<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 June 30, 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 June 30, 1997 was 6,493,300 shares.
<PAGE> 2
BIOFIELD CORP.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
INDEX
<TABLE>
<CAPTION>
Part I FINANCIAL INFORMATION
PAGE NO.
--------
<S> <C>
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996 . . . . 3
Consolidated Statements of Operations for the three month and six month
periods ended June 30, 1997 and 1996 and for the period October 16, 1987
(Date of Inception) through June 30, 1997 . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Stockholders' Equity for the period October 16, 1987
(Date of Inception) through June 30, 1997 . . . . . . . . . . . . . . . . . . 5-6
Consolidated Statements of Cash Flows for the six month periods ended June 30, 1997
and 1996 and for the period October 16, 1987 (Date of Inception) through June
30, 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 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS . . . . . . . . . . . . . . . 19
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>
June 30, 1997 December 31, 1996
------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 7,464,989 $ 7,369,973
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . 1,990,525 6,569,406
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 238,504 319,370
---------------- -----------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 9,694,018 14,258,749
PROPERTY AND EQUIPMENT - Net . . . . . . . . . . . . . . . . . . . . . . . . 587,968 604,246
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,045 124,361
PATENT AND PATENT APPLICATION COSTS - Net . . . . . . . . . . . . . . . . . . 517,068 498,837
---------------- -----------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,907,099 $ 15,486,193
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 309,927 $ 450,917
Due to affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000 --
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,329,393 909,741
Capitalized lease obligations . . . . . . . . . . . . . . . . . . . . . . 18,372 29,249
---------------- -----------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 1,747,692 1,389,907
CAPITALIZED LEASE OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . -- 4,399
---------------- -----------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,747,692 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 . . . . . . . . . . . . . . . . . . . . . . . 49,731,904 49,454,334
Accumulated deficit during development stage . . . . . . . . . . . . . . (40,580,079) (35,368,880)
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . 1,089 --
---------------- -----------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 9,159,407 14,091,887
---------------- -----------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,907,099 $ 15,486,193
================ =================
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
BIOFIELD CORP.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Period October 16,
Three-Month Three-Month Six-Month Six-Month 1987 (Date of
Period Ended Period Ended Period Ended Period Ended Inception) through
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996 June 30, 1997
------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
Research and development . . . . . $ 1,774,662 $ 2,110,538 $ 3,628,909 $ 3,935,473 $ 29,335,595
Selling, general and administrative 971,255 842,266 1,894,093 1,456,677 12,592,274
------------ ------------ ------------- ------------ ------------
Total operating expenses . . . . 2,745,917 2,952,804 5,523,002 5,392,150 41,927,869
------------ ------------ ------------- ------------ ------------
OTHER INCOME (EXPENSES):
Interest income . . . . . . . . . 143,670 279,726 314,298 374,923 1,794,326
Interest expense . . . . . . . . . (1,080) (2,335) (2,495) (4,950) (446,536)
------------ ------------ ------------- ------------ ------------
Net other income . . . . . . . . 142,590 277,391 311,803 369,973 1,347,790
------------ ------------ ------------- ------------ ------------
NET LOSS . . . . . . . . . . . . . $ (2,603,327) $ (2,675,413) $ (5,211,199) $ (5,022,177) $(40,580,079)
============ ============ ============= ============ ============
NET LOSS PER COMMON AND
COMMON EQUIVALENT SHARE:
Primary . . . . . . . . . . . . . $ (.40) $ (.42) $ (.80) $ (1.16)
============ ============ ============= ============
Fully-diluted . . . . . . . . . . $ (.40) $ (.42) $ (.80) $ (.89)
============ ============ ============= ============
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING:
Primary . . . . . . . . . . . . . 6,493,300 6,431,082 6,482,661 4,345,862
============ ============ ============= ============
Fully-diluted . . . . . . . . . . 6,493,300 6,431,082 6,482,661 5,651,527
============ ============ ============= ============
</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 JUNE 30, 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 $1,564
---- ---- ---- ---- ------ ---- --------- ------
<CAPTION>
Additional Foreign Currency
Paid-In Accumulated Translation Treasury
Capital Deficit Adjustment Stock Total
------- ------- ---------- ----- -----
<S> <C> <C> <C> <C> <C>
Issuance of stock, October 16, 1987
(date of inception) ($.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 JUNE 30, 1997
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Stock Preferred Stock Preferred Units
---------------- ----------------- ----------------
Shares Amount Shares Amount Shares 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) ........ -- -- -- -- -- --
Amortization of deferred compensation
(unaudited) .......................... -- -- -- -- -- --
Net loss (unaudited) .................... -- -- -- -- -- --
---------- ------- --------- ---- ----------- -------
Change in foreign currency translation
adjustment (unaudited) ............... -- -- -- -- -- --
---------- ------- --------- ---- ----------- -------
BALANCE AT JUNE 30, 1997
(unaudited) .......................... -- $ -- -- $ -- -- $ --
========== ======= ========= ==== =========== =======
<CAPTION>
Common Stock Additional Foreign Currency
--------------- Paid-In Accumulated Translation Treasury
Shares Amount Capital Deficit Adjustment Stock Total
------ ------- ------- ----------- ---------- ----- -----
<S> <C> <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
Amortization of deferred compensation
(unaudited) .......................... -- -- 15,730 -- -- -- 15,730
Net loss (unaudited) .................... -- -- -- (5,211,199) -- -- (5,211,199)
Change in foreign currency translation
adjustment (unaudited) ............... -- -- -- -- 1,089 1,089
----------- -------- ----------- ------------ -------- -------- ------------
BALANCE AT JUNE 30, 1997
(unaudited) .......................... 6,493,300 $ 6,493 $49,731,904 $(40,580,079) $ 1,089 $ -- $ 9,159,407
=========== ======== =========== ============ ======== ======== ============
</TABLE>
See notes to consolidated financial statements (Concluded)
6
<PAGE> 7
BIOFIELD CORP.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period October 16,
Six-Month Six-Month 1987 (Date of
Period Ended Period Ended Inception) through
June 30, 1997 June 30, 1996 June 30, 1997
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . $(5,211,199) $(5,022,177) $(40,580,079)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 216,814 291,839 1,894,204
Amortization of investment premiums / (discounts) . . . . 44,139 25,143 108,923
Loss on disposal of property and equipment . . . . . . . . -- -- 42,713
Loss on license and settlement agreement . . . . . . . . . -- -- 49,026
Noncash compensation . . . . . . . . . . . . . . . . . . . 15,730 26,093 2,447,209
Interest paid in Common Stock . . . . . . . . . . . . . . -- -- 297,148
Changes in assets and liabilities:
Other current assets . . . . . . . . . . . . . . . . . . 80,852 (346,602) (238,518)
Other assets . . . . . . . . . . . . . . . . . . . . . . 9,856 -- (117,735)
Due to affiliate . . . . . . . . . . . . . . . . . . . . 90,000 163,147 90,000
Contractual settlement . . . . . . . . . . . . . . . . . -- (463,231) --
Accounts payable and accrued expenses . . . . . . . . . 278,983 605,908 1,527,209
----------- ----------- ------------
Net cash used in operating activities . . . . . . . . (4,474,825) (4,719,880) (34,479,900)
----------- ----------- ------------
INVESTING ACTIVITIES:
Acquisition of property and equipment . . . . . . . . . . . (186,023) (153,549) (2,315,815)
Costs incurred for patents and patent applications . . . . . (26,277) (64,873) (574,219)
Proceeds from sale of property and equipment . . . . . . . . -- -- 3,418
Purchase of short-term investments . . . . . . . . . . . . . (1,488,880) (7,588,120) (16,343,070)
Proceeds from sales of short-term investments . . . . . . . 6,023,622 3,000,000 14,243,622
----------- ----------- ------------
Net cash provided by/(used in) investing activities. . 4,322,442 (4,806,542) (4,986,064)
----------- ----------- ------------
FINANCING ACTIVITIES:
Repayments of capitalized lease obligations . . . . . . . . (15,276) (12,821) (63,862)
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 . . . . . . 246,624 18,015,417 46,930,178
----------- ----------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . 775 -- 775
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . 94,241 8,488,995 7,464,214
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . 7,369,973 3,271,341 --
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . $ 7,464,989 $11,760,336 $ 7,464,989
=========== =========== ============
(Continued)
</TABLE>
7
<PAGE> 8
BIOFIELD CORP.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period October 16,
Six-Month Six-Month 1987 (Date of
Period Ended Period Ended Inception) through
June 30, 1997 June 30, 1996 June 30, 1997
------------- ------------- -------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest . . . . . . . . . . . $ 2,495 $ 4,950 $ 58,380
============ =========== ===========
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
===========
(Concluded)
</TABLE>
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 June 30, 1997 and the
related consolidated statements of operations, stockholders' equity and
cash flows for the three and/or six month periods ended June 30, 1997 and
1996 and for the period October 16, 1987 (date of inception) through June
30, 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 June
30, 1997 and 1996 and for the period October 16, 1987 (date of inception)
through June 30, 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 half 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 and six month periods ended June 30, 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. FOREIGN CURRENCY TRANSLATION ADJUSTMENT - Assets and liabilities of the
Company's Branch are translated into U.S. dollars using the exchange rate
in effect at the balance sheet date. Results of operations are translated
using the average exchange rate prevailing throughout the period. The
effects of exchange rate fluctuations on translating foreign currency
assets and liabilities into U.S. dollars are included as part of the
Foreign Currency Translation Adjustment component of Stockholders' Equity,
while gains and losses resulting from foreign currency transactions are
included in net income.
5. DESCRIPTIVE ANALYSIS - The descriptive analysis contained herein compares
the financial results of the six months ended June 30 and the current three
months ended June 30, 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:
First half of 1997 - six months ended June 30, 1997
First half of 1996 - six months ended June 30, 1996
Second Quarter of 1997 - three months ended June 30, 1997
Second Quarter of 1996 - three months ended June 30, 1996
6. 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 half 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 half 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.
Second quarter of 1996 primary and fully-diluted net loss per common and
common equivalent share is computed based on the weighted average number of
common stock and common stock equivalent shares outstanding during the
period.
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 Biofield Diagnostic 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 Biofield Diagnostic 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 Biofield Diagnostic 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. Subsequently, the Company has been in discussions
with the FDA regarding the protocol for a proposed additional clinical trial in
support of an amendment or resubmission of the PMA for the Biofield Diagnostic
System. Discussions with the FDA aimed at establishing the protocol for the
proposed additional clinical trial are ongoing. The clinical trial protocol
may have a significant impact on the time required to complete the clinical
trial. Following these discussions with the FDA, the Company will evaluate its
options and finalize its plans for proceeding. In addition, during the past
several months, the Company has been in the process of restructuring and
augmenting its management team in the areas of Research and Development and
Regulatory and Clinical Affairs. In August of this year, the Company recruited
a new Vice President of Research and Development. The Company believes that
the position of Vice President of Regulatory and Clinical Affairs will be
filled in the near future. The Company currently anticipates starting the
enrollment phase of an additional clinical trial in support of an amendment or
resubmission of the PMA during the first half of 1998. The enrollment phase of
the clinical trial is expected to take several months, followed by data
analysis. The PMA, once accepted for filing by the FDA, will be reviewed under
the FDA's Expedited Review policy. The Company believes that the Biofield
Diagnostic 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
Biofield Diagnostic System."
The laws of certain European countries may permit the Company to begin
marketing the Biofield Diagnostic System in Europe before marketing would be
permitted in the United States. The Company currently anticipates a product
introduction in Europe during the fourth quarter of 1997. Revenues from any
such product introduction are not expected to be material during 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 June 30, 1997 of approximately $41 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 Biofield Diagnostic System, marketing and
manufacturing expenses associated with the anticipated commercialization of the
Biofield Diagnostic 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 Biofield Diagnostic 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 Biofield
Diagnostic System, which consists of the Biofield Diagnostic Device and
Biofield Diagnostic 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 decreased by 8% to $3,629,000
for the six months ended June 30, 1997, compared to $3,935,000 for the six
months ended June 30, 1996. This decrease was primarily attributable to a
decrease in expenses incurred for product engineering services related to the
Biofield Diagnostic System.
Research and development expenses decreased by 16% to $1,775,000 for the
three months ended June 30, 1997, compared to $2,111,000 for the three months
ended June 30, 1996. This decrease was primarily attributable to a decrease in
expenses incurred for product engineering services related to the Biofield
Diagnostic System.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Selling, general and administrative expenses increased by 30% to
$1,894,000 for the six months ended June 30, 1997, compared to $1,457,000 for
the six months ended June 30, 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, public/investor relations and additional
premiums for directors' and officers' liability insurance.
Selling, general and administrative expenses increased by 15% to $971,000
for the three months ended June 30, 1997, compared to $842,000 for the three
months ended June 30, 1996. This increase was primarily attributable to
expenses incurred in connection with the Company's European marketing
activities, public/investor relations and additional premiums for directors'
and officers' liability insurance.
The Company's interest income decreased by 16% to $314,000 for the six
months ended June 30, 1997, compared to $375,000 for the six months ended June
30, 1996. Interest income decreased by 49% to $144,000 for the three months
ended June 30, 1997, compared to $280,000 for the three months ended June 30,
1996. The decrease in interest income during 1997 was primarily due to lower
average invested cash, cash equivalent and short-term investment balances
compared to those of the previous periods.
As a result of the foregoing, net loss increased by 4% to $5,211,000 for
the six months ended June 30, 1997, compared to $5,022,000 for the six months
ended June 30, 1996 and during the three months ended June 30, 1997 net loss
decreased by 3% to $2,603,000, compared to $2,675,000 for the three months
ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had total cash, cash equivalents and
short-term investments of $9.5 million, of which $8.1 million was invested in
investment grade corporate obligations, money market funds and shares of liquid
(auction-market) preferred stock and bonds.
As of June 30, 1997, the Company had working capital of $7.9 million
compared to $12.9 million at December 31, 1996. The decrease in working
capital was the result of approximately $4.7 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 Biofield Diagnostic System,
research and development and the expected costs of commercializing the Biofield
Diagnostic System in Europe and, pending FDA approval, in the U.S.
Capital expenditures during the first half of 1997 were approximately
$186,000, compared to $154,000 for the first half of 1996. Capital
expenditures consist primarily of manufacturing equipment and computer
equipment.
During the first half of 1997, there were no changes in the Company's
existing debt agreements, and the Company had no outstanding bank loans as of
June 30, 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
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 Biofield Diagnostic System.
On December 30, 1996, the Company submitted its PMA to the FDA for the Biofield
Diagnostic 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 Biofield Diagnostic System should include the impact on patient management.
The Company's initial PMA for the Biofield Diagnostic System was 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. The PMA as submitted to the FDA included data from clinical
trials on over 1,200 women. Subsequent to the FDA's initial review, the
Company has been in discussions with the FDA regarding the protocol for an
additional clinical trial in support of an amendment or resubmission of the PMA
for the Biofield Diagnostic System. Discussions with the FDA aimed at
establishing the protocol for the additional clinical trial are ongoing. The
clinical trial protocol may have a significant impact on the time required to
complete the clinical trial. Following these discussions with the FDA, the
Company will evaluate its options and finalize its plans for proceeding. The
Company currently anticipates starting the enrollment phase of an additional
clinical trial in support of an amendment or resubmission of the PMA during the
first half of 1998. The enrollment phase of the clinical trial is expected to
take several months, followed by data analysis. The PMA, once accepted for
filing by the FDA, will be reviewed under the FDA's Expedited Review policy.
Conducting additional clinical trials will 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 additional
trials will be consistent with the results obtained in the U.S. Multi-center
Study or that any such results, or the Company's amended or resubmitted PMA,
will be accepted by the FDA. There can be no assurance that the FDA or other
regulatory approvals for the Biofield Diagnostic System will be granted on a
timely basis, or at all. Failure to obtain FDA approval to market the Biofield
Diagnostic 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 Biofield Diagnostic 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 June 30, 1997, the
Company had an accumulated deficit of $40,580,079. 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 Biofield Diagnostic System, the
proposed commercialization of the Biofield Diagnostic 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 Biofield Diagnostic 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 Biofield Diagnostic 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.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Early Stage of Product Development. The Company's proposed products, other
than the Biofield Diagnostic System, are at an early stage of development and
the Biofield Diagnostic 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 Biofield
Diagnostic System, there can be no assurance that the Company will be
successful in establishing commercial operations, including gaining market
acceptance of the Biofield Diagnostic 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 Biofield Diagnostic 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 Biofield Diagnostic 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 Biofield Diagnostic 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
Biofield Diagnostic System or any other products developed by the Company. The
extent that, and rate at which, the Biofield Diagnostic 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 Biofield Diagnostic
System, the advantages of the Biofield Diagnostic 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 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 Biofield
Diagnostic 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.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Dependence on Third Parties. The Company has used certain third parties
to manufacture and deliver the components of the Biofield Diagnostic 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 Biofield Diagnostic 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 Biofield Diagnostic 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 Biofield Diagnostic 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
Biofield Diagnostic 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 Biofield
Diagnostic System and may be developing, or could in the future attempt to
develop, additional products that are competitive with the Biofield Diagnostic
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 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 Biofield
Diagnostic System or any other products that the Company may develop.
Currently, mammography is employed widely and the Company's ability to sell the
Biofield Diagnostic System to medical facilities will, in part, be dependent on
the Company's ability to demonstrate the clinical utility of the Biofield
Diagnostic 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 Biofield Diagnostic 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 Biofield Diagnostic 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 Biofield
Diagnostic 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.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Government Regulation; No Assurance of Regulatory Approvals. The
manufacture and sale of medical devices, including the Biofield Diagnostic
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. The Company plans to submit data from additional
clinical testing in connection with any amendment or resubmission of the PMA.
As a result, the Company anticipates further delays, which may be significant,
in the approval process for the Biofield Diagnostic 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 Biofield Diagnostic System, there
can be no assurance that such status will result in timely approval of the
Biofield Diagnostic System, if at all. Failure to obtain FDA approval to market
the Biofield Diagnostic 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 Medical Devices Directive 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.
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 Biofield Diagnostic
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.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 Biofield Diagnostic 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
Biofield Diagnostic 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.
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 the subject of
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.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 Biofield Diagnostic
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 will 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.
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 Biofield
Diagnostic 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.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 earnings 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.
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 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Stockholders was held on
June 5, 1997. Three matters were submitted to a vote of
the Company's stockholders at the annual meeting. First,
the Company's directors, C. Leonard Gordon, D. Carl Long,
Richard J. Davies, M.D., Joseph H. Gleberman and Harvey
Horowitz, were each elected to a one-year term pursuant to
the following votes:
<TABLE>
<CAPTION>
For Withhold Authority to Vote
--- --------------------------
<S> <C> <C>
C. Leonard Gordon 5,260,288 41,254
D. Carl Long 5,260,288 41,254
Richard J. Davies, M.D. 5,260,288 41,254
Joseph H. Gleberman 5,259,282 42,254
Harvey Horowitz 5,260,182 41,354
</TABLE>
The other actions taken at the Company's 1997 Annual
Meeting of Stockholders were approved pursuant to the
following votes:
<TABLE>
<CAPTION>
For Against Abstain Non-Vote
--- ------- ------- --------
<S> <C> <C> <C> <C>
1. To ratify the selection of
Deloitte & Touche LLP,
as the Company's independent
public accountants for the
calendar year ended
December 31, 1997 5,289,844 1,275 10,423 --
2. To ratify an amendment
(i) increasing the number of
shares of Common Stock
authorized for issuance under
the Biofield Corp. 1996
Stock Option Plan (the "1996
Plan") from 500,000 to
1,000,000, and (ii) limiting
the aggregate number of
options which may be issued
under the 1996 Plan to any
individual participant within
any five year period during
the term of the 1996 Plan to
500,000 shares 3,826,606 186,147 254,838 1,033,951
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<S> <C>
a. Exhibits Exhibit 27. Financial Data Schedule (for SEC
use only).
b. Reports on Form 8-K The Company did not file any reports on Form 8-K
during the quarter for which this report is filed.
</TABLE>
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.
August 14, 1997 /s/ D. CARL LONG
- ---------------------- -----------------------------------
(Date) By: D. Carl Long
President, Chief Executive Officer
and Vice Chairman of the Board
(Principal Executive Officer)
August 14, 1997 /s/ TIMOTHY G. ROCHE
- ---------------------- -----------------------------------
(Date) 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 JUNE 30,1997 (UNAUDITED) AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,464,989
<SECURITIES> 1,990,525
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,694,018
<PP&E> 587,968<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,907,099
<CURRENT-LIABILITIES> 1,747,692
<BONDS> 0
0
0
<COMMON> 6,493
<OTHER-SE> 9,151,825
<TOTAL-LIABILITY-AND-EQUITY> 10,907,099
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,523,002
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,495
<INCOME-PRETAX> (5,211,199)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,211,199)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,211,199)
<EPS-PRIMARY> (.80)
<EPS-DILUTED> (.80)
<FN>
<F1>PROPERTY, PLANT AND EQUIPMENT IS REPORTED NET OF ACCUMULATED DEPRECIATION OF
$1,187,505.
</FN>
</TABLE>
