof  any  shares  of the  Series A  Preferred  Stock  called  or
scheduled for redemption  (including  within such sum, if applicable,  an amount
sufficient to pay all accumulated but unpaid  dividends to the date of deposit),
with  irrevocable  instructions and authority for the bank to pay the redemption
price (and, if applicable,  the accumulated but unpaid  dividends to the date of
deposit)  of such shares  upon  surrender  of the  certificate  or  certificates
evidencing  the shares to be  redeemed,  then from and after the date of deposit
(even if prior to the date fixed for  redemption)  all rights of the  holders of
such  shares  shall  cease and  terminate  except  only the right  either (1) to
receive  the  redemption  price  and,  if  applicable,  accumulated  but  unpaid
dividends  to the date of deposit  or (2) to convert  the shares of the Series A
Preferred Stock into shares of the Common Stock in accordance with  subparagraph
Fourth B.1 (f) hereof,  in the event of which  conversion  the funds not so used
shall be returned to the Corporation.

     (e)  Preference on  Liquidation.  Subject to the prior rights of creditors,
the  holders of shares of the Series A  Preferred  Stock  shall be  entitled  to
receive,  upon any  liquidation,  dissolution or winding up of the  Corporation,
$10.00 per share plus  accumulated  but unpaid  dividends to the date of payment
before any  distribution of assets of the Corporation may be made to the holders
of the Junior Stock. If, upon such liquidation, dissolution or winding up of the
Corporation,  the assets of the  Corporation  are  insufficient  to permit  full
payment  to the  holders  of the  Series A  Preferred  Stock,  then  the  entire
available  assets  (after  satisfying  the rights of prior  creditors)  shall be
distributed  ratably  to the  holders  of the Series A  Preferred  Stock.  After
payment of the full amount of the preferential liquidation distribution to which
they are entitled and, if

                                      E-7
<PAGE>

applicable,  any accumulated but unpaid dividends,  the holders of the shares of
the Series A Preferred Stock shall not be entitled to any further  participation
in any  distribution  of  assets  by the  Corporation.  Written  notice  of such
liquidation,  dissolution  or winding up,  stating a payment date, the amount of
the liquidation  payment and the place where such sums shall be payable shall be
sent by mail,  postage prepaid,  not less than 60 days prior to the payment date
stated therein,  to the holders of record of the Series A Preferred Stock,  such
notice to be  addressed  to each such holder at his, her or its address as shown
in the records of the Corporation.  A consolidation or merger of the Corporation
with or into another  corporation  or  corporations  shall not be deemed to be a
liquidation,  dissolution  or winding up of the  Corporation  within the meaning
hereof if the  Corporation  is the  survivor  or if the  Corporation  is not the
survivor and the holders of at least 66 2/3% of the then  outstanding  shares of
the Series A Preferred Stock approve the consolidation or merger.

     (f) Conversion

(i)  Conversion  Right. A holder of shares of the Series A Preferred  Stock, but
     only as to 500 shares or a  multiple  thereof  unless the holder  owns less
     than 500 shares,  may, at the  holder's  option,  convert  such shares into
     shares  of the  Common  Stock as  constituted  on  January  7,  1999 at the
     conversion  price  of  $.50  per  share  (hereinafter  referred  to as  the
     'Conversion  Price'). The number of shares of the Common Stock to be issued
     upon the  conversion  shall be equal to the product of the number of shares
     of the Series A Preferred  Stock to be  converted  and the stated  value of
     $10.00 per share divided by the Conversion Price.

(ii) Conversion Procedure.  In order to exercise the conversion  privilege,  the
     holder of any shares of the Series A Preferred  Stock to be converted shall
     surrender the  certificate or  certificates  evidencing  such shares to the
     Corporation  at its then principal  office or at its agency  designated for
     such  purpose  (which may be the transfer  agent for the Common  Stock) and
     shall give notice to the Corporation that the holder elects to convert such
     shares or a specified  portion thereof as permitted by subparagraph  Fourth
     B.1 (f) (i) hereof.  Such  notice  shall also state the name or names (with
     address) in which the  certificate  or  certificates  for the Common Stock,
     which shall be issuable upon such conversion,  shall be issued. As promptly
     after  receipt of such notice and the surrender of the shares of the Series
     A Preferred Stock as aforesaid,  the Corporation shall issue and deliver to
     either  such  holder or, on his,  her or its  written  order,  a  permitted
     transferee a certificate or  certificates  for the number of full shares of
     the Common Stock  issuable upon the conversion of such shares of the Series
     A Preferred  Stock in accordance  with the provisions of this  subparagraph
     Fourth B.1 (f) and cash, as provided in Subparagraph Fourth B.1 (g) hereof,
     in  respect  of  any  fractional  interest  otherwise  issuable  upon  such
     conversion. Such conversion shall be deemed to have been effected as of the
     close  of  business  on the  date on  which  such  shares  of the  Series A
     Preferred Stock shall have been surrendered as aforesaid, the rights of the
     holder of such shares of the Series A Preferred  Stock as such holder shall
     cease on said  date,  and the  person or persons in whose name or names any
     certificate  or  certificates  for the Common Stock shall be issuable  upon
     such  conversion  shall be deemed to have become on said date the holder or
     holders of record  represented  thereby.  No  adjustment  shall be made for
     dividends  accrued on any shares of the Series A  Preferred  Stock,  except
     that dividends  accrued to the conversion  date shall be paid on any shares
     of the Series A Preferred  Stock which are converted in the manner provided
     in subparagraph Fourth B.1 (c)(iii) hereof.

                                      E-8
<PAGE>

     In the event any share of the Series A Preferred Stock shall be surrendered
for  conversion of a part only, the  Corporation  shall issue and deliver to the
holder,  at the expense of the Corporation,  a certificate for the shares of the
Series A Preferred Stock not converted.

     (iii)  Adjustments.  Subject to the provisions of this subparagraph  Fourth
B.1 (f), the number of shares of the Common Stock  issuable upon the exercise of
the  conversion  rights  under the Series A Preferred  Stock shall be subject to
adjustment from time to time as follows:

(1)  In case the  Corporation  after the date hereof shall (a) pay a dividend in
     shares  of  the  Capital  Stock  of  the  Corporation,  (2)  subdivide  its
     outstanding  shares of the Common Stock, (3) combine its outstanding shares
     of the  Common  Stock  into a  smaller  number of  shares,  or (4) issue by
     reclassification  of the Common  Stock any  shares of Capital  Stock of the
     Corporation,  then the  number  of  shares  of the  Common  Stock  issuable
     immediately  after the happening of any of the events described above shall
     be adjusted  so as to consist of the number of shares of the Capital  Stock
     of the  Corporation  which a record  holder of the  number of shares of the
     Common Stock  immediately prior to the happening of such event would own or
     be  entitled  to  receive  after  the  happening  of  such  event.  Similar
     adjustments to the Common Stock shall be made at any time any of the events
     described  above in this  subparagraph  Fourth B.1 (f) (iii) (1) occur.  An
     adjustment  made  pursuant  to this  subparagraph  Fourth B.1 (f) (iii) (1)
     shall become effective  immediately  after the record date in the case of a
     dividend payable in the Capital Stock of the Corporation,  and shall become
     effective   immediately   after  the  effective  date  in  the  case  of  a
     subdivision, combination or reclassification.

(2)  In case the  Corporation  after the date  hereof  shall  distribute  to all
     holders of the Common Stock evidence of its  indebtedness  or assets (other
     than a cash  distribution made as a dividend payable out of earnings or out
     of any surplus legally  available for dividends under the GCL) or rights to
     subscribe or purchase, then the number of shares of the Common Stock (until
     adjusted again pursuant to this subparagraph Fourth B.1 (f) (iii)) shall be
     adjusted to that number  determined by multiplying  the number of shares of
     the Common Stock  outstanding  immediately  prior to such  adjustment  by a
     fraction,  the  numerator  of which is the  Market  Value  per share of the
     Common Stock  determined as provided in subparagraph  Fourth B.1 (g) hereof
     (as if the record date for such distribution were the date of surrender for
     conversion  there  mentioned)  and the  denominator of which is such Market
     Value  per  share  less the  fair  value  (as  determined  by the  Board of
     Directors of the Corporation,  whose  determination shall be conclusive) of
     the portion of such evidences of indebtedness or assets so distributed,  or
     of such  subscription  or purchase  rights,  applicable to one share of the
     Common Stock. An adjustment made pursuant to this  subparagraph  Fourth B.1
     (f) (iii) (2) shall become effective  immediately after the record date for
     the  determination of stockholders  entitled to receive such  distribution.
     This  subparagraph  Fourth  B.1  (f)  (iii)  (2)  shall  not  apply  to any
     transaction for which an adjustment is prescribed under subparagraph Fourth
     B.1 (f) (iii) (1) hereof.

                                      E-9
<PAGE>

(3)  For the  purpose  of this  subparagraph  Fourth B.1 (f),  the term  'Common
     Stock' shall mean (a) the class of stock  designated as the Common Stock of
     the  Company at January 7, 1999 or (b) any other  class of stock  resulting
     from  one or  more  changes  or  reclassifications  of  such  Common  Stock
     consisting  solely of  changes  in par  value,  or from par value to no par
     value, or from no par value to par value.

     (iv) Accountant's  Certificate.  The certificate of any independent firm of
public accountants of recognized  standing selected by the Board of Directors of
the   Corporation   (including  the  accountants   regularly   employed  as  the
Corporation's   independent  auditors)  shall  be  conclusive  evidence  of  the
correctness of any computation made under this subparagraph Fourth B.1 (f).

     (v) Merger or Consolidation.  In case after the date hereof, as a result of
a merger or consolidation  of the Corporation into or with another  corporation,
or the  sale  or  other  transfer  of the  Corporation's  property,  assets  and
business,  substantially as an entirety, to a successor,  the Common Stock is in
effect changed into, in whole or in part, a different kind or class of stock (or
other securities  representing or payable in, or convertible  into, or entitling
the holder to purchase or subscribe for, stock of any class), the Corporation or
the  successor,  as the case may be, shall execute and deliver to the holders of
the Series A  Preferred  Stock  agreements  providing  that the  holders of such
shares then outstanding shall have the right thereafter (until the expiration of
the right of conversion of such shares) to receive upon  conversion,  in lieu of
the number of shares of the Common Stock  previously  issuable upon  conversion,
such securities  which shall conform as to its  constituent  parts with what was
receivable upon such merger,  consolidation,  sale or other transfer by a holder
of the same  number of  shares of the  Common  Stock  immediately  prior to such
change.  Such agreements  shall provide for adjustment  which shall be as nearly
equivalent as  practicable  to the  adjustments  provided for this  subparagraph
Fourth B.1 (f). The  provisions  of this  subparagraph  Fourth B.1 (f) (v) shall
similarly  apply  to  successive  mergers,  consolidations,  or  sales  or other
transfers.

                                      E-10
<PAGE>
   
     (vi) Adjustment to Conversion  Price.  Whenever the number of shares of the
Common  Stock is adjusted  pursuant  to this  subparagraph  Fourth B.1 (f),  the
Conversion Price shall be proportionately adjusted.

     (vii)  Conversion  Adjustment  Notice  Whenever the conversion  rights of a
holder  of  the  Series  A  Preferred  Stock  are  adjusted   pursuant  to  this
subparagraph  Fourth B.1 (f), the Corporation shall promptly mail to each holder
of the  Series  A  Preferred  Stock  a  notice  describing  the  adjustment  and
specifying  the  number,  or kind,  or class of  shares or other  securities  or
property  issuable upon  conversion of the Series A Preferred Stock after giving
effect to such adjustment.

     (viii) Notices for Certain Transactions.  In case the Corporation after the
date of issuance of shares of the Series A Preferred  Stock shall propose (1) to
pay any  dividend  payable in shares of the Capital  Stock to the holders of the
Common Stock or to make any other  distribution  (other than cash  distributions
out of earnings or surplus as referred to in  subparagraph  Fourth B.1 (f) (iii)
(2)  hereof),  (2) to take  action  to offer  for  subscription  pro rata to the
holders of the Common Stock rights to subscribe to, or purchase,  any additional
shares  of any  class or series  of the  Capital  Stock or any  other  rights or
options, or (3) to effect any reclassification of the Common Stock (other than a
reclassification  involving merely the subdivision or combination of outstanding
shares of the Common Stock) or any capital  reorganization,  or consolidation or
merger,  or any sale or other  transfer  of its  property,  assets and  business
substantially as an entirety,  or the liquidation,  dissolution or winding up of
the  Corporation,  then, in each such case, the  Corporation  shall mail to each
holder of the Series A Preferred  Stock notice of such  proposed  action,  which
notice shall specify the date on which the books of the Corporation shall close,
or  a  record  shall  be  taken,  for  such  stock  dividend,   distribution  or
subscription  or purchase  rights,  or the date on which such  reclassification,
reorganization,   consolidation,   merger,   sale  or   transfer,   liquidation,
dissolution or winding up shall take place or commence,  as the case may be, and
the date of participation therein by the holders of the Common Stock if any such
date is to be fixed,  and shall  also set forth  such  facts  then  known to the
Corporation  with respect  thereto as shall be reasonably  necessary to indicate
the effect of such action on the shares of the Common Stock and/or the shares of
Series A  Preferred  Stock  which  will occur as a result of such  action.  Such
notice shall be mailed,  in the case of any action  covered by clause (1) or (2)
above, at least ten days prior to the record data for determining holders of the
Common Stock for purposes of such action and, in the case of any action  covered
by clause (3)  above,  at least ten days prior to the date of the taking of such
proposed action.

     Failure to mail any notice,  or any defect in any notice,  pursuant to this
subparagraph  Fourth B.1 (f) (viii) shall not affect the legality or validity of
the adjustment to the number of shares of the Common Stock or the type or amount
of property to be received upon conversion  thereof or of any transaction giving
rise thereto.

                                      E-11
<PAGE>

     (g) Fractional  Shares.  The Corporation shall not be required to issue any
fractional  shares of the Common  Stock upon the  conversion  or  redemption  of
shares of the Series A  Preferred  Stock or upon the  payment  of a dividend  in
shares of the Common  Stock with respect to the shares of the Series A Preferred
Stock.  If any  fractional  interest  in a share of the  Common  Stock  shall be
deliverable  upon  conversion  or redemption of shares of the Series A Preferred
Stock,  or with  respect  to a  dividend  in shares  of the  Common  Stock,  the
Corporation  shall  purchase  such  fractional  interest  for an  amount in cash
(computed  to the  nearest  cent)  equal to the  Market  Value  (as  hereinafter
defined) of such fractional  share. If the shares of the Common Stock shall then
be listed on a national  securities  exchange  or quoted on  Nasdaq,  the Market
Value shall be the closing sale price of such shares on such  exchange or quoted
by Nasdaq on the last Business Day preceding the surrender for  conversion,  the
redemption date or the dividend payment date, whichever is applicable,  on which
shares of the Common  Stock were sold.  If the shares of the Common  Stock shall
not then be listed on any such  exchange or quoted on Nasdaq,  the Market  Value
shall be the average of the bid and asked prices as reported by the OTC Bulletin
Board of the NASD,  if so  quoted,  or, if not so  quoted,  as  reported  by the
National  Quotation  Bureau,  Inc.,  or other  organization  performing  similar
functions in the over-the-counter market, on the last Business Day preceding the
surrender for  conversion,  the  redemption  date or the dividend  payment date,
whichever shall be applicable, on which there were such quotations.

     (h) Voting Rights.

(i)  Vote Per Share.  The shares of the Series A Preferred  Stock shall  entitle
     each holder to one vote for each share held on matters on which such holder
     shall have the right to vote.

(ii) General  Voting Rights.  The holders of the Series A Preferred  Stock shall
     vote together with the holders of the Common Stock (1) in all elections for
     directors, (2) upon the approval of any employee benefit plan, (3) upon the
     selection of independent  certified  public  accountants  and (4) upon such
     other  matters as shall be submitted to a vote  generally of the holders of
     the Capital Stock and on which the holders of the Series A Preferred  Stock
     shall not be entitled to vote separately as a class.

(iii)Contingent  Voting  Rights.  If and  whenever  the  Corporation  shall have
     failed to declare and pay three  consecutive  semiannual  dividends  on the
     Series A Preferred  Stock,  the  holders of the Series A  Preferred  Stock,
     voting  as a  class,  shall  be  entitled  to  elect  one  director  of the
     Corporation  and the  holders  of the Common  Stock and any other  class or
     series of the Capital  Stock  (including  the Series A Preferred  Stock) as
     shall than have the right to vote for directors  shall be entitled to elect
     the  remaining  members  of the  Board of  Directors.  At such  time as all
     dividends  accumulated on the outstanding  shares of the Series A Preferred
     Stock have been paid, the contingent  rights of the holders of the Series A
     Preferred  Stock  to  elect a  member  of the  Board  as  provided  in this
     subparagraph  Fourth B.1 (h) (iii) shall  cease,  subject to  reinstitution
     from time to time upon the same terms and conditions.

                                      E-12
<PAGE>

(iv) Contingent Voting Procedures. At any time after the voting power to elect a
     member of the Board of Directors shall have become vested in the holders of
     the Series A Preferred  Stock as provided  in  subparagraph  Fourth B.1 (h)
     (ii) hereof,  the President or any Vice President of the Corporation shall,
     upon the request of the record holders of at least 20% of the shares of the
     Series A Preferred  Stock then  outstanding,  addressed to the President or
     any Vice  President  of the  Corporation  at the  principal  office  of the
     Corporation,  call a  special  meeting  of the  holders  of  the  Series  A
     Preferred Stock to be held at the place and upon the notice provided in the
     By-Laws of the Corporation for the holding of meetings of stockholders.  If
     such meeting shall not be so called within two days after personal  service
     of the request, or within five days after mailing of the same by registered
     mail  within the United  States of America,  then the record  holders of at
     least ten  percent  of the  shares of the  Series A  Preferred  Stock  then
     outstanding,  as a class,  may designate in writing one of their members to
     call such meeting,  and the person so  designated  may call such meeting at
     the place and upon the notice above  provided,  and for that purpose  shall
     have access to the stock books of the Corporation  relating to the Series A
     Preferred Stock.  Anything in this subparagraph  Fourth B.1 (h) (iv) to the
     contrary  notwithstanding,  no special meeting to permit the holders of the
     Series A Preferred Stock to elect a director shall be called if such matter
     is included in the notice of meeting for the Annual Meeting of Stockholders
     and such meeting is held within 60 days after receipt of the request for an
     election.  At any special  meeting so called or at any Annual  Meeting held
     while the holders of the Series A  Preferred  Stock,  as a class,  have the
     voting power to elect a member of the Board of Directors,  the holders of a
     majority of the then outstanding shares of the Series A Preferred Stock, as
     a class, present in person or by proxy, shall be sufficient to constitute a
     quorum  for the  election  of the  director  the  holders  of the  Series A
     Preferred  Stock are entitled to elect and a plurality of the votes cast at
     the  meeting  shall be  sufficient  to elect such  director.  The person so
     elected  as a  director,  together  with such  persons,  if any,  as may be
     elected as  directors  by the  holders  of the Common  Stock and such other
     class or series of the  Capital  Stock  (including  the Series A  Preferred
     Stock) as shall then have the right to vote for directors, shall constitute
     the duly elected directors of the Corporation.

(v)  Cessation of Contingent  Voting  Rights.  When the rights of the holders of
     the Series A Preferred Stock to vote as provided in subparagraph Fourth B.1
     (h) (iii) hereof have ceased as hereinabove provided, the term of office of
     the  person  elected by them as a  director  as a result of the  failure to
     declare and pay a dividend shall forthwith terminate.

     (i)  Covenants  by the  Corporation.  As long as any shares of the Series A
Preferred Stock are  outstanding,  and without the approval of the holders of at
least 66 2/3% of the then  outstanding  shares of the Series A Preferred  Stock,
the  Corporation  shall not (i) amend its Certificate of  Incorporation  if such
action would alter or change the preferences,  special rights or powers given to
the shares of the Series A  Preferred  Stock so as to affect the  holders of the
Series A Preferred Stock adversely; (ii) authorize or create any class or series
of stock of the  Corporation  having any  preference  or priority  which is pari
passu or superior to the shares of the Series A Preferred Stock as to dividends,
mandatory redemption or distribution of assets made in dissolution,  liquidation
or winding up the Corporation; (iii) merge or consolidate with or into any other
corporation or  corporations  if the  Corporation  is not the survivor;  or (iv)
incur  indebtedness,  other than up to  $2,000,000 in  indebtedness  at any time
outstanding   incurred   in   connection   with  the   purchase  or  leasing  of
manufacturing,  research and office  equipment and  facilities.  The covenant in
subparagraph  Fourth B.1 (i) (iv) shall  expire,  terminate  and have no further
force and effect upon the Corporation  completing the working  prototype for its
saliva  based  testing  product for drugs of abuse and alcohol or upon the event
that,  if a right of first  refusal  as to  additional  financing  is granted in
connection  with the sale of the Series A Preferred  Stock,  such right of first
refusal is not exercised with respect to a proposal for equity financing.

                                      E-13
<PAGE>

         2.       Preferred Stock

     (a)  Designation  of Series.  With respect to the  2,400,000  shares of the
Preferred Stock not designated as the Series A Preferred Stock, or any or all of
the 600,000  shares of the Series A  Preferred  Stock  that,  after  redemption,
conversion or other  acquisition  by the  Corporation,  shall be restored to the
status  of  shares  of  the  Preferred  Stock  without  series  as  provided  in
subparagraph  Fourth  B.1 (d)  (vii)  hereof,  the  Board  of  Directors  of the
Corporation is authorized,  subject to the limitations prescribed by the GCL and
the provisions of this  subparagraph  Fourth B.2, to provide for the issuance of
the  shares of the  Preferred  Stock in  series  and,  by  filing a  certificate
pursuant to the GCL, to  establish  from time to time the number of shares to be
included in each such series, and to fix the designations,  powers,  preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions thereof.

     (b)  Priority.  Each  series  into  which  the  Preferred  Stock  shall  be
subdivided by the Board of Directors  subsequent  to the date hereof,  as herein
provided,  shall, to the extent of its relative rights,  powers and preferences,
be  senior  to the  Common  Stock and each  subsequently  created  series of the
Preferred  Stock unless  provision is otherwise  made by the Board of Directors;
provided,  however,  the  Preferred  Stock and each series  thereof shall in any
event be junior to the  Series A  Preferred  Stock  except as may  otherwise  be
consented to by the holders of at least 66 2/3% of the then  outstanding  shares
of the Series A Preferred Stock.

     (c) Board Designation. The authority of the Board of Directors with respect
to each  series of the  Preferred  Stock shall  include,  but not be limited to,
determination of the following:

(i)  The  number  of  shares   constituting  that  series  and  the  distinctive
     designation of that series;

                                      E-14
<PAGE>
 
(ii) The dividend rate on the shares of that series,  whether dividends shall be
     cumulative,  and, if so, from which date or dates,  and the relative rights
     of priority, if any, of payment of dividends on shares of that series;

(iii)Whether  that series  shall have voting  rights,  in addition to the voting
     rights provided by law, and, if so, the terms of such voting rights;

(iv) Whether that series shall have conversion privileges, and, if so, the terms
     and conditions of such  conversion,  including  provision for adjustment of
     the  conversion  rate  in such  events  as the  Board  of  Directors  shall
     determine;

(v)  Whether or not the shares of that series shall be  redeemable,  and, if so,
     the terms and  conditions  of such  redemption,  including the date upon or
     after which they shall be  redeemable,  and the amount per share payable in
     case of redemption, which amount may vary under different conditions and at
     different redemption dates;
(vi) Whether the series shall have a sinking fund for the redemption or purchase
     of shares of that series,  and, if so, the terms and amount of such sinking
     fund;

(vii)The  rights of the  shares of that  series  in the  event of  voluntary  or
     involuntary liquidation,  dissolution or winding up of the Corporation, and
     the  relative  rights of  priority,  if any,  of  payment of shares of that
     series; and

(viii) Any other relative rights, preferences and limitations of that series.

     (d) Dividends.  Dividends on the outstanding  shares of the Preferred Stock
shall be paid or declared and set apart for payment  before any dividends  shall
be paid or declared  and set apart for payment on the shares of the Common Stock
with respect to the same dividend period.

     (e)  Preference  on  Liquidation.  If upon  any  voluntary  or  involuntary
liquidation,  dissolution or winding up of the Corporation the assets  available
for  distribution  to the holders of shares of the Preferred Stock of all series
shall be insufficient to pay such holders the full preferential  amount to which
they are  entitled,  then such assets  shall be  distributed  ratably  among the
shares of all series of the Preferred  Stock in accordance  with the  respective
preferential  amounts  (including unpaid cumulative  dividends,  if any) payable
with respect thereto.

     3. Common Stock

     (a) Designation and Dividends. The Common Stock shall be designated "Common
Stock."  Subject to all of the rights of the  Series A  Preferred  Stock and the
Preferred  Stock,  dividends  may be paid  upon  the  Common  Stock  as and when
declared by the Board of Directors  out of any funds  legally  available for the
payment of dividends.

                                      E-15
<PAGE>

     (b)   Liquidation,   Dissolution  or  Winding  Up.  Upon  any  liquidation,
dissolution or winding up of the Corporation,  whether voluntary or involuntary,
and subject to the prior rights of creditors and after the holders of the Series
A Preferred Stock and any other then  outstanding  series of the Preferred Stock
shall have been paid in full  amounts to which  they  shall be  entitled,  or an
amount sufficient to pay the aggregate amount to which the holders of the Series
A Preferred Stock and the other then  outstanding  series of the Preferred Stock
shall be entitled  shall have been deposited with a bank or trust company having
a capital surplus and undivided  profits of at least $25,000,000 as a trust fund
for the  benefit of the  holders of the Series A  Preferred  Stock and the other
then outstanding  series of the Preferred Stock, the remaining net assets of the
Corporation  shall be  distributed  pro rata to the holders of the Common Stock.
For the  purposes of this  subparagraph  Fourth B.3 (b),  the  consolidation  or
merger of the Corporation with any other  corporation or corporations  shall not
be deemed a liquidation or dissolution of the Corporation.

     (c) Voting Right.  Each holder of the Common Stock shall be entitled to one
vote per share thereof held upon all matters.

     4. Definitions.

(i)  The term  "Business  Day" shall mean any day on which national banks in the
     City of Los Angeles, State of California are open.

(ii) The term "Common Stock" shall mean the Corporation's  currently  authorized
     Common Stock and any shares into which such Common  Stock may  hereafter be
     changed."

                                           _____________________________

     3. The amendment of the certificate of  incorporation  herein certified has
been duly  adopted and written  consent  has been given in  accordance  with the
provisions of Section 228 and 242 of the General Corporation Law of the State of
Delaware.

Signed on this 19th day of January, 1999

                                                          /s/ Linda H. Masterson
                                                              Linda H. Masterson
                                           President and Chief Executive Officer



                                      E-16
<PAGE>

                                                                      Exhibit B

                       FIFTH AMENDMENT TO INDUSTRIAL LEASE
               10400 Trademark Street, Rancho Cucamonga, CA 91730

     The terms of that industrial lease dated March 18, 1991 originally  between
Rancho Cucamonga  Business Park as Lessor and U.S. Alcohol Testing of America as
Lessee and  subsequently  by and  between  Substance  Abuse  Technologies,  Inc.
(formerly U.S.  Alcohol Testing of America) as Lessee and The Realty Trust (TRT)
as Lessor is amended as follows:

     Substance Abuse  Technologies  (SAT) previously  rejected the then existing
lease under authority of bankruptcy proceedings.

     U.S. Drug Testing,  Inc.  (USDT),  formerly a subsidiary of Substance Abuse
Technologies,  continued  occupancy  of the premises at 10400  Trademark  Street
under the terms of the FOURTH  AMENDMENT  TO  INDUSTRIAL  LEASE  executed by the
parties in November 1997. U.S. Drug Testing,  Inc. has since changed its name to
LIFEPOINT,  INC.  and wishes to  continue  occupancy  of the  premises  at 10400
Trademark Street for an additional period of eighteen months.

     Commencing  October 1, 1998 and  terminating on March 31, 2000, the monthly
rental for 10400 Trademark Street shall be $6,000.00 per month.

     At least 90 days  before  the lease  termination  date of March  31,  2000,
LIFEPOINT shall give TRT notice of its intentation to terminate. Any holdover by
LIFEPOINT  must be agreed to in writing by The Realty Trust.  In the event of an
agreed  holdover the lease shall  continue  from month to month and either party
may  terminate  the lease by giving the other party a 90 day  written  notice of
termination.

     The terms and conditions of the original lease dated March 18, 1991 and its
addendum  and  amendments  shall  remain in full  force and effect  except  that
LIFEPOINT shall occupy only the premises at 10400 Trademark Street and shall pay
only 1/2 of the total real estate  taxes,  insurance,  landscaping  and exterior
maintenance charges levied against the entire building.

This Fifth  Amendment is executed in two (2)  originals.  One original  shall be
     held by the Lessor, The Realty Trust, and one original shall be held by the
     Lessee, LIFEPOINT, Inc.

Dated:   August 18, 1998                                Dated:   August 14, 1998

LIFEPOINT, INC.                                               THE REALTY TRUST

By:      /s/ Linda H. Masterson                         By:      /s/ Simi Dabah 
Linda H. Masterson, President                           Simi Dabah, Trustee






                                      E-17
<PAGE>


                                                     



December 1, 1998


Linda Masterson
President and Chief Executive Officer
LifePoint, Inc.
10400 Trademark Street
Rancho Cucamonga, CA  91730

Dear Linda:

It has been a pleasure  discussing  LifePoint and its  partnering  strategy with
you. Over the last several months and again at our meeting at Laguna Niguel,  we
have been impressed with the progress  LifePoint has made under your watch. This
letter  proposes the  structure and terms under which we would like to work with
you and the company for the next year.  It includes  the changes you added,  and
those we have  discussed.  I am enclosing  both a blackline and a clean copy for
your signature.

Burrill & Company is a private  merchant bank investing in public and late-stage
private  life  sciences  (primarily   biotechnology)  companies.  Our  principal
activities   include   partnering/strategic    alliance   creation,   technology
acquisition,  mergers,  and  providing  strategic  advice and  counsel to assist
companies to maximize  their value.  We are one of the leaders in spin-outs  and
spin-ins from pharmaceutical companies as they increasingly 'dis-integrate', and
as  a  result  have  extensive  relationships  in  both  the  biotechnology  and
pharmaceutical worlds.

Steve  Burrill's  experience  reflects  over 30 years of  working  with  growing
high-tech  and biotech  companies.  He assisted  the  founders of Cetus,  Amgen,
Genentech, ALZA, Plant Genetics/Calgene,  Collagen and over 50 others from their
inception.  Over ten  years  ago  while at Ernst & Young,  he began to write the
industry's  annual report on the  biotechnology  industry  (both US and Europe),
which  chronicles the industry's  developments and reflects his insight into the
issues of tomorrow.  Through  these  books,  the  conferences/meetings  that B&C
sponsors,  and the vast network  Steve has  developed,  B&C has an  unparalleled
access to biotech and pharmaceutical companies at the top levels.

Steve's experience is complemented by the B&C team:

                                      E-18
<PAGE>

o    Dr. David Collier, who has extensive financial and medical experience,  and
     is currently active in our Agbio Capital Fund.

o    Dr. John Kim, who recently joined us from Goldman Sachs, where he served as
     a medical device analyst.

o    Todd Morrill, who has a strong business and science background, and has led
     or is leading the teams for a number of the spin-outs and partnerings.

o    Laura  J.  Vitez,  who  has a  background  in  both  science  and  business
     development,  most  recently  with the public  biotechnology  company  Cell
     Genesys, Inc.

o    Dr.  Roger  Wyse,  former  Dean of the  College  of  Agricultural  and Life
     Sciences at the University of Wisconsin, Madison.

Our three analysts and  administrative  support staff are also an important part
of our team.

The in-house B&C team is  supplemented  by a Business  Advisory  Board (BAB),  a
group of former  CEOs of major  pharmaceutical/biotech  companies  and  industry
luminaries,  and a Scientific Advisory Board (SAB) of pre-eminent scientists and
Nobel  Laureates.  Both boards are available to our  portfolio  companies at our
semi-annual BAB/SAB meetings, and at other times as necessary.

The Business Advisory Board

o    Jack Bowman was an  international  pharmaceutical  executive  with American
     Cyanamid,  and ran Johnson & Johnson's  pharmaceutical  business as Company
     Group Chairman.

o    Irwin Lerner and Herbert  Conrad  (Hoffmann-La  Roche's former CEO and COO,
     respectively) have experience  building and running US operations of one of
     the giant pharmaceutical companies.

o    Fred Frank of Lehman  Brothers is generally  recognized as the  pre-eminent
     investment banker in biotechnology.

o    Paul Freiman is the former Chairman and Chief  Executive  Officer of Syntex
     Corporation and currently  Chairman of both Digital Gene Technology and the
     University of California, San Francisco Foundation.
                                      E-19
<PAGE>

o    Martin  Gerstel  built ALZA as its CEO, and is one of the  industry's  most
     creative financiers and joint venture/strategic alliance strategists.

o    Leigh Thompson,  former Chief Scientific Officer of Eli Lilly, is an expert
     in pharmaceutical and biotechnology research and development.

o    John Wilkerson,  who founded The Wilkerson Group, has tremendous insight as
     a major pharmaceutical/biotechnology industry strategic advisor.

The Scientific Advisory Board

o    Dr. Paul Berg,  Cahill  Professor in Cancer  Research in the  Department of
     Biochemistry at Stanford  University and Director of the Beckman Center for
     Molecular  and  Genetic  research  at the  Stanford  University  School  of
     Medicine.  In 1980,  Dr. Berg received the Nobel Prize in Chemistry for his
     studies of the biochemistry of nucleic acids.

o    Dr. Michael Bishop (emeritus) currently holds three posts at the University
     of  California,  San Francisco:  Professor,  Microbiology  and  Immunology:
     Director,  The George Hooper Research Foundation;  Professor,  Biochemistry
     and Physics.  In 1989, Dr. Bishop received the Nobel Prize in Physiology of
     Medicine.  He also  currently  serves on the  Advisory  Boards for  Somatix
     Therapy, Terrapin Technologies, Mercator Genetics, Mitotix and Syntex.

o    Dr. Sean Carroll,  Investigator of the Howard Hughes Medical  Institute and
     Professor  of  Molecular  Biology,  Genetics  and  Medical  Genetics at the
     University  of  Wisconsin.  He is a Director  and  consultant  to  Ophidian
     Pharmaceuticals, and has also consulted for Boehringer Mannheim and Amgen.

o    Dr. Eric Lander, Director of the Whitehead Institute/MIT Center for Genomic
     Research and Professor of the  Department  of Biology at the  Massachusetts
     Institute  of  Technology.  He  also  currently  serves  on the  Scientific
     Advisory  Boards  for  Millennium,   Affymetrix,  Ribozyme  Pharmaceutical,
     Healthcare  Ventures,  Arris  Pharmaceutical  and  the  Dana-Farber  Cancer
     Institute.

o    Dr.  Keith  Yamamoto  currently  holds  three  posts at the  University  of
     California,  San  Francisco:  Professor  of  Biochemistry,   Department  of
     Biochemistry and Biophysics; Director of Biochemistry and Molecular Biology
     Program;  Professor  and  Chairman,  Department  of Cellular and  Molecular
     Pharmacology.  He also serves on the Scientific  Advisory Board for Tularik
     Inc.


                                      E-20
<PAGE>

Proposed Relationship - Purpose and Goals

We  understand  that  LifePoint is  interested  in  partnering  its  proprietary
diagnostic technology with pharmaceutical and biotech companies.  The purpose of
the    partnerships   is   to   "validate"   the   technology,    help   develop
non-drugs-of-abuse  applications for the device,  and realize economic  benefits
for LifePoint.
 
As we discussed,  we are interested in adding LifePoint to our small 'partnering
portfolio' of biotech  companies.  We believe that  LifePoint has the management
expertise (and will soon have the capitalization  and technical/IP  position) to
successfully  partner,  and  so  we  would  like  to  develop  a  close  working
relationship  with your team.  We will act as  LifePoint's  partner in sourcing,
negotiating  with, and closing partners in North America,  Europe,  and possibly
the Far East.

We also understand that LifePoint is willing and interested in discussing merger
or acquisition  opportunities,  so we will also act as your partner and agent in
sourcing and developing these opportunities. As we discussed, in the event of an
M&A  transaction  we will recruit one of our  investment  bank friends to assist
LifePoint with issues related to public-equity M&A.

We propose to source  LifePoint's  partners  in two ways:  first,  by a directed
search for those  companies  which we believe will be interested in  LifePoint's
technology,  and second, by being opportunistic about interesting  alternatives,
that is, thinking 'out of the box'. In our experience,  our relationship is most
likely  to be  mutually  rewarding  and  successful  when  your  team is able to
evaluate both obvious and non-obvious opportunities.

Directed Search - From our experience in the biotech and pharma worlds,  we know
of a number of companies selling and developing  diagnostics.  We will work hard
to  generate  interest,  and bring  them to the  negotiating  table on behalf of
LifePoint.  In each case, we will provide LifePoint with preliminary information
on the company, and should you be interested in proceeding,  additional in-depth
information.  We will help you analyze the opportunity and negotiate  terms, and
close the deal.

Opportunistic Search - In our discussions with pharmaceutical companies, biotech
firms,  investment  banks,  venture  capitalists,   and  other  participants  in
healthcare  markets,  we  sometimes  hear  of  companies  actively  seeking  new
technologies or M&A opportunities.  We propose to present these opportunities to
LifePoint as they arise; some will not be directly applicable to your activities
today, but many will offer you the chance to take a bold step in the development
of LifePoint.
                                E-21
<PAGE>

We would also like to offer you the chance to interact with and benefit from our
BAB and SAB.  They  assist us  regularly  and meet  formally  in early  June and
mid-October.  During those meetings,  we hold one or two slots for our portfolio
companies  to meet with  them,  and  benefit  from their  collective  wisdom and
experience.  We believe  that our BAB/SAB  represents  an  incredible  surrogate
'Board of Directors' which will complement LifePoint's BOD and senior management
talent.

      

Proposed Relationship - Timeline

We would like to structure the  compensation  in our  relationship so as to give
both sides  incentive to think  clearly and quickly about the  opportunities  as
they arise.  Also, our goal is to provide  significant value to LifePoint in the
form of 'doable' partnerships within the first months of our relationship,  with
completion of more than one deal within a year.

The  process  we  propose  will  involve  four  phases.  We are  basing the time
estimates on a December 1 start for the project.

Phase I
During the initial  phase of the  project,  we will  develop a list of potential
partners who have a strategic  interest in LifePoint's  technology.  We will use
our  knowledge  of the  industry,  certain  search  algorithms,  and any targets
already identified by LifePoint to build the list of potential partners. We will
use our  contacts,  plus  those of our BAB,  SAB and Agbio  board,  to reach the
decision makers (usually the CEO level) at each potential partner.

While we build the list,  we will work  with you to  prepare  the  documentation
needed to support the initial solicitation,  namely an Executive Summary,  which
is a  non-confidential  document  that  describes  the product and the  proposed
transaction  and a more detailed  Descriptive  Memorandum  (DM). The Descriptive
Memorandum  is likely to include a market  analysis of the product  opportunity,
technical,  clinical,  and medical  descriptions of the product,  and a business
overview.  We expect to work closely with LifePoint at each step, and will visit
your site one or more times to discuss strategy and technical details.

While the DM is being  finalized,  the  potential  partners will be contacted to
begin the process and to assess their likely  level of interest.  The  Executive
Summary, a cover letter,  and a confidentiality  agreement (CDA) will be sent to
each interested prospect.  We anticipate that Phase I can be completed within 45
days of project initiation.

                                      E-22
<PAGE>

Phase II
The second phase of the project  involves  intensive  follow-up with  prospects.
Through  conversations with the prospective  suitors, we will continue to assess
their specific  interest in the transaction,  and we will encourage those with a
strong  interest to sign the CDA.  Upon receipt of a signed CDA, we will forward
the DM to each interested party and inform them of the timeline for the process.
We  estimate  that  Phase II will be  completed  by within 30 days of the end of
Phase I.

Phase III
Each recipient will have a period of about 30 days to digest the DM. During this
period, we will solicit Preliminary  Indications of Interest (PIOIs), which will
be used to screen  suitors,  and determine which will be granted the opportunity
to perform  additional  due diligence at LifePoint.  We will work with LifePoint
management  to schedule  appropriate  visits for due  diligence  and  partnering
discussions.

We estimate  that Phase III will  require 45 to 60 days from the  completion  of
Phase II.

Phase IV
Burrill & Company will be responsible for coordinating all contact with partners
including  coordinating due diligence  meetings with LifePoint and responding to
additional questions which may arise, and in collaboration with you, negotiating
final terms with one or more  partners.  We hope to secure a number of potential
partner  meetings over the 30 to 90 days required for Phase III. We expect to be
at the term-sheet  stage with one or more partners by the end of Phase IV. Final
negotiations and drafting the contract will take a few weeks, at which the point
the deal can be signed and approved.

During  each of the phases of the  process,  we will keep  LifePoint  abreast of
developments and progress by periodic updates, at least monthly.

                                      E-23
<PAGE>



roposed Relationship - Compensation Structure

We  suggest  that  B&C's  compensation  reflect  the  growing  and  intensifying
relationship  that  will  develop  between  our team and  yours.  Arguably,  the
greatest value for all of us will occur upon  completion of a  transaction,  but
clearly we all will be working very hard and putting  ourselves at  considerable
risk before the close. Therefore, we propose:

o    A project  initiation fee of $10,000 per month payable upon our engagement,
     and a retainer of $10,000 per month  payable on the first day of each month
     starting December 1, 1998.

o    500,000 options for LifePoint stock,  granted on initiation of the project,
     half vesting  pro-rata  over 12 months,  half vesting upon  completion of a
     partnership.  The  option  strike  price  will be the lower of  LifePoint's
     average  closing stock price for the 20 trading days  preceding the signing
     of this letter, and the average closing stock price for the 20 trading days
     preceding announcement of a partnership.
 
o    A success fee equal to 10% of the first $1M of value  received by LifePoint
     of any transaction we source and/or are active participants in, 7.5% of the
     next $4M of value and 7% of any value in excess of $5M.  (The 'deal  value'
     will be agreed  upon  jointly  by  LifePoint  and  Burrill  & Company  when
     external  valuations are not available).  The success fee is 20% payable in
     cash or  unrestricted,  registered  stock, the rest in the 'currency of the
     transaction'.

The  milestone  fees  help us  defray  costs,  but we feel do not 'pay  for' our
efforts other than  nominally.  After we have a good working  relationship,  the
options  provide us the  opportunity to benefit from value we build at LifePoint
without  putting the company at any cash risk. The success fee provides the bulk
of our compensation  when the deal is done; we take it in the 'currency' used in
the  transaction,  but need to  reserve  the  right to take 20% in a  negotiable
currency. The cash is simply a way for us to pay taxes.

In addition,  we will expect  reimbursement of reasonable expenses incurred when
on LifePoint business,  indemnification by you for activities undertaken on your
behalf   (indemnification   language  attached),   and  a  18  month  'tail'  on
opportunities we are involved in or bring to your attention.

We propose to start the process immediately. We suggest regular project reviews,
in  which  as a team we  formally  evaluate  each of the  opportunities  we have
surfaced.  Finally, either side may terminate the agreement at any time, with 30
days written notice.

                                      E-24
<PAGE>

Summary

We are looking forward to getting started with the formal  relationship,  and so
hope  that you find the terms of this  letter  acceptable.  With your  signature
below, we can bring you several opportunities immediately.

Best regards,



G. Steven Burrill                                    Todd Morrill


Read and Agreed:


                                                              Date
Linda Masterson
President and Chief Executive Officer

Enclosures:

Exhibit A:  Indemnification
Exhibit B:  LifePoint Rider to Burrill & Company Proposal


                                      E-25
<PAGE>

                                    Exhibit A

                            Indemnification Agreement


     In connection with the services that Burrill & Company ('B&Co.') has agreed
to render  hereunder,  LifePoint  hereby  agrees to indemnify  and hold harmless
B&Co. and its controlling persons,  directors,  officers,  employees, agents and
affiliates (each an 'indemnified  person'),  to the full extent lawful, from and
against all losses, claims,  damages,  liabilities and expenses incurred by them
(including fees and disbursements of counsel,  but excluding any lost profits or
consequential  damages of any kind) suffered or alleged to have been suffered by
B&Co.  or any other  indemnified  person that (a) are related to or arise out of
(i)  actions  taken  or  omitted  to be taken  (including  any  material  untrue
statements  made or any  statements  omitted  to be made) by  LifePoint  or (ii)
actions taken or omitted to be taken by an indemnified  person with the consent,
or upon the instructions,  of LifePoint or (b) are otherwise related to or arise
out of B&Co.'s activities hereunder,  and LifePoint will reimburse B&Co. and any
other  indemnified  person  for all  expenses  (including  reasonable  fees  and
disbursements  of  counsel)  as  they  are  incurred  by  B&Co.  or  such  other
indemnified person in connection with investigating,  preparing or defending any
such action or claim,  whether or not in  connection  with pending or threatened
litigation in which B&Co. or such other indemnified person is a party. LifePoint
will not be responsible,  however, for any losses, claims, damages,  liabilities
or expenses  pursuant to clause (b) of the  preceding  sentence that are finally
judicially  determined to have resulted  primarily from the gross  negligence or
willful  misconduct  of B&Co.  or of the other  person  seeking  indemnification
hereunder.  Neither  B&Co.,  nor  any of  its  controlling  persons,  directors,
officers,  employees,  agents  and  affiliates,  shall  have  any  liability  to
LifePoint in connection  herewith except for such liability for losses,  claims,
damages,  liabilities or expenses incurred by LifePoint as is finally judicially
determined to have resulted  primarily from B&Co.'s gross  negligence or willful
misconduct; provided that in no event will B&Co. have any liability to LifePoint
hereunder in excess of the aggregate amount of  consideration  received by B&Co.
from LifePoint hereunder. LifePoint further agrees that it will not, without the
prior written consent of B&Co.,  settle or compromise or consent to the entry of
any judgment in any pending or threatened claim,  action,  suit or proceeding in
respect of which  indemnification  may be sought hereunder (whether or not B&Co.
or any other  indemnified  person is an actual or potential party to such claim,
action,  suit or  proceeding)  unless  such  settlement,  compromise  or consent
includes an  unconditional  release of B&Co. and each other  indemnified  person
from all liability arising out of such claim,  action, suit or proceeding except
for any liability to LifePoint for the gross negligence or willful misconduct of
B&C or the other identified person.

     Promptly after receipt by an indemnified  person of notice of any complaint
or  the  commencement  of  any  action  or  proceeding  with  respect  to  which
indemnification is being sought hereunder,  such person will notify LifePoint in
writing of such complaint or of the  commencement  of such action or proceeding,
but failure to so notify LifePoint will not relieve LifePoint from any liability
that it may have hereunder or otherwise,  except to the extent that such failure
materially  prejudices  LifePoint's rights or its ability to defend against such
complaint,  action or proceeding. If LifePoint so elects or is requested by such
indemnified  person,  LifePoint  will  assume  the  defense  of such  action  or
proceeding,  including  the  employment  of  counsel  (which  may be  counsel to
LifePoint)  reasonably  satisfactory  to B&Co.  and the  payment of the fees and
disbursements of such counsel.  In the event,  however,  such indemnified person
reasonably  determines in its judgment that having common  counsel would present
such counsel with a conflict of  interest,  or if LifePoint  fails to assume the
defense of the action or proceeding in a timely  manner,  then such  indemnified
person may employ separate  counsel to represent or defend it in any such action
or proceeding and LifePoint will pay the reasonable  fees and  disbursements  of
such counsel; provided,  however, that LifePoint will not be required to pay the
fees and  disbursements  of more than one separate  counsel for all  indemnified
persons in any jurisdiction in any single action or proceeding. In any action or
proceeding the defense of which is assumed by LifePoint,  any indemnified person
will have the right to  participate  in such  litigation  and to retain  its own
counsel at such indemnified person's own expense.

                                      E-26
<PAGE>

     LifePoint  agrees  that  if  any  indemnification  sought  hereunder  by an
indemnified  person in connection  with a  transaction  is held by a court to be
unavailable for any reason other than as specified in the second sentence of the
first paragraph of this Exhibit A, then (whether or not B&Co. is the indemnified
person),  LifePoint and B&Co.  will contribute to the losses,  claims,  damages,
liabilities and expenses for which such  indemnification  is held unavailable in
such  proportion  as is  appropriate  to reflect  (a) the  relative  benefits to
LifePoint,  on the one hand,  and B&Co.,  on the other hand, in connection  with
such  transaction,  (b) the relative  fault of LifePoint,  on the one hand,  and
B&Co., on the other hand, in connection therewith and (c) any relevant equitable
considerations;   provided,   however,  that  in  any  event  B&Co.'s  aggregate
contribution  to all  losses,  claims,  damages,  liabilities  and  expenses  in
connection with a transaction will not exceed the value of compensation actually
received by B&Co.  from  LifePoint in connection  with such  transaction.  It is
hereby  agreed that the relative  benefits to  LifePoint,  on the one hand,  and
B&Co., on the other hand, with respect to B&Co.'s  engagement in connection with
a  transaction  shall be  deemed to be in the same  proportion  as (a) the total
value paid or proposed to be paid in such transaction  bears to (b) the value of
the  compensation  paid or proposed to be paid to B&Co. in connection  with such
transaction.

     The indemnity, reimbursement and contribution obligations under this Letter
Agreement shall be in addition to any rights that B&Co. or any other indemnified
person may have at common law or otherwise. LifePoint and B&Co. hereby agree, to
the extent permitted by applicable law, to waive any right to trial by jury with
respect to any claim,  counter-claim  or action arising out of the engagement or
the transactions contemplated hereby.

                                      E-27
<PAGE>

                                   EXHIBIT B
                 LIFEPOINT INC. RIDER TO BURRILL & CO. PROPOSAL

1.       Compensation

B&C shall receive as compensation for its services hereunder the following:

(a)  LifePoint  will pay B&C a project  initiation  fee of $10,000  within  five
     business days after the execution of this Agreement by LifePoint.

(b)  During  the  term of  this  Agreement,  LifePoint  will  pay B&C a  monthly
     retainer of $10,000, starting December 1, 1998.

(c)  LifePoint will issue to B&C,  within five business days after the execution
     of this Agreement by LifePoint,  a Common Stock purchase  warrant  expiring
     November  30, 2003 (the 'First  Warrant')  to  purchase  250,000  shares of
     LifePoint's  Common  Stock,  $.001 par value (the  'Common  Stock'),  at an
     exercise  price per share equal to the average of the closing  sales prices
     of the Common Stock during the twenty  trading days  preceding  the date of
     execution by LifePoint of this  Agreement.  The First  Warrant shall become
     exercisable, on a cumulative basis, as to 20,830 shares of the Common Stock
     subject  thereto on the first day of each  month,  commencing  December  1,
     1998,  for a period of 12 months,  ending  November 1, 1999, for a total of
     250,000 shares of the Common Stock.

(d)  LifePoint  will  issue  to  B&C,   within  five  business  days  after  the
     consummation  of a  partnership  arrangement  with, or the  acquisition  of
     LifePoint,  whether  through  a merger  or  otherwise,  by,  a third  party
     introduced to LifePoint by B&C pursuant to this  Agreement,  a Common Stock
     purchase  warrant expiring five years from the date of consummation of such
     partnering  arrangement or acquisition  (the 'Second  Warrant') to purchase
     250,000  shares of the Common Stock at an exercise price per share equal to
     the lower of the average of the closing  sales  prices of the Common  Stock
     during the twenty trading days preceding the date of execution by LifePoint
     of this  Agreement or the average of the closing sales prices of the Common
     Stock during the twenty trading days preceding the public  announcement  by
     LifePoint  of  the  consummation  of  such  a  partnership  arrangement  or
     acquisition.   The  Second   Warrant  shall  become   exercisable   on  the
     consummation  of a  partnership  agreement  with,  or  the  acquisition  of
     LifePoint, whether through merger or otherwise, by a third party introduced
     to LifePoint by B&C Pursuant to this Agreement.

(e)  In the  event  that  during  the  term of  this  Agreement,  a  partnership
     arrangement  between  LifePoint  and a  third  party  introduced  by B&C to
     LifePoint  is  consummated,  or in the event that  LifePoint  is  acquired,
     whether  through a merger or  otherwise,  by such a third party,  LifePoint
     will, not later than ten business days after any such consummation,  pay to
     B&C an  additional  fee (the  'Success  Fee') equal to (i) 10% of the first
     $1,000,000 of value received by LifePoint from the  transaction as to which
     B&C was the source,  (ii) 7.5% of the next $4,000,000 of value and (iii) 7%
     of any value in excess of  $5,000,000.  In the event  that the value of the
     transaction is not readily  ascertainable from external sources,  the value
     shall be mutually  determined by LifePoint and B&C or, if they cannot agree
     on a value,  by arbitration in Los Angeles,  California in accordance  with
     the rules of the American Arbitration  Association.  LifePoint shall pay to
     B&C 20% of the Success Fee in cash,  and the remaining 80% in the 'currency
     of the transaction'; however, under no circumstances shall LifePoint pay to
     B&C more than 20% of the cash LifePoint  receives from a  partnership.  Any
     Success Fee payable to B&C in excess of 20% of the cash LifePoint  receives
     (up  to  20% of the  value  received  by  LifePoint)  shall  be  paid  in a
     negotiable currency mutually agreed to by B&C and LifePoint. If the Success
     Fee is paid in shares of the Common Stock,  LifePoint  will promptly file a
     registration  statement  under the  Securities Act of 1933, as amended (the
     'Securities  Act'),  with  respect  to such  shares  and shall use its best
     efforts to have such  registration  statement  declared  effective  as soon
     thereafter  as  practicable.  If  the  'currency  of  the  transaction'  is
     securities of an issue other than LifePoint which are not registered  under
     the Securities Act, B&C will deliver such investment  representation  as is
     appropriate  under the  Securities  Act to  permit a  transfer  thereof  in
     payment of the  Success  Fee and  LifePoint  shall use its best  efforts to
     arrange  for B&C to be  included in any  registration  commitment  which it
     obtains from the issuer of such securities.

                                      E-28
<PAGE>

(f)  In the event that no  partnership  arrangement  with,  or  acquisition  of,
     LifePoint is consummated prior to the termination of this Agreement through
     the  efforts  of B&C and  thereafter,  within  one year  after  the date of
     termination,   such  a  transaction  is  consummated  with  a  third  party
     introduced by B&C to LifePoint,  LifePoint shall be obligated to pay to B&C
     the Success Fee as provided in subsection (d) hereof as if the  transaction
     had  been  consummated  prior  to the  termination  of this  Agreement.  In
     addition,  the Second Warrant shall be issued as to the additional  250,000
     shares of the Common Stock and the  expiration  date and the exercise price
     of the Second Warrant shall be determined in the same manner as provided in
     subsection (d) hereof as if this Agreement had not terminated.

(g)  LifePoint will reimburse B&C for its reasonable  expenses  incurred  during
     the  term  of this  Agreement  while  performing  services  for  LifePoint,
     provided that the expenses are  appropriately  documented  and submitted to
     LifePoint by B&C.
2.       Term

The term of this Agreement  shall commence on the date of execution by LifePoint
and shall  terminate  at the end of  twelve  months  (one  year)  unless  sooner
terminated by either  LifePoint or B&C upon 30 days' prior written notice to the
other and with or without cause.  The term of this Agreement shall continue on a
month-to-month  basis after  December 1, 1999 unless either party  terminates as
provided in the preceding sentence.

LifePoint reserves the right, in its sole and absolute discretion,  to accept or
reject any proposed partner submitted by B&C.

3.       Confidentiality

B&C  and  its   respective   officers,   directors,   employees,   agents,   and
representatives  will hold in strict  confidence all  information  obtained from
LifePoint and its officers,  directors,  agents or representatives  and will use
such  information  only for the purposes of securing a partner for  LifePoint in
accordance  with the terms of this Agreement.  At the request of LifePoint,  B&C
will promptly return to LifePoint all documents  obtained from LifePoint and its
officers, directors,  employees, agents and representatives or destroy the same,
except  any such  information  or  documents  which (a) is or are in the  public
domain,(b) was or were in fact lawfully known or lawfully furnished to B&C prior
to disclosure to B&C by LifePoint or its officers, directors,  employees, agents
or representatives, or (c) was or were lawfully disclosed pr furnished to B&C by
a third  party  (other  than the  officers,  directors,  employees,  agents  and
representatives  of LifePoint) after  disclosure to B&C by LifePoint.  B&C shall
obtain a similar  confidentiality  commitment  from any  prospective  partner to
which it intends to submit information or documents.

                                      E-29
<PAGE>

4.       Miscellaneous

B&C is an  independent  contractor  and shall have no authority to act for or on
behalf of LifePoint or to bind LifePoint to any obligation whatsoever. B&C shall
not hold itself out as the agent for  LifePoint or purport to bind  LifePoint to
any obligation without LifePoint's express approval.

This Agreement  constitutes the entire agreement  between LifePoint and B&C, and
it may not be  modified  except in writing  signed by all parties  hereto.  This
Agreement  shall be governed by, and construed in accordance  with,  the laws of
the State of California.

Agreed to and accepted:





Linda H. Masterson                                            G. Steven Burrill
President and CEO                                             President
LifePoint, Inc.                                               Burrill & Co.


                                      E-30