<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 1997
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 0-27848
BIOFIELD CORP.
(exact name of registrant as specified in its charter)
Delaware 13-3703450
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1225 Northmeadow Pkwy.
Suite 120 Roswell, GA 30076
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (770) 740-8180
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares of Issuer's Common Stock, $.001 par value, outstanding as
of April 30, 1997 was 6,493,300 shares.
<PAGE> 2
BIOFIELD CORP.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
Part I FINANCIAL INFORMATION PAGE NO.
- ---------------------------- --------
<S> <C>
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996............ 3
Consolidated Statements of Operations for the three month period
ended March 31, 1997 and 1996 and for the period October 16, 1987
(Date of Inception) through March 31, 1997........................................ 4
Consolidated Statements of Stockholders' Equity for the period October 16, 1987
(Date of Inception) through March 31, 1997........................................ 5-6
Consolidated Statements of Cash Flows for the three month period
ended March 31, 1997 and 1996 and for the period October 16, 1987
(Date of Inception) through March 31, 1997........................................ 7-8
Notes to Consolidated Financial Statements........................................ 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................... 10-18
Part II OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................. 19
Signatures.................................................................................. 20
</TABLE>
<PAGE> 3
Part I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 8,062,910 $ 7,369,973
Short-term investments ....................................... 3,497,625 6,569,406
Other current assets ......................................... 345,947 319,370
----------- ------------
Total current assets ....................................... 11,906,482 14,258,749
PROPERTY AND EQUIPMENT - Net ..................................... 624,055 604,246
OTHER ASSETS ..................................................... 119,775 124,361
PATENT AND PATENT APPLICATION COSTS - Net ........................ 524,814 498,837
----------- ------------
TOTAL ............................................................ $13,175,126 $ 15,486,193
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................. $ 527,056 $ 450,917
Due to affiliate ............................................. 126,050 --
Accrued expenses ............................................. 749,928 909,741
Capitalized lease obligations ................................ 26,177 29,249
----------- ------------
Total current liabilities .................................. 1,429,211 1,389,907
CAPITALIZED LEASE OBLIGATIONS .................................... -- 4,399
----------- ------------
Total liabilities .......................................... 1,429,211 1,394,306
----------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; authorized 2,000,000 shares;
no shares issued ........................................... -- --
Common Stock, $.001 par value; authorized 25,000,000 shares;
outstanding 6,493,300 and 6,433,095 shares, respectively ... 6,493 6,433
Additional paid-in capital ................................... 49,716,174 49,454,334
Accumulated deficit during development stage ................. (37,976,752) (35,368,880)
----------- ------------
Total stockholders' equity ................................... 11,745,915 14,091,887
----------- ------------
TOTAL ............................................................ $13,175,126 $ 15,486,193
=========== ============
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Period October 16,
Three-Month Three-Month 1987 (Date of
Period Ended Period Ended Inception) through
March 31, 1997 March 31, 1996 March 31, 1997
-------------- -------------- -------------------
<S> <C> <C> <C>
OPERATING EXPENSES:
Research and development ................ $ 1,854,247 $ 1,824,935 $ 27,560,933
Selling, general and administrative ..... 922,838 614,411 11,621,019
----------- ----------- ------------
Total operating expenses .............. 2,777,085 2,439,346 39,181,952
----------- ----------- ------------
OTHER INCOME (EXPENSE):
Interest income ......................... 170,628 95,197 1,650,656
Interest expense ........................ (1,415) (2,615) (445,456)
----------- ----------- ------------
Net other income ...................... 169,213 92,582 1,205,200
----------- ----------- ------------
NET LOSS .................................... $(2,607,872) $(2,346,764) $(37,976,752)
=========== =========== ============
NET LOSS PER COMMON AND COMMON
EQUIVALENT SHARE:
Primary ................................. $ (0.40) $ (1.04)
=========== ===========
Fully-diluted ........................... $ (0.40) $ (0.48)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING:
Primary ................................. 6,471,903 2,260,642
=========== ===========
Fully-diluted ........................... 6,471,903 4,871,972
=========== ===========
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
OCTOBER 16, 1987 (DATE OF INCEPTION) THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Stock Preferred Stock Preferred Units Common Stock
------------------ ---------------- -------------------- ------------------
Shares Amount Shares Amount Units Amount Shares Amount
------ ----- ------ ----- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of stock, October 16, 1987
(date of inception) ($ .16 per share, net) -- $ -- -- $ -- -- $ -- 549,020 $ 55
Issuance of stock in connection with
patent acquisition ($ .001 per share) .... -- -- -- -- -- -- 235,294 24
Net loss, October 16, 1987 to
March 31, 1988 .......................... -- -- -- -- -- -- -- --
----- ----- ----- ----- -------- -------- --------- -------
BALANCE AT MARCH 31, 1988 -- -- -- -- -- -- 784,314 79
Net loss ................................... -- -- -- -- -- -- -- --
----- ----- ----- ----- -------- -------- --------- -------
BALANCE AT MARCH 31, 1989 -- -- -- -- -- -- 784,314 79
Net loss ................................... -- -- -- -- -- -- -- --
----- ----- ----- ----- -------- -------- --------- -------
BALANCE AT MARCH 31, 1990 -- -- -- -- -- -- 784,314 79
Acquisition of 235,294 shares of
treasury stock ($.001 per share) ........ -- -- -- -- -- -- -- --
Net loss ................................... -- -- -- -- -- -- -- --
----- ----- ----- ----- -------- -------- --------- -------
BALANCE AT MARCH 31, 1991 -- -- -- -- -- -- 784,314 79
Retirement of treasury stock ............... -- -- -- -- -- -- (235,294) (24)
Issuance of stock in exchange for
stockholder debt ($2.90 per share) ...... -- -- -- -- -- -- 431,372 43
Sale of stock ($.82 per share, net) ........ -- -- -- -- -- -- 24,510 2
Amortization of deferred compensation ...... -- -- -- -- -- -- -- --
Net loss ................................... -- -- -- -- -- -- -- --
----- ----- ----- ----- -------- -------- --------- -------
BALANCE AT MARCH 31, 1992 -- -- -- -- -- -- 1,004,902 100
Sale of stock in connection with private
placement ($7.67 per share, net) ........ -- -- -- -- -- -- 557,475 55
Exercise of stock options .................. -- -- -- -- -- -- 2,451 1
Amortization of deferred compensation ...... -- -- -- -- -- -- -- --
Change in par value of common stock
from $.0001 to $.001 .................... -- -- -- -- -- -- -- 1,408
Net loss ................................... -- -- -- -- -- -- -- --
----- ----- ----- ----- -------- -------- --------- -------
BALANCE AT MARCH 31, 1993
(carried forward) ....................... -- $-- -- $-- -- $ -- 1,564,828 $ 1,564
----- ----- ----- ----- -------- -------- --------- -------
<CAPTION>
Additional
Paid-In Accumulated Treasury
Capital Deficit Stock Total
----------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Issuance of stock, October 16, 1987
(date of inception) ($.16 per share, net) ..... $ 91,898 $ -- $-- $ 91,953
Issuance of stock in connection with
patent acquisition ($.001 per share) .......... 276 -- -- 300
Net loss, October 16, 1987 to
March 31, 1988 ................................ -- (159,359) -- (159,359)
----------- ----------- ----- -----------
BALANCE AT MARCH 31, 1988 92,174 (159,359) -- (67,106)
Net loss ......................................... -- (495,520) -- (495,520)
----------- ----------- ----- -----------
BALANCE AT MARCH 31, 1989 92,174 (654,879) -- (562,626)
Net loss ......................................... -- (233,347) -- (233,347)
----------- ----------- ----- -----------
BALANCE AT MARCH 31, 1990 92,174 (888,226) -- (795,973)
Acquisition of 235,294 shares of
treasury stock ($.001 per share) .............. -- -- (300) (300)
Net loss ......................................... -- (285,179) -- (285,179)
----------- ----------- ----- -----------
BALANCE AT MARCH 31, 1991 92,174 (1,173,405) (300) (1,081,452)
Retirement of treasury stock ..................... (276) -- 300 --
Issuance of stock in exchange for
stockholder debt ($2.90 per share) ............ 1,248,638 -- -- 1,248,681
Sale of stock ($.82 per share, net) .............. 19,998 -- -- 20,000
Amortization of deferred compensation ............ 136,880 -- -- 136,880
Net loss ......................................... -- (461,061) -- (461,061)
----------- ----------- ----- -----------
BALANCE AT MARCH 31, 1992 1,497,414 (1,634,466) -- (136,952)
Sale of stock in connection with private
placement ($7.67 per share, net) .............. 4,275,223 -- -- 4,275,278
Exercise of stock options ........................ 624 -- -- 625
Amortization of deferred compensation ............ 477,453 -- -- 477,453
Change in par value of common stock
from $.0001 to $.001 .......................... (1,408) -- -- --
Net loss ......................................... -- (3,099,637) -- (3,099,637)
----------- ----------- ----- -----------
BALANCE AT MARCH 31, 1993
(carried forward) ............................. $ 6,249,306 $(4,734,103) $-- $ 1,516,767
----------- ----------- ----- -----------
</TABLE>
(Continued)
5
<PAGE> 6
BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
OCTOBER 16, 1987 (DATE OF INCEPTION) THROUGH MARCH 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Stock Preferred Stock Preferred Units
-------------------- --------------- ----------------
Shares Amount Shares Amount Units Amount
------ ------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1993
(brought forward).................... -- $ -- -- $ -- -- $ --
Exercise of stock options............... -- -- -- -- -- --
Sale of Series A Preferred Stock
($3.97 per share, net)............... 2,119,896 2,120 -- -- -- --
Issuance of Series A Preferred Stock in
exchange for notes payable to related
parties ($4.50 per share)............ 222,222 222 -- -- -- --
Issuance of warrants.................... -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
Net loss................................ -- -- -- -- -- --
--------- ------- ------- --------- ------- ------
BALANCE AT MARCH 31, 1994 2,342,118 2,342 -- -- -- --
Sale of Series B Preferred Stock ($4.04
per share, net)...................... -- -- 481,644 482 -- --
Issuance of warrants............... -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
Net loss................................ -- -- -- -- -- --
--------- ------- ------- --------- ------- ------
BALANCE AT DECEMBER 31, 1994............ 2,342,118 2,342 481,644 482 -- --
Sale of Series C Preferred Stock ($4.11
per unit, net)....................... -- -- -- -- 2,914,771 2,915
Issuance of warrants............... -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
Net loss................................ -- -- -- -- -- --
--------- ------- ------- --------- ------- ------
BALANCE AT DECEMBER 31, 1995............ 2,342,118 2,342 481,644 482 2,914,771 2,915
Sale of stock in connection with public
offering ($9.91 per share, net)...... -- -- -- -- -- --
Conversion of Series A, Series B
and Series C Preferred Stock to
Common Stock......................... (2,342,118) (2,342) (481,644) (482) (2,914,771) (2,915)
Exercise of warrants.................... -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
Net loss................................ -- -- -- -- -- --
--------- ------- ------- --------- ------- ------
BALANCE AT DECEMBER 31, 1996............ -- -- -- -- -- --
Exercise of stock options (unaudited) -- -- -- -- -- --
Exercise of warrants (unaudited)........ -- -- -- -- -- --
Net loss (unaudited).................... -- -- -- -- -- --
--------- ------- ------- --------- ------- ------
BALANCE AT MARCH 31, 1997
(unaudited).......................... -- $ -- -- $ -- -- $ --
========= ======= ======= ========= ======= =======
<CAPTION>
Common Stock Additional
------------------ Paid-In Accumulated Treasury
Shares Amount Capital Deficit Stock Total
------ ------ ---------- ----------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1993
(brought forward).................... 1,564,828 $ 1,564 $ 6,249,306 $ (4,734,103) $ -- $ 1,516,767
Exercise of stock options............... 735 1 187 -- -- 188
Sale of Series A Preferred Stock
($3.97 per share, net)............... -- -- 8,411,370 -- -- 8,413,490
Issuance of Series A Preferred Stock in
exchange for notes payable to related
parties ($4.50 per share)............ -- -- 999,778 -- -- 1,000,000
Issuance of warrants.................... -- -- 2,119 -- -- 2,119
Amortization of deferred compensation -- -- 1,580,320 -- -- 1,580,320
Net loss................................ -- -- -- (6,899,515) -- (6,899,515)
--------- -------- ----------- ------------ --------- -----------
BALANCE AT MARCH 31, 1994 1,565,563 1,565 17,243,080 (11,633,618) -- 5,613,369
Sale of Series B Preferred Stock ($4.04
per share, net)...................... -- -- 1,947,149 -- -- 1,947,631
Issuance of warrants.................... -- -- 6 -- -- 6
Amortization of deferred compensation -- -- 14,859 -- -- 14,859
Net loss................................ -- -- -- (4,959,312) -- (4,959,312)
--------- -------- ----------- ------------ --------- -----------
BALANCE AT DECEMBER 31, 1994............ 1,565,563 1,565 19,205,094 (16,592,930) -- 2,616,553
Sale of Series C Preferred Stock ($4.11
per unit, net)....................... -- -- 11,977,856 -- -- 11,980,771
Issuance of warrants.................... -- -- 161 -- -- 161
Amortization of deferred compensation -- -- 195,874 -- -- 195,874
Net loss................................ -- -- -- (8,739,860) -- (8,739,860)
--------- -------- ----------- ------------ --------- -----------
BALANCE AT DECEMBER 31, 1995............ 1,565,563 1,565 31,378,985 (25,332,790) -- 6,053,499
Sale of stock in connection with public
offering ($9.91 per share, net)...... 1,819,000 1,819 18,026,419 -- -- 18,028,238
Conversion of Series A, Series B
and Series C Preferred Stock to
Common Stock......................... 3,046,474 3,047 2,692 -- -- --
Exercise of warrants.................... 2,058 2 20,145 -- -- 20,147
Amortization of deferred compensation -- -- 26,093 -- -- 26,093
Net loss................................ -- -- -- (10,036,090) (10,036,090)
--------- -------- ----------- ------------ --------- -----------
BALANCE AT DECEMBER 31, 1996............ 6,433,095 6,433 49,454,334 (35,368,880) -- 14,091,887
Exercise of stock options (unaudited) 50,674 50 168,541 -- -- 168,591
Exercise of warrants (unaudited)........ 9,531 10 93,299 -- -- 93,309
Net loss (unaudited).................... -- -- -- (2,607,872) -- (2,607,872)
--------- -------- ----------- ------------ --------- -----------
BALANCE AT MARCH 31, 1997
(unaudited).......................... 6,493,300 $ 6,493 $49,716,174 $(37,976,752) $ -- $11,745,915
========= ======== =========== ============ ========= ===========
</TABLE>
(Concluded)
See notes to consolidated financial statements
6
<PAGE> 7
BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period October 16,
Three-Month Three-Month 1987 (Date of
Period Ended Period Ended Inception) through
March 31, 1997 March 31,1996 March 31, 1997
-------------- ------------- -------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss........................................................ $ (2,607,872) $ (2,346,764) $(37,976,752)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ................................ 116,146 150,364 1,793,536
Amortization of investment premiums / (discounts)............. 16,796 -- 81,580
Loss on disposal of property and equipment.................... -- -- 42,713
Loss on license and settlement agreement...................... -- -- 49,026
Noncash compensation.......................................... -- 26,093 2,431,479
Interest paid in Common Stock................................. -- -- 297,148
Changes in assets and liabilities:
Other current assets........................................ (26,577) (105,829) (345,947)
Other assets................................................ 1,356 -- (126,235)
Due to affiliate............................................ 126,050 31,393 126,050
Contractual settlement...................................... -- (311,396) --
Accounts payable and accrued expenses....................... (83,674) 596,535 1,164,552
------------- ------------- ------------
Net cash used in operating activities..................... (2,457,775) (1,959,604) (32,462,850)
------------- ------------- ------------
INVESTING ACTIVITIES:
Acquisition of property and equipment........................... (128,702) (80,765) (2,258,494)
Costs incurred for patents and patent applications.............. (30,000) (31,509) (577,942)
Proceeds from sale of property and equipment.................... -- -- 3,418
Purchase of short-term investments.............................. (490,937) -- (15,345,127)
Proceeds from sales of short-term investments................... 3,545,922 3,000,000 11,765,922
------------- ------------- ------------
Net cash provided by / (used in) investing activities..... 2,896,283 2,887,726 (6,412,223)
------------- ------------- ------------
FINANCING ACTIVITIES:
Repayments of capitalized lease obligations..................... (7,471) (6,270) (56,057)
Proceeds from issuance of Series A Preferred Stock - net........ -- -- 8,413,490
Proceeds from issuance of Series B Preferred Stock - net........ -- -- 1,947,631
Proceeds from issuance of Series C Preferred Stock - net........ -- -- 11,980,771
Proceeds from issuance of Common Stock and warrants - net....... -- 18,028,238 22,417,755
Proceeds from exercise of stock options and warrants............ 261,900 -- 282,860
Proceeds from bank borrowings................................... -- -- 520,000
Payment on bank borrowings...................................... -- -- (520,000)
Repayment of advances from stockholder.......................... -- -- (145,000)
Proceeds from notes payable issued to stockholder and related party -- -- 2,096,533
------------- ------------- ------------
Net cash provided by financing activities................. 254,429 18,021,968 46,937,983
------------- ------------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS.......................... 692,937 18,950,090 8,062,910
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..................... 7,369,973 3,271,341 --
------------- ------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD........................... $ 8,062,910 $ 22,221,431 $ 8,062,910
============= ============= ============
</TABLE>
(Continued)
7
<PAGE> 8
BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period October 16,
Three-Month Three-Month 1987 (Date of
Period Ended Period Ended Inception) through
March 31, 1997 March 31,1996 March 31, 1997
-------------- ------------- -------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest.......................... $ 435 $ 2,615 $ 56,320
============= ============= =================
SUPPLEMENTAL SCHEDULE FOR NONCASH INVESTING
AND FINANCING ACTIVITIES:
Acquisition of property and equipment under capitalized
lease transactions................................................ $ -- $ -- $ 88,234
============= ============= =================
During the year ended March 31, 1994, the Company issued 222,222 shares of
Series A Preferred Stock in exchange for an aggregate of $1 million in
notes payable to a principal stockholder and a former Director
Notes payable..................................................... $ 1,000,000
=================
Issuance of Series A Preferred Stock.............................. $ 1,000,000
=================
At inception, the Company acquired the rights to a patent and assumption
of liabilities in exchange for 235,294 shares of Common Stock, as
follows:
Fair value of patent acquired..................................... $ 112,732
Liabilities assumed............................................... 112,432
-----------------
Issuance of Common Stock.......................................... $ 300
=================
Pursuant to a license and settlement agreement with respect to the patent
acquired (above), the Company received its 235,294 shares of Common
Stock during fiscal 1991, which was retired
Remaining carrying value of patent on date of license and
settlement agreement............................................ $ 49,326
Common Stock returned to the Company.............................. 300
=================
Loss on Settlement................................................ $ 49,026
=================
During fiscal 1992, the Company exchanged 431,372 shares of Common Stock
for $96,660 in notes and $1,152,021 in debt and accrued interest,
payable to its principal stockholder
Notes payable..................................................... $ 96,660
Debt.............................................................. 854,873
Accrued interest.................................................. 297,148
-----------------
Issuance of Common Stock.......................................... $ 1,248,681
=================
</TABLE>
(Concluded)
See notes to consolidated financial statements
8
<PAGE> 9
BIOFIELD CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY - The consolidated balance sheet as of March 31, 1997 and the
related consolidated statements of operations, stockholders' equity and
cash flows for the three month periods ended March 31, 1997 and 1996 and
for the period October 16, 1987 (date of inception) through March 31, 1997
have been prepared by Biofield Corp. (the "Company") without audit. In the
opinion of management, all adjustments necessary to present fairly the
financial position, results of operations and cash flows at March 31, 1997
and 1996 and for the period October 16, 1987 (date of inception) through
March 31, 1997 have been made. During the interim periods reported on, the
accounting policies followed are in conformity with generally accepted
accounting principles and are consistent with those applied for annual
periods and described in the Company's annual report for the year ended
December 31, 1996 filed on Form 10-K with the Securities and Exchange
Commission on March 27, 1997 (the "Annual Report").
During the first quarter of 1997, the Company formed a wholly owned
Delaware corporation named Biofield International, Inc. ("Biofield
International"). In addition, Biofield International formed Biofield
International Inc.-Branch ("Branch"), a U.S. branch located in Switzerland,
organized to expand the Company's European marketing and sales efforts.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The unaudited consolidated
financial statements, which include the financial position, results of
operations, and cash flows for Biofield Corp. and its wholly owned
subsidiaries, should be read in conjunction with the financial statements
for the year ended December 31, 1996 included in the Company's Annual
Report. The results of operations for the three month period ended March
31, 1997 are not necessarily indicative of the operating results for the
full year.
2. RECLASSIFICATIONS - Certain prior period amounts have been reclassified to
conform with the current period presentation.
3. CONSOLIDATED FINANCIAL STATEMENTS - The consolidated financial statements
include the accounts of the Company and all of its wholly owned
subsidiaries. All intercompany transactions and balances have been
eliminated in consolidation.
4. DESCRIPTIVE ANALYSIS - The descriptive analysis contained herein compares
the financial results of the three months ended March 31, for the years
1997 and 1996. To accommodate the comparison of pertinent financial
information, the following terms will be used to denote the respective
periods:
Firstquarter of 1997 - three months ended March 31, 1997
First quarter of 1996 - three months ended March 31, 1996
5. NET LOSS PER SHARE - Primary and fully-diluted net loss per common and
common equivalent share have been computed based on the weighted average
number of common stock and common stock equivalent shares outstanding
during the periods presented.
Upon the closing date of the Company's Initial Public Offering, March 22,
1996, all shares of Series A, Series B and Series C Convertible Preferred
Stock automatically converted into shares of Common Stock. First quarter of
1996 primary net loss per common and common equivalent share is computed
based upon the actual conversion date of the Company's convertible
preferred stock, March 22, 1996. First quarter of 1996 fully-diluted net
loss per common and common equivalent share assumes conversion of the
convertible preferred stock as of the beginning of the period presented.
Common stock equivalents, except as discussed above, are not included in
the computation of net loss per common and common equivalent share since
their effect is antidilutive.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements, related notes and other information
included in this Quarterly Report on Form 10-Q.
OVERVIEW
Biofield Corp. is a medical technology company that has developed an
innovative system for detecting breast cancer through the skin in a
non-invasive and objective procedure. The Company's breast cancer diagnostic
device, the ALEXA(TM) 1000 System, employs unique, single-use sensors and a
measurement device to detect and analyze changes in cellular electrical charge
distributions associated with the development of epithelial cancers, such as
breast cancer. The ALEXA 1000 System is not available for commercial
distribution in the United States at this time and will not be available until
U.S. Food and Drug Administration ("FDA") pre-market approval is received. On
December 30, 1996, the Company submitted a pre-market approval application
("PMA") to the FDA for the ALEXA 1000 System. On February 27, 1997, the FDA
informed the Company that its PMA had not been accepted for filing and
requested that the Company address deficiencies in the PMA before further
consideration of such PMA. The Company remains confident in the findings of its
U.S. Multi-center Study conducted at six major medical institutions in the
United States and is working closely with the FDA to advance the PMA process.
The FDA also advised the Company that its application, upon resubmission, will
continue to be considered under its Expedited Review policy. The Company
believes that the ALEXA 1000 System could improve early diagnosis, reduce
diagnostic uncertainty and decrease the number of diagnostic procedures,
including surgical biopsies, performed on suspicious lesions. See "Cautionary
Statements Regarding Forward-Looking Statements--Uncertainty of Pre-market
Approval for the ALEXA 1000 System."
The laws of certain European countries may permit the Company to begin
marketing the ALEXA 1000 System in Europe before marketing would be permitted
in the United States. The Company currently anticipates a product introduction
in Europe during the second half of 1997. There can be no assurance that the
Company's proposed marketing schedules or plans can or will be met.
As a development stage company, the Company has incurred net losses since
inception through March 31, 1997 of approximately $38 million. The Company
expects operating losses will increase for at least the next several years as
total costs and expenses increase due principally to the FDA pre-market
approval process for the ALEXA 1000 System, marketing and manufacturing
expenses associated with the anticipated commercialization of the ALEXA 1000
System, as well as development of, and clinical trials for, the proposed
Biofield screening system and other research and development activities.
To date, the Company has not marketed, or generated revenues from the
commercialization of, any products. The Company's results may vary
significantly from period to period depending on several factors, such as the
timing of certain expenses and the progress of the pre-market approval process
for the ALEXA 1000 System, the Company's research and development and
commercialization programs, all of which may be affected by the availability of
funds.
RESULTS OF OPERATIONS
Research and development expenses include the costs of engineering,
manufacturing and clinical trials and related activities conducted in
connection with required governmental and regulatory approvals for the ALEXA
1000 System, which consists of the ALEXA 1000 Diagnostic Device and ALEXA 1000
Sensors, as well as expenses for the development of the proposed Biofield
screening system and preclinical research related to the enhancement of the
technology and its development for use in the detection of other cancers.
Research and development expenses increased by 2% to $1,854,000 for the three
months ended March 31, 1997, compared to $1,825,000 for the three months ended
March 31, 1996.
Selling, general and administrative expenses increased by 50% to $923,000
for the three months ended March 31, 1997, compared to $614,000 for the three
months ended March 31, 1996. This increase was primarily attributable to
expenses incurred in connection with the Company's European marketing
activities, severance benefits pursuant to employment arrangements with former
U.S. sales and marketing employees, investor relations and additional premiums
for directors' and officers' liability insurance.
The Company's interest income increased by 80% to $171,000 for the three
months ended March 31, 1997, compared to $95,000 for the three months ended
March 31, 1996. The increase in interest income during 1997 was primarily due
to higher average invested cash, cash equivalent and short-term investment
balances compared to those of the previous period.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
As a result of the foregoing, net loss increased by 11% to $2,608,000 for
the three months ended March 31, 1997, compared to $2,347,000 for the three
months ended March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had total cash, cash equivalents and
short-term investments of $11.6 million, of which $11.2 million was invested in
investment grade corporate obligations, money market funds and shares of liquid
(auction-market) preferred stock and bonds.
As of March 31, 1997, the Company had working capital of $10.5 million
compared to $12.9 million at December 31, 1996. The decrease in working capital
was the result of approximately $2.6 million of cash used primarily to finance
the Company's operations and capital requirements, offset by approximately
$262,000 in proceeds received upon the exercise of stock options and warrants.
The Company does not expect to generate a positive internal cash flow for at
least several years due to the expected increase in spending related to the
pre-market approval process for the ALEXA 1000 System, research and development
and the expected costs of commercializing the ALEXA 1000 System in Europe and,
pending FDA approval, in the U.S.
Capital expenditures during the first quarter of 1997 were approximately
$129,000, consisting of manufacturing equipment and computer equipment.
During the first quarter of 1997, there were no changes in the Company's
existing debt agreements, and the Company had no outstanding bank loans as of
March 31, 1997.
The Company believes that its available cash, cash equivalents and
investment securities and investment income should be sufficient to fund the
Company's operations until the end of calendar year 1997. However, the
Company's future capital requirements will depend on many factors, including
the following: the time and cost involved in obtaining regulatory approvals;
the progress of its research and development projects; the progress of
preclinical and clinical testing; the cost of filing, prosecuting, defending or
enforcing any patent claims and other intellectual property rights; competing
technological and market developments; changes and developments in the
Company's existing collaborative, licensing and other relationships and the
terms of any new collaborative, licensing and other arrangements that the
Company may establish; and the development of commercialization activities and
arrangements. The Company will require substantial additional funds for its
research and development programs, preclinical and clinical testing, operating
expenses, regulatory processes, and manufacturing programs. There can be no
assurances that any required additional financing can be obtained, and if
obtained, at reasonable terms.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as in the Company's press releases or oral statements that
may be made by the Company or by officers, directors or employees of the
Company acting on the Company's behalf, that are not historical fact constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that could cause the actual
results of the Company to be materially different from the historical results
or from any results expressed or implied by such forward-looking statements.
Factors that might cause such a difference include, without limitation, the
information set forth below. In addition to statements which explicitly
describe such risks and uncertainties, statements labeled with the terms
"believes", "belief", "expects", "plans" or "anticipates" should be considered
uncertain and forward-looking. All cautionary statements made in this Report
should be read as being applicable to all related forward-looking statements
wherever they appear in this Report.
Uncertainty of Pre-market Approval for the ALEXA 1000 System. On
December 30, 1996, the Company submitted its PMA to the FDA for the ALEXA 1000
System. On February 27, 1997, the FDA informed the Company that its PMA had not
been accepted for filing and requested that the Company address deficiencies in
the PMA for further consideration of such PMA. Specifically, the FDA has not
accepted the findings from the Company's U.S. Multi-center Study as submitted
due to the FDA's issues concerning the study design and, in particular, the
development and selection of the algorithm used on the supporting data set. The
FDA advised the Company that it must select a final algorithm and then test it
with an independent data set. Further, the FDA stated that a clinical trial
design that supports the indications for use of the ALEXA 1000 System should
include the impact on patient management.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company's PMA for the ALEXA 1000 System is based principally upon the
results of its U.S. Multi-center Study, which results have not been accepted by
the FDA based upon its initial review of the Company's PMA. If the Company is
required to submit additional data to the FDA or conduct additional clinical
trials in support of its PMA, there would be further delays, which may be
significant, in the approval process for the ALEXA 1000 System. Conducting
additional clinical trials could also require the expenditure of substantial
additional funds, for which additional financing would be required.
Furthermore, there can be no assurance that results obtained in any other
studies that may be conducted by the Company will be consistent with the
results obtained in the U.S. Multi-center Study or that any such results will
be accepted by the FDA. There can be no assurance that the FDA or other
regulatory approvals for the ALEXA 1000 System will be granted on a timely
basis, or at all. Failure to obtain FDA approval to market the ALEXA 1000
System would have a material adverse effect on the Company's business,
financial condition, cash flows and results of operations.
Limited Operating History; Continuing Operating Losses. The Company has a
limited history of operations. Since its inception in October 1987, the Company
has engaged principally in the development of the ALEXA 1000 System, which has
not been approved for sale in the United States. Consequently, the Company has
little experience in manufacturing, marketing and selling its products. The
Company currently has no source of operating revenue and has incurred net
operating losses since its inception. At March 31, 1997, the Company had an
accumulated deficit of $37,976,752. Such losses have resulted principally from
costs incurred in research and development and clinical trials and from general
and administrative costs associated with the Company's operations. The Company
expects operating losses to increase for at least the next several years due
principally to the anticipated expenses associated with the pre-market approval
process for the ALEXA 1000 System, the proposed commercialization of the ALEXA
1000 System, development of, and clinical trials for, the proposed Biofield
screening system and other research and development activities.
Uncertainties as to Future Profitability. The Company's ability to
achieve profitability will depend in part on its ability to obtain regulatory
approvals for the ALEXA 1000 System and any other proposed products, and to
develop the capacity to manufacture and market any approved products either by
itself or in collaboration with others. There can be no assurance if or when
the Company will receive required regulatory approvals for the development and
commercial manufacturing and marketing of the ALEXA 1000 System or any other
proposed products, or achieve profitability. Accordingly, the extent of future
losses and the time required to achieve profitability are highly uncertain.
Early Stage of Product Development. The Company's proposed products,
other than the ALEXA 1000 System, are at an early stage of development and the
ALEXA 1000 System must be approved by the FDA before it can be commercially
marketed in the United States. There can be no assurance that any of the
Company's proposed products will be found to be safe and effective, meet
applicable regulatory standards or receive necessary regulatory clearance, or
if safe and effective, can be developed into commercial products, manufactured
on a large scale or be economical to market. Nor can there be any assurance
that the Company's proposed products will achieve or sustain market acceptance.
In the event necessary regulatory approvals are obtained for the ALEXA 1000
System, there can be no assurance that the Company will be successful in
establishing commercial operations, including gaining market acceptance of the
ALEXA 1000 System and implementing commercial-scale manufacturing and sales and
marketing programs. There is, therefore, substantial risk that the Company's
product development and commercialization efforts will not prove to be
successful.
Dependence on a Single Product. Although the Company is in the process of
developing additional products based on its core technology, including an
enhancement of the ALEXA 1000 System for use on asymptomatic women, none of
such applications is expected to result in a commercial product for at least
several years, if at all. Consequently, pending its approval for commercial
distribution in the United States, the ALEXA 1000 System would account for
substantially all of the Company's revenues for the foreseeable future. Failure
to gain regulatory approvals or market acceptance for the ALEXA 1000 System
would have a material adverse effect on the Company's business, financial
condition, cash flows and results of operations.
Dependence on Market Acceptance. There can be no assurance that
physicians or the medical community in general will accept and utilize the
ALEXA 1000 System or any other products developed by the Company. The extent
that, and rate at which, the ALEXA 1000 System achieves market acceptance and
penetration will depend on many variables including, but not limited to, the
establishment and demonstration in the medical community of the clinical
safety, efficacy and cost-effectiveness of the ALEXA 1000 System, the
advantages of the ALEXA 1000 System over existing technology and cancer
detection methods (including x-ray mammography, ultrasound or high frequency
ultrasound, MRI, stereotactic needle biopsy and thermography, diaphonography
and transillumational devices), third-party reimbursement practices and the
Company's manufacturing, quality control, marketing and sales efforts. There
can be no assurance that the medical community and third-party payors will
accept the Company's unique technology. Similar risks will confront the
proposed
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Biofield screening system and any other products developed by the Company in
the future. Failure of the Company's products to gain market acceptance would
have a material adverse effect on the Company's business, financial condition,
cash flows and results of operations.
Limited Marketing and Sales Experience. The Company has limited internal
marketing and sales resources and personnel. In order to market the ALEXA 1000
System or any other products it may develop, the Company will have to develop a
marketing and sales force with technical expertise and distribution
capabilities. There can be no assurance that the Company will be able to
establish sales and distribution capabilities or that the Company will be
successful in gaining market acceptance for any products it may develop. There
can be no assurance that the Company will be able to recruit and retain skilled
sales, marketing, service or support personnel, that agreements with
distributors will be available on terms commercially reasonable to the Company,
or at all, or that the Company's marketing and sales efforts will be
successful. Failure to successfully establish a marketing and sales
organization, whether directly or through third parties, would have a material
adverse effect on the Company's business, financial condition, cash flows and
results of operations. The Company intends to pursue one or more distribution
arrangements in the United States, Europe and Asia with strategic marketing
partners who have established marketing capabilities. There can be no assurance
that the Company, either on its own or through arrangements with others, will
be able to enter into such arrangements on acceptable terms, if at all. To the
extent that the Company arranges with third parties to market its products, the
success of such products may depend on the efforts of such third parties. There
can be no assurance that any of the Company's proposed marketing schedules or
plans can or will be met.
Limited Manufacturing History. The Company does not have any
manufacturing or production facilities or experience in manufacturing or
contracting for the manufacturing of its proposed products in the volumes that
will be necessary for the Company to achieve significant commercial sales in
the event it obtains regulatory approval to market its products. While the
Company does not currently manufacture any of its products, it may do so in the
future. The Company has no experience in the manufacture of medical products
for clinical trials or commercial purposes. Should the Company manufacture its
products, the Company's manufacturing facilities would be subject to the full
range of current Good Manufacturing Practices ("GMP") regulations and similar
risks of delay or difficulty in manufacturing and the Company would require
substantial additional capital to establish such manufacturing facilities. In
addition, there can be no assurance that the Company would be able to
manufacture any such products successfully or cost-effectively.
Dependence on Third Parties. The Company has used certain third parties
to manufacture and deliver the components of the ALEXA 1000 System and the
proposed Biofield screening system used in clinical studies, and intends to
continue to use third parties to manufacture and deliver such products and any
other products which the Company may seek to develop. Such third parties must
adhere to the GMP regulations enforced by the FDA through its facilities
inspection program and such third-parties' facilities must pass a plant
inspection before the FDA will grant pre-market approval of the Company's
products. There can be no assurance that the third-party manufacturers on which
the Company depends for the manufacture of the ALEXA 1000 System will be in
compliance with the GMP regulations at the time of the pre-approval inspection
or will maintain such compliance. Such failure could significantly delay FDA
approval of the PMA application for the ALEXA 1000 System, and such delay would
have a material adverse effect on the Company's business, financial condition,
cash flows and results of operations.
The qualification of additional or replacement suppliers for certain
components of the ALEXA 1000 System or services is a lengthy process. For
certain services and components the Company currently relies on single
suppliers. If the Company encounters delays or difficulties with its
third-party suppliers in producing, packaging or distributing components of the
ALEXA 1000 System, market introduction and subsequent sales would be adversely
affected. The Company also may have to rely on alternative sources of supply.
In such case, there can be no assurance that the Company will be able to enter
into alternative supply arrangements at commercially acceptable rates, if at
all. If the Company is unable to obtain or retain qualified third-party
manufacturers on commercially acceptable terms, it may not be able to
commercialize its products as planned. The Company's dependence upon third
parties for the manufacture of its products may adversely affect the Company's
profit margins and its ability to develop and deliver its products on a timely
and competitive basis.
Competition. The medical device industry generally, and the cancer
diagnostic and screening segments in particular, are characterized by rapidly
evolving technology and intense competition. Other companies in the medical
device industry are marketing products that compete with the ALEXA 1000 System
and may be developing, or could in the future attempt to develop, additional
products that are competitive with the ALEXA 1000 System. Many of the Company's
competitors have substantially greater capital resources and name recognition
than the Company. Many of these companies also have substantially greater
expertise than the Company in research and development, manufacturing and
marketing and obtaining
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
regulatory approvals. There can be no assurance that the Company's competitors
will not succeed in developing or marketing technologies and products that are
more effective than those developed or marketed by the Company or that would
render the Company's technology and products obsolete or noncompetitive.
Additionally, there can be no assurance that the Company will be able to
compete against such competitors and potential competitors in terms of
manufacturing, marketing and sales. Although the Company believes that its
products may offer certain technological advantages over its competitors'
currently-marketed products, earlier entrants in the market for a diagnostic
application often obtain and maintain significant market share relative to
later entrants. Physicians using imaging equipment such as x-ray mammography
equipment, ultrasound or high frequency ultrasound systems, MRI systems,
stereotactic needle biopsy and thermography, diaphonography and
transilluminational devices may not use the ALEXA 1000 System or any other
products that the Company may develop. Currently, mammography is employed
widely and the Company's ability to sell the ALEXA 1000 System to medical
facilities will, in part, be dependent on the Company's ability to demonstrate
the clinical utility of the ALEXA 1000 System as an adjunct to mammography and
physical examination and its advantages over other available diagnostic tests.
Risk of Technological Obsolescence. Methods for the detection of cancer
are subject to rapid technological innovation and there can be no assurance
that technological changes will not render the Company's proposed products
obsolete. There can be no assurance that the development of new types of
diagnostic medical equipment or technology will not have a material adverse
effect on the marketability of the ALEXA 1000 System or any other products
developed by the Company. Commercial availability of such products could render
the Company's products obsolete, which would have a material adverse effect on
the Company's business, financial condition, cash flows and results of
operations.
Potential Reliance on International Sales. The Company intends to
commence commercial sales of the ALEXA 1000 System in Europe prior to
commencing commercial sales in the United States, where sales cannot occur
unless and until the Company receives pre-market approval from the FDA. Thus,
until the Company receives approval from the FDA to market the ALEXA 1000
System, as to which there can be no assurance, the Company's revenues, if any,
will be derived from international sales. A significant portion of the
Company's revenues, therefore, may be subject to the risks associated with
international sales, including economic or political instability, shipping
delays, fluctuations in foreign currency exchange rates, foreign regulatory
requirements and various trade restrictions, all of which could have a
significant impact on the Company's ability to deliver products on a
competitive and timely basis. Future imposition of, or significant increases in
the level of, customs duties, export quotas or other trade restrictions could
have a material adverse effect on the Company's business, financial condition,
cash flows and results of operations. The regulation of medical devices,
particularly in Europe, continues to develop and there can be no assurance that
new laws or regulations will not have an adverse effect on the Company.
Government Regulation; No Assurance of Regulatory Approvals. The
manufacture and sale of medical devices, including the ALEXA 1000 System, the
proposed Biofield screening system, and any other products that may be
developed by the Company are subject to extensive regulation by numerous
governmental authorities in the United States, principally the FDA and
corresponding state agencies, and in other countries. In the United States, the
Company's products are regulated as medical devices and are subject to the
FDA's pre-market clearance or approval requirements. Securing FDA clearances
and approvals may require the submission of extensive clinical data and
supporting information to the FDA. The results of the Company's U.S.
Multi-center Study have not been accepted by the FDA based upon its initial
review of the Company's PMA. If the Company is required to submit additional
data to the FDA or conduct additional clinical trials in support of its PMA,
there would be further delays, which may be significant, in the approval process
for the ALEXA 1000 System. The process of obtaining FDA and other required
regulatory approvals is lengthy, expensive and uncertain and frequently
requires from one to several years from the date of the FDA submission, if
pre-market approval is obtained at all. Although the FDA has granted Expedited
Review status to the ALEXA 1000, there can be no assurance that such status
will result in timely approval of the ALEXA 1000 System, if at all. Failure to
obtain FDA approval to market the ALEXA 1000 System would have a material
adverse effect on the Company's business, financial condition, cash flows and
results of operations.
Sales of medical devices outside of the United States are subject to
international regulatory requirements that vary from country to country. The
time required to obtain approval for sale internationally may be longer or
shorter than that required for FDA approval and the requirements may differ. In
addition, in order to sell its products within the European Economic Area
following June 14, 1998, companies are required to achieve compliance with the
requirements of the MDD and affix a "CE" marking on their products to attest
such compliance. The Company has not obtained such certifications, and there
can be no assurance that it will be able to do so in a timely manner, or at
all.
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<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
In addition, unapproved products subject to the PMA requirements must
receive prior FDA export approval in order to be marketed outside of the United
States unless they are approved for use by any member country of the European
Union or certain other countries, including Australia, Canada, Israel, Japan,
New Zealand, Switzerland and South Africa, in which case they can be exported
to any country provided that certain limited notification requirements are met.
There can be no assurance that the Company will meet the FDA's export
requirements or receive FDA export approval when such approval is necessary, or
that countries to which the devices are to be exported will approve the devices
for import. Failure of the Company to meet the FDA's export requirements or
obtain FDA export approval when required to do so, or to obtain approval for
import, could have a material adverse effect on the Company's business,
financial condition, cash flows and results of operations.
Regulatory approvals, if granted, may include significant limitations on
the indicated uses for which the product may be marketed. In addition, to
obtain such approvals, the FDA and certain foreign regulatory authorities may
impose numerous other requirements with which medical device manufacturers must
comply. FDA enforcement policy strictly prohibits the marketing of approved
medical devices for unapproved uses. Product approvals could be withdrawn for
failure to comply with regulatory standards or the occurrence of unforeseen
problems following initial marketing. The third-party manufacturers upon which
the Company depends to manufacture its products are required to adhere to
applicable FDA regulations regarding GMPs and similar regulations in other
countries, which include testing, control and documentation requirements.
Ongoing compliance with GMP regulations and other applicable regulatory
requirements will be monitored by periodic inspection by the FDA and by
comparable agencies in other countries. Failure to comply with applicable
regulatory requirements, including marketing or promoting products for
unapproved use, could result in, among other things, warning letters, fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, refusal of the government to grant pre-market
clearance or approval for devices, withdrawal of approvals and criminal
prosecution. Changes in existing regulations or adoption of new governmental
regulations or policies could prevent or delay regulatory approval of the
Company's products. Certain material changes to medical devices also are
subject to FDA review and clearance or approval.
There can be no assurance that the Company will be able to obtain, on a
timely basis, or at all, FDA approval of its PMA for the ALEXA 1000 System or
regulatory approvals or clearances for other products that the Company may
develop and delays in receipt of or failure to obtain such approvals or
clearances, the loss of previously obtained approvals, or failure to comply
with existing or future regulatory requirements would have a material adverse
effect on the Company's business, financial condition, cash flows and results
of operations.
Limitation on Third-Party Reimbursement. In the United States, suppliers
of health care products and services are greatly affected by Medicare, Medicaid
and other government insurance programs, as well as by private insurance
reimbursement programs. Third-party payors (Medicare, Medicaid, private health
insurance companies and other organizations) may affect the pricing or relative
attractiveness of the Company's products by regulating the level of
reimbursement provided by such payors to the physicians and clinics utilizing
the ALEXA 1000 System or any other products that the Company may develop or by
refusing reimbursement. If examinations utilizing the Company's products were
not reimbursed under these programs, the Company's ability to sell its products
may be materially adversely affected. There can be no assurance that
third-party payors will provide reimbursement for use of the ALEXA 1000 System
or any other products that the Company may develop.
In international markets, reimbursement by private third-party medical
insurance providers, including governmental insurers and independent providers,
varies from country to country. In addition, such third-party medical insurance
providers may require additional information or clinical data prior to
providing reimbursement for a product. In certain countries, the Company's
ability to achieve significant market penetration may depend upon the
availability of third-party and governmental reimbursement. Revenues and
profitability of medical device companies may be affected by the continuing
efforts of governmental and third-party payors to contain or reduce the costs
of health care through various means.
Uncertainties Regarding Health Care Reform. Several states and the U.S.
government are investigating a variety of alternatives to reform the health
care delivery system and further reduce and control health care spending. These
reform efforts include proposals to limit spending on health care items and
services, limit coverage for new technology and limit or control the price
health care providers and drug and device manufacturers may charge for their
services and products, respectively. If adopted and implemented, such reforms
could have a material adverse effect on the Company's business, financial
condition, cash flows and results of operations.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Uncertain Ability to Protect Patents and Proprietary Technology and
Information. The Company's ability to compete effectively in the medical
products industry will depend on its success in protecting its proprietary
technology, both in the United States and abroad. The patent positions of
medical products companies generally involve complex legal and factual
questions. The Company's proprietary products and technology are covered by
eight U.S. patents owned by the Company, and additional applications pending
with the United States Patent and Trademark Office ("PTO"). The Company has
filed, and intends to continue to file, patent applications in certain foreign
jurisdictions covering the patent claims that are the subject of U.S. patents
and patent applications. There can be no assurance that the PTO or foreign
jurisdictions will grant the Company's pending patent applications or that the
Company will obtain any patents or other protection for which it has applied.
There can be no assurance that patents issued to or licensed by or to the
Company will not be challenged, invalidated or circumvented, or that the rights
granted thereunder will provide any competitive advantage. The Company could
incur substantial costs in defending any patent infringement suits or in
asserting any patent rights, including those granted by third parties.
Although the Company has entered into confidentiality and invention
agreements with its employees and consultants, there can be no assurance that
such agreements will be honored or that the Company will be able to protect its
rights to its unpatented trade secrets and know-how effectively. Moreover,
there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets and know-how. In addition, the
Company may be required to obtain licenses to patents or other proprietary
rights from third parties. There can be no assurance that any licenses required
under any patents or proprietary rights would be made available on acceptable
terms, if at all. If the Company does not obtain required licenses, it could
encounter delays in product development or find that the development,
manufacture or sale of products requiring such licenses could be foreclosed.
Additionally, the Company may, from time to time, support and collaborate in
research conducted by universities and governmental research organizations.
There can be no assurance that the Company will have or be able to acquire
exclusive rights to the inventions or technical information derived from such
collaborations or that disputes will not arise with respect to rights in
derivative or related research programs conducted by the Company or such
collaborators.
Uncertain Ability to Meet Capital Needs. The Company will require
substantial additional funds for its research and development programs,
preclinical and clinical testing, operating expenses, regulatory processes and
manufacturing and marketing programs. The Company's future capital requirements
will depend on many factors, including the following: the progress of its
research and development projects; the progress of preclinical and clinical
testing; the time and cost involved in obtaining regulatory approvals; the cost
of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights; competing technological and market developments;
changes and developments in the Company's existing collaborative, licensing and
other relationships and the terms of any new collaborative, licensing and other
arrangements that the Company may establish; and the development of
commercialization activities and arrangements. Moreover, the Company's fixed
commitments, including salaries and fees for current employees and consultants,
rent, payments under license agreements and other contractual commitments are
substantial and are likely to increase as additional agreements are entered
into and additional personnel are retained. The Company does not expect to
generate a positive internal cash flow for at least several years due to
expected increases in capital expenditures, working capital needs and ongoing
losses, including the expected cost of commercializing the ALEXA 1000 System.
However, the Company's cash requirements may vary materially from those now
planned due to the progress of research and development programs, results of
clinical testing, relationships with strategic partners, if any, changes in the
focus and direction of the Company's research and development programs,
competitive and technological advances, the FDA and foreign regulatory
processes and other factors.
The Company may need additional capital to fund its future operations
through public or private financings or collaborative licensing or other
arrangements with corporate partners. If additional funds are raised by issuing
equity securities, further dilution to existing stockholders will result and
future investors may be granted rights superior to those of existing
stockholders. There can be no assurance, however, that additional financing
will be available when needed, or if available, will be available on acceptable
terms. Insufficient funds may prevent the Company from implementing its
business strategy or may require the Company to delay, scale back or eliminate
certain of its research and product development programs or to license to third
parties rights to commercialize products or technologies that the Company would
otherwise seek to develop itself.
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<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Dependence on Qualified Personnel. Due to the specialized scientific
nature of the Company's business, the Company is highly dependent upon its
ability to attract and retain qualified scientific, technical and managerial
personnel. The loss of the services of existing personnel as well as the
failure to recruit key scientific, technical and managerial personnel in a
timely manner would be detrimental to the Company's research and development
programs and to its business. The Company's anticipated growth and expansion
into areas and activities requiring additional expertise, such as marketing,
will require the addition of new management personnel. Competition for
qualified personnel is intense and there can be no assurance that the Company
will be able to continue to attract and retain qualified personnel necessary
for the development of its business.
Potential Product Liability. The Company's business exposes it to
potential product liability risks which are inherent in the testing,
manufacturing and marketing of cancer detection products. Significant
litigation, not involving the Company, has occurred in the past based on
allegations of false negative diagnoses of cancer. While the ALEXA 1000 System
does not purport to diagnose any patient, there can be no assurance that the
Company will not be subjected to future claims and potential liability. While
the Company maintains insurance against product liability and defense costs,
there can be no assurance that claims against the Company arising with respect
to its products will be successfully defended or that the insurance carried by
the Company will be sufficient to cover liabilities arising from such claims. A
successful claim against the Company in excess of the Company's insurance
coverage could have a material adverse effect on the Company. Furthermore,
there can be no assurance that the Company will be able to continue to obtain
or maintain product liability insurance on acceptable terms.
Potential for Environmental Liability. A portion of the Company's
manufacturing processes involves the controlled use of potentially hazardous
materials. The Company may in the future become subject to stringent federal,
state and local laws, rules, regulations and policies governing the use,
generation, manufacture, storage, air emission, effluent discharge, handling
and disposal of such materials. There can be no assurance that the Company will
not incur significant future costs to comply with environmental laws, rules,
regulations and policies, or that the business, financial position, cash flows
or results of operations of the Company will not be materially and adversely
affected by current or future environmental laws, rules, regulations and
policies or by any releases or discharges of hazardous materials.
Availability of Preferred Stock for Issuance. In addition to its
authorized shares of Common Stock, the Company's Fourth Amended and Restated
Certificate of Incorporation, as amended, authorizes the issuance of up to
2,000,000 shares of preferred stock. The Board of Directors of the Company may
at any time determine to issue shares of preferred stock with the rights and
preferences to be set by the Board of Directors in its sole discretion. The
rights and preferences of any such preferred stock may be superior to those of
the Common Stock and thus may adversely affect the rights of the holders of
Common Stock.
Possible Volatility of Stock Price. The trading price of the Company's
Common Stock could be subject to significant fluctuations in response to
variations in quarterly operating results, announcements of regulatory
developments and collaborative arrangements or new products by the Company or
its competitors, changes in earning estimates by analysts, general conditions
in the medical device industry, and other events or factors. In addition, the
stock market in general has experienced extreme price and volume fluctuations
that have affected the market price for many companies in industries similar or
related to that of the Company and that have been unrelated to the operating
performance of these companies. These market fluctuations may adversely affect
the market price of the Company's Common Stock.
Possible Anti-Takeover Effects of Delaware Law. The Company is subject to
the provisions of Section 203 of the General Corporation Law of the State of
Delaware. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person becomes an interested stockholder, unless the business
combination is approved in a prescribed manner or unless the interested
stockholder acquires at least 85% of the corporation's voting stock (excluding
shares held by certain designated stockholders) in the transaction in which it
becomes an interested stockholder. A "business combination" includes mergers,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within the previous three years did own, 15% or more of the corporation's
voting stock. This provision of the Delaware law could delay and make more
difficult a business combination even if the business combination would be
beneficial, in the short term, to the interests of the Company's stockholders
and also could limit the price certain investors might be willing to pay in the
future for shares of Common Stock.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
No Dividends. The Company has never declared or paid any cash dividends
on its capital stock and does not intend to pay any cash dividends in the
foreseeable future. The Company currently anticipates that it will retain all
its earnings for use in the operation and expansion of its business and,
therefore, does not anticipate that it will pay any cash dividends in the
foreseeable future.
18
<PAGE> 19
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits Exhibit 27. Financial Data Schedule
(for SEC use only).
b. Reports on Form 8-K The Company filed a report on Form 8-K,
dated February 27, 1997, under Item 5.
Other Events. The Company filed a report
on Form 8-K, dated March 17, 1997, under
Item 5. Other Events. There were no
financial statements filed in conjunction
with such reports filed on Form 8-K.
19
<PAGE> 20
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOFIELD CORP.
May 12, 1997 /s/ D. CARL LONG
-------------------------------------
By: D. Carl Long
President, Chief Executive Officer
and Vice Chairman of the Board
(Principal Executive Officer)
May 12, 1997 /s/ TIMOTHY G. ROCHE
-------------------------------------
By: Timothy G. Roche
Director of Finance and
Corporate Controller
(Principal Financial Officer)
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1997 (UNAUDITED) AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENNTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,062,910
<SECURITIES> 3,497,625
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,906,482
<PP&E> 624,055<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,175,126
<CURRENT-LIABILITIES> 1,429,211
<BONDS> 0
0
0
<COMMON> 6,493
<OTHER-SE> 11,739,422
<TOTAL-LIABILITY-AND-EQUITY> 13,175,126
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,777,085
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,415
<INCOME-PRETAX> (2,607,872)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,607,872)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,607,872)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
<FN>
<F1>PROPERTY, PLANT AND EQUIPMENT IS REPORTED NET OF ACCUMULATED DEPRECIATION OF
$1,094,090.
</FN>
</TABLE>
