<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 1998
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 March 31, 1998 was 10,029,609 shares.
<PAGE> 2
BIOFIELD CORP.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Part I FINANCIAL INFORMATION
- ------ ---------------------
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997............ 3
Consolidated Statements of Operations for the three month periods
ended March 31, 1998 and 1997 and for the period October 16, 1987
(Date of Inception) through March 31, 1998........................................ 4
Consolidated Statements of Stockholders' Equity for the period October 16, 1987
(Date of Inception) through March 31, 1998........................................ 5-7
Consolidated Statements of Cash Flows for the three month periods
ended March 31, 1998 and 1997 and for the period October 16, 1987
(Date of Inception) through March 31, 1998........................................ 8-9
Notes to Consolidated Financial Statements........................................ 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................... 11-20
Part II OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................... 21
Signatures.................................................................................. 22
</TABLE>
<PAGE> 3
Part I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................................ $ 5,432,167 $ 8,768,699
Short-term investments ........................................... 4,160,301 3,829,261
Other current assets ............................................. 465,382 271,324
------------ ------------
Total current assets ........................................... 10,057,850 12,869,284
PROPERTY AND EQUIPMENT - Net ......................................... 473,248 503,118
OTHER ASSETS ......................................................... 98,355 101,585
PATENT AND PATENT APPLICATION COSTS - Net ............................ 637,720 628,634
------------ ------------
TOTAL ................................................................ $ 11,267,173 $ 14,102,621
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................. $ 590,212 $ 626,750
Due to affiliate ................................................. 50,681 179,815
Accrued expenses ................................................. 657,356 546,288
Capitalized lease obligations .................................... -- 2,658
------------ ------------
Total current liabilities ...................................... 1,298,249 1,355,511
------------ ------------
Total liabilities .............................................. 1,298,249 1,355,511
------------ ------------
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 10,029,609 shares .................................. 10,030 10,030
Additional paid-in capital ....................................... 58,279,490 58,255,667
Accumulated deficit during development stage ..................... (48,337,553) (45,519,920)
Foreign currency translation adjustment .......................... 16,957 1,333
------------ ------------
Total stockholders' equity ....................................... 9,968,924 12,747,110
------------ ------------
TOTAL ................................................................ $ 11,267,173 $ 14,102,621
============ ============
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Period October 16,
Three-Month Three-Month 1987 (Date of
Period Ended Period Ended Inception) through
March 31, 1998 March 31, 1997 March 31, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING EXPENSES:
Research and development .............. $ 1,958,941 $ 1,854,247 $ 34,745,687
Selling, general and administrative ... 1,016,659 922,838 15,280,237
------------ ------------ ------------
Total operating expenses .............. 2,975,600 2,777,085 50,025,924
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income ....................... 157,967 170,628 2,155,685
Interest expense ...................... -- (1,415) (447,565)
------------ ------------ ------------
Net other income ...................... 157,967 169,213 1,708,120
------------ ------------ ------------
LOSS BEFORE INCOME TAXES .................. (2,817,633) (2,607,872) (48,317,804)
PROVISION FOR INCOME TAXES ................ -- -- (19,749)
------------ ------------ ------------
NET LOSS .................................. $ (2,817,633) $ (2,607,872) $(48,337,553)
============ ============ ============
NET LOSS PER SHARE:
Basic and Diluted ..................... $ (0.28) $ (0.40)
============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING: .......................... 10,029,609 6,471,903
============ ============
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
OCTOBER 16, 1987 (DATE OF INCEPTION) THROUGH MARCH 31, 1998
- --------------------------------------------------------------------------------
<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
(brought forward)............... -- $ -- -- $ -- -- $ -- 1,564,828 $1,564
------ ------- ------- ------ ------- ------- --------- -------
<CAPTION>
Additional Foreign Currency
Paid-In Accumulated Translation Treasury
Capital Deficit Adjustment Stock Total
------- --------- ---------- ------- --------
<C> <C> <C> <C> <C> <C>
Issuance of stock, October 16, 1987
(date of inception) ($.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
(brought forward)............... $6,249,306 $(4,734,103) $ -- $ -- $ 1,516,767
---------- ----------- ------ ----- -----------
</TABLE>
(continued)
5
<PAGE> 6
BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
OCTOBER 16, 1987 (DATE OF INCEPTION) THROUGH MARCH 31, 1998
- --------------------------------------------------------------------------------
<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
(brought forward) .......................... -- $ -- -- $ -- -- $ --
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
Additional Foreign Currency
Common Stock Paid-In Accumulated Translation Treasury
Shares Amount Capital Deficit Adjustment Stock Total
---------- -------- ------------ ------------ ----------- ------- ------------
<C> <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
(brought forward) .......................... 6,433,095 $ 6,433 $ 49,454,334 $(35,368,880) $ -- $ -- $ 14,091,887
---------- -------- ------------ ------------ ------- -------- ------------
</TABLE>
(continued)
6
<PAGE> 7
BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
OCTOBER 16, 1987 (DATE OF INCEPTION) THROUGH MARCH 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Series B Series C Additional
Preferred Stock Preferred Stock Preferred Units Common Stock Paid-In
Shares Amount Shares Amount Units Amount Shares Amount Capital
-------- ------ ------ ------ ------ ------ ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996
(brought forward) ................. -- $ -- -- $ -- -- $ -- $6,433,095 $ 6,433 $ 49,454,334
Sale of stock in connection with
private placement
($2.92 per share, net) ............... -- -- -- -- -- -- 2,867,670 2,868 8,377,583
Warrants exchanged for Common Stock .. -- -- -- -- -- -- 643,639 644 (644)
Exercise of stock options ............ -- -- -- -- -- -- 50,674 50 168,541
Exercise of warrants ................. -- -- -- -- -- -- 9,531 10 93,299
Issuance of stock as consideration for
consulting services rendered
($4.00 per share, net) ............... -- -- -- -- -- -- 25,000 25 99,975
Amortization of deferred compensation -- -- -- -- -- -- -- -- 62,579
Net loss ............................. -- -- -- -- -- -- --
Change in foreign currency
translation adjustment ............... -- -- -- -- -- -- -- -- --
---- ------ ----- ----- ------ ----- ---------- -------- ------------
BALANCE AT DECEMBER 31,
1997 ................................. -- -- -- -- -- -- 10,029,609 10,030 58,255,667
Amortization of deferred compensation
(unaudited)........................... -- -- -- -- -- -- -- -- 23,823
Net loss (unaudited).................. -- -- -- -- -- -- -- -- --
Change in foreign currency
translation adjustment (Unaudited).... -- -- -- -- -- -- -- -- --
---- ------ ----- ----- ------ ----- ---------- -------- ------------
BALANCE AT MARCH 31,
1998 (unaudited)...................... -- $ -- -- $ -- -- $ -- $10,029,609 $ 10,030 $ 58,279,490
---- ------ ----- ----- ------ ----- ---------- -------- ------------
<CAPTION>
Foreign Currency
Accumulated Translation Treasury
Deficit Adjustment Stock Total
--------- ---------- ----- ------
<C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996
(brought forward) ................. $(35,368,880) $ -- $ -- $ 14,091,887
Sale of stock in connection with
private placement
($2.92 per share, net) ............... -- -- -- 8,380,451
Warrants exchanged for Common Stock .. -- -- -- --
Exercise of stock options ............ -- -- -- 168,591
Exercise of warrants ................. -- -- -- 93,309
Issuance of stock as consideration for
consulting services rendered
($4.00 per share, net) ............... -- -- -- 100,000
Amortization of deferred compensation
(Unaudited)........................... -- -- -- 62,579
Net loss ............................. (10,151,040) -- -- (10,151,040)
Change in foreign currency
translation adjustment ............... -- 1,333 -- 1,333
------------ -------- ------- ------------
BALANCE AT DECEMBER 31,
1997 ................................. (45,519,920) 1,333 -- $ 12,747,110
Amortization of deferred compensation
(unaudited)........................... -- -- -- 23,823
Net loss (unaudited) ................. (2,817,633) -- -- (2,817,633)
Change in foreign currency
translation adjustment (unaudited) ... -- 15,624 -- 15,624
------------ -------- ------- ------------
BALANCE AT MARCH 31,
1998 (unaudited) ..................... $(48,337,553) $ 16,957 $ -- $ 9,968,924
------------ -------- ------- ------------
</TABLE>
(concluded)
See notes to consolidated financial statements
7
<PAGE> 8
BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period October 16,
Three-Month Three-Month 1987 (Date of
Period Ended Period Ended Inception) through
March 31, 1998 March 31, 1997 March 31, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ............................................................. $ (2,817,633) $ (2,607,872) $(48,337,553)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ...................................... 88,094 116,146 2,178,583
Amortization of investment premiums / (discounts) .................. 12,104 16,796 121,196
Loss on disposal of property and equipment ......................... -- -- 42,713
Loss on license and settlement agreement ........................... -- -- 49,026
Noncash compensation ............................................... 23,823 -- 2,617,881
Interest paid in Common Stock ...................................... -- -- 297,148
Changes in assets and liabilities:
Other current assets ............................................. (194,201) (26,577) (465,541)
Other assets ..................................................... -- 1,356 (117,735)
Due to affiliate ................................................. (129,134) 126,050 50,681
Contractual settlement ........................................... -- -- --
Accounts payable and accrued expenses ............................ 75,588 (83,674) 1,136,304
------------ ------------ ------------
Net cash used in operating activities .......................... (2,941,359) (2,457,775) (42,427,297)
------------ ------------ ------------
INVESTING ACTIVITIES:
Acquisition of property and equipment ................................ (53,588) (128,702) (2,469,078)
Costs incurred for patents and patent applications ................... (12,733) (30,000) (704,599)
Proceeds from sale of property and equipment ......................... -- -- 3,418
Purchase of short-term investments ................................... (640,849) (490,937) (24,963,548)
Proceeds from sales of short-term investments ........................ 297,705 3,545,922 20,682,051
------------ ------------ ------------
Net cash provided by / (used in) investing activities .......... (409,465) 2,896,283 (7,451,756)
------------ ------------ ------------
FINANCING ACTIVITIES:
Repayments of capitalized lease obligations .......................... (2,658) (7,471) (82,234)
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 ............ -- -- 30,798,206
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 ...................... (2,658) 254,429 55,292,257
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................... (3,353,482) 692,937 5,413,204
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS .............................................. 16,950 -- 18,963
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .......................... 8,768,699 7,369,973 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................ $ 5,432,167 $ 8,062,910 $ 5,432,167
============ ============ ============
</TABLE>
(Continued)
8
<PAGE> 9
BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period October 16,
Three-Month Three-Month 1987 (Date of
Period Ended Period Ended Inception) through
March 31, 1998 March 31, 1997 March 31, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest.......................... $ -- $ 435 $ 59,409
============ ============ =============
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
=============
(Concluded)
</TABLE>
See notes to consolidated financial statements
9
<PAGE> 10
BIOFIELD CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY-The consolidated balance sheet as of March 31, 1998 and the
related consolidated statements of operations, stockholders' equity and
cash flows for the three month periods ended March 31, 1998 and 1997 and
for the period October 16, 1987 (date of inception) through March 31, 1998
have been prepared by Biofield Corp. (the "Company") without audit. In the
opinion of management, all adjustments necessary to present fairly the
financial position, results of operations and cash flows at March 31, 1998
and 1997 and for the period October 16, 1987 (date of inception) through
March 31, 1998 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 as described in the Company's annual report for the year ended
December 31, 1997 filed on Form 10-K with the Securities and Exchange
Commission on March 30, 1998 (the "Annual Report").
In December 1997, the Company received net proceeds of approximately $8.4
million from the sale of 2,867,670 shares of the Company's Common Stock in
a private placement (the "1997 Private Placement").Concurrent with the
Closing of the 1997 Private Placement, the Company issued an aggregate of
643,639 shares of Common Stock in exchange for outstanding warrants to
purchase an aggregate of 1,574,930 shares of Common Stock (the "Warrant
Exchange").Such warrants were issued in connection with the Company's 1995
private placement of securities units.
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 a U.S. branch
located in Switzerland ("Branch"), organized to expand the Company's
European marketing efforts.
On March 22, 1996, the Company completed its Initial Public Offering
("IPO") of 1,819,000 shares of Common Stock at a purchase price of $11.00
per share, for aggregate proceeds of $18,028,238 (net of related expenses
of $1,980,762).
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, 1997 included in the Company's Annual Report. The results of
operations for the three month period ended March 31, 1998 are not
necessarily indicative of the operating results for the full year.
2. RECLASSIFICATIONS - Certain prior period amounts have been reclassified to
conform with the current period presentation.
3. CONSOLIDATED FINANCIAL STATEMENTS - The consolidated financial statements
include the accounts of the Company and all of its wholly owned
subsidiaries.All intercompany transactions and balances have been
eliminated in consolidation.
4. DESCRIPTIVE ANALYSIS - The descriptive analysis contained herein compares
the financial results of the three months ended March 31 for the years 1998
and 1997.To accommodate the comparison of pertinent financial information,
the following terms will be used to denote the respective periods:
First quarter of 1998 - three months ended March 31, 1998
First quarter of 1997 - three months ended March 31, 1997
5. NET LOSS PER SHARE - The basic and diluted loss per share is computed based
on the weighted average number of common shares outstanding.Common
equivalent shares are not included in the per share calculations where the
effect of their inclusion would be antidilutive.
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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. This Quarterly Report on Form
10-Q contains forward-looking statements that involve risks and uncertainties.
The Company's actual results could differ materially from the results discussed
in such forward-looking statements. See "Cautionary Statements Regarding
Forward-Looking Statements."
OVERVIEW
Biofield Corp. is a medical technology company that has developed an
innovative system for detecting breast cancer 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 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 previously identified lesion is malignant or benign. The
Company believes that the Biofield Diagnostic System, together with other
available clinical information, could reduce diagnostic uncertainty and decrease
the number of diagnostic procedures, including surgical biopsies, performed on
suspicious lesions.In clinical studies to date, the Biofield Diagnostic System
performed better in the clinically difficult subgroup of younger women, for whom
certain diagnostic imaging modalities are generally considered less effective.
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 a resubmission of the PMA for the Biofield Diagnostic System.The
Company has voluntarily withdrawn the original submission and intends to
resubmit its PMA upon completion of additional testing and data
analysis.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. The Company
currently anticipates starting the enrollment phase of an additional clinical
trial in support of a resubmission of the PMA during mid-1998.The enrollment
phase of the clinical trial is expected to take several months or longer,
followed by data analysis.Resubmission of the PMA is expected to follow.The PMA,
if and when accepted for filing by the FDA, is currently designated for review
under the FDA's Expedited Review policy.There can be no assurance, however, that
such Expedited Review status will be maintained or result in a more expeditious
approval, or approval at all. See "Cautionary Statements Regarding
Forward-Looking Statements -- 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 the second half of
1998.There can be no assurance that the Company's proposed marketing schedules
or plans can or will be met. See "Cautionary Statements Regarding
Forward-Looking Statements -- Uncertainty of FDA Approval for the Biofield
Diagnostic System" and "--Government Regulation; No Assurance of Regulatory
Approvals."
As a development stage company, the Company has incurred net losses since
inception through March 31, 1998 of approximately $48.3 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.
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<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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
Company's technology and its development for use in the detection of other
cancers. Research and development expenses increased by 6% to $1,958,941 during
the first quarter of 1998, compared to $1,854,247 during the first quarter of
1997. This increase is primarily attributable to an increase in expenses
incurred for recruiting and relocation expenses associated with hiring several
new employees of the Company in the areas of research and development,
regulatory affairs and quality assurance, and for consulting services related to
regulatory, quality assurance and product development activities. The Company
expects research and development expenses to increase in the future as the
Company conducts additional clinical trials and continues to allocate resources
to implement and maintain regulatory programs.
Selling, general and administrative expenses increased by 10% to
$1,016,659 during the first quarter of 1998, compared to $922,838 during the
first quarter of 1997. This increase was primarily attributable to an increase
in expenses incurred in connection with the Company's European marketing
activities and increased costs associated with public/investor relations. The
Company expects selling, general and administrative expenses to increase in the
future as the Company prepares for commercialization of the Biofield Diagnostic
System in Europe and other international markets.
The Company's interest income decreased by 7% to $157,967 during the first
quarter of 1998, compared to $170,628 during the first quarter of 1997. The
decrease in interest income during the first quarter of 1998 was primarily due
to lower average invested cash, cash equivalent and short-term investment
balances compared to those during the first quarter of 1997.
As a result of the foregoing, net loss increased by 8% to $2,817,633, or
$0.28 per share, during the first quarter of 1998, compared to $2,607,872, or
$0.40 per share, during the first quarter of 1997. As a result of the issuance
of shares in connection with the Company's private placement and concurrent
warrant exchange in December 1997, the Company had an average of approximately
10.0 million shares outstanding for the quarter ended March 31, 1998 compared to
approximately 6.5 million shares outstanding for the quarter ended March 31,
1997.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had total cash, cash equivalents and
short-term investments of $9,592,468, of which $8,033,489 was invested in
investment grade corporate obligations, money market funds, shares of liquid
(auction-market) preferred stock and bonds, and certificates of deposit. As of
March 31, 1998, the Company had working capital of $8,759,601 compared to
$11,513,773 at December 31, 1997. The decrease in working capital was the
result of approximately $2.8 million of cash used primarily to finance the
Company's operations and capital requirements during the first quarter of 1998.
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 United States.
Capital expenditures during the first quarter of 1998 were approximately
$54,000, compared to $129,000 for the first quarter of 1997. Capital
expenditures consist primarily of manufacturing equipment and computer
equipment.
During the first quarter of 1998, there were no changes in the Company's
existing debt agreements, and the Company had no outstanding bank loans as of
March 31, 1998.
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<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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
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. The
Company believes that its available cash, cash equivalents and investment
securities and investment income should be sufficient to fund the Company's
operations at least through the end of calendar year 1998. 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 and ongoing
losses, including the expected cost of commercializing the Biofield Diagnostic
System. The Company will need to arrange additional equity or debt financing for
the future operation of its business. There can be no assurance that such
financing can be obtained or, if it is obtained, that the terms thereof will be
acceptable. The Company plans to continue its policy of investing excess funds
in short-term, investment grade corporate obligations, money market funds,
shares of liquid (auction-market) preferred stock and bonds, and certificates of
deposit. See "Cautionary Statements Regarding Forward-Looking
Statements--Uncertainties as to Future Profitability."
YEAR 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Upon review of the Company's information systems, the Company has
determined based upon currently available information that the Year 2000 Issue
should not pose significant operational problems for its existing computer
systems. The Company has initiated formal communications with all of its
significant suppliers to determine the extent to which the Company's interface
systems are vulnerable to those third parties' failure to remedy their own Year
2000 Issue. There can be no guarantee that the systems of other companies on
which the Company's systems rely will be converted in a timely manner. Such
failure of suppliers to remedy potential Year 2000 issues would have an adverse
effect on the Company's systems.
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.
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. The initial PMA for the Biofield Diagnostic System was based principally
upon the results of the Company's U.S. Multi-center Study. The PMA as submitted
to the FDA included data from clinical trials of over 1,200 women tested at six
medical institutions under the direction of physicians involved in breast cancer
diagnosis and treatment. 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 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.
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<PAGE> 14
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 a resubmission of the PMA. The Company has
voluntarily withdrawn the original submission and intends to resubmit its PMA
upon completion of proposed additional testing and data analysis.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 a resubmission of the PMA
during mid-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, is currently designated for review
under the FDA's Expedited Review policy.There can be no assurance, however, that
such Expedited Review status will be maintained or result in a more expeditious
approval, or approval at all.
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 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 March 31, 1998, the Company
had an accumulated deficit of $48,337,552.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 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.
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<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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
commercial purposes.Should the Company manufacture its products, the Company's
manufacturing facilities would be subject to the full range of the current
Quality System Regulation ("QSR") (formerly the Good Manufacturing Practices
(GMP) regulation) 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 QSR 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
QSR at the time of the pre-approval inspection or will maintain such
compliance.Such failure could significantly delay
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ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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, 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.
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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 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 a 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 a 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
be maintained or 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 the QSR and similar regulations in other
countries, which include testing, control and documentation requirements.Ongoing
compliance with the QSR 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,
17
<PAGE> 18
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
refusal of the government to grant premarket 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.
The President recently signed into law the Food and Drug Administration
Modernization Act of 1997.This legislation makes changes to the device
provisions of the FDC Act and other provisions in the FDC Act affecting the
regulation of devices.Among other things, the changes will affect the premarket
approval process, and also will affect the FDA's investigational device
exemption process, data requirements and procedures relating to breakthrough
devices, tracking and postmarket surveillance, accredited third party review,
and the dissemination of off label information.The Company cannot predict how or
when these changes will be implemented or what effect the changes will have on
the regulation of the Company's products.There can be no assurance that the new
legislation will not impose additional costs or lengthen review times for the
Company's products.
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, foreign marketing clearances 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 eleven 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,
18
<PAGE> 19
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
invalidated or circumvented, or that the rights granted thereunder will provide
any competitive advantage.The Company could incur substantial costs in defending
any patent infringement suits or in asserting any patent rights, including those
granted by third parties.
Although the Company has entered into confidentiality and invention
agreements with its employees and consultants, there can be no assurance that
such agreements will be honored or that the Company will be able to protect its
rights to its unpatented trade secrets and know-how effectively.Moreover, there
can be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets and know-how.In addition, the Company may be
required to obtain licenses to patents or other proprietary rights from third
parties.There can be no assurance that any licenses required under any patents
or proprietary rights would be made available on acceptable terms, if at all.If
the Company does not obtain required licenses, it could encounter delays in
product development or find that the development, manufacture or sale of
products requiring such licenses could be foreclosed.Additionally, the Company
may, from time to time, support and collaborate in research conducted by
universities and governmental research organizations.There can be no assurance
that the Company will have or be able to acquire exclusive rights to the
inventions or technical information derived from such collaborations or that
disputes will not arise with respect to rights in derivative or related research
programs conducted by the Company or such collaborators.
Uncertain Ability to Meet Capital Needs.The Company will require
substantial additional funds for its research and development programs,
preclinical and clinical testing, operating expenses, regulatory processes and
manufacturing and marketing programs.The Company's future capital requirements
will depend on many factors, including the following: the progress of its
research and development projects; the progress of preclinical and clinical
testing; the time and cost involved in obtaining regulatory approvals; the cost
of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights; competing technological and market developments;
changes and developments in the Company's existing collaborative, licensing and
other relationships and the terms of any new collaborative, licensing and other
arrangements that the Company may establish; and the development of
commercialization activities and arrangements.Moreover, the Company's fixed
commitments, including salaries and fees for current employees and consultants,
rent, payments under license agreements and other contractual commitments are
substantial and are likely to increase as additional agreements are entered into
and additional personnel are retained.The Company does not expect to generate a
positive internal cash flow for at least several years due to expected increases
in capital expenditures, working capital needs and ongoing losses, including the
expected cost of commercializing the 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.
19
<PAGE> 20
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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, 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.The market price of the shares of the Common Stock, like that of the
commonstock 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 the Common Stock.
20
<PAGE> 21
PART II OTHER INFORMATION
<TABLE>
<CAPTION>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
<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>
21
<PAGE> 22
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOFIELD CORP.
May 12, 1998 /s/ D. CARL LONG
----------------------------------
By: D. Carl Long
President, Chief Executive Officer
and Vice Chairman of the Board
(Principal Executive Officer)
May 12, 1998 /s/ TIMOTHY G. ROCHE
----------------------------------
By: Timothy G. Roche
Vice President, Finance
(Principal Financial Officer)
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1998 (UNAUDITED) AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 5,432,167
<SECURITIES> 4,160,301
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,057,850
<PP&E> 473,248<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,267,173
<CURRENT-LIABILITIES> 1,298,249
<BONDS> 0
0
0
<COMMON> 10,030
<OTHER-SE> 9,958,894
<TOTAL-LIABILITY-AND-EQUITY> 11,267,173
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,975,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,817,633)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,817,633)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,817,633)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
<FN>
<F1>PROPERTY, PLANT AND EQUIMENT IS REPORTED NET OF ACCUMULATED DEPRECIATION OF
1,435,196.
</FN>
</TABLE>
