<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 September 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 September 30, 1997 was 6,518,300 shares.
<PAGE> 2
BIOFIELD CORP.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
Part I FINANCIAL INFORMATION PAGE NO.
- ---------------------------- --------
<S> <C> <C>
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996......................... 3
Consolidated Statements of Operations for the three month
and nine month periods ended September 30, 1997 and 1996
and for the period October 16, 1987
(Date of Inception) through September 30, 1997..................................................... 4
Consolidated Statements of Stockholders' Equity for the period October 16, 1987
(Date of Inception) through September 30, 1997..................................................... 5-6
Consolidated Statements of Cash Flows for the nine month
periods ended September 30, 1997 and 1996 and for the period October 16, 1987
(Date of Inception) through September 30, 1997..................................................... 7-8
Notes to Consolidated Financial Statements......................................................... 9-10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................................... 11-19
Part II OTHER INFORMATION
- -------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................... 20
Signatures..................................................................................................... 21
</TABLE>
<PAGE> 3
Part I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 5,122,640 $ 7,369,973
Short-term investments ....................................... 1,499,854 6,569,406
Other current assets ......................................... 633,340 319,370
------------ ------------
Total current assets .................................... 7,255,834 14,258,749
PROPERTY AND EQUIPMENT - Net ........................................ 519,609 604,246
OTHER ASSETS ........................................................ 104,815 124,361
PATENT AND PATENT APPLICATION COSTS - Net ........................... 564,867 498,837
------------ ------------
TOTAL ............................................................... $ 8,445,125 $ 15,486,193
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................. $ 234,308 $ 450,917
Due to affiliate ............................................. 245,994 --
Accrued expenses ............................................. 994,587 909,741
Capitalized lease obligations ................................ 10,801 29,249
------------ ------------
Total current liabilities ............................... 1,485,690 1,389,907
CAPITALIZED LEASE OBLIGATIONS ....................................... -- 4,399
------------ ------------
Total liabilities ....................................... 1,485,690 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 6,518,300 and 6,433,095 shares, respectively 6,518 6,433
Additional paid-in capital ................................... 49,843,621 49,454,334
Accumulated deficit during development stage ................. (42,888,641) (35,368,880)
Foreign currency translation adjustment ...................... (2,063) --
------------ ------------
Total stockholders' equity ................................... 6,959,435 14,091,887
------------ ------------
TOTAL ............................................................... $ 8,445,125 $ 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 Nine-Month Nine-Month 1987 (Date of
Period Ended Period Ended Period Ended Period Ended Inception) through
September 30, September 30, September 30, September 30, September 30,
1997 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
Research and development .......... $ 1,624,582 $ 1,768,452 $ 5,253,491 $ 5,703,925 $ 30,960,177
Selling, general and
administrative................. 794,604 921,347 2,688,697 2,378,024 13,386,878
------------ ------------ ------------ ------------ ------------
Total operating expenses ...... 2,419,186 2,689,799 7,942,188 8,081,949 44,347,055
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES):
Interest income ................... 111,355 248,669 425,653 623,592 1,905,681
Interest expense .................. (731) (2,041) (3,226) (6,991) (447,267)
------------ ------------ ------------ ------------ ------------
Net other income .............. 110,624 246,628 422,427 616,601 1,458,414
------------ ------------ ------------ ------------ ------------
NET LOSS ............................... $ (2,308,562) $ (2,443,171) $ (7,519,761) $ (7,465,348) $(42,888,641)
============ ============ ============ ============ ============
NET LOSS PER COMMON AND
COMMON EQUIVALENT SHARE:
Primary ........................... $ (.36) $ (.38) $ (1.16) $ (1.49)
============ ============ ============ ============
Fully-diluted ..................... $ (.36) $ (.38) $ (1.16) $ (1.26)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING:
Primary ........................... 6,500,365 6,432,292 6,488,627 5,013,059
============ ============ ============ ============
Fully-diluted ..................... 6,500,365 6,432,292 6,488,627 5,913,682
============ ============ ============ ============
</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 SEPTEMBER 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 SEPTEMBER 30, 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) ......... -- -- -- -- -- --
Issuance of stock as consideration for
consulting services rendered
($4.00 per share, net) (unaudited) .. -- -- -- -- -- --
Amortization of deferred compensation
(unaudited) ......................... -- -- -- -- -- --
Net loss (unaudited) ..................... -- -- -- -- -- --
Change in foreign currency translation
adjustment (unaudited) .............. -- -- -- -- -- --
---------- ------ -------- ---- ---------- ------
BALANCE AT SEPTEMBER 30, 1997
(unaudited) ......................... -- $ -- -- $ -- -- $ --
========== ====== ======== ==== ========== ======
<CAPTION>
Additional Foreign Currency
Common Stock 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
Issuance of stock as consideration for
consulting services rendered
($4.00 per share, net) (unaudited) .. 25,000 25 99,975 -- -- -- 100,000
Amortization of deferred compensation
(unaudited) ......................... -- -- 27,472 -- -- -- 27,472
Net loss (unaudited) ..................... -- -- -- (7,519,761) -- -- (7,519,761)
Change in foreign currency translation
adjustment (unaudited) .............. -- -- -- -- (2,063) -- (2,063)
--------- ------ ----------- ------------ ------- --- ------------
BALANCE AT SEPTEMBER 30, 1997
(unaudited) ......................... 6,518,300 $6,518 $49,843,621 $(42,888,641) $(2,063) $-- $ 6,959,435
========= ====== =========== ============ ======= === ============
</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,
Nine-Month Nine-Month 1987 (Date of
Period Ended Period Ended Inception) through
September 30, September 30, September 30,
1997 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss .......................................................... $ (7,519,761) $ (7,465,348) $(42,888,641)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ................................. 315,465 454,225 1,992,855
Amortization of investment premiums / (discounts) ............. 43,873 45,770 108,657
Loss on disposal of property and equipment .................... -- -- 42,713
Loss on license and settlement agreement ...................... -- -- 49,026
Noncash compensation .......................................... 127,472 26,093 2,558,951
Interest paid in Common Stock ................................. -- -- 297,148
Changes in assets and liabilities:
Other current assets ..................................... (313,953) (316,982) (633,323)
Other assets ............................................. 9,856 (6,299) (117,735)
Due to affiliate ......................................... 245,994 310,934 245,994
Contractual settlement ................................... -- (651,267) --
Accounts payable and accrued expenses .................... (131,989) 569,033 1,116,237
------------ ------------ ------------
Net cash used in operating activities ................ (7,223,043) (7,033,841) (37,228,118)
------------ ------------ ------------
INVESTING ACTIVITIES:
Acquisition of property and equipment ............................. (208,692) (238,674) (2,338,484)
Costs incurred for patents and patent applications ................ (78,099) (106,501) (626,041)
Proceeds from sale of property and equipment ...................... -- -- 3,418
Purchase of short-term investments ................................ (1,488,880) (10,086,920) (16,343,070)
Proceeds from sales of short-term investments ..................... 6,514,559 6,000,000 14,734,559
------------ ------------ ------------
Net cash provided by / (used in) investing activities 4,738,888 (4,432,095) (4,569,618)
------------ ------------ ------------
FINANCING ACTIVITIES:
Repayments of capitalized lease obligations ....................... (22,847) (19,664) (71,433)
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 18,708 282,860
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 ............ 239,053 18,027,282 46,922,607
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS ................................. (2,231) -- (2,231)
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS ....................................................... (2,245,102) 6,561,346 5,124,871
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ......................... 7,369,973 3,271,341 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................... $ 5,122,640 $ 9,832,687 $ 5,122,640
============ ============ ============
</TABLE>
(Continued)
7
<PAGE> 8
BIOFIELD CORP.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period October 16,
Nine-Month Nine-Month 1987 (Date of
Period Ended Period Ended Inception) through
September 30, 1997 September 30, 1996 September 30, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest ................. $3,226 $6,991 $ 59,111
====== ====== ==========
SUPPLEMENTAL SCHEDULE FOR NONCASH INVESTING
AND FINANCING ACTIVITIES:
Acquisition of property and equipment under
capitalized lease transactions ...................... $ -- $ -- $ 82,234
====== ====== ==========
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 September 30, 1997
and the related consolidated statements of operations, stockholders'
equity and cash flows for the three and/or nine month periods ended
September 30, 1997 and 1996 and for the period October 16, 1987 (date
of inception) through September 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 September 30, 1997 and 1996 and for the
period October 16, 1987 (date of inception) through September 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 nine month periods ended September 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 nine months ended September 30
and the current three months ended September 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 nine months of 1997 - nine months ended September 30, 1997
First nine months of 1996 - nine months ended September 30, 1996
Third Quarter of 1997 - three months ended September 30, 1997
Third Quarter of 1996 - three months ended September 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 nine months 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 nine
months 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. Third 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.
9
<PAGE> 10
BIOFIELD CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
7. SUBSEQUENT EVENT - In October 1997, the Company announced that it is
considering issuing shares of Common Stock in a private placement (the
"Offering") intended to yield gross proceeds to the Company of $7
million to $15 million. The Common Stock offered will not be registered
under the Securities Act of 1933, as amended (the "Securities Act") and
may not be offered or sold in the United States absent registration or
an applicable exemption from registration requirements. The Offering is
being made only to accredited investors in reliance upon an exemption
under the Securities Act. Following the closing of the Offering, the
Company intends to file a registration statement on Form S-3 covering
resales of such shares of Common Stock issued pursuant to the Offering.
Concurrent with, and subject to the completion of the Offering, the
Company plans to exchange certain outstanding warrants issued in
connection with the Company's 1995 private placement of securities
units. In the aggregate, warrants to purchase up to 1,785,994 shares of
Common Stock will be exchangeable for up to an aggregate of 730,651
shares of Common Stock.
Certain affiliates of The Goldman Sachs Group, L.P. (the "GS Parties")
hold an aggregate of 1,089,329 of such warrants, which will be
exchangeable for approximately 445,000 shares of Common Stock if the
warrant exchange is consummated. In connection with the warrant
exchange, the GS Parties have committed to invest between $1 million
and $2 million in the Offering based upon the aggregate amount invested
in the Offering by other investors.
The net proceeds from the Offering will be used for funding clinical
trials, research and development, manufacturing, European sales and
marketing and general corporate purposes. There can be no assurance
that the Offering will be consummated.
10
<PAGE> 11
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 noninvasive
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 intended to provide physicians and patients
with immediate and objective information concerning the probability that a
lesion, which has been identified by breast cancer screening or with other
diagnostic modalities, is malignant or benign. Such information, together with
other available clinical information, can be used by the physician to make
further treatment decisions, including whether to proceed to surgical biopsy.
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.
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") premarket approval is received. On
December 30, 1996, the Company submitted a premarket 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 to or resubmission of the PMA for the Biofield
Diagnostic System. Discussions with the FDA aimed at establishing the design and
protocol for the proposed additional clinical trial are ongoing. The clinical
trial design and 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. The Company recently recruited
a Chief Operating Officer, a new Vice President of Research and Development and
a new Vice President of Regulatory and Clinical Affairs and Quality Assurance.
The Company currently anticipates starting the enrollment phase of an additional
clinical trial in support of an amendment to or resubmission of the PMA during
the first half of 1998. The enrollment phase of the clinical trial is expected
to take several months or longer, followed by data analysis. The PMA, if and
when accepted for filing by the FDA, will be reviewed under the FDA's Expedited
Review policy. See "Risk Factors -- Uncertainty of FDA Approval for the Biofield
Diagnostic System" and "--Government Regulation; No Assurance of Regulatory
Approvals."
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 European
product launch of the Biofield Diagnostic System during 1998. 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 September 30, 1997 of approximately $43 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 premarket
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 premarket approval process
for the Biofield Diagnostic System, and 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 $5,253,000 for the nine
months ended September 30, 1997, compared to $5,704,000 for the nine months
ended September 30, 1996. This decrease is primarily attributable to a decrease
in expenses incurred for product engineering services related to the Biofield
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Diagnostic System and clinical development activities. The decrease in research
and development expenses during the first nine months of 1997, as discussed
above, were partially offset by increases in recruiting and relocation expenses
related to the hiring of several new employees of the Company including a Chief
Operating Officer, a Vice President of Research and Development and a Vice
President of Regulatory and Clinical Affairs in August 1997, consulting services
for preclinical research and product development activities.
Research and development expenses decreased by 8% to $1,625,000 for
the three months ended September 30, 1997, compared to $1,769,000 for the three
months ended September 30, 1996. This decrease is primarily attributable to a
decrease in expenses incurred for product engineering services related to the
Biofield Diagnostic System and clinical development activities. The decrease in
research and development expenses during the third quarter of 1997, as discussed
above, were partially offset by increases in recruiting and relocation expenses
related to the hiring of several new employees of the Company including a Chief
Operating Officer, a Vice President of Research and Development and a Vice
President of Regulatory and Clinical Affairs in August 1997, consulting services
for preclinical research and product development activities.
Selling, general and administrative expenses increased by 13% to
$2,689,000 for the nine months ended September 30, 1997, compared to $2,378,000
for the nine months ended September 30, 1996. This increase was primarily
attributable to an increase in 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 decreased by 14% to
$795,000 for the three months ended September 30, 1997, compared to $921,000 for
the three months ended September 30, 1996. This decrease was primarily
attributable to a decrease in expenses incurred for compensation and recruiting
and relocation expenses associated with the Company's former President and Chief
Executive Officer and former U.S. sales and marketing employees.
The Company's interest income decreased by 32% to $426,000 for the
nine months ended September 30, 1997, compared to $624,000 for the nine months
ended September 30, 1996. Interest income decreased by 55% to $111,000 for the
three months ended September 30, 1997, compared to $249,000 for the three months
ended September 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 1% to $7,520,000
for the nine months ended September 30, 1997, compared to $7,465,000 for the
nine months ended September 30, 1996 and during the three months ended September
30, 1997, net loss decreased by 5% to $2,309,000, compared to $2,443,000 for the
three months ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had total cash, cash
equivalents and short-term investments of $6.6 million, of which $5.9 million
was invested in investment grade corporate obligations, money market funds and
shares of liquid (auction-market) preferred stock and bonds.
As of September 30, 1997, the Company had working capital of $5.8
million compared to $12.9 million at December 31, 1996. The decrease in working
capital was the result of approximately $7.1 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 premarket 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 nine months of 1997 were
approximately $209,000, compared to $239,000 for the first nine months of 1996.
Capital expenditures consist primarily of manufacturing equipment and computer
equipment.
During the first nine months of 1997, there were no changes in the
Company's existing debt agreements, and the Company had no outstanding bank
loans as of September 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 the first calendar quarter 1998. In
October, 1997, the Company announced that it is considering issuing shares of
Common Stock in a private placement (the "Offering") intended to yield gross
proceeds to the Company of $7 million to $15 million. The Company believes that
the proceeds from the Offering, together with its current funds, should be
adequate to satisfy its operating expenses and capital requirements until the
end of the calendar year 1998 (assuming aggregate gross proceeds of $7 million),
and until the end of the second calendar quarter 1999 (assuming aggregate gross
proceeds of $15 million), depending on the amount raised and other factors. See
Note 7 of Notes to Consolidated Financial Statements. However, the Company's
future capital requirements will depend on many factors, including
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 the Offering will be consummated or 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 FDA 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 before further consideration of such PMA. Specifically,
the FDA has not accepted the findings from the Company's U.S. Multi-center Study
as submitted in the PMA. The FDA stated that it had concerns about 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 first
select a final algorithm and then test it with an independent data set. Further,
the FDA stated that the design of the clinical trial must provide data that
supports the indications for use of the Biofield Diagnostic System which should
include the impact on patient management.
The initial PMA for the Biofield Diagnostic System was based
principally upon the results of the Company's U.S. Multi-center Study, which
results have not been accepted by the FDA based upon its initial review of the
PMA. The PMA as submitted to the FDA included data from clinical trials on over
1,200 women tested at six medical institutions under the direction of physicians
involved in breast cancer diagnosis and treatment. Subsequent to the FDA's
initial review, the Company has been in discussions with the FDA regarding the
design and protocol for an additional clinical trial in support of an amendment
to or resubmission of the PMA. Discussions with the FDA aimed at establishing
the design and 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 to or resubmission of the PMA during
the first half of 1998. The timing of patient enrollment in the additional
clinical trial will depend upon development of a clinical trial design and
protocol acceptable to the Company and the FDA, and the Company's receipt of
approval to conduct the additional clinical trial from the Institutional Review
Boards of the proposed study sites. The enrollment phase of the clinical trial
is expected to take several months or longer, followed by data analysis. The
time necessary to complete the additional clinical trial will depend upon
numerous factors, including the number of patients to be included in the study,
the criteria for inclusion of patients in the study, the ability to recruit and
enroll patients in the study and the time required to analyze the clinical
results. The PMA, if and when 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. 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 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.
See "Risk Factors -- Government Regulation; No Assurance of Regulatory
Approvals."
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 September 30, 1997, the
Company had an accumulated deficit of $42,888,641. 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
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
for at least the next several years due principally to the anticipated expenses
associated with the premarket 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.
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, electrical impedance 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
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<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 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 premarket 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, electrical
impedance 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 premarket 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, exports quotas or other trade restrictions
could have a material adverse effect on the Company's business, financial
condition,
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 Regulations; 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
premarket clearance or approval requirements. Securing FDA clearances and
approvals may require the submission of extensive clinical data and supporting
information to the FDA. To obtain FDA approval of an application for premarket
approval, the premarket approval application must demonstrate that the subject
device has clinical utility, meaning that the device has a beneficial
therapeutic effect, or that as a diagnostic tool, it provides information that
measurably contributes to a diagnosis of a disease or condition. 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 PMA. The Company, therefore, plans to submit data
from additional clinical testing in connection with any amendment to or
resubmission of the PMA. The timing of patient enrollment in the additional
clinical trial will depend upon development of a clinical trial design and
protocol acceptable to the Company and the FDA, and the Company's receipt of
approval to conduct the additional clinical trial from the Institutional Review
Boards of the proposed study sites. As a result of this additional testing, 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 premarket approval is obtained at all. Following the filing of an
amendment to or resubmission of the PMA for the Biofield Diagnostic System, the
FDA may require more information or clarification of information already
provided as part of the PMA. During the review period, an advisory panel will
likely be convened by the FDA to review and evaluate the PMA and provide
recommendations to the FDA as to whether the PMA should be approved. 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. Furthermore, an approval, if granted ,
may include significant limitations on the indicated uses for which the Biofield
Diagnostic System may be marketed. 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 premarket clearance
or approval for devices, withdrawal of approvals and criminal prosection.
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.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
There can be no assurance that the Company will be able to obtain,
on a timely basis, or at all, FDA approval of the 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.
Limitations 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 prices
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
nine 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
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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.
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 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,
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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.
Possible Volatility of Stock Price. The price of the Company's Common
Stock has fluctuated substantially since its initial public offering on March
19, 1996. See "Market Price for Common Stock." The market price of the shares
of the Common Stock, like that of the common stock of many other medical device
companies, is likely to continue to be highly volatile. Factors such as the
timing and results of clinical trials by the Company or its competitors,
governmental regulation, healthcare legislation, developments in patent or other
proprietary rights of the Company or its competitors, including litigation,
fluctuations in the Company's operating results, and market conditions for
medical device company stocks and life science stocks in general, could have a
significant impact on the future price of Common Stock.
19
<PAGE> 20
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 did not file any
reports on Form 8-K during the
quarter for which this report is
filed.
20
<PAGE> 21
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.
/s/ D. CARL LONG
----------------------------------
Date: November 14, 1997 By: D. Carl Long
President, Chief Executive Officer
and Vice Chairman of the Board
(Principal Executive Officer)
/s/ TIMOTHY G. ROCHE
----------------------------------
Date: November 14, 1997 By: Timothy G. Roche
Vice President, Finance
(Principal Financial Officer)
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1997 (UNAUDITED) AND THE
CONSOLIDATED STATEMENT OF OPERATIONS OF BIOFIELD CORPORATION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,122,640
<SECURITIES> 1,499,854
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,255,834
<PP&E> 519,609<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,445,125
<CURRENT-LIABILITIES> 1,485,690
<BONDS> 0
0
0
<COMMON> 6,518
<OTHER-SE> 6,952,917
<TOTAL-LIABILITY-AND-EQUITY> 8,445,125
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,942,188
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,226
<INCOME-PRETAX> (7,519,761)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,519,761)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,519,761)
<EPS-PRIMARY> (1.16)
<EPS-DILUTED> (1.16)
<FN>
<F1>PROPERTY, PLANT AND EQUIPMENT IS REPORTED NET OF ACCUMULATED DEPRECIATION OF
$1,278,913.
</FN>
</TABLE>
