<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended June 30, 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 June 30, 1998 was 10,029,609 shares.
<PAGE> 2
BIOFIELD CORP.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
Part I FINANCIAL INFORMATION PAGE NO.
- ---------------------------- --------
<S> <C>
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997.......................... 3
Consolidated Statements of Operations for the three month and six month periods ended
June 30, 1998 and 1997 and for the period October 16, 1987
(Date of Inception) through June 30, 1998...................................................... 4
Consolidated Statements of Stockholders' Equity for the period October 16, 1987
(Date of Inception) through June 30, 1998...................................................... 5-7
Consolidated Statements of Cash Flows for the six month periods ended
June 30, 1998 and 1997 and for the period October 16, 1987
(Date of Inception) through June 30, 1998...................................................... 8-9
Notes to Consolidated Financial Statements..................................................... 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................................. 11-21
Part II OTHER INFORMATION
- -------------------------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................ 22
Item 5. OTHER INFORMATION.............................................................................. 22
Item 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................... 22
Signatures............................................................................................... 23
</TABLE>
<PAGE> 3
Part I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................................... $ 2,393,788 $ 8,768,699
Short-term investments ....................................................... 4,034,247 3,829,261
Inventory .................................................................... 354,618 --
Other current assets ......................................................... 289,873 271,324
----------------- -----------------
Total current assets ....................................................... 7,072,526 12,869,284
PROPERTY AND EQUIPMENT - Net ................................................... 455,723 503,118
OTHER ASSETS ................................................................... 93,862 101,585
PATENT AND PATENT APPLICATION COSTS - Net ...................................... 647,126 628,634
----------------- -----------------
TOTAL .......................................................................... $ 8,269,237 $ 14,102,621
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................. $ 383,611 $ 626,750
Due to affiliates ............................................................ 63,181 179,815
Accrued expenses ............................................................. 812,921 546,288
Capitalized lease obligations ................................................ -- 2,658
-----------------
Total current liabilities .................................................. 1,259,713 1,355,511
----------------- -----------------
Total liabilities .......................................................... 1,259,713 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 ................................................... 58,305,770 58,255,667
Accumulated deficit during development stage ................................. (51,325,612) (45,519,920)
Foreign currency translation adjustment ...................................... 19,336 1,333
----------------- -----------------
Total stockholders' equity ............. ..................................... 7,009,524 12,747,110
----------------- -----------------
TOTAL .......................................................................... $ 8,269,237 $ 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 Six-Month Six-Month 1987 (Date of
Period Ended Period Ended Period Ended Period Ended Inception) through
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997 June 30, 1998
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
Research and development ............. $ 1,889,116 $ 1,774,662 $ 3,848,057 $ 3,628,909 $ 36,634,803
Selling, general and administrative .. 1,206,081 971,255 2,222,740 1,894,093 16,486,318
------------- ------------- ------------- ------------- -------------
Total operating expenses ........... 3,095,197 2,745,917 6,070,797 5,523,002 53,121,121
------------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest income ...................... 113,938 143,670 271,905 314,298 2,269,623
Interest expense ..................... -- (1,080) -- (2,495) (447,565)
------------- ------------- ------------- ------------- -------------
Net other income ................... 113,938 142,590 271,905 311,803 1,822,058
------------- ------------- ------------- ------------- -------------
LOSS BEFORE INCOME TAXES ............... (2,981,259) (2,603,327) (5,798,892) (5,211,199) (51,299,063)
PROVISION FOR INCOME TAXES ............. (6,800) -- (6,800) -- (26,549)
------------- ------------- ------------- ------------- -------------
NET LOSS ............................... $ (2,988,059) $ (2,603,327) $ (5,805,692) $ (5,211,199) $ (51,325,612)
============= ============= ============= ============= =============
NET LOSS PER SHARE:
Basic and diluted .................... $ (0.30) $ (0.40) $ (0.58) $ (0.80)
============= ============= ============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING: .......................... 10,029,609 6,493,300 10,029,609 6,482,661
============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
OCTOBER 16, 1987 (DATE OF INCEPTION) THROUGH JUNE 30, 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
(carried forward) ....................... -- $ -- -- $ -- -- $ -- $1,564,828 $ 1,564
------ ------ ------ ------ ------ ------ ---------- -------
<CAPTION>
Additional Foreign Currency
Paid-In Accumulated Translation Treasury
Capital Deficit Adjustment Stock Total
---------- ----------- ---------- ------ -----------
<S> <C> <C> <C> <C> <C>
Issuance of stock, October 16, 1987
(date of inception) ($.16 per share, net) $ 91,898 $ -- $ -- $ -- $ 91,953
Issuance of stock in connection with
patent acquisition ($.001 per share) .... 276 -- -- -- 300
Net loss, October 16, 1987 to
March 31, 1988 .......................... -- (159,359) -- -- (159,359)
---------- ----------- ------ ------ -----------
BALANCE AT MARCH 31, 1988 ................. 92,174 (159,359) -- -- (67,106)
Net loss .................................. -- (495,520) -- -- (495,520)
---------- ----------- ------ ------ -----------
BALANCE AT MARCH 31, 1989 ................. 92,174 (654,879) -- -- (562,626)
Net loss .................................. -- (233,347) -- -- (233,347)
---------- ----------- ------ ------ -----------
BALANCE AT MARCH 31, 1990 ................. 92,174 (888,226) -- -- (795,973)
Acquisition of 235,294 shares of
treasury stock ($.001 per share) ....... -- -- -- (300) (300)
Net loss .................................. -- (285,179) -- -- (285,179)
---------- ----------- ------ ------ -----------
BALANCE AT MARCH 31, 1991 ................. 92,174 (1,173,405) -- (300) (1,081,452)
Retirement of treasury stock .............. (276) -- -- 300 --
Issuance of stock in exchange for
stockholder debt ($2.90 per share) ...... 1,248,638 -- -- -- 1,248,681
Sale of stock ($.82 per share, net) ....... 19,998 -- -- -- 20,000
Amortization of deferred compensation ..... 136,880 -- -- -- 136,880
Net loss .................................. -- (461,061) -- -- (461,061)
---------- ----------- ------ ------ -----------
BALANCE AT MARCH 31, 1992 ................. 1,497,414 (1,634,466) -- -- (136,952)
Sale of stock in connection with private
placement ($7.67 per share, net) ........ 4,275,223 -- -- -- 4,275,278
Exercise of stock options ................. 624 -- -- -- 625
Amortization of deferred compensation ..... 477,453 -- -- -- 477,453
Change in par value of common stock
from $.0001 to $.001 .................... (1,408) -- -- -- --
Net loss .................................. -- (3,099,637) -- -- (3,099,637)
---------- ----------- ------ ------ -----------
BALANCE AT MARCH 31, 1993
(carried forward) ....................... $6,249,306 $(4,734,103) $ -- $ -- $ 1,516,767
---------- ----------- ------ ------ -----------
</TABLE>
(continued)
5
<PAGE> 6
BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
OCTOBER 16, 1987 (DATE OF INCEPTION) THROUGH JUNE 30, 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>
BALANCE AT MARCH 31, 1993
(brought forward) ................... -- $ -- -- $-- -- $ -- 1,564,828 $ 1,564
Exercise of stock options ............. -- -- -- -- -- -- 735 1
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 -- -- -- -- 1,565,563 1,565
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 -- -- 1,565,563 1,565
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 1,565,563 1,565
Sale of stock in connection with public
offering ($9.91 per share, net) ..... -- -- -- -- -- -- 1,819,000 1,819
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) 3,046,474 3,047
Exercise of warrants .................. -- -- -- -- -- -- 2,058 2
Amortization of deferred compensation . -- -- -- -- -- -- -- --
Net loss .............................. -- -- -- -- -- -- -- --
----------- ------- --------- ----- ----------- ------- ---------- -------
BALANCE AT DECEMBER 31, 1996
(carried forward) ................... -- $ $ -- $ -- $ -- 6,433,095 $ 6,433
----------- ------- --------- ----- ----------- ------- ---------- -------
<CAPTION>
Additional Foreign Currency
Paid-In Accumulated Translation Treasury
Capital Deficit Adjustment Stock Total
----------- ------------- ---------------- -------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1993
(brought forward) ................... $ 6,249,306 $ (4,734,103) $ -- $-- $ 1,516,767
Exercise of stock options ............. 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 ............. 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 .......... 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 .......... 31,378,985 (25,332,790) -- -- 6,053,499
Sale of stock in connection with public
offering ($9.91 per share, net) ..... 18,026,419 -- -- -- 18,028,238
Conversion of Series A, Series B
and Series C Preferred Stock to
Common Stock ........................ 2,692 -- -- -- --
Exercise of warrants .................. 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
(carried forward) ................... $49,454,334 $(35,368,880) $ -- $ -- $ 14,091,887
----------- ------------ ---- --- ------------
(continued)
</TABLE>
6
<PAGE> 7
BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
OCTOBER 16, 1987 (DATE OF INCEPTION) THROUGH JUNE 30, 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>
BALANCE AT DECEMBER 31, 1996
(brought forward) .................. -- $ -- -- $ -- -- $ -- $ 6,433,095 $ 6,433
Sale of stock in connection with
private placement
($2.92 per share, net) ............. -- -- -- -- -- -- 2,867,670 2,868
Warrants exchanged for Common Stock .. -- -- -- -- -- -- 643,639 644
Exercise of stock options ............ -- -- -- -- -- -- 50,674 50
Exercise of warrants ................. -- -- -- -- -- -- 9,531 10
Issuance of stock as consideration for
consulting services rendered
($4.00 per share, net) ............. -- -- -- -- -- -- 25,000 25
Amortization of deferred compensation -- -- -- -- -- -- -- --
Net loss ............................. -- -- -- -- -- -- -- --
Change in foreign currency
translation adjustment ............. -- -- -- -- -- -- -- --
------ ------ ------ ------ ----- ------ ----------- --------
BALANCE AT DECEMBER 31,
1997 ............................... -- -- -- -- -- -- 10,029,609 10,030
Amortization of deferred
compensation (unaudited) ........... -- -- -- -- -- -- -- --
Net loss (unaudited) ................. -- -- -- -- -- -- -- --
Change in foreign currency
translation adjustment (unaudited) . -- -- -- -- -- -- -- --
------ ------ ------ ------ ----- ------ ----------- --------
BALANCE AT JUNE 30,
1998 (unaudited) ................... -- $ -- -- $ -- -- $ -- 10,029,609 $ 10,030
====== ====== ====== ====== ===== ====== =========== ========
<CAPTION>
Additional Foreign Currency
Paid-In Accumulated Translation Treasury
Capital Deficit Adjustment Stock Total
----------- ------------ ----------------- ----- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996
(brought forward) .................. $49,454,334 $(35,368,880) $ -- $ -- $ 14,091,887
Sale of stock in connection with
private placement
($2.92 per share, net) ............. 8,377,583 -- -- -- 8,380,451
Warrants exchanged for Common Stock .. (644) -- -- -- --
Exercise of stock options ............ 168,541 -- -- -- 168,591
Exercise of warrants ................. 93,299 -- -- -- 93,309
Issuance of stock as consideration for
consulting services rendered
($4.00 per share, net) ............. 99,975 -- -- -- 100,000
Amortization of deferred compensation 62,579 -- -- -- 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 ............................... 58,255,667 (45,519,920) 1,333 -- $ 12,747,110
Amortization of deferred
compensation (unaudited) ........... 50,103 -- -- -- 50,103
Net loss (unaudited) ................. -- (5,805,692) -- -- (5,805,692)
Change in foreign currency
translation adjustment (unaudited) . -- -- 18,003 -- 18,003
----------- ------------ ------- ------- ------------
BALANCE AT JUNE 30,
1998 (unaudited) ................... $58,305,770 $(51,325,612) $19,336 $ -- $ 7,009,524
=========== ============ ======= ======= ============
(concluded)
</TABLE>
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,
Six-Month Six-Month 1987 (Date of
Period Ended Period Ended Inception) through
June 30, 1998 June 30, 1997 June 30, 1998
------------- ------------- ------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss .......................................................... $(5,805,692) $(5,211,199) $(51,325,612)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization .................................. 164,060 216,814 2,254,549
Amortization of investment premiums / (discounts)
on short-term investments ................................... 29,050 44,139 138,142
Loss on disposal of property and equipment ..................... -- -- 42,713
Loss on license and settlement agreement ....................... -- -- 49,026
Noncash compensation ........................................... 50,103 15,730 2,644,161
Interest paid in Common Stock .................................. -- -- 297,148
Changes in assets and liabilities:
Inventory ................................................... (354,618) -- (354,618)
Other current assets ........................................ (18,689) 80,852 (290,029)
Other assets ................................................ 3,873 9,856 (113,862)
Due to affiliate ............................................ (116,634) 90,000 63,181
Accounts payable and accrued expenses ....................... 24,537 278,983 1,085,253
----------- ----------- ------------
Net cash used in operating activities .................... (6,024,010) (4,474,825) (45,509,948)
----------- ----------- ------------
INVESTING ACTIVITIES:
Acquisition of property and equipment ............................. (106,378) (186,023) (2,521,868)
Costs incurred for patents and patent applications ................ (27,017) (26,277) (718,883)
Proceeds from sale of property and equipment ...................... -- -- 3,418
Purchase of short-term investments ................................ (2,153,940) (1,488,880) (26,476,639)
Proceeds from sales and maturities of short-term investments ...... 1,919,903 6,023,622 22,304,249
----------- ----------- ------------
Net cash provided by / (used in) investing activities .... (367,432) 4,322,442 (7,409,723)
----------- ----------- ------------
FINANCING ACTIVITIES:
Repayments of capitalized lease obligations ....................... (2,658) (15,276) (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 / (used in) financing activities .... (2,658) 246,624 55,292,257
----------- ----------- ------------
NET INCREASE / (DECREASE) IN CASH
AND CASH EQUIVALENTS .............................................. (6,394,100) 94,241 2,372,586
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS ......................................... 19,189 775 21,202
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ....................... 8,768,699 7,369,973 --
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................. $ 2,393,788 $ 7,464,989 $ 2,393,788
=========== =========== ============
</TABLE>
(continued)
8
<PAGE> 9
BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period October 16,
Six-Month Six-Month 1987 (Date of
Period Ended Period Ended Inception) through
June 30, 1998 June 30, 1997 June 30, 1998
------------- ------------- ------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest ................................. $ -- $ 2,495 $ 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 a 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
9
<PAGE> 10
BIOFIELD CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY - The consolidated balance sheet as of June 30, 1998 and the
related consolidated statements of operations, stockholders' equity and
cash flows for the three and/or six month periods ended June 30, 1998 and
1997 and for the period October 16, 1987 (date of inception) through June
30, 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
June 30, 1998 and 1997 and for the period October 16, 1987 (date of
inception) through June 30, 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 and six month
periods ended June 30, 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 six month period ended June 30 and the three
month period ended June 30 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 half of 1998 - six month period ended June 30, 1998
First half of 1997 - six month period ended June 30, 1997
Second quarter of 1998 - three month period ended June 30, 1998
Second quarter of 1997 - three month period ended June 30, 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.
6. Inventory - Inventories consist primarily of device component parts and
valued at the lower of cost or market. Cost is based upon the
First-in-first-out ("FIFO") inventory valuation method.
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<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. 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 for use
in the diagnosis of a previously identified lesion. 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 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 clinical
trial are nearing completion. If the Company elects to make any material
modification to the proposed protocol or study design for the clinical trial,
this would require further discussion with the FDA which could result in delay
of the clinical trial. The clinical trial design and protocol may have a
significant impact on the time required to complete the clinical trial. Prior to
commencing such clinical trial, the Company intends to conduct a training phase
at participating institutions, certain clinical observation studies to assess
test performance characteristics, and additional data analysis. Any or all of
these factors could have an effect on the timing of the commencement and
duration of the clinical trial. Following completion of discussions with the
FDA, the Company will evaluate its options and finalize its plans for
proceeding. Subject to the foregoing, the Company currently anticipates starting
the enrollment phase of the clinical trial by the end of 1998. The enrollment
phase of the clinical trial is expected to take up to nine 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 permit the Company to begin
marketing the Biofield Diagnostic System in Europe before marketing would be
permitted in the United States. On June 25, 1998, the Company announced that it
received CE Mark Certification for the Biofield Diagnostic System which permits
the Company to commence sales of its product in the European Economic Area.
Under the Certification by the Notified Body, KEMA, the Biofield Diagnostic
System is indicated for use as a diagnostic adjunct to mammography or physical
examination in women less than or equal to 55 years of age with a suspicious
palpable breast lesion. In addition, on July 7, 1998, the Company's Quality
System, as implemented at the headquarters site in Roswell, Georgia, was
registered as evidenced by certificates issued by KEMA, stating that the system
meets the requirements of ISO 9001:1994 and EN 46001:1996 for the scope of the
registration which includes design, production management, sales and
distribution of diagnostic systems and accessories. The Company currently
anticipates a European product launch of the Biofield Diagnostic System by the
end of 1998. There can be no assurance that the Company's proposed marketing
schedules or plans can or will be met. See "Cautionary Statements
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<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 June 30, 1998 of approximately $51.3 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.
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 $3,848,057 for the
six month period ended June 30, 1998 compared to $3,628,909 for the six month
period ended June 30, 1997. This increase is primarily attributable to an
increase in expenses incurred for recruiting and relocating several new
employees of the Company in the areas of research and development, regulatory
affairs and quality assurance, for consulting services related to regulatory and
quality assurance, and for product development and clinical development
activities.
Research and development expenses increased by 6% to $1,889,116 for the
three month period ended June 30, 1998 compared to $1,774,662 for the three
month period ended June 30, 1997. This increase is primarily attributable to an
increase in expenses for consulting services related to regulatory and quality
assurance, and for product development and clinical development activities. The
Company expects research and development expenses to continue 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 17% to
$2,222,740 for the six month period ended June 30, 1998 compared to $1,894,093
for the six month period ended June 30, 1997. This increase is 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.
Selling, general and administrative expenses increased by 24% to
$1,206,081 for the three month period ended June 30, 1998 compared to $971,255
for the three month period ended June 30, 1997. This increase is 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 continue 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 13% to $271,905 for the six
month period ended June 30, 1998 compared to $314,298 for the six month period
ended June 30, 1997. Interest income decreased by 21% to $113,938 for the three
month period ended June 30, 1998 compared to $143,670 for the three month period
ended June 30, 1997. The decrease in interest income during 1998 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 11% to $5,805,692, or
$0.58 per share, for the six month period ended June 30, 1998 compared to
$5,211,199, or $0.80 per share, for the six month period ended 1997. During the
three month period ended June 30, 1998, net loss increased by 15% to $2,988,059,
or $0.30 per share , compared to $2,603,327,
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<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
or $0.40 per share, for the three month period ended June 30, 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 three and six month
periods ended June 30, 1998 compared to approximately 6.5 million shares
outstanding for the three and six month periods ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had total cash, cash equivalents and
short-term investments of $6,428,035 of which $5,853,937 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
June 30, 1998, the Company had working capital of $5,812,813 compared to
$11,513,773 at December 31, 1997. The decrease in working capital was the result
of approximately $6.4 million of cash used primarily to finance the Company's
operations and capital requirements during the first half 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 half of 1998 were approximately
$106,000, compared to $186,000 for the first half of 1997. Capital expenditures
consist primarily of furniture and fixtures, manufacturing equipment and
computer equipment.
During the first half of 1998, there were no changes in the Company's
existing debt agreements, and the Company had no outstanding bank loans as of
June 30, 1998. 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 until 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 and is currently evaluating its financing
options. 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 a 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
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<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 isues 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.
Subsequent to the FDA's initial review, the Company has been in
discussions with the FDA regarding the design and protocol for a 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
additional testing and data analysis. Discussions with the FDA aimed at
establishing the design and protocol for the proposed clinical trial are nearing
completion. If the Company elects to make any material modification to the
proposed protocol or study design for the clinical trial, this would require
further discussion with the FDA which could result in delay of the clinical
trial. The clinical trial design and protocol may have a significant impact on
the time required to complete the clinical trial. Prior to commencing such
clinical trial, the Company intends to conduct a training phase at participating
institutions, certain clinical observation studies to assess test performance
characteristics, and additional data analysis. Any or all of these factors could
have an effect on the timing of the commencement and duration of the clinical
trial. Following completion of discussions with the FDA, the Company will
evaluate its options and finalize its plans for proceeding. Subject to the
foregoing, the Company currently anticipates starting the enrollment phase of
the clinical trial by the end of 1998. The enrollment phase of the clinical
trial is expected to take up to nine months or longer, followed by data
analysis. The time necessary to complete the 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. See "Government
Regulation; No Assurance of Regulatory Approval."
Conducting 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.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Limited Operating History; Continuing Operating Losses. The Company has a
limited history of operations. Since its inception in October 1987, the Company
has engaged principally in the development of the Biofield Diagnostic System,
which has not been approved for sale in the United States. Consequently, the
Company has little experience in manufacturing, marketing and selling its
products. The Company currently has no source of operating revenue and has
incurred net operating losses since its inception. At June 30, 1998, the Company
had an accumulated deficit of $51,325,612. 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.
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 the 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
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<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 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
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 or 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.
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 has voluntarily withdrawn the
original submission and intends to resubmit its PMA upon completion of
additional testing and data analysis. The timing of patient enrollment in the
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 clinical trial from the Institutional Review Boards of
the proposed study sites. As a result of this 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
approval is obtained 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
"Uncertainty of FDA Approval for the Biofield Diagnostic System."
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
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Area, 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. On June 25, 1998, the Company announced that it received its CE
Mark Certification for the Biofield Diagnostic System. Under the Certification
by the Notified Body, KEMA, the Biofield Diagnostic System is indicated for use
as a diagnostic adjunct to mammography or physical examination in women less
than or equal to 55 years of age with a suspicious palpable breast lesion. In
addition, on July 7, 1998, the Company's Quality System, as implemented at the
headquarters site in Roswell, Georgia, was registered as evidenced by
certificates issued by KEMA, stating that the system meets the requirements of
ISO 9001:1994 and EN 46001:1996 for the scope of the registration which includes
design, production management, sales and distribution of diagnostic systems and
accessories.
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, 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.
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 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
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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
twelve U.S. patents owned by the Company, and additional applications pending
with the United States Patent and Trademark Office ("PTO") and certain foreign
patents. The Company has filed, and intends to continue to file, patent
applications in certain foreign jurisdictions covering the patent claims that
are the subject of U.S. patents and patent applications. There can be no
assurance that the PTO or foreign jurisdictions will grant the Company's pending
patent applications or that the Company will obtain any patents or other
protection for which it has applied. There can be no assurance that patents
issued to or licensed by or to the Company will not be challenged, invalidated
or circumvented, or that the rights granted thereunder will provide any
competitive advantage. The Company could incur substantial costs in defending
any patent infringement suits or in asserting any patent rights, including those
granted by third parties.
Although the Company has entered into confidentiality and invention
agreements with its employees and consultants, there can be no assurance that
such agreements will be honored or that the Company will be able to protect its
rights to its unpatented trade secrets and know-how effectively. Moreover, there
can be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets and know-how. In addition, the Company may be
required to obtain licenses to patents or other proprietary rights from third
parties. There can be no assurance that any licenses required under any patents
or proprietary rights would be made available on acceptable terms, if at all. If
the Company does not obtain required licenses, it could encounter delays in
product development or find that the development, manufacture or sale of
products requiring such licenses could be foreclosed. Additionally, the Company
may, from time to time, support and collaborate in research conducted by
universities and governmental research organizations. There can be no assurance
that the Company will have or be able to acquire exclusive rights to the
inventions or technical information derived from such collaborations or that
disputes will not arise with respect to rights in derivative or related research
programs conducted by the Company or such collaborators.
Uncertain Ability to Meet Capital Needs. The Company will require
substantial additional funds for its research and development programs,
preclinical and clinical testing, operating expenses, regulatory processes and
manufacturing and marketing programs. The Company's future capital requirements
will depend on many factors, including the following: the progress of its
research and development projects; the progress of preclinical and clinical
testing; the time and cost involved in obtaining regulatory approvals; the cost
of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights; competing technological and market developments;
changes and developments in the Company's existing collaborative, licensing and
other relationships and the terms of any new collaborative, licensing and other
arrangements that the Company may establish; and the development of
commercialization activities and arrangements. Moreover, the Company's fixed
commitments, including salaries and fees for current employees and consultants,
rent, payments under license agreements and other contractual commitments are
substantial and are likely to increase as additional agreements are entered into
and additional personnel are retained. The Company does not expect to generate a
positive internal cash flow for at least several years due to expected increases
in capital expenditures, working capital needs and ongoing losses, including the
expected cost of commercializing the 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
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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, 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.
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
No Dividends. The Company has never declared or paid any cash dividends on
its capital stock and does not intend to pay any cash dividends in the
foreseeable future. The Company currently anticipates that it will retain all
its earnings for use in the operation and expansion of its business and,
therefore, does not anticipate that it will pay any cash dividends in the
foreseeable future.
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
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 the Common Stock.
Compliance With Nasdaq National Market Listing Requirements. The trading
of the Company's Common Stock on the Nasdaq National Market is conditioned upon
the Company's meeting certain quantitative criteria related to the market price
of the Company's Common Stock, net tangible assets, market capitalization and
certain other quantitative and non-quantitative requirements set forth by such
stock market. To maintain eligibility for trading on the Nasdaq National Market,
among other requirements, the Company is required to have net tangible assets in
excess of $4,000,000 and maintain a bid price of $1 per share, or to have a
market capitalization of $50,000,000 and a minimum bid price of $5 per share. As
of the date of this report, the Company is in compliance with such requirements.
However, there can be no assurance that the Company will continue to meet such
continued listing requirements, and, if the Company fails to meet such
requirements, the Common Stock could be delisted from trading on the Nasdaq
National Market. Trading, if any, in the Common Stock, would thereafter likely
be conducted on the Nasdaq SmallCap Market. If, however, the Company did not
meet the requirements of the Nasdaq SmallCap Market, trading of the Common Stock
would be conducted on an electronic bulletin board established for securities
that do not meet the Nasdaq listing requirements or in what is commonly referred
to as the "pink sheets." Delisting may restrict investors' interest in the
Common Stock and materially adversely affect the trading market and prices for
the Common Stock and the Company's ability to issue additional securities or to
secure additional financing.
21
<PAGE> 22
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Stockholders was held on June 4,
1998. Three matters were submitted to a vote of the Company's
stockholders at the annual meeting. First, C. Leonard Gordon, D.
Carl Long, Richard J. Davies, M.D., Joseph H. Gleberman and Harvey
Horowitz, were each re-elected as directors of the Company, each
to a one-year term, pursuant to the following votes:
<TABLE>
<CAPTION>
For Withhold Authority to Vote
--------- --------------------------
<S> <C> <C>
C. Leonard Gordon 5,979,232 43,766
D. Carl Long 5,979,232 43,766
Richard J. Davies, M.D. 5,979,032 43,966
Joseph H. Gleberman 5,979,032 43,966
Harvey Horowitz 5,979,232 43,766
</TABLE>
The other actions taken at the Company's 1998 Annual Meeting of
Stockholders were approved pursuant to the following votes:
<TABLE>
<CAPTION>
For Against Abstain Non-Vote
--------- ------- ------- --------
<S> <C> <C> <C> <C>
1. To ratify the selection of Deloitte &
Touche LLP, as the Company's
independent public accountants for
the calendar year ended December
31, 1998. 5,995,681 14,359 12,958 --
2. To ratify an amendment increasing
the number of shares of Common
Stock authorized for issuance under
the Biofield Corp. 1996 Stock Option
Plan from 1,000,000 to 1,500,000
shares. 5,780,972 178,850 12,239 50,937
</TABLE>
Item 5. Other Information
At its Board of Directors meeting on June 4, 1998, the Company's
Board of Directors expanded the Board of Directors to six persons
and appointed Claire Gruppo to the newly created position. Ms.
Gruppo is a founding partner and has served since 1992 as
President of Gruppo, Levey & Capell, Inc. and its predecessor.
Gruppo, Levey & Capell, Inc. is a New York-based investment
banking firm specializing in the direct marketing industry. Prior
to 1992, from 1989 until 1992, Ms. Gruppo served as President of
Special Interest Video, and, from 1985 until 1989, served as Vice
President of Development and Acquisitions at American Express
Publishing.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<S> <C>
a. Exhibits Exhibit 10.1 Amended and Restated Employment
Agreement between the Company and Michael R.
Gavenchak dated as of May 14, 1998.
Exhibit 10.2 Employment Agreement between the
Company and D. Carl Long dated as of July 7, 1997.
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>
22
<PAGE> 23
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.
July 29, 1998 /s/ D. CARL LONG
----------------------------------
By: D. Carl Long
President, Chief Executive Officer
and Vice Chairman of the Board
(Principal Executive Officer)
July 29, 1998 /s/ TIMOTHY G. ROCHE
----------------------------------
By: Timothy G. Roche
Vice President, Finance
(Principal Financial Officer)
23
<PAGE> 1
EXHIBIT 10.1
Biofield Corp.
1225 North Meadow Parkway
Suite 120
Roswell, GA 30076
May 14, 1998
Mr. Michael R. Gavenchak
Dear Michael:
Reference is made to that certain Amended and Restated
Employment Agreement between Biofield Corp. and you dated as of October 1, 1992
(the "Employment Agreement"). The Employment Agreement is hereby amended as
follows:
Paragraph 2 of the Employment Agreement is hereby deleted in
its entirety and the following Paragraph 2 shall be inserted in its place and
stead:
2. Term
The term of this Agreement shall commence on October 1, 1992 and end on
July 7, 2000.
Other than as set forth above, the Employment Agreement shall
remain in full force and effect. Please indicate your acceptance by dating,
signing and returning to Biofield Corp. the enclosed copy of this letter.
Sincerely,
Biofield Corp.
By: /s/ D. Carl Long
----------------------------
D. Carl Long
Chief Executive Officer
Agreed and Acknowledged this
15 day of May, 1998
/s/ Michael R. Gavenchak
- ------------------------------
Michael R. Gavenchak
<PAGE> 1
EXHIBIT 10.2
AGREEMENT
THIS AGREEMENT is made and entered into as of July 7, 1997 between
BIOFIELD CORP. ("Biofield" or the "Company"), a Delaware corporation with
offices at 1225 Northmeadow Parkway, Suite 120, Roswell, Georgia 30076, and D.
CARL LONG ("Long"), an individual residing at 2870 Pharr Court South, N.W., Apt.
3104, Atlanta, Georgia 30305.
WITNESSETH:
WHEREAS, Biofield and Long desire to set forth in writing the terms of
their agreement with respect to Long's employment as the President and Chief
Executive Officer of Biofield upon the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants herein contained, the parties agree as follows:
1. EFFECTIVE DATE; EMPLOYMENT; TITLE.
This Agreement shall become effective as of July 7, 1997 (the
"Effective Date"). Commencing on the Effective Date, Biofield shall continue to
employ Long, and Long hereby accepts such continued employment, upon the terms
and conditions set forth in this Agreement. During the term of his continued
employment hereunder, Long shall have the title of President and Chief Executive
Officer and Vice Chairman of the Board of Directors of Biofield, and the Company
shall nominate Long for election to serve as a member of its Board of Directors
at each meeting of the Company's shareholders held for the purpose of electing
its Board of Directors. Notwithstanding the foregoing, Long shall not be
required to serve as a director of the Company unless he so chooses, and no
refusal of Long to serve in such capacity nor any resignation of Long from such
position shall be deemed a breach of Long's duties hereunder.
2. TERM.
Long's continued employment under this Agreement will continue
through July 7, 2000, unless such continued employment is terminated sooner in
accordance with the provisions of Section 7 hereof. Long's continued employment
under this Agreement may be extended pursuant to Section 7 hereof (The period of
Long's continued employment hereunder shall be referred to as the "Term".)
3. DUTIES.
During the Term, Long shall serve as President and Chief
Executive Officer of the Company. In such capacity, Long shall be subject to
the direction of the Board of Directors of Biofield and shall perform such
duties and have such responsibilities of an executive nature as are
<PAGE> 2
customarily performed by a person holding such office. Long shall use his best
efforts, skill and abilities to promote Biofield's interests through the
performance of his duties hereunder. Long shall not be entitled to receive any
additional compensation for serving as a director, as Vice Chairman of the
Board, as a member of any Committee of the Board of Directors, or as an officer
or director of any subsidiary of Biofield.
4. COMPENSATION AND OTHER BENEFITS.
(a) Base Compensation. Commencing on the Effective Date and
continuing for the remainder of the Term, Biofield shall pay Long at the rate of
$250,000 per annum (the "Base Compensation"), payable in accordance with the
normal payroll practices of Biofield. The annual rate of Long's Base
Compensation shall be reviewed at the discretion of the Board of Directors of
Biofield, but not less frequently than once per year, and may be increased at
the discretion of the Board of Directors. The first such review shall take place
no later than July 7, 1998. Unless the Board has approved a greater increase in
the annual rate of Long's Base Compensation effective on or prior to such date,
Long shall be entitled to a five percent annual cost of living increase in the
annual rate of the Base Compensation effective on July 7, 1998, and effective on
July 7 of each other year during the Term, if extended.
(b) Expenses. During the Term, Biofield shall pay or reimburse
Long promptly for all reasonable, vouchered business expenses incurred by Long
in the performance of his duties under this Agreement.
(c) Participation in Benefit Plans. Subject to applicable law
and the requirements of all applicable benefit plans, during the Term, Long
shall be entitled to receive and shall be accorded rights and benefits under any
insurance and executive perquisites or other benefit plans that are generally
made available by Biofield. The rights and benefits granted to Long shall be no
less favorable than those granted to any other employee of Biofield.
5. ANNUAL BONUS
(a) Amount. For each year of the Term ending on July 6,
commencing with the period ending July 6, 1998, Long shall be eligible for a
bonus (the "Annual Bonus"). The amount of Long's Annual Bonus, if any, for the
period from the Effective Date to July 6, 1998 and for the period from July 7,
1998 to July 6, 1999 shall be $70,000, payable in cash, for each such period
determined based upon achievement of certain goals as follows:
(i) If during the period from the Effective Date to
July 6, 1998 the Company (A) receives gross
proceeds (before commissions and expenses) of
not less than $5,000,000 through the
consummation of one or more financings (debt or
equity) or corporate partner transactions or (B)
commences the commercial introduction of its
breast cancer diagnostic system in Europe (i.e.,
the date that such system is first offered for
sale and delivery), Long shall be entitled
-2-
<PAGE> 3
to receive an Annual Bonus with respect to the
period from the Effective Date to July 6, 1998.
(ii) If during the period from July 7, 1998 to July
6, 1999, the Company (A) completes patient
enrollment for a study in support of an
application for FDA premarket approval of its
breast cancer diagnostic system, (B) consummates
a transaction with a corporate partner which has
been approved by the Board of Directors of
Biofield or (C) submits, or re-submits, to the
FDA a fileable application for premarket
approval of its breast cancer diagnostic system,
Long shall be entitled to receive an Annual
Bonus with respect to the period from July 7,
1998 and July 6, 1999.
(b) Payment. The Annual Bonus for any period shall be paid in
cash within 30 days after the end of the period for which it is earned (the
"Bonus Year").
(c) Discretionary Bonuses. In addition to the Annual Bonuses, the
March Options (as hereinafter defined) and the Additional Options (as
hereinafter defined), Long shall be eligible to receive such additional cash
bonuses, incentive stock awards or stock option awards as the Board of Directors
of Biofield may from time to time determine in its sole discretion.
6. EQUITY PARTICIPATION.
(a) March Options. In addition to the stock options listed on
Exhibit A attached hereto and hereby made an integral part hereof (collectively
the "Previous Options"), all of which Biofield acknowledges and agrees are fully
vested and exercisable by Long, Biofield acknowledges that Long has been
granted, without charge, options (the "March Options") to purchase 100,000
shares of the Company's Common Stock at an exercise price of $4.75 per share,
effective as of March 1, 1997 pursuant to Biofield's 1996 Employee Stock Option
Plan, as evidenced by that certain Biofield Corp. Stock Option Letter Agreement
to Long from Biofield concerning the March Options. All such March Options (i)
are "non-qualified" stock options, (ii) shall vest immediately upon the
execution and delivery of this Agreement by Biofield and Long, (iii) have a term
of 10 years from the date of grant and (iv) are non-transferable except by
operation of law or by will or by the applicable laws of descent and
distribution. Such March Options (i) are not subject to forfeiture upon the
occurrence of any event, including, but not limited to, the termination of
Long's continued employment hereunder for any reason and (ii) will remain
exercisable by Long or any permitted transferee for the entirety of their
10-year term. In addition to the foregoing, Biofield acknowledges and agrees
that the Previous Options (i) are not subject to forfeiture upon the incurrence
of any event, including, but not limited to, the termination of Long's continued
employment hereunder for any reason and (ii) will remain exercisable by Long or
any permitted transferee for the entirety of their respective terms set forth in
the respective Share Option Agreement or Stock Option Letter Agreement
evidencing their grant to Long by Biofield.
- 3 -
<PAGE> 4
(b) Additional Options. Biofield acknowledges that Long has been
granted, without charge, additional options (the "Additional Options") to
purchase an aggregate of 200,000 shares of the Company's Common Stock pursuant
to Biofield's 1996 Employee Stock Option Plan at an exercise price of $2.94 per
share, effective as of July 7, 1997, as evidenced by that certain Biofield Corp.
Stock Option Letter Agreement to Long from Biofield concerning the Additional
Options. All such Additional Options (i) shall be "non-qualified" stock options,
(ii) shall have a term of 10 years from the date of grant and (iii) shall be
non-transferrable except by operation of law or by will or by the applicable
laws of descent and distribution. Of such Additional Options, options to
purchase 100,000 shares of the Company's Common Stock shall vest immediately
upon the execution and delivery of this Agreement by Biofield and Long, and,
upon the execution and delivery of this Agreement by Biofield and Long, the
remaining 100,000 Additional Options shall vest in equal monthly installments
commencing as of July 7, 1997 and ending July 6, 2000; provided, that no
fractional shares shall be issuable upon the exercise of the Additional Options.
Once vested, Additional Options (i) shall not be subject to forfeiture upon the
occurrence of any event, including, but not limited to, the termination of
Long's continued employment hereunder for any reason and (ii) will remain
exercisable by Long or any permitted transferee for the entirety of their
10-year term. All unvested Additional Options shall become fully vested and
treated in accordance with the previous sentence in the event of (i) a
termination of Long's employment other than (x) a termination upon Long's death
or disability (as defined below) or (y) a termination by the Company for cause
(as defined below), or (ii) a change of control of the Company upon a merger,
sale or acquisition. (The Previous Options, the March Options and the Additional
Options hereinafter collectively referred to as the "Options" and all Biofield
Option Plans under which any of the options were granted to Long, together with
all Share Option Agreements and Stock Option Letter Agreements evidencing grants
of any of the Options to Long hereinafter collectively referred to as the
"Option Documents.")
7. TERMINATION OF EMPLOYMENT; OTHER BUSINESS.
(a) Termination.
(i) Death, Disability or Cause. Long's employment under this
Agreement shall automatically terminate in the event of Long's death or
disability (as defined below). In addition, Biofield may terminate Long's
employment under this Agreement immediately upon a determination by a majority
of the Board of Directors that cause (as defined below) exists. For purposes of
this Section 7, "disability" shall mean as a result of Long's incapacity due to
physical or mental illness, Long shall have been unable to perform his duties
hereunder for 120 consecutive calendar days or for any 150 calendar days in a
consecutive twelve-month period. For purposes of this Section 7, "cause" shall
mean Long's conviction of a misdemeanor of moral turpitude or a felony of moral
turpitude.
(ii) Good Reason. Long may terminate Long's employment under
this Agreement for "good reason" (as defined below). For purposes of this
Section 7, "good reason" shall mean, and is limited to, the occurrence of any of
the following events: (i) any assignment to Long of any duties and assignments
other than those described in Section 3 hereof, or inconsistent
- 4 -
<PAGE> 5
therewith, (ii) any material diminution of the authority granted to Long in
Section 3 hereof, (iii) any material failure by Biofield to comply with
Biofield's obligations in this Agreement. Notwithstanding the foregoing,
occurrence of any of the above described events shall not constitute good reason
unless and until Biofield fails to cure or remedy same, to Long's reasonable
satisfaction, within thirty (30) days after Biofield's receipt from Long of
written notice of such event, which notice shall specify in reasonable detail
the nature of such event and the action to cure same. Upon the occurrence of
good reason, Long may terminate Long's employment under this Agreement
immediately by giving notice of such termination to Biofield, which termination
shall be effective as of Biofield's receipt of such notice of termination.
(b) Other Business. During the Term, Long shall be permitted to
pursue additional business interests and to participate in other business
ventures so long as they are not directly competitive with Biofield's business
of researching, developing, marketing and selling breast cancer detection
medical devices (the "Business") and they do not materially interfere with the
performance by Long of his obligations hereunder.
(c) Expiration of the Term. The initial term of Long's continued
employment under this Agreement shall be until July 6, 2000, and shall be
automatically extended until July 6, 2001 unless prior to February 6, 2000
either party provides written notice to the other party electing to terminate
Long's employment hereunder effective July 6, 2000. Thereafter, the term of
Long's employment hereunder shall immediately be extended for successive periods
of one year each unless during any such one year period either party elects to
terminate Long's employment under this Agreement effective on or after the next
following July 6 by delivery of not less than 90 days' written notice to the
other party prior thereto.
(d) Effect of Termination. Upon the termination of Long's
employment under this Agreement, Biofield shall have no further obligation to
provide any compensation or other benefit hereunder except for compensation and
reimbursable expenses then due and payable but remaining unpaid as of, and other
benefits to be provided through, the effective date of such termination;
provided, however, that if Long's employment by Biofield is terminated for cause
as set forth in Section 7 hereof, Long shall be entitled to continue to receive
Base Compensation and continue to participate in Biofield's benefit plans as
described in Section 4(c) above for a period of six months following the
effective date of such termination for cause. Notwithstanding the foregoing,
upon the termination of Long's employment under this Agreement by Long for good
reason, pursuant to Section 7(a)(ii) hereof, Long shall be entitled to (i)
continue to receive Base Compensation through July 6, 2000 and (ii) continue to
participate, at Biofield's cost, through July 6, 2000, in any insurance plans
that are generally made available by Biofield to its employees. Upon termination
of Long's employment hereunder, for any reason, Biofield shall use its
reasonable, good faith efforts to enable Long, upon his election and at his sole
cost and expense, to continue any of Long's benefits hereunder which are subject
to a COBRA election by Long, beyond eighteen (18) months after the date that
Long ceases to participate directly in such benefits. The parties acknowledge
and agree that none of the Options shall be affected or impaired by this Section
7(d) and shall be governed by Section 6 hereof upon termination of Long's
employment under this Agreement.
- 5 -
<PAGE> 6
8. COVENANTS.
(a) Noncompetition. During the Term and for a period of six
months thereafter (the "Noncompetition Period"), Long will not (i) engage or
participate in, directly or indirectly (whether as a lender, investor,
shareholder, consultant or partner, or in any other manner or capacity), or lend
his name (or any part or variant thereof) to, any business which is, or as a
result of Long's engagement or participation would become, directly competitive
with the Business; (ii) employ, hire, solicit, be associated with or otherwise
interfere with or endeavor to entice away any officer, director, employee, or
agent of Biofield to become an officer, director, employee or agent of a
business described in Section (i) above; (iii) materially interfere in any
manner with Biofield's operation of the Business or engage in any act that would
be materially injurious to the reputation of Biofield in the Business or detract
from Biofield's goodwill. Notwithstanding the foregoing, it is expressly
understood and agreed that neither ownership for investment of less than 1% of
the outstanding shares of capital stock of a corporation listed on a national
securities exchange or actively traded in the over-the-counter market, nor
ownership of capital stock of Biofield, each of which would otherwise be
prohibited by clause (i) above, shall be deemed to constitute a breach of such
provision.
(b) Nondisclosure. Long shall not, at any time during or after
the Term, divulge, furnish or make accessible to anyone the following
information ("Proprietary Information"): any confidential knowledge or
information with respect to confidential plans, ideas or know-how of Biofield or
any other confidential or secret aspects of Biofield's business; provided,
however, that the foregoing provision shall not apply to the Invention described
in Section 11 below or to any information which is or becomes generally
available to the public through no breach of this Agreement. If at any time Long
is requested or required (by oral questions, interrogatories, requests for
information or documents, subpoenas or similar legal process) to disclose any
Proprietary Information, Long shall promptly notify Biofield and shall refrain
from making such disclosure so that Biofield may, at its own expense, seek an
appropriate protective order in a prompt manner and/or waive compliance with the
provisions hereof. If, in the absence of a protective order or the receipt of a
waiver hereunder, in the reasonable opinion of counsel to Long, disclosure of
Proprietary Information to any tribunal or any governmental agency is required
to avoid liability for contempt or any other penalty, then Long may disclose
such Proprietary Information to such tribunal or agency without liability
hereunder; provided, however, that Biofield shall promptly be notified of such
decision. Because of the competitive environment in which Biofield's business
functions, Long is aware that material and irreparable injury may be done to
Biofield if he would divulge Proprietary Information to competitors of Biofield.
Long recognizes and acknowledges that the Proprietary Information constitutes a
valuable, special and unique asset of Biofield's business.
(c) Inventions. Any interest in patents, patent applications,
inventions, technological innovations, copyrights, copyrightable works,
developments, discoveries, designs, and processes which Long now or hereafter
during the period he is employed by Biofield under this Agreement, or otherwise,
may own, conceive of, or develop and which is (i) related to the fields in which
Biofield may then be engaged or contemplates (as demonstrated by the records of
Biofield) being engaged or (ii) conceived of or developed utilizing the time,
material, facilities, or
- 6 -
<PAGE> 7
information of Biofield (collectively "Such Inventions"), shall belong to
Biofield. As soon as Long owns, conceives of, or develops any Such Invention, he
agrees immediately to communicate such fact in writing to the Secretary of
Biofield, and without further compensation, but at Biofield's expense (except as
otherwise provided in this Section 8(c), forthwith upon request of Biofield,
Long shall execute all such assignments and other documents (including
applications for patents, copyrights, trademarks, and assignments thereof) and
take all such other action as Biofield may reasonably request in order (i) to
vest in Biofield all of Long's right, title, and interest in and to Such
Inventions, free and clear of liens, mortgages, security interests, pledges,
charges, and encumbrances arising from the acts of Long in violation of this
Section 8(c)("Liens")(Long to take such action, at his expense, as is necessary
to remove all such Liens), and (ii) if patentable or copyrightable, to obtain,
at Biofield's sole cost and expense, patents or copyrights (including extensions
and renewals) therefor in any and all countries in such name as Biofield shall
determine. Biofield acknowledges and agrees that the Fluorocarbon Invention (as
defined in Section 11 hereof) shall be subject to Section 11 hereof, and shall
not be deemed to be subject to this Section 8(c).
(d) Injunctions. Long acknowledges that a violation of any
covenant conferred in Section 8(a), (b) or (c) hereof may cause irreparable
injury to Biofield and that monetary damages may not adequately compensate
Biofield for such breach. Accordingly, Long agrees that Biofield will be
entitled, in case of any breach or threatened breach of the provisions of
Section 8(a), (b) or (c) hereof, and in addition to any other rights or remedies
any such party may have, to an injunction restraining Long from (i) violating
any applicable provision of Section 8(a), (b) or (c) hereof; or(ii) rendering
any services to any person, firm, corporation, association or other entity to
whom any Proprietary Information has been disclosed or is threatened to be
disclosed. Long agrees not to raise, in any such action for injunctive relief,
the defense that Biofield has adequate remedies at law.
9. INDEMNITY AND INSURANCE.
Biofield shall, to the fullest extent permitted by applicable
law, and in accordance with Biofield's By-laws, in existence at the time of the
applicable incident, or Biofield's By-laws in existence at the time Long seeks
indemnification to the extent such By-laws afford Long greater indemnification
rights, indemnify Long and hold him harmless from any cost, expense or liability
arising out of or relating to any acts or decisions made by him in the course of
his employment by Biofield under this Agreement or otherwise. Long shall be
added as an additional named insured under all appropriate insurance policies
now in force or hereafter obtained covering Biofield.
10. WITHHOLDING.
Biofield shall withhold from payments due to Long hereunder any
amounts required to be withheld by applicable law. Biofield shall pay such
amounts withheld to the appropriate taxing authorities. Any amount withheld
pursuant to this Section 10 shall be deemed to have been paid to Long for
purposes of determining whether Biofield has paid to Long all amounts due to
Long hereunder.
- 7 -
<PAGE> 8
11. INVENTION.
Biofield acknowledges that Long has developed a process involving
per fluorocarbon technology (the "Fluorocarbon Invention") which may enhance the
effectiveness of the "Biofield Device". With respect to the Fluorocarbon
Invention, Biofield acknowledges further that it has no proprietary or other
ownership rights thereto and that Alliance Pharmaceutical Corp. ("Alliance") has
a right of first refusal to license such process. If Biofield wishes to utilize
the Fluorocarbon Invention, it will negotiate with Long in good faith to
determine reasonable compensation to be paid to Long in the event of such
utilization, subject to the rights of Alliance.
12. REGISTRATION RIGHTS AGREEMENT.
The shares of Common Stock issued upon exercise of the Options
previously granted to Long, as described in Section 6 hereof, shall have certain
registration rights as set forth in that certain Registration Rights Agreement
by and between Biofield and Long dated as of April 23, 1993 ("Long's Rights
Agreement").
13. "LOCK-UP" AGREEMENT.
Long hereby agrees to enter into a "lock-up" agreement if
requested by the lead underwriter in connection with any public offering of
Common Stock or other securities of Biofield; provided, that all executive
officers of Biofield enter into lock-up agreements, and that terms of the
lock-up agreement requested to be entered into by Long are identical to the
terms of the most favorable (with respect to the other executive officers of
Biofield) lock-up agreement entered into by any of the other executive officers
of Biofield. Notwithstanding the foregoing, in the event Long's employment
hereunder is terminated or not renewed, as the case may be, by any party and for
any reason whatsoever, Long's obligation to enter into any such lock-up
agreement pursuant to this Section 13 shall be of no further force or effect.
14. NO PRIOR AGREEMENTS.
Long represents and warrants that he is not bound by any
agreement or any other existing or previous business relationship which
conflicts with, or may prevent or otherwise conflict with, the full performance
of his obligations and duties under this Agreement.
15. MISCELLANEOUS.
(a) Governing Agreement. This Agreement and the Option Documents
supersede all prior agreements, understandings, promises, undertakings, if any,
made orally or in writing by or on behalf of the parties hereto with respect to
the subject matter addressed herein and therein, including, without limitation,
the certain Employment Agreement, dated December 1, 1995, between Long and
Biofield.
(b) Succession. This Agreement shall inure to the benefit of and
be binding upon Biofield and its successors and inure to the benefit of and be
binding upon Long and his heirs
- 8 -
<PAGE> 9
and personal representatives. This Agreement may not be assigned by Biofield
without the prior written consent of Long. The functions of Long hereunder are
personal and not assignable.
(c) New York Law. This Agreement shall be interpreted, governed
and enforced under the laws of the State of New York, without reference to the
principals of conflicts of law.
(d) Arbitration. Any dispute whatsoever arising out of or
referable to this Agreement, including any dispute as to the rights and
entitlements and performance of the parties under this Agreement or its
construction or its validity or enforcement or as to the arbitrator's
jurisdiction or as to the arbitrability of any such dispute, shall be submitted
to binding arbitration in New York City by and pursuant to the rules of the
American Arbitration Association, with discovery proceedings pursuant to the New
York Civil Procedure Law and Rules. The arbitrator's decision shall be final and
binding and enforceable in any court of competent jurisdiction. The arbitrator
shall be entitled to award any relief which might be available at law or in
equity, including relief of a provisional or permanent or injunctive nature,
except that the arbitrator shall not be entitled to reform this Agreement. The
prevailing party in such arbitration as determined by the arbitrator, or in any
proceedings in respect thereof as determined by the person presiding, shall be
entitled to receive its or his attorneys' fees incurred in connection therewith.
(e) Entire Agreement. This Agreement and the Option Documents
constitute the full understanding of the parties with respect to the subject
matter addressed herein and therein and cannot be modified except in a writing
executed by the parties hereto. Neither party has made any representations or
warranties except as specifically set forth in this Agreement. No waiver of any
provision hereof or any default hereunder shall constitute a continuing waiver
or a waiver of any other provision hereof or default hereunder. Long's benefits
under Biofield's employee benefit plans in which he was participating during his
employment by Biofield prior to the Effective Date shall continue uninterrupted
and unaffected by Long's continued employment hereunder, except as his rights to
participate in such plans have been amended hereby.
(f) Notices. All notices either party is required or desires to
give to the other shall be addressed to the parties at the addresses specified
on the first page of this Agreement, or such address as either party may from
time to time designate by written notice to the other, and shall be served by
certified mail, return receipt requested (postage prepaid), so addressed, or by
personal delivery. The date of mailing or personal delivery, as the case may be,
shall be deemed the date of service.
(g) Headings. The headings of sections contained in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.
(h) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
- 9 -
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
BIOFIELD CORP.
By: /s/ C. Leonard Gordon
-----------------------------
C. Leonard Gordon
Chairman
/s/ D. Carl Long
-----------------------------
D. CARL LONG
-10-
<PAGE> 11
EXHIBIT 1
Optionee Detail Report
as of 02/09/98
<TABLE>
<CAPTION>
Grant Date/ Grant Options Option Options Shares
Expr. Date Plan Type Granted Price O/S Exbl.
---------- ---- ----- ------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
09/02/1992 NQ NQ 49,020 $2.0400 49,020 49,020
09/02/2002 Non-Qual Incentive Grants
09/02/1992 NQ NQ 73,530 $2.0400 73,530 73,530
09/02/2002 Non-Qual Incentive Grants
12/15/1992 NQ NQ 61,275 $1.0200 61,275 61,275
12/15/2002 Non-Qual Incentive Grants
03/16/1993 NQ NQ 49,020 $2.0400 49,020 49,020
03/16/2003 Non-Qual Incentive Grants
10/25/1993 NQ NQ 49,020 $9.1800 49,020 49,020
10/25/2006 Non-Qual Incentive Grants
02/16/1995 NQ NQ 49,020 $5.1000 49,020 49,020
02/16/2005 Non-Qual Incentive Grants
12/01/1995 1992 ISO 7,353 $9.1800 7,353 7,353
12/31/2000 1992 Employee stock Incentive
03/02/1997 1996 NQ 100,000 $4.7500 100,000 100,000
03/02/2007 Biofield Corp. 1996 Option Plan
07/08/1997 1996 NQ 200,000 $2.9380 200,000 119,444
07/08/2007 Biofield Corp. 1996 Option Plan
Total Options O/S 638,238
Total Options Exercisable 557,682
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BIOFIELD
CORPORATION FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1998 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,393,788
<SECURITIES> 4,034,247
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 354,618
<CURRENT-ASSETS> 7,072,526
<PP&E> 455,723<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,269,237
<CURRENT-LIABILITIES> 1,259,713
<BONDS> 0
0
0
<COMMON> 10,030
<OTHER-SE> 7,009,524
<TOTAL-LIABILITY-AND-EQUITY> 8,269,237
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,070,797
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,798,892)
<INCOME-TAX> (6,800)
<INCOME-CONTINUING> (5,805,692)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,805,692)
<EPS-PRIMARY> (0.58)
<EPS-DILUTED> (0.58)
<FN>
<F1>PROPERTY, PLANT AND EQUIPMENT IS REPORTED NET OF ACCUMULATED DEPRECIATION OF
$1,350,895
</FN>
</TABLE>
