UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
(AMENDMENT NO. 1)
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
BIOFIELD CORP.
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(Name of Small Business Issuer in its charter)
DELAWARE 13-3703450
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
SUITE M, 1025 NINE NORTH DRIVE, ALPHARETTA, GA. 30004
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (770) 740-8180
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Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
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(Title of class)
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(Title of class)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
Part I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
We are a medical technology company that has developed a system for
detecting breast cancer in a non-invasive and objective procedure.
Our technology is based on the principle that epithelial cancers,
such as cancer of the breast, ovaries, skin, prostate and colon, are
characterized by small changes in the electrical charge of the affected tissue.
These changes, when they appear, result in a disruption, or depolarization, of
the charge distribution found in normal epithelial tissue which lines many solid
organs, including the stomach, colon, prostate, endometrium, lung and breast.
Moreover, this depolarization appears to be progressive as cell transformation
and carcinogenesis occur. This depolarization is measurable at the skin surface.
Our breast cancer diagnostic device, which we call the "Biofield(R)
Diagnostic System", employs single-use sensors of our own design and a
measurement device to detect and analyze changes associated with the development
of epithelial cancers, such as breast cancer. The Biofield Diagnostic System
takes multiple readings from an array of test points on the skin surface of the
symptomatic breast and asymptomatic breast to measure differentials which may
exist between test points. We believe that the analysis of these differentials,
using a pre-programmed algorithm, provides useful diagnostic information. The
device generally is intended to be used by physicians or by trained medical
technicians under the supervision of a physician.
The Biofield Diagnostic System is intended to be used as an adjunct
to physical examination or relevant imaging modalities to provide physicians and
patients with immediate and objective information concerning the probability
that a previously identified lesion is malignant or benign in women 55 years of
age or younger and without regard to the size, weight or volume of the lesion.
The device currently is not intended for non-palpable breast lesions, or for use
with women over 55 years of age. We believe 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 breast lesions. In the limited clinical
studies we have had conducted to date, the Biofield Diagnostic System performed
statistically better in the clinically difficult subgroup of women 55 years old
and younger, for whom certain diagnostic imaging modalities, such as mammography
and ultrasound, are generally considered less effective.
The Biofield Diagnostic System has not been approved by the U.S.
Food and Drug Administration and is not available for commercial distribution in
the United States until such time, if at all, as the FDA gives pre-market
approval. The laws of those countries which are members of the European Union
permit us to begin marketing the Biofield Diagnostic System in these countries
before marketing is permitted in the United States, and we currently anticipate
commencing marketing before the end of 2000.
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COMPANY HISTORY
We were originally organized as a New York corporation in October
1987 and, in 1992, re-incorporated in Delaware by merging into our wholly-owned
Delaware subsidiary. In March 1996, we completed our initial public offering of
1,819,000 shares of our common stock at a purchase price of $11.00 per share,
for aggregate proceeds of approximately $18 million (net of related expenses of
approximately $2 million). In December 1997, we received net proceeds of
approximately $8.4 million from the sale of an additional 2,867,670 shares of
our common stock in a private placement. In connection with the private
placement, we also issued an aggregate of 643,639 shares of our common stock in
exchange for previously issued warrants. The net proceeds from these offering
were used for operating purposes, including developing prototypes for the
Biofield Diagnostic System; manufacturing of this device and completion of
approximately 60 units for inventory; regulatory expenses in seeking to
obtaining approval in the United States and the European Union; and attempting
to develop strategic alliances to reduce our business risk.
In November 1998, we decided to eliminate most of our operations due
to lack of adequate financial resources, and thereafter, as we continued to be
unsuccessful in raising any financial resources, we shut down all of our
remaining operations. In December 1998, our common stock was de-listed from
trading on The Nasdaq Stock Market for lack of compliance with the requirement
to maintain at least $4 million of tangible net worth and to maintain a bid
price of our common stock in excess of $1.00 per share. In March 1999, we
terminated our reporting obligations under the Securities Exchange Act of 1934,
since we had less than 300 holders of record of our common stock.
In December 1999, we sold 14 million shares of our common stock in a
private placement for $700,000 to David M. Long, Jr., M.D., Ph.D., his son,
Raymond A. Long, M.D., and their affiliated entities. This sale was approved by
our Board of Directors, and shareholder approval was not required or obtained
since the shares which were sold were unissued shares previously authorized by
our shareholders. The sales price per share of $0.05 was the result of
arms-length negotiation between the parties and was the only reasonable offer
which our Board of Directors was able to obtain which it believed was in the
best interests of our shareholders. Although the prices of our common stock in
the over-the-counter market during the period from January 1, 1999 through the
date of the sale ranged from $0.375 per share to $0.032 per share, no public
information concerning our company had been released since we terminated our SEC
reporting obligations in March 1999 and our Board of Directors did not believe
that the public market sales prices reflected the true financial condition of
our company. The Board of Directors did not retain a financial advisor to assist
it in obtaining financing or in negotiating the sale in December 1999; however,
our Board of Directors had contacted certain previous investors in our company
and other parties who had advised our Board of a possible interest in an
investment in our company, in each instance to no avail. The proceeds from this
private placement were used for operating purposes, including for salaries and
for legal and auditing expenses incurred in connection with the re-commencement
of our operations.
Simultaneously with the December 1999 sale, our Board of Directors
appointed Dr. David Long as a director, whereupon the remaining directors and
all of our executive officers resigned. Thereafter, Dr. David Long became
Chairman and Chief Executive Officer and took action to reconstitute our Board
of Directors. Since this time, we have been in the process of re-commencing
certain of our operations.
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In May 2000, we resumed CE mark Certification and re-certified to
ISO-9001 Quality Systems for the design, production management, sales and
distribution of our Biofield Diagnostic System and accessories. This will permit
us to again commence marketing of our equipment in certain European and other
countries that recognize the CE mark. Commercial distribution within the United
States is still a number of years away, since we need to complete our pre-market
application to the FDA and have it approved.
In June 2000, we began a European Post Market Surveillance Study to
support our anticipated European market launch of the Biofield Diagnostic
System. The study includes patients with previously identified breast lesions
and has been undertaken to confirm the safety, efficacy and clinical utility of
the Biofield Diagnostic System. The initial preliminary results of this study
were presented on September 28 in conjunction with the 2nd European Breast
Cancer Conference, in Brussels, and indicated that if the diagnostic work-ups of
the first 41 study participants had been stopped, based on the clinical level of
suspicion combined with a negative Biofield Test result, no cancers would have
been missed. This conclusion still needs further confirmation by the study of
additional cases, which currently are underway.
On September 6, 2000, our Board of Directors determined that it was
necessary for our company to raise an additional $1,000,000 for operating
expenses before the end of 2000, and determined to raise such funds through the
private sale of authorized, unissued shares of our common stock. At such time,
Dr. David Long offered his stand-by commitment to purchase any unsubscribed
shares, if such shares were being sold for not more than $0.50 per share and the
closing occurred prior to November 1, 2000, and he advised our Board that he
would purchase such shares without any registration rights or any equity
inducement, such as a further right to subscribe for additional shares in any
further offering at a reduced price. During the thirty day period prior to
September 6, the average closing price for our common stock, as reported by The
Nasdaq Stock Market, Inc. InfoQuote service furnished by Financial Insight
Systems, Inc. was $0.439 per share and such closing price on September 5 was
$0.39 per share. Thereafter, we attempted to sell our common stock at $0.50 per
share and under the other terms offered by Dr. Long by contacting several larger
previous investors in our company and other parties who had advised our officers
and directors of a possible interest in investing in our company. Due to the
small size of the proposed offering and the fact that our common stock was not
trading on any recognized securities exchange, we did not retain a financial
advisor to assist us in the offering. By November 1, 2000, and despite interest
from several investor groups and Dr. Long's stand-by commitment, we were unable
to place all of the offered shares of common stock; whereupon, Dr. Long agreed
to extend his stand-by commitment until December 1, 2000. On December 1, 2000,
only 1,518,000 shares of our common stock had been subscribed for at $0.50 per
share and we advised Dr. Long that we intended to accept his stand-by commitment
for the then unsubscribed portion of the $1,000,000 offering or 482,000 shares,
and that he should wire transfer $241,000 to us for a closing during the week of
December 4, 2000. On such date, the closing price of our common stock, as
reported by The Nasdaq Stock Market, Inc InfoQuote service furnished by
Financial Insight Systems, Inc. was $0.40 per share. On December 2, 2000,
Hambrecht & Quist Capital Management Inc. advised us that two investment
companies for which it had investment authority may be interested in
participating in the offering if it were not too late. Our Board of Directors
then determined to increase the size of the offering by $500,000 and to delay
the closing thereof until December 18, 2000, and the other subscribers agreed to
such extension and increase. The closing of the $1,500,000 private offering
occurred on December 15, 2000 and 3,000,000 of our authorized, unissued shares
of common stock were sold at such time, including 482,000 shares sold to Dr.
Long. On such date, the closing price of our common stock, as reported by The
Nasdaq Stock Market, Inc InfoQuote service furnished by Financial Insight
Systems, Inc. was $0.57 per share.
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BREAST CANCER
Background
Breast cancer is one of the most common cancers among women and,
notwithstanding the currently available detection modalities, is the leading
cause of death among women aged 35 to 54. According to the American Cancer
Society, approximately one in nine women in the United States will develop
breast cancer during her lifetime. In 1999, the American Cancer Society
estimated that during such year approximately 175,000 new cases of invasive
breast cancer among women would be diagnosed in the United States, and that
approximately 43,300 women would die as a result of the disease. Early detection
of breast cancer is critical. There is widespread agreement that screening for
breast cancer, when combined with appropriate follow-up, will reduce mortality
from the disease.
The American Cancer Society recommends that all women over the age
of 40 should undergo breast cancer screening (in the form of physical
examination or mammography screening) as a routine part of preventative
healthcare. For these women, the American Cancer Society has published
guidelines for breast cancer screening, including: (i) monthly breast
self-examinations, and (ii) an annual mammogram for women age 40 and older. As a
result of family medical histories and other factors, certain women are at
"high-risk" of developing breast cancer during their lifetimes. For these women,
physicians often recommend close monitoring, particularly if a potentially
pre-cancerous condition has been detected.
Each year approximately eight million women in the United States
require diagnostic testing for breast cancer because of a physical symptom, such
as a palpable lesion, pain or nipple discharge, discovered through self or
physician examination (approximately seven million) or a non-palpable lesion
detected by screening x-ray mammography (approximately one million). Once a
physician has identified a suspicious lesion in a woman's breast, the physician
may recommend further diagnostic procedures, including diagnostic mammography,
ultrasound or fine needle aspiration. In each case, the potential benefits of
additional diagnostic testing must be balanced against the costs, risks, anxiety
and discomfort to the patient associated with undergoing the additional
procedures. Each of the currently available non-surgical modalities for breast
cancer detection has various clinical limitations.
Screening and Diagnostic Modalities
Physical examinations may be conducted by a physician as part of a
medical examination, or by a woman performing a breast self-examination;
however, a physical examination of the breast can only detect relatively large
lesions, which may be advanced cancers. Furthermore, physical examination of the
breast does not reliably distinguish between malignant and benign tissue. More
than half the women who menstruate will have a lump in a breast at some time
during their life, but only a small percentage of these lumps will be malignant.
Mammography is an x-ray modality commonly used for both routine
breast cancer screening and as a diagnostic tool. A mammogram produces an image
of the internal structure of the breast which is intended to display lesions as
blurry white spots against normal tissue. In a screening mammogram, radiologists
seek to detect the presence of suspicious lesions, while in a diagnostic
mammogram radiologists seek to characterize suspicious lesions. Mammograms
require subjective interpretation by a radiologist and are often uncomfortable
for the patient. Because x-ray mammography exposes the patient to radiation, the
American Cancer Society recommends that mammograms be limited to one per year.
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In addition, x-ray mammography is considered to be less effective for women
under the age of 50 who generally have radiographically dense breast tissue. The
average cost of a diagnostic mammogram is approximately $120 to $160 per
procedure, and requires the use of equipment ranging in cost from approximately
$75,000 to $225,000. Due to the high costs associated with mammography equipment
and the specialized training necessary to operate the equipment and to read the
x-ray images, mammography is usually available only at specialty clinics or
hospitals.
Ultrasound uses high frequency sound waves to create an image of
soft tissues in the body. Like a mammogram, this image requires interpretation
by a physician. Ultrasound's principal role in breast cancer diagnosis has been
to assist the physician in determining whether a palpable lesion is likely to be
a cyst (usually benign) or a solid mass (potentially cancerous). The average
cost of an ultrasound of the breast is approximately $75 to $200 per procedure
and requires the use of equipment ranging in cost from approximately $60,000 to
$200,000. Like mammography, ultrasound is generally available only at specialty
clinics or hospitals.
Other currently available non-surgical diagnostic techniques include
fine needle aspiration, core needle biopsy and stereotactic needle biopsy. In
each of these procedures, a physician seeks to obtain cell samples from a
suspicious lesion through a needle for analysis by a cytopathologist. These
procedures are invasive, require follow-up and range in cost from approximately
$300 to $600 per procedure, and inadequate sampling often renders these
procedures invalid.
Due in part to the limitations of the currently available modalities
to identify malignant lesions, a large number of patients with suspicious
lesions proceed to additional diagnostic procedures, including surgical biopsy,
an invasive and expensive procedure. Approximately 750,000 surgical biopsies are
performed each year in the United States, of which approximately 500,000 result
in the surgical removal of benign breast tissue. The average cost of a surgical
biopsy ranges from approximately $1,000 to $5,000 per procedure. In addition,
surgical biopsy can result in pain, scarring and anxiety to the patient.
Patients who are referred to biopsy usually are required to schedule the
procedure in advance and generally must wait several days to receive their
biopsy results.
THE BIOFIELD DIAGNOSTIC SYSTEM
The Biofield Diagnostic System is intended to provide physicians and
patients with immediate and objective information concerning the probability
that the lesion is proliferative or non-proliferative. Based upon such
information, a physician can recommend whether or not the lesion should be
biopsied or followed up. Only a biopsy, followed by microscopic examination, can
determine whether a lesion is benign or malignant. A breast examination
utilizing the Biofield Diagnostic System, called the "Biofield Test", is
non-invasive and can be performed in a physician's office by a physician or a
medical technician in less than 20 minutes. Single-use sensors of our design are
arranged on the skin surface in and around the quadrant of the breast where a
suspicious lesion has been identified and in corresponding locations on the
asymptomatic breast. A suspicious lesion is generally detected through physical
examination or a mammogram. Sensor readings are measured and analyzed using a
pre-programmed algorithm. The Biofield Diagnostic System generally is intended
only to be used as an adjunct to physical examination or relevant imaging
modalities in women 55 years of age or younger who have palpable breast lesions.
We have determined through our clinical testing that, in women over 55 years of
age, the device did not demonstrate significant enough variations. In addition,
mammograms tests do not perform as well with younger women. As a result, we
determined to focus the use of the device on women with palpable lesions under
56 years in age.
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The output from a Biofield Test will be part of a written report
that will include an objective reading based on a standard clinical measure
(known as level of suspicion or LOS). These results will be rated as LOS 1 -
"normal/no finding", LOS 2 - "probably benign" or LOS 3 - "malignancy not
excluded". The higher the BDS output, the greater the probability the patient
has proliferative disease or cancer in the area examined. This information,
together with other available clinical information, then can be used by the
physician to make further treatment decisions, including whether to proceed to
surgical biopsy. We believe that the Biofield Diagnostic System will offer
patients and physicians several advantages compared with currently available
modalities used in breast cancer diagnosis, including the following:
o It will provide the patient and physician with immediate, objective
test results that characterize a lesion and indicate the probability
that a suspicious lesion is highly proliferative, proliferative or
non-proliferative.
o It is non-invasive, since all measurements are taken from sensors
placed on the skin surface.
o Unlike x-ray mammography, there is no exposure to radiation or
breast compression, which will allow the test to be repeated as
often as needed, especially important for women at high risk for
developing breast cancer and patients requiring follow-up
examination.
o In limited clinical studies to date, it has performed better in the
clinically difficult subgroup of younger women for whom diagnostic
imaging modalities are generally considered less effective.
o The diagnostic examination can be performed by a physician or
medical technician in less than 20 minutes in a physician's office.
o The estimated cost of the device is expected to be significantly
less than the cost of purchasing and installing diagnostic x-ray
mammography or other diagnostic imaging equipment. We believe that
the per procedure costs of testing with the device of between $60
and $125, should be competitive with current costs of diagnostic
mammography and ultrasound.
o It should be preferred by third party payors of health care costs,
since it has the potential of reducing the number of diagnostic
tests, including surgical biopsies, performed on suspicious lesions.
CLINICAL STUDIES
We have used the Biofield Diagnostic System to test over 3,000
participants in the United States, Europe and Japan, involving women with
suspicious breast lesions. The basic protocol for our clinical trials provided
for women with suspicious lesions, detected either by x-ray mammography
screening or a physical examination (self or by physician), to be tested with
the Biofield Diagnostic System before surgical biopsy. Women who participated in
our clinical trials had undergone diagnostic work-ups, which often included a
series of tests, before proceeding to biopsy. In each of our studies, the
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results obtained were then compared to the biopsy results. Based on our clinical
studies to date, and although the Biofield Diagnostic System cannot determine
the presence of breast cancer in all cases, we believe that the Biofield
Diagnostic System, together with other available information, could reduce
diagnostic uncertainty and decrease the number of diagnostic procedures,
including surgical biopsies, performed on suspicious lesions.
The Biofield test is intended to be conducted under the supervision
of a medical practitioner licensed by law to the use of the Biofield Diagnostic
System, and both the technician performing the Biofield test and the supervising
physician must have undergone appropriate training. The Biofield test does not
replace the usual screening methods for detecting breast lesions by mammography
or palpation, nor evaluation using biopsy when appropriate. Moreover, efficacy
in patients with a history of breast cancer or breast augmentation, as well as
patients who have had recent fine needle aspiration of a suspicious lesion or
who have undergone chemotherapy or radiation therapy within three years, have
not been fully evaluated by our research and it is not known whether the
Biofield test is applicable for these patients. Furthermore, certain conditions
are believed to confound the results of the Biofield test, and patients with
these conditions have been excluded from our studies. These conditions include
women who have undergone active tamoxifen or raloxifene therapy within the past
three months, women with clinically diagnosed active mastitis, women with
visible or known dermatological conditions or other physical abnormality
precluding the application of all necessary sensors, women with a known allergy
to adhesives or ECMs used to apply electrocardiogram or electroencephalogram
sensors, women with only a single breast, women with active electrically powered
implanted devices, women with breast tattoos and nipple jewelry and pregnant
woman.
OTHER POSSIBLE PRODUCT
Based on our clinical experience with the Biofield Diagnostic System
for testing women that have symptoms of breast cancer (often referred to as
symptomatic women) and our belief that the electrophysiological characteristics
of cancer are similar for both lesions that can be felt in a physical
examination (palpable) and those lesion that cannot be felt in a physical
examination (non-palpable lesions), we believe that our technology should be
adaptable for breast cancer screening in women who have not demonstrated any
symptoms of breast cancer (often referred to as asymptomatic women). Based on
this belief, we are developing a prototype design of an enhanced version of the
Biofield Diagnostic System which may be useful as a screening system. The
enhanced version of the Biofield Diagnostic System will contain additional data
channels to allow for more sensors to surround the breast or other area where a
lesion is present and an algorithm to better analyze the data received. However,
we have not yet completed a final sensor configuration for the proposed device,
nor have we commenced any clinical testing for the proposed device, since we
believe that the protocol for a full-scale clinical trial would involve
significant financial resources. As a result, we cannot assure you when, if
ever, any further efforts will be made to complete the development of the
proposed device.
We believe that the need exists for products which will provide
early and accurate detection of types of cancers found in the epithelial tissue
other than breast cancer. On-going preclinical research has been designed to
obtain additional scientific knowledge of the fundamentals underlying our core
technology and to identify new applications based on our technology for the
detection of other cancers, including cancer of the ovaries, skin, prostate and
colon. However, due to the cost of this research and our limited financial
resources, we have not pursued any efforts in this regard since 1996, and we
cannot assure you when, if ever, any further efforts will be undertaken.
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GOVERNMENT REGULATION
The manufacture and sale of medical devices intended for commercial
distribution are subject to extensive governmental regulation both in the United
States and abroad.
United States Regulations
The FDA regulates the research, testing, manufacture, safety,
labeling, storage, record keeping, advertising, distribution and production of
medical devices in the United States under the Food, Drug and Cosmetic Act.
FDA'S PRE-MARKET CLEARANCE AND APPROVAL REQUIREMENTS. Unless an
exemption applies, no medical device can be marketed in the United States
without receiving either "510(k) clearance" or "PMA approval" in advance from
the FDA. The FDA's 510(k) clearance process usually takes from four to 12
months, but it can take longer. The process of obtaining PMA approval is much
more costly, lengthy and uncertain; it generally takes from one to three years
and can take even longer. We cannot assure you that 510(k) clearance or PMA
approval will ever be obtained for any product that we may propose to market in
the United States.
The FDA decides whether a device must undergo either the 510(k)
clearance or PMA approval process, based upon statutory criteria. These criteria
include the level of risk that the FDA perceives is associated with the device
and a determination as to whether the device to be cleared is within a type that
is similar to devices that are already legally marketed. Devices deemed to pose
relatively less risk are placed in either class I or II, which requires the
manufacturer to submit a pre-market notification requesting 510(k) clearance,
unless an exemption applies. The pre-market notification must demonstrate that
the device to be cleared is "substantially equivalent" in intended use and in
safety and effectiveness to a legally marketed "predicate device" that is either
in class I or class II, or is a "preamendment" class III device (i.e., one that
was in commercial distribution before May 28, 1976) for which the FDA has not
yet decided to require PMA approval. After a device receives 510(k) clearance,
any modification that could significantly affect its safety or effectiveness, or
that would constitute a major change in its intended use, requires a new 510(k)
clearance or PMA approval.
Devices deemed by the FDA to pose the greatest risk (e.g.,
life-sustaining, life-supporting or implantable devices) or deemed not
substantially equivalent to a legally marketed predicate device, are placed in
class III. Such devices are required to undergo the PMA approval process in
which the manufacturer must prove the safety and effectiveness of the device to
the FDA's satisfaction. An application for PMA approval must provide extensive
preclinical and clinical trial data and also information about the device and
its components regarding, among other things, manufacturing, labeling and
promotion. After approval of a PMA, a new PMA or PMA supplement is required in
the event of a modification to the device, its labeling or its manufacturing
process. As part of the PMA review, the FDA will typically inspect the
manufacturer's facilities for compliance with Quality System Regulation,
requirements which impose elaborate testing, control, documentation and other
quality assurance procedures.
Upon submission, the FDA determines if the application for PMA
approval is sufficiently complete to permit a substantive review, and, if so,
the application is accepted for filing. The FDA then commences an in-depth
review of the application, which typically takes one to three years, but may
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take longer. The review time is often significantly extended as a result of the
FDA asking for more information or clarification of information already
provided. The FDA also may respond with a "not approvable" determination based
on deficiencies in the application and require additional clinical trials that
are often expensive and time consuming and can delay approval for months or even
years. During the review period, an FDA advisory committee, typically a panel of
clinicians, likely will be convened to review the application and recommend to
the FDA whether, or upon what conditions, PMA approval should be considered.
Although the FDA is not bound by the advisory panel decision, the panel's
recommendation is important to the FDA's overall decision making process.
If the FDA's evaluation of the application is favorable, the FDA
typically issues an "approvable letter," requiring the applicant's agreement to
specific conditions (e.g., changes in labeling) or specific additional
information (e.g., submission of final labeling) in order to secure final
approval of the application. Once the approvable letter is satisfied, the FDA
will issue a PMA for the approved indications, which can be more limited than
those originally sought by the manufacturer. The PMA can include post-approval
conditions that the FDA believes are necessary to ensure the safety and
effectiveness of the device including, among other things, restrictions on
labeling, promotion, sale and distribution. Failure to comply with the
conditions of approval can result in significant adverse enforcement action,
including the loss or withdrawal of the approval. The PMA process can be
expensive and lengthy, and we cannot assure you that any application for PMA
approval made by us will ever be approved for marketing the covered device. Even
after approval of a PMA, a new PMA or PMA supplement is required in the event of
a modification to the device, its labeling or its manufacturing process.
A clinical trial may be required in support of a 510(k) submission
or an application for PMA approval. Such trials generally require an
Investigational Device Exemption application approved in advance by the FDA for
a limited number of patients, unless the product is deemed a non-significant
risk device eligible for more abbreviated IDE requirements. The IDE application
must be supported by appropriate data, such as animal and laboratory testing
results. Clinical trials may begin if the IDE application is approved by the FDA
and the appropriate institutional review boards at the clinical trial sites.
In December 1996, we submitted to the FDA our application for PMA
approval of the Biofield Diagnostic System. Our application was based
principally upon the results of clinical trials on over 1,200 women tested at
six U.S. medical institutions under the direction of physicians involved in
breast cancer diagnosis and treatment. In February 1997, the FDA informed us
that our application had not been accepted for filing and requested us to
respond to the following deficiency:
"The design of the clinical trial is not valid. You have tested several
algorithms on the PMA data set and selected the one that gave the most
desired results. This is not an accepted procedure for definitive data
sets. You will need to select a final algorithm. Then you must test it
with an independent data set for sensitivity, specificity, etc. The design
of the clinical trial must provide data that supports the indications for
use which should include the impact on patient management."
Since then, we have had discussions with the FDA about the design
and protocol for additional clinical trials in support of the re-submission of
our application for PMA approval of the Biofield Diagnostic System. The timing
of patient enrollment in our additional clinical trials will depend upon
completion of our development of a clinical trial design and protocol acceptable
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to the FDA and our receipt of approval to conduct the additional clinical trials
from the institutional review boards of the proposed study sites, and we cannot
assure you that the FDA's design requirements will not significantly prolong the
time required to complete our clinical trials. The enrollment phase of the
additional clinical trials is expected to take several months or longer,
followed by data analysis. The time necessary to complete the additional
clinical trials will depend upon numerous factors, including the overall design
of the studies, the number of patients to be included, the criteria for patient
inclusion, the ability to recruit and enroll patients and the time required to
analyze the clinical results. We currently anticipate starting the enrollment
phase for additional clinical trials by the end of 2001. We also have completed
additional clinical trials in Europe. In addition, a Pre-Market Surveillance
Study currently is in progress in Europe, which should provide another 200 to
300 cases performed under real-life conditions in the field where the Biofield
Diagnostic Device will be used.
We believe that the information from these clinical studies and the
Study, after evaluation, should provide additional evidence on efficacy for the
FDA. After such evaluations, additional actions would still need to be taken in
preparation for submission to the FDA of our application for PMA approval. The
principal actions would consist of hiring a regulatory staff, meeting with the
FDA to discuss our proposed submission, setting up clinical trial sites,
obtaining necessary IRB approvals, procuring the necessary devices and sensors
and conducting additional clinical trials. Thereafter, we would conduct
additional data evaluation and redraft our application to the FDA for PMA
approval. We expect that the entire process will take from one to three years
before our application would be submitted and that the process will cost up to
$8 million. We cannot assure you that the FDA will accept our application for
filing, that the clinical data we obtain will support PMA approval, or that we
will obtain PMA approval in a timely fashion, if at all.
PERVASIVE AND CONTINUING FDA REGULATION. A host of regulatory
requirements apply to marketed devices, including labeling regulations, the
Quality System Regulation (which requires manufacturers to follow elaborate
design, testing, control, documentation and other quality assurance procedures),
the Medical Device Reporting regulation (which requires that manufacturers
report to the FDA deaths or serious injuries associated with regulated products
and product malfunctions that would likely cause or contribute to death or
serious injury if the malfunction were to recur, and the FDA's general
prohibition against promoting products for unapproved or "off-label" uses. Class
II devices also can have special controls (e.g., performance standards,
post-market surveillance, patient registries and FDA guidelines) that do not
apply to class I devices. We cannot assure you that unanticipated changes in
existing regulatory requirements or adoption of new requirements would not have
a significant adverse effect on our business and financial condition.
Upon commencing commercial distribution, we will be subject to
inspection by the FDA to determine compliance with regulatory requirements. If
the FDA finds that we have failed to comply, it can institute a wide variety of
enforcement actions. The FDA sometimes issues a public warning letter, but also
may pursue more severe remedies such as fines, injunctions, and civil penalties
against us; recall or seizure of our products; operating restrictions, partial
suspension or total shutdown of our production; refusing our requests for 510(k)
clearance or PMA approval of new products; withdrawing product approvals already
granted; and criminal prosecution. Any FDA enforcement action could have a
significant adverse effect on our business and financial condition.
OTHER U.S. REGULATION. We must comply with numerous federal, state
and local laws relating to such matters as safe working conditions,
manufacturing practices, environmental protection, fire hazard control and
hazardous substance disposal. We cannot assure you that we will not be required
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to incur significant costs to comply with such laws and regulations in the
future or that such laws or regulations will not have a significant adverse
effect on our business and financial condition.
Unapproved products subject to the FDA's pre-market application
requirements must receive prior FDA export approval to be marketed outside of
the United States, unless they are approved for use by a member country of the
European Union (Austria, Belgium, Denmark, Finland, France, Germany, Greece,
Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and the United
Kingdom) 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 FDA notification requirements are met.
Foreign Regulations
Sales of medical device products outside the United States are
subject to foreign regulatory requirements that vary widely from country to
country. The time required to obtain approvals required by foreign countries may
be longer or shorter than that required for FDA approval, and requirements for
licensing may differ from FDA requirements.
To sell medical devices within the European Union, companies are
required to achieve compliance with the requirements of the Medical Devices
Directive issued by the European Union and be capable of affixing a "CE" marking
on their medical devices to attest to this compliance. To achieve a CE marking,
the device is required to meet the Essential Requirements as defined under the
Directive, relating to safety and performance of the device, and the company
must successfully undergo verification of its regulatory compliance (known as a
"conformity assessment") by an appropriate approved standards agency or
"notified body". The company also is required to comply with additional national
requirements that are beyond the scope of the Directive.
We have received approval by the notified body KEMA-Registered
Quality, Inc. to market the Biofield Diagnostic System and our sensors under the
CE Mark Certification, and this notified body has granted certified ISO-9001
Quality System status for design, production management, sales and distribution
of the Biofield Diagnostic System. In order to obtain such approvals, KEMA
personnel conducted a detailed review of our technical files and records and
reviewed certain of our medical research files; however, KEMA did not conduct
any confirming research. KEMA did not comment on our clinical research. At the
conclusion of the review, KEMA provided to us a Certificate of Conformity for
the product category "electropentials systems for the diagnosis of epithelial
cancers". KEMA did not offer any endorsement of the efficacy of the Biofield
Diagnostic System.
The CE Mark Certification and the ISO-9001 Quality System status
(which status is subject to semi-annual audit by KEMA) permit us to commence
sales in Europe and other countries that recognize CE Mark Certification,
without obtaining any further regulatory approval. Since we anticipate that our
initial distribution will be in Europe, our failure to maintain compliance with
appropriate Directive and other applicable requirements could have a significant
adverse effect upon our business.
MANUFACTURING
We are a development and marketing company and do not manufacture
any of our products or prototypes. We have used contract manufacturers who meet
current quality system regulations and good manufacturing practices requirements
imposed by the FDA to produce the initial quantities of the Biofield Diagnostic
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Device and disposable sensors used in our clinical trials, and intend to
continue to use contract manufacturers to satisfy our additional needs for
future clinical studies and for the production of commercial quantities, when
and if we engage in commercial sales. Electronic components and raw materials
used in the Biofield Diagnostic Device and our sensors are available from
numerous suppliers. Some components are stock items, while others have been
designed and manufactured to our specifications. The specifications for the
Biofield Diagnostic Device and our sensors are treated as a trade secret. We own
certain molds and other equipment used to manufacture our components, although
these items are located at our contract manufacturers.
SeaMED Corporation has been our contract manufacturer for the
Biofield Diagnostic Device pursuant to an agreement which expires May 15, 2001.
SeaMED warrants the manufactured equipment for a period of 12 months after
delivery or 15 months after order placement, which ever is shorter. SeaMED also
performs repair and service pursuant to an agreement with us which expires on
May 1, 2001, subject to automatic annual renewal if the agreement is not
terminated by either party within 90 days before the end of the then current
term. Our arrangement with SeaMED requires us to have SeaMED manufacture at
least 50% of our requirements for the Biofield Diagnostic Device (except to the
extent manufactured by Asian headquartered manufacturers for sale in Asia) until
May 2001. We have arranged with Ludlow Technical Products Inc. to contract
manufacture the sensors we have designed for use with the Biofield Diagnostic
Device who, in turn, has contracted with Dow Pharmaceutical Sciences to supply
the gel which is used with our sensors.
We have determined to seek qualification of a second manufacturer
for the device, but have determined not to seek an additional source of supply
for our sensors at this time. Although we have commenced the process to qualify
a second manufacturer, by selecting a possible supplier, such supplier currently
is reviewing an engineering unit of the device and has not yet submitted a
proposal to us. For additional information, see "Risk Factors - If Our Single
Source Suppliers Are Unable to Deliver, Our Business Would Suffer."
MARKETING AND SALES
General
As a result of the large number of diagnostic procedures that are
performed on suspicious breast tissue in the United States, we intend to focus
our marketing efforts on the clinical ability of the Biofield Diagnostic System
to reduce diagnostic uncertainty and decrease the number of diagnostic tests
performed on these suspicious lesions. We believe that the market for the
Biofield Diagnostic System will include physicians involved in the detection and
management of breast cancer, including radiologists, gynecologists, general
surgeons, breast surgeons and general practitioners, as well as hospitals and
clinics. We anticipate that, if the Biofield Diagnostic System is approved by
the FDA, we will market this product in the United States through one or more
distribution partners. We have not commenced discussions with any potential
distribution partners and we cannot assure you that any discussions which we may
have will result in any strategic or other relationship.
We believe that physicians who use the Biofield Diagnostic System
will probably set a procedure cost for use of our device which will be
competitive with the current procedure costs of diagnostic mammography and
ultrasound. Although we have not sold the Biofield Diagnostic System in the
U.S., at such time, if at all, as we receive pre-market approval from the FDA,
we currently expect to price the device at under $30,000, which will be
substantially less than the cost of diagnostic mammography equipment or
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ultrasound systems, which range in price from approximately $60,000 to $225,000.
We also currently expect to price our single-use sensors at approximately $80.
The laws of certain European countries permit us to begin marketing
the Biofield Diagnostic System in Europe before the FDA permits marketing in the
United States. We currently anticipate commencing our European marketing efforts
during the last quarter of 2000, at which time we expect to price the device at
less than $30,000 and price our single-use sensors at approximately $80.
We have limited internal marketing experience and personnel. Our
current marketing/sales staff consists solely of our vice president - worldwide
sales and marketing, who is headquartered in Switzerland. To market the Biofield
Diagnostic System or any other products we may develop, we will have to develop
a marketing and sales force with technical expertise and distribution
capabilities.
Effect of Third Party Reimbursement
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 (i.e., Medicare,
Medicaid, private health insurance, health administration authorities in foreign
countries and other organizations) may affect the pricing or relative
attractiveness of our products by regulating the maximum amount of reimbursement
provided for by these payors to the physicians and clinics utilizing our
products, or by taking the position that reimbursement is not available, at all,
for the attendant procedures.
We believe that the availability and level of third party
reimbursement will impact the decisions of physicians, clinics and hospitals to
purchase and use our products and, thereby, affect the pricing of our products.
In the United States, many patients are reimbursed for mammograms, in amounts
which vary considerably by the location in which the procedure is performed. Our
intended marketing strategy is to obtain approval of payments to physicians
using our products, to work with professional organizations to foster awareness
and support for our products and to enlist the assistance of opinion leaders in
making presentations to health care administrators to inform them of the
benefits of the additional data provided by the Biofield Diagnostic System and
of the potential pharmaco-economic benefits resulting from its use.
Several states and the federal government are investigating a
variety of alternatives to reform the health care delivery system and reduce and
control health care spending. These reform efforts include proposals to limit
spending on health care items and services, limiting coverage for new technology
and limiting or controlling the price health care providers and drug and device
manufacturers may charge for their services and products. The scope and timing
of these reforms cannot be predicted, but if adopted and implemented, these
reforms could have a significant adverse effect on our business.
Reimbursement for use of the Biofield Diagnostic System in
international markets will vary and be determined on a country-by-country basis.
Although we intend to pursue efforts to obtain reimbursement status in major
European markets, we do not yet have a schedule for commencing these efforts and
cannot assure you of the level of success, if any, of our efforts once
commenced. In the countries comprising the Europe Union as well as those other
countries that recognize CE Mark certification, our ability to achieve any
market penetration may depend upon the availability of third party governmental
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reimbursement. Initially, we expect that the Biofield Diagnostic System will be
used in situations where the patient is responsible for the cost of the
procedure.
PATENTS AND PROPRIETARY INFORMATION
We have a number of issued U.S. and foreign patents, the earliest of
which expires in 2007, relating to our products and technology, and have
applications for a number of patents pending. Since the technology applicable to
our products is rapidly developing, any patent rights which we have or may
obtain may not provide us with any competitive advantage. A number of companies
may have filed applications for, or have been issued, patents relating to
technology that is similar to some of the technology developed or used by us.
We also seek to protect our intellectual property rights through a
combination of trade secret, non-disclosure and other contractual arrangements.
We generally enter into confidentiality agreements with our employees,
consultants, vendors and clinical investigators and attempt to limit access to
and distribution of our proprietary information.
We may be required to obtain licenses to patents or other
proprietary rights from third parties. We cannot assure you that any licenses
required under any patents or proprietary rights would be made available to us
on acceptable terms, if at all. If we are unable to obtain required licenses, we
could encounter delays in product development or find that the development,
manufacture or sale of products requiring these licenses could be foreclosed.
From time to time, we may support and collaborate in research
conducted by universities and governmental research organizations to obtain
rights to use the resulting technical information and any inventions which may
arise from these efforts. In these circumstances, it is not unusual for the
university or research organization to retain certain rights, which then could
be licensed to others.
LICENSES AND OTHER AGREEMENTS
We are a party to several licensing and royalty arrangements
relating to the Biofield Diagnostic System, as well as to prior versions of this
product.
We have a royalty agreement with Teiresias, Inc. and its founder who
provided consulting services to us in connection with the original design and
fabrication of an early prototype of the Biofield Diagnostic System, if we use
depolarized, pre-gelled electrodes with the Biofield Diagnostic System. The
Biofield Diagnostic System no longer uses these electrodes and we do not
currently anticipate that it will do so.
We have a royalty arrangement under a terminated employment
agreement with Mark L. Faupel, Ph.D., our former Vice President, Research and
Development, pursuant to which we were obligated to pay royalties based on two
percent of gross sales of a prior version of the Biofield Diagnostic Device and
its sensors, which are no longer being marketed, and one percent of gross sales
of any pre-gelled electrodes used in connection with the Biofield Diagnostic
Device, through 2005 or until these royalties reach $8 million, whichever comes
first.
We have a 1992 royalty agreement with Abel Laboratories, Inc., an
affiliate of our Chairman and Chief Executive Officer, Dr. David Long. Under our
agreement, Abel assigned to us all of its rights and interests in all inventions
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and/or technology conceived and/or developed by it in connection with laboratory
services performed by it for us which relate to the use of bioelectronics in the
diagnosis, screening or management of disease, infection, ovulation or other
bioelectric events. Under our agreement, Abel is entitled to royalties of 5% of
net sales of products incorporating any of these inventions or technology which
are embodied in any patent issued to us, during the life of the patent, up to a
maximum of $2 million per patent, as well as a portion of the proceeds we may
receive from the license of these patents to others. As of July 31, 2000, one
patent has been issued to us which is covered by this agreement.
On October 16, 2000, we entered into a license agreement with Cardio
Dynamics International Corporation, a manufacturer of disposable electrical
bio-impendence devices, for its use of our interconnect design patent on cables
to be manufactured by it. The initial term of the agreement expires on December
31, 2003 and is renewable by Cardio Dynamics for an additional two years
provided that we are able to agree on a minimum royalty for such additional
term. The fee to be paid to us for the non-exclusive license is based upon the
number of devices manufactured under the agreement which constitute a licensed
product. We have the right to terminate the agreement if we do not receive
minimum royalties of $1,957 with respect to the year 2000, $19,770 with respect
to the year 2001, $46,890 with respect to the year 2002 and $98,465 with respect
to the year 2003.
RESEARCH AND DEVELOPMENT
All of our research and development activities have been related to
our core technology and our attempt to commercialize this technology. Since we
are still in the development stage, our research and development activities have
been substantial. During 1998, our research and development expenses aggregated
approximately $6.7 million. During 1999, due to a severe reduction in our
available financial resources and our decision to curtail operations, we reduced
these expenses to approximately $293,000. We anticipate that these
expenditures, which will be limited by our available financial resources, will
continue to be substantial for at least the next several years. We expect to
fund these expenditures from the issuance of our equity securities, assuming
that a market for our equity securities exists, revenues from operations, if
any, and third party loans, if obtainable.
COMPETITION
The medical device industry generally, and the cancer diagnostic and
screening segments in particular, are characterized by rapidly evolving
technology and intense competition. Existing breast cancer diagnostic tools will
compete with our Biofield Diagnostic Device, including imaging equipment such as
MRI systems manufactured by Hitachi Medical Corporation of America, Royal
Philips Electronics, Siemens AG, Toshiba America Medical Systems and others;
x-ray mammography equipment manufactured by General Electric Company, Royal
Philips Electronics, Siemens AG, Picker International division of Marconi plc
and others; ultrasound or high frequency ultrasound systems manufactured by
Aligent Technologies Inc., Siemens AG, Toshiba America Medical Systems, Royal
Philips Electronics and others; stereotactic needle biopsy devices manufactured
by Royal Philips Electronics, Johnson and Johnson Company, Siemens AG and
others; thermograph devices manufactured by Scanted Medical Inc. and Lifeline
BioTechnologies Inc.; blood and/or genetic tests manufactured by Bayer
Corporation, Hoffman-La Roche Ltd., Eli Lilly and Company and others; and
electrical impedance and transilluminational devices manufactured by TranScan
Research & Development Co. Ltd. Other emerging cancer diagnostic devices and
technologies which might compete with the Biofield Diagnostic System, include
OmniCorder, manufactured by BioScan Screening Systems, Inc., which looks at
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changes in blood flow surrounding cancer using themography for viewing and
recording heat patterns and R2 Technology, Inc.'s IMAGECHECKER (R), a
computer-aided detection device for mammography. In addition, other companies
which produce devices utilizing these tools, as well as other companies which
may be developing, or could in the future attempt to develop, additional
products which assist in diagnosing cancers, including non-invasive products,
could compete with the Biofield Diagnostic System.
Substantially all of these companies have significantly greater
resources and name recognition than we do and substantially greater expertise
than us in research and development. Since all of these companies have existing
products, they each possess substantially greater experience in manufacturing,
marketing and obtaining regulatory approvals.
Our competitors may succeed in developing or marketing technologies
and products that are more effective than those developed or marketed by us or
that would render our technology and products obsolete or noncompetitive.
Additionally, we cannot assure you that we will be able to successfully compete
against these competitors and potential competitors. Although we believe that
our products may offer certain advantages over our competitors' products,
earlier entrants in the market for a diagnostic application often obtain and
maintain significant market share relative to later entrants, such as us.
Physicians using currently existing imaging equipment, or other
diagnostic techniques, may determine not to use the Biofield Diagnostic System
or any other products that we may develop. Currently, mammography is employed
widely and sales, if any, of the Biofield Diagnostic System will, in part, be
dependent on our ability to demonstrate its additional clinical utility as an
adjunct to mammography and/or physical examination, and its advantages over
other available diagnostic tests and products.
EMPLOYEES
As of December 27, 2000, our only full-time employees were our three
executive officers - Dr. David M. Long, Jr., John D. Stephens and Nancy
Bruyneel, one of whom is involved primarily in management, financial and
administrative functions, one of whom is involved primarily in marketing and one
of whom is involved primarily in data management and supervises our research and
development activities. In addition, as of such date, we had four part-time
employees and use substantial time of an independent consultant. We believe that
our employee relations are good. None of our employees is covered by a
collective bargaining agreement.
Due to the specialized scientific nature of our business, we are
highly dependent upon our ability to timely attract and retain qualified
scientific, technical and managerial personnel. The loss of the services of
existing personnel, as well as our failure to recruit key scientific, technical
and managerial personnel in a timely manner would be detrimental to our research
and development programs and to our business. Our 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 we cannot assure you that we will be able
to timely attract and retain qualified personnel necessary for the development
of our business.
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RISK FACTORS
We Have a Limited Operating History
We have had a limited history of operations. Since our inception in
October 1987, we have engaged principally in the development of the Biofield
Diagnostic System, which has not been approved for sale in the United States.
Consequently, we have little experience in manufacturing, marketing and selling
our products.
We Expect to Continue to Incur Significant Operating Losses
We currently have no significant source of operating revenue and
have incurred net operating losses since our inception. At December 31, 1999, we
had an accumulated deficit of $57,428,212, which had increased to approximately
$58,446,280 as of September 30, 2000. These losses have resulted principally
from costs incurred in research and development and clinical trials and from
general and administrative costs associated with our operations. We expect
operating losses to continue for at least the next several years due principally
to the anticipated expenses associated with the pre-market approval process for
the Biofield Diagnostic System, the development of, and additional clinical
trials for, the Biofield Diagnostic System, the proposed commercialization of
the Biofield Diagnostic System and other research and development activities.
Our Business May Never Become Profitable
Our ability to achieve profitability will depend, in part, on our
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 our self or in collaboration with others.
We cannot assure you when, or if, we 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.
We Will Require Significant Additional Capital to Continue to
Develop our Products, Which May Not Be Available
We expect that we will need up to $8 million to complete all the
steps necessary to receive approval from the FDA, including clinical trials and
regulatory matters and still substantial additional funds for operating
expenses, other research and development programs and marketing programs. If we
can gain any level of market acceptance for our products, still more additional
funding would be needed for commercialization of our products and the internal
costs attendant thereto. Moreover, our fixed commitments, including salaries and
fees for current employees and consultants, rent, payments under license
agreements and other contractual commitments, including commitments to previous
service providers and others which are contingent upon improvement in our cash
position and have been extended until some indefinite future time when our cash
position improves, are substantial and are likely to increase as additional
agreements are entered into and additional personnel are retained. We do not
expect to generate positive cash flow for at least several years, if at all, due
to expected increases in capital expenditures, working capital needs and ongoing
losses, including the expected cost of commercializing the Biofield Diagnostic
System. However, our cash requirements may vary significantly 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 our research and development programs, competitive and
technological advances, the FDA and foreign regulatory processes and other
factors. We cannot assure you that additional financing will be available when
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needed or, if available, will be available on acceptable terms. Insufficient
funds will prevent us from implementing our business strategy and will require
us to delay, scale back or eliminate certain, or all, of our research and
product development programs or to license to third parties rights to
commercialize products or technologies that we otherwise would seek to develop
ourselves.
Our Products are in the Early Stage of Development and We May Never Be
Able to Bring Them to Market or Sustain Their Sales After Regulatory Approval
Before any of our products that we are currently developing can be
marketed and sold, we must undertake substantial research and development. All
new products face a high degree of uncertainty, including the following:
o We may not receive regulatory approval to perform human clinical
trials for the products we currently have planned or we may be
unable to successfully complete our ongoing clinical trials.
o The results from preclinical studies and clinical trials may not be
indicative of results that will be obtained in later-stage testing.
o We may not be able to timely recruit a sufficient number of patients
for our clinical trials. Delays in planned patient enrollment may
result in increased costs and delays.
o We may not be able to obtain U.S. regulatory approval if we are
unable to demonstrate that the product is safe and effective for the
intended use, and obtaining regulatory approval may take
significantly more time and cost significantly more money than
anticipated.
o We may determine that the product has undesirable or unintended side
effects or other characteristics that may make it impossible or
impracticable for us to continue development or which may limit the
product's commercial use.
o We may not be able to produce the product in commercial quantities
at reasonable cost.
o We may not be able to successfully market the product or to find an
appropriate corporate partner, if necessary, to assist us in the
marketing of the product.
o The product may not gain satisfactory market acceptance.
o The product may be superceded by another product commercialized for
the same use or may infringe patents issued to others, which would
prevent us from marketing and selling the product.
o After approval, the product may be recalled or withdrawn at any time
as a result of regulatory issues, including those concerning safety
and efficacy.
If we are unable to develop products that we can successfully
market, our business, financial condition and results of operations will be
significantly and adversely affected.
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We Are Currently Dependent on a Single Product Which Has Not Yet
Been Commercialized
Although we are in the process of developing additional applications
for our product based on our core technology, none of these applications is
expected to result in a commercial product for at least several years, if at
all. Consequently, until it is approved for commercial distribution in the
United States, limited distribution of the Biofield Diagnostic System in Europe
will account for substantially all of our revenues. Failure to gain U.S.
regulatory approval or market acceptance for the Biofield Diagnostic System
would have a significant adverse effect on our business.
We May Not be Able to Commence Marketing Our Products as Planned
While we currently anticipate commencing marketing of our Biofield
Diagnostic System in certain European countries by the end of this year, we
cannot assure you that we will meet this schedule as we do not currently have
the necessary financial resources or personnel. If were are unable to begin
marketing as planned, our business could be significantly and adversely
affected.
Our Contract Manufacturers May Be Unable to
Produce Commercial Quantities of Our Products
Our current contract manufacturers have manufactured limited
quantities of our products and we cannot assure you that they will be able to
manufacture in larger volume, when or if the need may arise. If this situation
occurs, our business could be significantly adversely affected.
If Our Single Source Suppliers Are Unable to Deliver, Our Business Would
Suffer
The qualification of additional or replacement suppliers for our
products and their components is a lengthy process, and would take up to nine
months to be qualified once such suppliers are identified. For certain services
and components, we currently rely on single suppliers. If we encounter delays or
difficulties with our third-party suppliers in producing, packaging or
distributing our products and their components, market introduction and
subsequent sales would be significantly adversely affected. If we are required
to rely on alternative sources of supply, we cannot assure you that we will be
able to enter into alternative supply arrangements at commercially acceptable
rates, if at all. If we are unable to obtain or retain qualified suppliers and
contract manufacturers on commercially acceptable terms, we will not be able to
commercialize our products as planned. Our dependence upon third parties for the
manufacture and supply of our products and components may significantly
adversely affect our ability to attain a profit and our ability to develop and
deliver our products on a timely and competitive basis.
We May Not Be Able to Adapt Our Technology to Other Products
We cannot assure you that our technology can be adapted for breast
cancer screening or for the detection of other cancers. Furthermore, we also
cannot assure you even if we can adapt any proposed devices, that these devices
would be submitted for FDA approval (or for approval by any comparable foreign
regulatory bodies) or would be commercially viable.
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We Do Not Currently Have the Financial Resources
to Develop Our Technology to Other Products
Due to our limited financial resources, we do not know when, if at
all, we will be able to commence development efforts for any of our other
proposed products. If we are unable to develop any additional products or uses
for our current product, our business could be adversely affected.
We May Not Be Able to Obtain Government Regulatory
Approval to Market and Sell Our Products
Regulation by governmental authorities in the United States is a
significant factor in the manufacture and marketing of our products as well as
our research and development activities. All of our proposed products will
require regulatory approval by governmental agencies before commercialization
and our products must undergo rigorous preclinical and clinical testing and
other pre-market approval procedures by the FDA. Once we begin to develop a
product, the necessary actions, including pre-clinical and clinical trials,
needed to obtain required regulatory approval to commercialize that product and
begin to market it to the public are expected to take a number of years. Various
federal and, in some cases, state statutes and regulations also govern or
influence the manufacturing, safety, labeling, storage, record keeping and
marketing of medical devices. The lengthy process of seeking these approvals,
and the subsequent compliance with applicable statutes and regulations, will
require us to expend substantial resources. If we fail to obtain or are
otherwise substantially delayed in obtaining, regulatory approvals, our business
and operations could be significantly and adversely affected. The regulation of
medical devices, particularly in Europe, continues to develop and there we
cannot assure that, as new laws and regulations are adopted, these actions will
not have an adverse effect on us.
Our Products Are Subject to Continuing Review by the FDA
which Could Impact Our Ability to Sell then in the Future
Changes to our products or the manner in which they are used after
they are approved will require additional approval by the FDA. Our failure to
receive approval of such a change on a timely basis, or at all, would have a
significant adverse effect on our business.
A Failure of Our Contract Manufacturers to Comply with FDA
Regulations Would Impact Our Ability To Sell Our Current Product
We cannot assure that our manufacturers will be in compliance with
the FDA's quality system regulations and good manufacturing practices when they
are inspected by the FDA, or that they will maintain this compliance. A failure
to maintain compliance could significantly delay approval of our pre-market
application to the FDA for the Biofield Diagnostic System or prevent us from
marketing the Biofield Diagnostic System if we obtain this approval, and would
have a significant adverse effect on our business.
If Foreign Regulatory Approvals Are Withdrawn, Our Business Will Suffer
We can not assure you that the foreign regulatory approvals that we
have received, which allow us sell the Biofield Diagnostic System in certain
foreign countries, will not be withdrawn. Our failure to continue to maintain
these approvals or to obtain any additional foreign approvals could have a
significant adverse effect on our business.
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Changes to Health Care Reimbursement Could Adversely Affect Us
Our ability to successfully commercialize our products will depend,
in part, on the extent to which reimbursement for the cost of our products and
related treatment will be available from government health administration
authorities, private health insurers and other organizations. These third-party
payers are increasingly challenging the price of medical products and services.
Several proposals have been made that may lead to a government-directed national
health care system. Adoption of this type of system could further limit
reimbursement for medical products, and we cannot assure you that adequate
third-party coverage will be available to enable us to establish, and then
maintain, price levels sufficient to realize an appropriate return on our
investment in product development. In addition, we also cannot assure you that
the U.S. government or foreign governments will not implement a system of price
controls. Any system might significantly and adversely affect our ability to
market our products profitably.
We Expect to Encounter Difficulty in Hiring Required Personnel and
The Loss of any Key Personnel Would Adversely Affect our Operations
As a small medical technology company, we are heavily dependent upon
the talents of key personnel. Since we only recently have started to recommence
our operations, we have not yet hired all of the required personnel we will
need. Competition for qualified personnel in the biotechnology industries is
intense and we do not know if we will be successful in our recruitment efforts.
If we are unable to attract, and then retain, qualified personnel, our
operations would be significantly adversely affected.
Our Limited Marketing and Sales Experience and Capability Could
Impact Our Ability to Successfully Sell Our Current Products
We currently do not have a marketing or sales organization to market
the Biofield Diagnostic System. If we are unable to build and then maintain a
marketing organization and a sales force, either directly or through third
parties, our financial condition and operating results would be significantly
adversely affected.
Our Results of Operations May Suffer if Foreign Trade
is Restricted or Foreign Regulations are Modified
We intend to commence commercial sales of the Biofield Diagnostic
System in Europe before we commence this activity in the United States, where
sales cannot occur unless and until we receive pre-market approval from the FDA.
Thus, until the time, if at all, as we receive approval from the FDA to market
the Biofield Diagnostic System, our revenues, if any, will be derived from
international sales. A significant portion of our revenues, therefore, may be
subject to the risks associated with international sales, including foreign
regulatory requirements, economic or political instability, shipping delays,
fluctuations in foreign currency exchange rates and various trade restrictions,
all of which could have a significant impact on our 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 significant adverse effect on our business.
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<PAGE>
We Face Substantial Competition in the Medical Technology
Field and May Not Be Able to Successfully Compete
The medical technology industry is highly competitive, particularly
in the area of cancer screening and diagnostic products. We are likely to
encounter significant competition with respect to our Biofield Diagnostic
System, as well as any other products we may develop. A number of companies are
engaged in the same field as us, and many of these companies have significantly
greater financial, technical and marketing resources than us. In addition, many
of these companies may have more established positions in the industry and may
be better equipped than us to develop, refine and market their products.
Our Products May Be Rendered Obsolete By Rapid Technological Changes
Methods for the detection of cancer are subject to rapid
technological innovation and we cannot assure you that technological changes
will not render our the Biofield Diagnostic System and our proposed products
obsolete. Likewise, we cannot assure you that the development of new types of
diagnostic medical equipment or technology will not have a significant adverse
effect on the marketability of the Biofield Diagnostic System or any other
products developed by us. Commercial availability of these products could render
our products obsolete, which would have a significant adverse effect on our
business.
Product Liability Claims in Excess of the Amount of Our Insurance
Would Significantly Affect Our Financial Condition
Our business exposes us to potential product liability risks which
are inherent in the testing, manufacturing and marketing of cancer detection
products. Significant litigation, none of which has involved us, 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, we cannot
assure you that we will not be subjected to future claims and potential
liability. While we currently maintain general liability insurance in the
aggregate amount of $2 million, with a per occurrence limit of $1 million, and
additional umbrella insurance in the aggregate amount of $1 million, we cannot
assure you that claims against us arising with respect to our products will be
successfully defended or that the insurance then carried by us will be
sufficient to cover liabilities arising from these claims. A successful claim
against us in excess of our insurance coverage would, in most instances, deplete
our assets and have a significant adverse effect on our business. Furthermore,
we cannot assure that we will be able to continue to obtain or maintain
liability insurance on acceptable terms.
Our Contract Manufacturers Use Potentially Hazardous
Materials, the Replacement of Which Could Affect Our Costs
Although we do not manufacture any of our products, we understand
that various cleaning solvents, used in connection with the contract manufacture
of our products, may contain potentially hazardous materials. As a result, our
contract manufacturers, in the future, could 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 these materials. We cannot assure you that we will not
incur significant future price increases imposed by our contract manufacturers
to comply with environmental laws, rules, regulations and policies, or that our
business will not be significantly and adversely affected by current or future
environmental laws, rules, regulations and policies or by any releases or
discharges of hazardous materials.
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<PAGE>
If We Are Unable to Protect Our Intellectual Property
Rights, We Could Lose Our Competitive Advantage
Our commercial success will be dependent upon proprietary rights
that we own or license. We cannot assure you that any of our pending patents
will issue or that any of our issued patents will not be invalidated or will
provide us protection that has commercial significance. Litigation may be
necessary to protect our patent positions, which could be costly and time
consuming. If any of our key patents that we own or license are invalidated, our
business may be significantly adversely affected. In addition, other companies
may have trade secrets or may independently develop know-how or obtain access to
our trade secrets, know-how or proprietary technology, which could significantly
and adversely affect our business.
We Do Not Have the Financial Resources to Enforce
and Defend All of Our Intellectual Property Rights
The actions which we may take to protect our intellectual property
may not be adequate to deter misappropriation of this property. We do not have
adequate financial resources to finance the high cost required to enforce,
through litigation, all of our intellectual property rights. In addition,
litigation could result in a substantial diversion of managerial time and
resources, which could be better and more fruitfully utilized on other
activities.
Our Products May Infringe Third Party Intellectual Property Rights
Other companies may have filed applications for, or have been
issued, patents and obtained other proprietary rights to technology which may be
potentially useful to us. Since we do not have the resources to maintain a staff
whose primary function is to investigate the level of protection afforded to
third parties on devices and components which we use in our products, it is
possible that a third party could successfully claim that our products infringe
on their intellectual property rights. If this were to occur, we may be subject
to substantial damages, and we may not be able to obtain appropriate licenses at
a cost we could afford and we may not have the ability to timely redesign our
products. If we are required to pay damages or are unable to obtain these
rights, our business could be significantly and adversely affected.
Our Stock Price Has Been Volatile
The price of our common stock has fluctuated substantially since our
initial public offering in 1996. The market price for our common stock, like
that of the common stock of many other medical device companies, is likely to
continue to be highly volatile.
Our Principal Stockholder Can Control Most Matters
Requiring Approval by All of Our Stockholders
Dr. David Long, our Chairman and Chief Executive Officer, and his
son, Raymond, and their respective affiliated entities, beneficially own an
aggregate of 15,346,908 shares of our common stock, or 60.9% of our outstanding
shares. As a result, Dr. David Long has the ability to determine the election of
our directors, direct our policies and control the outcome of substantially all
matters which are subject to the vote of our stockholders. This concentration of
ownership, among other things, also may increase our difficulty in raising
necessary financing.
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<PAGE>
If We Issue Any of Our Available Preferred Stock,
Our Stockholders Could Be Adversely Impacted
In addition to our authorized shares of common stock, we are
authorized to issue 12,300,000 shares of preferred stock. Our Board of Directors
may, at any time, determine to issue shares of preferred stock in connection
with our future financing needs. The rights and preferences of these shares of
preferred stock will be superior to those of our common stock and may adversely
affect the rights of the holders of our common stock.
Our Stockholders Could Be Adversely Affected
by the Anti-Takeover Effects of Delaware Law
We are 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 our stockholders and also could limit the
price certain investors might be willing to pay in the future for shares of our
common stock.
We Do Not Expect That We Will Pay Dividends
We have never declared or paid any cash dividends on our capital
stock and do not intend to pay any cash dividends in the foreseeable future.
Resales of Restricted Shares Held By Our Current Directors and
Executive Officers May Lower the Market Price of Our Common Stock
At December 27, 2000, 25,183,478 shares of our common stock were
outstanding, of which approximately 6,503,225 shares were freely tradable by the
holders of these shares without limitations under the Securities Act of 1933.
Substantially all of the remaining shares of our outstanding common stock were
held by our current executive officers and directors and their affiliated
entities, who are generally subject to the volume and other limitations of Rule
144 promulgated under the Securities Act of 1933. These persons, after they have
held their shares for a period of one year, are eligible to sell their shares
pursuant to the volume and other limitations of Rule 144. Three months after
these persons are no longer deemed to be our affiliates, and provided that they
have held their shares for more than one year, they will be able to sell their
shares without restriction under Rule 144. Sales of substantial amounts of our
restricted shares of common stock in the public market, or the perception that
these sales could occur, could adversely affect the trading price of our common
stock and could impair our ability to raise funding through an offering of our
equity securities.
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<PAGE>
Future Issuances of Our Securities May Be Dilutive to Our Stockholders
We will need additional capital to fund our future operations
through public or private financings or collaborative licensing or other
arrangements with corporate partners. If additional funds are raised by issuing
equity securities, dilution to our existing stockholders will occur. At December
27, 2000, options to purchase a total of 538,681 shares of our common stock were
outstanding with a weighted average exercise price of $7.21 per share, of which
options to purchase 472,746 shares of common stock were exercisable. In
addition, 758,379 shares of our common stock were available for future option
grants under our stock option plans. To the extent that any of the foregoing
options are exercised, the interests of our stockholders would be diluted.
Special Note Regarding Forward-looking Statements
We have made statements in this Report on Form 10-SB that are
"forward-looking statements" within the meaning of the Securities Act of 1933
and the Securities Exchange Act of 1934. Sometimes these statements contain
words like "may," "believe," "expect," "continue," "intend," "anticipate" or
other similar words. These statements could involve known and unknown risks,
uncertainties and other factors that might significantly alter the actual
results suggested by the statements. In other words, our performance might be
quite different from what the forward-looking statements imply. The following
factors, as well as those discussed above in Item 1 - "Description of Business",
could cause our performance to differ from the implied results:
o inability to obtain capital for continued operations and the
development and commercialization of our products.
o inability to obtain FDA approval for our products in a timely
manner, if at all.
o failure to obtain expected results in our clinical trials.
o technological obsolescence of our products.
o changes in governmental regulations in our principal markets.
o inability to generate significant market acceptance of our products.
o failure to obtain customers for our products.
o inability to manage our growth.
o loss of our key employees.
o changes in general economic and business conditions.
o inability to obtain third party reimbursement for use of our
products.
We have no obligation to release publicly the result of any
revisions to any of our "forward-looking statements" to reflect events or
circumstances that occur after the date of this Report or to reflect the
occurrence of other unanticipated events.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis should be read in conjunction
with our Financial Statements and Notes thereto appearing elsewhere in this
document.
OVERVIEW
As a development stage company, we have incurred net losses since
inception through December 31, 1999 of approximately $57,428,000. We expect that
operating losses will increase for at least the next several years as total
costs and expenses increase, due principally to the FDA pre-market approval
process for the Biofield Diagnostic System and additional clinical trials to be
conducted in connection with this device, marketing and manufacturing expenses
associated with the anticipated commercialization of the Biofield Diagnostic
System and our other research and development activities. To date, we have not
generated revenues from the commercialization of any products.
In November 1998, we decided to eliminate most of our operations due
to lack of adequate financial resources. In December 1998, our common stock was
delisted from trading on The Nasdaq Stock Market primarily due to our lack of
compliance with certain financial requirements. In March 1999, we announced that
our efforts would be directed to selling our existing technology and or raising
additional capital and, thereafter, due to our inability to sell our technology
or raise additional capital, we shut down all of our remaining operations.
In December 1999, we sold an aggregate of 14 million shares of our
common stock for $700,000 to Dr. David Long, his son, Raymond, and their
affiliated entities. Simultaneously with the sale, our Board of Directors
appointed Dr. David Long as a director, whereupon the remaining directors and
all of our executive officers resigned. Thereafter, Dr. David Long became our
Chairman and Chief Executive Officer and took action to reconstitute our Board
of Directors. Presently, we are in the process of re-commencing our operations.
In the first part of 2000, we sold an additional 440,000 shares of our common
stock to certain of our directors and then executive officers for an aggregate
of $22,000. For additional information, see "Item 7. Certain Relationships and
Related Transactions - Transactions in 2000." In addition, on December 15, 2000,
we sold an aggregate of three million shares of our common stock for $1,500,000.
See "Item 1. Description of Business - Company History."
RESULTS OF OPERATIONS
Comparison of the Year Ended December 31, 1999 with the Year Ended December 31,
1998
Research and development expenses include the costs of engineering,
manufacturing and clinical trials and related activities conducted in connection
with obtaining required governmental and regulatory approvals for the Biofield
Diagnostic System, as well as expenses related to the enhancement of the
Biofield Diagnostic System to enable it to meet the technical and functional
requirements for economic viability. Research and development expenses decreased
by $6,400,829 or 96%, to $292,900 in 1999 from $6,693,729 in 1998, as a result
of our elimination of substantially all of our research and development efforts
and related infrastructure.
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Selling, general and administrative expenses decreased by $3,227,213
or 75%, to $1,097,601 in 1999 from $4,324,814 in 1998, primarily as a result of
the closing of our international operating unit, headcount reduction and an
overall scaling back of operations. During 1999, all of our then officers
resigned and settlement of outstanding obligations were negotiated and paid.
Net interest income decreased by $398,637 or 94% to $27,109 in 1999
from $ 425,746 in 1998, due to the significant decrease of our cash position as
this cash was utilized in our operations. In our attempt to generate additional
funding, we sold most of our fixed assets in 1999 for a net gain of $109,696.
As a result of the foregoing, we incurred a net loss of $1,253,696,
or $.16 per share, in 1999, compared to a net loss of $10,654,597, or $1.06 per
share, in 1998.
Comparison of the Year Ended December 31, 1998 with the Year Ended December 31,
1997
Research and development expenses decreased by $386,331 or 5%, to
$6,693,729 in 1998 from $7,080,060 in 1997. Although the aggregate amount of
expenses incurred during 1998, as compared to 1997, was not significantly
decreased, there was a change in the mix of expenses, as would be expected with
a developmental stage company. During 1998, additional funds were expended to
attain ISO 9001 certification and the CE mark for European distribution, while
there was a decrease in costs associated with our transition from preclinical
testing to clinical testing and evaluation of the Biofield Diagnostic System. In
November 1998, we terminated most of our operations, including our research and
development efforts, and most of our employees due to lack of funding.
Selling, general and administrative expenses increased by $759,417
or 21% to $4,324,814 in 1998, compared to $3,565,397 in 1997, primarily as a
result of our then anticipated product launch in Europe.
Net interest income decreased by $88,428 or 17% to $425,746 during
1998 compared to $514,166 during 1997, due to a decrease of our cash position as
this cash was utilized in our operations.
As a result of the foregoing, we incurred a net loss of $10,654,597,
or $1.06 per share, in 1998, compared to a net loss of $10,151,040, or $1.53 per
share, in 1997.
Comparison of the Unaudited Nine Months Ended September 30, 2000 with the
Unaudited Nine Months Ended September 30, 1999
Although we incurred $51,170 of net research and development
expenses during the 1999 period, none of such expenses were incurred during the
2000 period. During the later part of 1999, we temporarily eliminated our
research and development efforts and related infrastructure due to the then
severe reduction in our available financial resources.
Selling, general and administrative expenses increased by
approximately $115,000 or 13% to $1,007,770 in the 2000 period compared to
$892,848 in the 1999 period. During the 1999 period, we temporarily closed our
international operating unit, terminated substantially all of our employees
(although we continued to have three senior employees on our payroll at
September 30, 1999) and closed almost all of our operations. On December 28,
1999, we received additional funding and, in January 2000, we commenced our
efforts to invest in our infrastructure for anticipated operating levels and
future shipment of product (including preparation for re-registration of our CE
mark and re-certification for ISO 9001, to enable us to engage in European sales
of our product) and to re-register our common stock with the SEC. We also hired,
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in addition to our executive officers (one of whom, Dr. David Long, is working
without any compensation), four contract consultants who essentially are
employed on a full-time basis. In addition, during the 2000 period, we issued a
net aggregate of 440,000 unregistered shares of our common stock to three
newly-elected executive officers and two newly-appointed non-affiliated
directors at a price of $0.05 per share in consideration for the agreement of
our executive officers to a decreased level of compensation in 2000 and of our
non-affiliated directors to forego other compensation in 2000. Since our common
stock was selling in the over-the-counter market for an amount which was in
excess of $0.05 per share, the difference, which aggregated $225,000, is being
recognized ratably during the twelve months ending December 31, 2000.
In our quest for funding and to mitigate our liabilities, we sold
fixed assets in the 1999 period for a net gain of $109,696. We had no similar
transaction in the 2000 period.
Net interest income decreased by $19,227 or 83% to $3,906 in the
2000 period compared to $23,133 in the 1999 period, due to a decrease of our
cash position as this cash was utilized in our operations.
As a result of the foregoing, we incurred a net loss of $1,003,864
in the 2000 period, compared to a net loss of $811,189 in the 1999 period.
Liquidity and Capital Resources
We have financed our operations since inception almost entirely by
the issuance of equity securities and interest income on the then unutilized
proceeds from these issuances.
At December 31, 1999, we had working capital of $988,083, as
compared to $1,084,225 at December 31, 1998, a decrease of $96,142. Our
unrestricted cash and cash equivalents were $713,196 at December 31,1999, as
compared to $1,430,765 at December 31, 1998. At September 30, 2000, our working
capital had been reduced to approximately $135,700 and our unrestricted cash and
cash equivalents had been reduced to approximately $62,200. Our invested funds
consisted primarily of investment grade corporate obligations, money market
funds and certificates of deposits. In addition, at December 31, 1999 and
September 30, 2000, we had $109,300 of restricted cash, which is being held by a
third party escrow agent, based upon an agreement between us and a former
director and chief executive officer, which funds have been deposited for the
payment of continued director and officer liability insurance covering our
former directors and executive officers. The deposited funds are to be released
to us from escrow over a three-year period as we obtain this insurance coverage;
and if this coverage is not obtained, the remaining funds would be paid to this
former director and chief executive officer. At September 30, 2000, we had
approximately $705,000 of inventory, approximately $597,000 of which were
finished goods, consisting of units of the Biofield Diagnostic System. All of
these units are believed to be currently saleable at prices in excess of their
carrying cost.
During 1999, our operating activities utilized $1,660,794 of net
cash, primarily to fund operating activities, our investing activities provided
$286,265 of net cash, primarily from the disposition of property and equipment,
and our financing activities provided $700,000 of net cash from the private
placement of our securities. During the 2000 period, our operating activities
utilized $791,694 of net cash, primarily to fund operating activities, our
investing activities used $56,106 of net cash, primarily to acquire property and
equipment, and our financing activities provided approximately $198,000 of net
cash, primarily from bank borrowings.
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In November 1998, we decided to eliminate most of our operations due
to lack of adequate financial resources and substantially all of our activities
ceased. On December 28, 1999, in connection with the receipt of $700,000 of
funding and as a condition of this funding, all of our then directors and
executive officers resigned and their employment obligations were settled. A new
Board of Directors subsequently took office, elected executive officers and took
actions to recommence our operations. In June 2000, we obtained a $500,000 line
of credit from California Bank & Trust, repayment of which has been personally
guaranteed by our Chairman and Chief Executive Officer and his affiliates and
secured by their collateral. As of September 30, 2000, we had drawn down
$176,000 against this line. As of December 15, 2000, we had drawn down an
aggregate of $286,000 against this line of credit and $214,000 of this line
remained available to us.
On December 15, 2000, we sold an aggregate of three million shares
of our common stock for $1,500,000, the proceeds of which will be used for
operating purposes, including for the repayment of draw-downs on our line of
credit, which then will be replenished to $500,000 of availability, and to
complete the relocation of our operations to California, the cost of which we
estimate should not exceed $125,000. See "Item 1. Description of Business -
Company History" for information on the recent sale of our common stock and
"Item 3. Description of Property" for information on our proposed relocation. We
believe that our current working capital, together with the line of credit, will
be sufficient to meet our projected minimum operating needs and capital
expenditures, at least through August 1, 2001, by which time we anticipate that
we will have been able to consummate a private placement of our common stock,
preferred stock or debt securities.
During the year ending December 31, 2001, we currently anticipate
expending (i) approximately $650,000 on our research and development activities,
primarily in data extraction and interpretation and in development activities
relating to an enhanced version of the Biofield Diagnostic System, and (ii)
approximately $350,000 on increased payroll, as we enhance our full-time
employees by the planned addition of a vice president of regulatory and quality,
a director of engineering, a director of quality assurance, a chief financial
officer, a product support manager and supporting administrative personnel. We
do not anticipate any significant capital expenditures. Although we do not
currently have the financial resources to fund these activities, we anticipate
that funding should be available through an additional private placement of our
common stock, preferred stock or debt securities during the first four months of
2001, followed by a more substantial private placement or possible public
offering in the last half of 2001, although we cannot assure you that any such
efforts will be successful.
Even if we are successful in obtaining further funding, which we
cannot assure you will occur, we do not expect to generate a positive cash flow
from our operations for at least several years, due to anticipated capital
expenditures, research and development activities and working capital
requirements including in connection with the expected commercialization of the
Biofield Diagnostic System.
As of December 27, 2000, we did not have any material commitments
for capital expenditures.
At December 31, 1999, we estimated that we had available net
operating loss carry forwards of approximately $54.3 million for Federal and
state purposes, which expire in years 2000 through 2019. However, substantially
all of these carry forwards are not expected to be utilizable to reduce future
taxable income, if any, as a result of limitations imposed by Section 382 of the
Internal Revenue Code under the Tax Reform Act of 1986, due to ownership changes
which occurred in 1992, 1995, 1997 and 1999.
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ITEM 3. DESCRIPTION OF PROPERTY.
All of our operations currently are conducted from our offices
located at Units M and K, 1025 Nine North Drive, Alpharetta, Georgia. We lease
our office space, which comprises approximately 4,000 square feet, pursuant to a
one-year lease for half of this space which expires February 14, 2001 and
pursuant to a month-to-month lease on the balance of this space. Monthly rent
payments for these leases aggregate $2,020.
We intend, before the end of the first quarter of 2001, to move our
operations to 2737 Via Orange Way, Spring Valley, California and occupy
approximately 5,000 square feet of furnished and laboratory equipped space to be
subleased from Abel Laboratories, an affiliate of Dr. David Long, our Chairman
and Chief Executive Officer. We believe that the cost of such move, including
moving expenses and relocation costs of employees, should not exceed $125,000.
The subleased space currently is leased by Abel at an annual cost of $52,584
under a lease expiring April 1, 2001, which is renewable for an additional three
year term. Abel will sublease the space to us at its cost. We believe that the
terms and conditions of this sublease are no less favorable to us than those
which would be available from an unaffiliated third party.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of December 27, 2000, the number
of shares of our common stock beneficially owned by (a) each person or group who
is known to us to be the beneficial owner of more than 5% of our outstanding
common stock, (b) each of our current and proposed directors, (c) each of the
persons named in the Summary Compensation Table appearing under Item 6. -
"Executive Compensation", and (d) all our directors, proposed directors and
executive officers, as a group (seven persons). Except as indicated in the
footnotes to this table, we believe that the persons named in this table have
sole voting and investment power with respect to the shares of our common stock
indicated.
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<TABLE>
<CAPTION>
Name (1) Shares Beneficially Owned (2) Percent of Class
-------- ----------------------------- ----------------
<S> <C> <C>
Long Family Partners II, LP (3) 7,133,275 28.3%
David M. Long, Jr., M.D. Ph.D. 11,334,653 (4) 45.0%
Raymond A. Long M.D. 4,012,255 (5) 15.9%
Amy S. Langer 100,000 *
Arthur Taylor 100,000 *
W. Robert Berg (6) - - - -
C. Leonard Gordon (7) - - - -
D. Carl Long (7) - - - -
All directors and executive officers, as a group 16,154,557 (8) 62.6%
</TABLE>
-----------------------------
* Less than 1%.
(1) The address for each person or entity is c/o Biofield Corp., Suite M,
1025 Nine North Drive, Alpharetta, Georgia 30004.
(2) All shares are held of record, unless otherwise stated.
(3) Long Family Partners II, L.P., is a Delaware limited partnership, the
general partners of which are Dr. David Long and his wife, Donna R.
Long. Dr. Long is the Managing Partner of the partnership and, in this
capacity, has the ability to sell its assets and vote any securities
owned by the partnership.
(4) Consists of (a) 7,133,275 shares owned by Long Family Partners II, L.P.
(referred to in note 3 above), of which Dr. David Long is the Managing
Partner, (b) 3,829,291 shares held of record, (c) 8,087 shares held in
"street name" by a family partnership, and (d) 364,000 held of record by
Donna R. Long, Dr. Long's wife, with respect to which beneficial ownership
is disclaimed.
(5) Consists of (a) 1,200,000 shares held of record, (b) 2,800,000 shares held
by Raymond A. Long u/a 01/01/01, a retirement plan, and (c) 12,255 shares
issuable upon exercise of outstanding stock options.
(6) Mr. Berg has been nominated as a director and intends to take office after
the filing of this Registration Statement on Form 10-SB.
(7) Although named in the Summary Compensation Table appearing under Item 6. -
"Executive Compensation," on December 28, 1999, such person resigned from
all positions held with us and relinquished all then outstanding rights to
acquire our securities.
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(8) Consists of (a) the shares listed in the table as being beneficially
owned by Dr. David Long, Amy S. Langer, Dr. Raymond Long, Arthur Taylor
and W. Robert Berg, directors and a proposed director, and (b) an
aggregate of 140,000 shares held of record and 80,049 shares issuable
upon exercise of presently outstanding stock options, beneficially
owned by two unnamed executive officers.
We do not know of any arrangements which may result in a change in
our control.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Our directors and the executive officers are:
<TABLE>
<CAPTION>
Name Age Positions and offices with Biofield
---- --- -----------------------------------
<S> <C> <C>
David M. Long, Jr., M.D. Ph.D. 71 Chairman of the Board and Chief Executive Officer
Amy S. Langer 46 Director
Raymond A. Long, M.D. 41 Director
Arthur Taylor 64 Director
John D. Stephens 42 Senior Vice President and Chief Operating Officer
Nancy Bruyneel 45 Vice President Worldwide Sales and Marketing
W. Robert Berg 57 Proposed Director
</TABLE>
Each of our current directors was appointed to serve as a director
by the then existing Board of Directors. Each director serves until the next
annual meeting of stockholders and until his or her respective successor is
elected and qualified, or until his or her earlier resignation. Our executive
officers are appointed by, and serve at the discretion of, our Board of
Directors.
Dr. David Long was appointed a director of our company as of
December 28, 1999 and was elected Chairman and Chief Executive Officer of our
company on January 9, 2000. Dr. Long previously had served as a director of
our company from August 1992 until April 1993. Dr. Long is a private
investor and President of Abel Laboratories Inc., a currently inactive
private research laboratory which, from time to time, has conducted research
and development on a contract basis relating to medical devices and
pharmaceutical applications of interest to Dr. Long. Dr. Long previously was
a Professor of Surgery and Chief of Cardiovascular and Thoracic Surgery at
the University of Illinois, Abraham Lincoln School of Medicine and a Clinical
Associate Professor of Surgery and Radiology at the University of California,
San Diego.
Amy S. Langer was appointed a director of our company on January 3,
2000. Ms. Langer, a breast cancer survivor, is, and for more than the past five
years has been, the Executive Director of the National Alliance of Breast Cancer
Organizations (NABCO), a New York-based non-profit resource for breast cancer
information and education. Ms. Langer currently serves as a member of numerous
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public and private advisory committees, including the Board of Scientific
Advisors of the National Cancer Institute. Ms. Langer serves as a member of the
Biofield Board of Directors in a personal capacity, not as a representative of
NABCO or of any other organization affiliated with her professional employment.
Dr. Raymond Long was appointed a director of our company on
January 9, 2000. Dr. Long, a graduate of The University of Michigan Medical
School, for more than five years and until June 30, 2000 was associated with
the University of Montreal initially as a Resident in orthopedics and then as
a Fellow in arthroplasty and arthroscopy. Dr. Long currently is a Fellow in
shoulder and elbow surgery at Florida Institute of Orthopedics.
Arthur Taylor was appointed a director of our company on January
3, 2000. Mr. Taylor is, and for more than the past five years has been, the
President of Muhlenberg College, Allentown, Pennsylvania. Mr. Taylor is a
director of various Asian mutual funds managed by Nomura Securities - Nomera
Pacific Basin Fund, Japan OTC Equity Fund Inc., Jakarta Growth Fund and Korea
Equity Fund Inc.
John D. Stephens was appointed Senior Vice President and Chief
Operating Officer of our company on January 3, 2000. For more than the five
years prior thereto, Mr. Stephens was our Senior Director - Manufacturing,
Operations and Logistics.
Nancy Bruyneel was appointed Vice President of Worldwide Sales and
Marketing of our company on January 3, 2000. Ms. Bruyneel, who is resident in
Switzerland, was associated with our then Swiss branch from March 1997 through
March 1999 as Vice President of Marketing and Sales - Europe. From 1994 to
February 1997, Ms. Bruyneel was Director International Marketing for Collagen
International Inc., a biotechnology company. In addition, since March 1999, Ms.
Bruyneel also has been self-employed performing business development and medical
consulting, although since her appointment in January 2000 as our Vice President
of Worldwide Sales and Marketing, her self-employment activities have not been
material.
W. Robert Berg was appointed to be a director of our company on June
9, 2000 and intends to take office after the Staff of the SEC advises the
company that it does not intend to further comment with respect to this
Registration Statement on Form 10-SB. Mr. Berg was President and Chief Executive
Officer of SeaMED Corporation, a State of Washington based designer and
manufacturer of electronic medical instrumentation, for twelve years until it
was acquired by Plexus Corp in July 1999. In March 1999, at the time that the
proposed acquisition was first publicly announced, SeaMED had approximately 480
employees and reported that revenues for the quarter ending March 31, 1999 were
expected to aggregate approximately $16 million. After such acquisition, until
he retired in January 2000, Mr. Berg was President of the SeaMED Division of
Plexus. Mr. Berg currently is a private investor.
No family relationship exists among any of the directors or
executive officers, except that Dr. Raymond Long is the son of Dr. David
Long.
ITEM 6. EXECUTIVE COMPENSATION.
During 1999, D. Carl Long served as our Chief Executive Officer
until April 15, 1999, at which time he resigned from this position and C.
Leonard Gordon became our Chief Executive Officer. Mr. Gordon resigned from this
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position as of December 28, 1999 and this position remained vacant until January
9, 2000. No other officer or employee of our company received compensation from
us during 1999 which exceeded an aggregate of $100,000. The following table sets
forth the compensation earned by Mr. Gordon and Mr. Long, on an accrual basis,
during the three years ended December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------------- ------------------
Name and No. of Securities
Principal Positions Year Salary Bonus Other Underlying Options
------------------- ---- ------ ----- ----- ------------------
<S> <C> <C> <C> <C> <C>
C. Leonard Gordon (1) 1999 $ 83,889
Chairman and 1998 $ 85,179
Chief Executive 1997 $122,394
Officer
D. Carl Long (2) 1999 $177,446(3) $ 4,471(4)
Vice-Chairman, 1998 $273,366 $58,800(5)
President and Chief 1997 $209,424 $70,000 $ 7,875(6) 300,000(7)
Executive Officer
</TABLE>
-----------------------------
1. Mr. Gordon became Chief Executive Officer, effective April 15,1999.
Before this time he was being compensated as Chairman. Mr. Gordon
resigned from all of his positions on December 28, 1999. These amounts
include payments made to Immunotherapy, Inc., Mr. Gordon's affiliated
entity.
2. Mr. Long had been Vice-Chairman since 1992, became President and Chief
Executive Officer in March 1997 and, in April 1999, resigned as Chief
Executive Officer and was retained on a part-time basis as a
consultant. Mr. Long resigned from all of his positions on December
28, 1999.
3. Includes $112,000 paid to him as a consultant and $60,000 paid to him in
December 1999 as settlement in full of all past amounts owed to him. In
September 1999, we recognized that this $60,000 payment was due for past
services rendered, which was to be payable when the Board of Directors
determined.
4. Consists of club membership dues and unpaid golf club charges for which
we had primary responsibility.
5. Consists of (a) $4,800 of club membership dues, (b) $6,000 of
non-accountable automobile allowance, and (c) the total cost of a New York
City apartment furnished primarily for the convenience of Mr. Long, which
on occasion was used for business purposes.
6. Consists of (a) $3,375 of club membership dues, and (b) $4,500 of
non-accountable automobile allowance.
7. Represents shares of our common stock issuable upon exercise of stock
options. These options were canceled in connection with his resignation on
December 28, 1999.
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During 1999, we did not grant any stock options or stock
appreciation rights. The stock options which previously had been granted to
Mr. Gordon and Mr. Long were canceled upon their resignations from our
company on December 28, 1999 and were not outstanding at December 31, 1999.
Neither Mr. Gordon nor Mr. Long exercised any stock options during 1999. No
stock appreciation rights were outstanding at December 31, 1999.
Although our company previously paid our non-employee directors an
honorarium of $3,750 per quarter, no cash fee is currently being paid by us to
our directors. In January 2000, upon their appointment as directors, we agreed
to sell, and subsequently sold, to its each of our two independent directors
(Amy S. Langer and Arthur Taylor) 100,000 unregistered shares of common stock at
a price of $0.05 per share, which was equal to the price that shares of common
stock had been sold by us to Dr. David Long and Dr. Raymond Long on December 28,
1999, which price the then Board of Directors determined was the fair market
value for these shares, and the independent directors then waived their rights
to any payment for their services in the year 2000.
Under the Biofield Corp. 1996 Stock Option Plan for Non-Employee
Directors, 150,000 shares of common stock have been reserved for issuance of
options to non-employee directors. The Plan provides for the automatic grant of
options to eligible directors. Each non-employee director who joins the Board
will automatically receive an initial grant of options to purchase 10,000 shares
of common stock at an exercise price equal to the fair market value per share at
the date of grant, subject to vesting in three equal annual installments. In
each year, other than the year in which a director receives an initial grant of
options, that director will automatically receive options to purchase 2,500
shares of common stock on the date of the Annual Meeting of Stockholders which
vest immediately upon being granted. If any options granted under the Plan, for
any reason, expire or are canceled or otherwise terminated without having been
exercised in full, the shares allocable to the unexercised portion of these
options again become available for grants under the Plan. The term of each
option granted under the Plan is 10 years. Options granted under the Plan must
be exercised before the earlier of (a) the scheduled expiration date, or (b) one
year following the dated of termination of service. The exercise price of an
option is payable upon exercise in cash. As of December 1, 2000, no shares had
been issued upon the exercise of options granted under the Plan and 150,000
shares remained available for future grant. Unless sooner terminated by the
Board, the Plan will terminate in January 2006. Our current directors have
waived their rights to receive options under the Plan with respect to their
initial year of service in 2000
We do not have any employment contracts or termination of employment
and change-in-control arrangements with any of our executive officers. In
January 2000, upon their appointment as executive officers, we agreed to sell,
and subsequently sold, to each of John D. Stephens, our Senior Vice President
and Chief Operating Officer, and Nancy Bruyneel, our Vice President of Worldwide
Sales and Marketing, 100,000 unregistered shares of common stock at a price of
$0.05 per share, which was equal to the price that shares of common stock had
been sold by us to Dr. David Long and Dr. Raymond Long on December 28, 1999,
which price the then Board of Directors determined was the fair market value for
these shares. If the executive officer voluntarily terminates his or her
relationship with our company within one year after this purchase or is
terminated by us for just cause, as defined, during that year, we have the right
to repurchase the shares for their original purchase price. Mr. Stephens and Ms.
Bruyneel are each currently employed by us at an annual compensation of
$100,000.
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ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TRANSACTIONS WITH DR. DAVID LONG AND HIS AFFILIATES
In June 1992, we entered into several agreements with Abel
Laboratories, Inc., an affiliate of Dr. David Long, our current Chairman and
Chief Executive Officer. One of these agreements, a laboratory services
agreement, which expired December 31, 1993, engaged Abel to provide specified
preclinical research to be managed by Dr. Long. Effective January 1, 1994,
pursuant to a master laboratory services agreement, we and Abel agreed that any
research thereafter conducted for us by Abel would be on substantially the same
terms as the laboratory services agreement and would be on a budget approved by
us. Thereafter, from time to time, Abel has conducted additional preclinical
research for us. Although no research was performed in 1999, approximately
$246,000 was performed in 1998 and approximately $595,000 was performed in 1997.
As of December 31, 1999, an aggregate of $55,516 was owed by us to Abel for
services previously rendered.
In June 1992, we entered into a patent royalty agreement with Abel,
which assigned to us all of Abel's rights and interests in all inventions and/or
technology conceived and/or developed by Abel in connection with laboratory
services performed by Abel for us which relate to the use of bioelectronics in
the diagnosis, screening or management of disease, infection, ovulation or other
bioelectric events. Under our agreement, Abel is entitled to royalties of 5% of
the net sales of products incorporating any of these inventions or technology
which are embodied in any patent issued to us, during the life of the patent, as
well as 20% of the proceeds we may receive from the license of the patent to
others, up to a maximum of $2 million. As of July 31, 2000, one patent has been
issued to us which is covered by the agreement, although we have not obtained
any revenues therefrom.
Effective as of June 1992, in connection with the patent royalty
agreement and the laboratory services agreement, we granted Abel options to
purchase an aggregate of 61,275 shares of common stock at $8.16 per share, which
exercise price was reduced to $2.04 per share following completion of our Series
A Preferred Stock private placement in December 1993, based on our market
capitalization at that time. In April 1993, we agreed to include, at our
expense, the registration of any shares issued upon the exercise of these
options in certain registrations of additional shares of our common stock and,
in February 1998, a registration statement covering these shares was declared
effective by the SEC. None of these options, which expire June 1, 2002, had been
exercised as of July 31, 2000. These options have been transferred by Abel to
five of the children of Dr. David Long.
In March 1995, pursuant to a determination made by our Board of
Directors in May 1994 to grant an option to purchase our common stock to Dr.
David Long, in consideration for his past services to us, Dr. Long was granted
an option to purchase an aggregate of 24,510 shares of common stock at $10.20
per share. At neither of such times was Dr. Long a member of our Board of
Directors. The option was not exercised prior to its expiration on March 16,
2000. As part of the agreement under which the option was issued, we agreed
that, irrespective of the termination of the option, as long as Dr. Long was
acting as our employee or consultant, any unexercisable options held by Dr. Long
would become immediately exercisable upon the sale of all or substantially all
of our assets or upon our merger, consolidation or combination with another
company in which we were not the surviving entity.
On December 28, 1999, Dr. David Long and his son, Raymond, and their
affiliated entities, purchased an aggregate of 14 million unregistered shares of
common stock from us for an aggregate of $700,000, or $0.05 per share, a price
determined by the then Board of Directors (consisting of C. Leonard Gordon,
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<PAGE>
Harvey Horowitz and D. Carl Long) to be the fair market value of these shares.
The closing sale price for our common stock, as reported by The Nasdaq Stock
Market, Inc. InfoQuote service furnished by Financial Insight Systems, Inc., was
$0.09 per share on December 27 and $0.11 per share on December 28. During the 30
days prior to December 28, such closing price ranged from a low of $0.028 per
share to a high of $0.22 per share. Additionally, since we had not released
publicly any information concerning our company after we terminated our SEC
reporting obligations in March 1999, we did not believe that the price set by
the public marketplace was reflective of the true value of our company. Due to
the financial condition of our company at that time, our then Board, among other
things, was seriously contemplating the possible bankruptcy of our company. The
price negotiated by Dr. Long and his group was based on arms-length negotiation
and, after Dr. Long and his group made its offer to purchase at $0.05 per share,
and indicated that they would not increase their offered price under any
circumstances, our Board of Directors attempted to obtain a higher offer and was
unsuccessful. As part of the transaction with Dr. Long and his group, Dr. Long
was able to negotiate termination arrangements with the then members of our
Board of Directors, who also constituted all of our then executive officers, and
such persons were required to release the company from all claims for unpaid
present and future compensation in excess of the amounts paid to them at
closing. See "Other Transactions" below.
Simultaneously with the closing of the transaction, Dr. David Long
was appointed a director of our company and the other directors resigned from
all of their positions with our company.
Transactions in 2000
In January 2000, Dr. David Long appointed Amy S. Langer and
Arthur Taylor as directors and the new Board of Directors then appointed Dr.
Raymond Long as a director and elected Dr. David Long as Chairman and Chief
Executive Officer.
In January 2000, our Board of Directors approved the sale to each of
Amy S. Langer and Arthur Taylor, our two independent directors, of 100,000
shares of common stock, without any registration rights, at a price of $0.05 per
share, which was equal to the price that shares of common stock had been sold by
us in the December 28, 1999 transaction with Dr. David Long, which price the
Board of Directors determined was the fair market value for these shares.
However, on the date that such transaction was approved, the closing price of
our common stock, as reported by The Nasdaq Stock Market, Inc. InfoQuote service
furnished by Financial Insight Systems, Inc., was $0.50. In consideration for
such issuance, Ms. Langer and Mr. Taylor waived their rights to any payment for
their services as directors with respect to their term commencing in year 2000.
At the same time, the Board of Directors approved the sale to each of John D.
Stephens, our newly elected Senior Vice President and Chief Operating Officer,
Anita T. Thibeault, our then newly elected President and Acting Vice President
of Regulatory/Clinical Affairs and Quality Assurance, and Nancy Bruyneel, our
newly elected Vice President of Worldwide Sales and Marketing, of 100,000 shares
of common stock, also without any registration rights, at a price of $0.05 per
share, pursuant to an agreement under which if the executive officer voluntarily
terminates his or her relationship with us or is terminated by us for just
cause, as defined, within one year, we have the right to repurchase his or her
shares for their original purchase price. On June 30, 2000, Ms. Thibeault
voluntarily terminated her relationship with us and we repurchased 60,000 of the
shares sold to her for an amount equal to her purchase price therefor. With
respect to the foregoing transactions, we treated the difference between the
purchase price for the shares and $0.50 as compensation expense for financial
reporting purposes.
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<PAGE>
On June 20, 2000, California Bank & Trust extended a one year
$500,000 line of credit, to us. Loans under the line will be at the bank's prime
rate from time to time plus one percent. The repayment of loans under the line
of credit is guaranteed by Dr. David Long, his wife and Long Family Partners II,
LP and is secured by certain of their assets. We did not pay the guarantors any
consideration for their guaranty.
On December 15, 2000, Dr. David Long purchased 482,000 unregistered
shares of our common stock from us for an aggregate of $241,000 or $0.50 per
share, a price determined by our Board of Directors (with Dr. Long abstaining)
to be the fair market value of these shares. Such shares were sold to Dr. Long
pursuant to a stand-by commitment originally given to our company by Dr. Long on
September 6, 2000. On such date, our Board of Directors determined that it was
necessary for our company to raise an additional $1,000,000 for operating
expenses before the end of 2000, and determined to raise such funds through the
private sale of authorized, unissued shares of our common stock. At such time,
Dr. Long offered his stand-by commitment to purchase any unsubscribed shares, if
such shares were being sold for not more than $0.50 per share and the closing
occurred prior to November 1, 2000, and Dr. Long advised the Board that he would
purchase such shares without any registration rights or any equity inducement,
such as a further right to subscribe for additional shares in any further
offering at a reduced price. During the thirty day period prior to September 6,
the average closing price for our common stock, as reported by The Nasdaq Stock
Market, Inc InfoQuote service furnished by Financial Insight Systems, Inc. was
$0.439 per share and such closing price on September 5 was $0.39 per share.
Thereafter, we attempted to sell our common stock at $0.50 per share and under
the other terms offered by Dr. Long by contacting several larger previous
investors in our company and other parties who had advised our officers and
directors of a possible interest in investing in our company. Due to the small
size of the proposed offering and the fact that our common stock was not trading
on any recognized securities exchange, we did not retain a financial advisor to
assist us in the offering. By November 1, 2000, and despite interest from
several investor groups and Dr. Long's stand-by commitment, we were unable to
place all of the offered shares of common stock; whereupon, Dr. Long agreed to
extend his stand-by commitment until December 1, 2000. On December 1, 2000, only
1,518,000 shares of our common stock had been subscribed for at $0.50 per share
and we advised Dr. Long that we intended to accept his stand-by commitment for
the then unsubscribed portion of the $1,000,000 offering or 482,000 shares, and
that he should wire transfer $241,000 to us for a closing during the week of
December 4, 2000. On such date, the closing price of our common stock, as
reported by The Nasdaq Stock Market, Inc InfoQuote service furnished by
Financial Insight Systems, Inc. was $0.40 per share. On December 2, 2000,
Hambrecht & Quist Capital Management Inc. advised us that two investment
companies for which it had investment authority may be interested in
participating in the offering if it were not too late. Our Board of Directors
then determined to increase the size of the offering by $500,000 and to delay
the closing thereof until December 18, 2000, and the other subscribers agreed to
such extension and increase. The closing of the $1,500,000 private offering
occurred on December 15, 2000 and 3,000,000 of our authorized, unissued shares
of common stock were sold at such time, including the 482,000 shares sold to Dr.
Long. On such date, the closing price of our common stock, as reported by The
Nasdaq Stock Market, Inc InfoQuote service furnished by Financial Insight
Systems, Inc. was $0.57 per share.
Other Transactions
In connection with the December 28, 1999 transaction with Dr. David
Long, D. Carl Long resigned his positions with our company, which consisted of
Vice Chairman, President, consultant and a director, relinquished all stock
options previously granted to him by us and released us from all non-accrued
obligations to him under his employment agreement and his consulting
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arrangement. In consideration for the release, we paid $60,000 to Carl Long
(which had previously accrued under his consulting arrangement) and $7,200 to
his counsel for services rendered to him in connection with the negotiation of
this release. Carl Long is a son of Dr. David Long and the brother of Dr.
Raymond Long. Carl Long's employment agreement, which was effective as of July
7, 1997, had been approved by or then Board of Directors in June 1998, was for a
term through July 7, 2000 and provided for his employment as our President and
Chief Executive Officer, at an initial base compensation of $250,000 annually
plus bonus of $70,000, subject to realization of certain milestones, and with an
automatic five percent annual cost-of-living increase. The employment agreement
also acknowledged that Carl Long had been granted: (a) in March 1997,
non-qualified options to purchase 100,000 shares of common stock at $4.75 per
share, which options vested immediately and were not subject to forfeiture
including upon his termination of employment; (b) in July 1997, non-qualified
options to purchase 200,000 shares of common stock at $2.938 per share, half of
which options vested immediately and half of which vested ratably over the
employment term and were not subject to forfeiture upon vesting, including upon
his termination of employment; and (c) during the period from 1992 through 1995,
non-qualified and incentive options to purchase an aggregate of 338,238 shares
of common stock at prices between $1.02 to $9.18 per share. Carl Long's
consulting arrangement, which became effective as of April 15, 1999, when he
relinquished his role as Chief Executive Officer, had been approved by our then
Board of Directors in November 1999, at which time we recognized that Carl Long
was owed $60,000 for previous services rendered (which was to be paid at some
future time). The consulting arrangement, which was terminable by either party
on 30 days' notice, provided for a monthly $15,000 consulting fee for Carl
Long's part-time availability. Total compensation paid to Carl Long was $177,446
in 1999, $343,366 in 1998 ($70,000 of which was accrued in 1997) and $209,424 in
1997. In addition, Carl Long received reimbursements for his expenses of $34,503
in 1999, $184,074 in 1998 and $94,848 in 1997.
In connection with the December 28, 1999 transaction with Dr. David
Long, C. Leonard Gordon resigned as Chairman, Chief Executive Officer and a
director of our company, simultaneously relinquished all stock options
previously granted to him by us and released us from all non-accrued
obligations, if any, to him and his affiliates. An entity controlled by Mr.
Gordon had been receiving a fee of $80,000 annually for Mr. Gordon's services to
us. Mr. Gordon and his affiliated entities received aggregate payments from us
of $83,889 in 1999, $85,179 in 1998 and $122,394 in 1997.
Simultaneously with the December 28, 1999 transaction with Dr. David
Long, Mr. Gordon and his wife sold to Dr. David Long their 1,068,034 shares of
common stock for an aggregate of $53,700 or $0.05 per share. These proceeds,
along with $109,300 of our funds, were then deposited with a third-party escrow
agent who was furnished instructions to release these funds to us during the
period through March 2002 upon satisfactory evidence that we have continued to
obtain, at least through the period ending March 17, 2003, directors and
officers liability insurance covering the persons who were directors and
executive officers of our company immediately before consummation of the
December 28, 1999 transaction with Dr. David Long comparable to the insurance
which was in effect at that time. If this insurance is not obtained, the then
remaining escrow funds are to be delivered to Mr. Gordon.
Harvey Horowitz, who resigned as a director of our company in
connection with the December 28, 1999 transaction with Dr. David Long,
simultaneously relinquished all stock options previously granted to him by us
and released us from all non-accrued obligations, if any, owed by us to him and
his affiliates. Mr. Horowitz and his law firm had performed legal services for
us before Mr. Horowitz's resignation. Mr. Horowitz and his law firm received
aggregate payments of $85,244 in 1999, $15,174 in 1998 and $8,677 in 1997.
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In April 1999, Nancy Bruyneel, then Vice President of Sales and
Marketing - Europe, resigned. Ms. Bruyneel released our company from all
obligations owed to her and we paid Ms. Bruyneel $45,000 and she was allowed to
retain all proceeds from the disposition of the office furnishings located at
our then office in Switzerland, which furnishings had a book value at that time
of approximately $14,000. During 1998, Ms. Bruyneel received $156,232 of
compensation from our company. In January 2000, Ms. Bruyneel again became
associated with our company, as Vice President of Worldwide Sales and Marketing
at an annual salary of $100,000.
In February 1999, Michael R. Gavenchak, then Executive
Vice-President, General Counsel and Secretary, who had been employed under an
agreement expiring March 31, 1999, resigned. As part of his severance
arrangement, we entered into a consulting arrangement with Mr. Gavenchak
pursuant to which an aggregate of $15,000 was paid prior to its termination in
March 1999. Until his resignation, Mr. Gavenchak received salary in 1999 of
$25,442 and a bonus upon his disposition of certain company assets of $25,000.
In 1998, Mr. Gavenchak received salary of $169,601 and other compensation of
$12,236 and, in 1997, he received salary of $157,558, a bonus of $25,000 and
other compensation of $4,800. In addition, Mr. Gavenchak was awarded options
under our stock option plan for 25,000 shares of common stock in 1998 and for
65,000 shares of common stock in 1997.
In January 1999, Robert W. Johnson, then Vice President of
Operations, resigned and was paid $28,500 in severance. During 1998, Mr. Johnson
received salary of $177,000 and other compensation of $4,800 and, in 1997, he
received salary of $84,977, a year-end bonus of $20,000, a sign-up bonus upon
joining our company of $10,000 and other compensation of $2,000.
In March 1999, Todd Polk, then Vice President of Regulatory Affairs
and Quality Assurance, resigned. Mr. Polk received salary of $19,231 in 1999,
received salary of $134,405 and other compensation of $4,800 in 1998 and, in
1997, received salary of $70,899, bonus of $7,500 and other compensation of
$1,600 and was awarded options under our stock option plan for 40,000 shares of
common stock.
In February 1999, Richard J. Davies, M.D., resigned as a director of
our company. From 1994, until his resignation, Dr. Davies had served as a
part-time consultant to our company and as Chairman of our Scientific and
Clinical Advisory Boards. In such capacities, Dr. Davies agreed, among other
things, to coordinate and supervise our clinical and preclinical research,
design our clinical and preclinical trials, analyze the data resulting from such
research and trials, and supervise the preparation of our reports for
documentation of efficacy. Dr. Davies received consulting fees from us of
$18,589 in 1999, $146,171 in 1998 and $125,000 in 1997. In addition, Dr. Davies
received options to purchase 58,823 shares of common stock at $10.20 per share,
all of which are fully vested, and in June 1997, received additional options to
purchase 50,000 shares of common stock at $4.69 per share, vesting ratably over
a two-year period commencing June 4, 1997. In 1995, we retained Oncophysics
Research and Development Company, an entity affiliated with Dr. Davies which,
among other things, made the services of Dr. Davies available to us at no
additional charge to supervise all services provided to us by Onocophysics.
Oncophysics performed various projects for us to demonstrate the
electrophysiological consequences of altered proliferation in breast cancer,
including in-vivo measurement in human breast, cell cultured studies using human
derived breast epithelial cell lines and studies in human breast biopsy
specimens. We paid Oncophysics nothing in 1999, $195,000 in 1998 and $300,000 in
1997.
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In December 1998, Joseph H. Gleberman, then a director of our
company, resigned. In connection with his resignation, Mr. Gleberman
relinquished all 5,000 common stock options previously granted to him by us and
we repurchased, for $100, an aggregate of 2,246,131 shares of common stock owned
by various funds with which Mr. Gleberman and his investment banking firm were
associated.
In December 1998, Tim Roche, then Chief Financial Officer, resigned.
Before his resignation, Mr. Roche received salary of $123,764 and other
compensation of $4,400 in 1998 and, in 1997, received salary of 115,500, bonus
of $16,250 and other compensation of $1,600. In addition, Mr. Roche was awarded
options under our stock option plan for 5,000 shares of common stock in 1998 and
for 55,000 shares of common stock in 1997.
John D. Stephens, as Senior Director - Manufacturing, Operations and
Logistics, received a salary of $90,433 in 1999 and of $129,471 in 1998. In
addition, Mr. Stephens was awarded options under our stock option plan for 5,000
shares of common stock in 1998. In January 2000, Mr. Stephens was elected our
Senior Vice President and Chief Operating Officer at an annual salary of
$100,000.
ITEM 8. DESCRIPTION OF SECURITIES
We are authorized to issue up to 40,000,000 shares of our common
stock, par value $.001 per share, and up to 12,300,000 shares of preferred
stock, par value $.001 per share.
Common Stock. The holders of the our common stock have one vote per share
on all matters to be voted upon by our stockholders. Subject to preferences that
may be applicable to any outstanding preferred stock, the holders of our common
stock are entitled to receive ratably dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available for that
purpose. In the event of our liquidation, dissolution or winding up, the holders
of our common stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to the prior distribution rights of our
preferred stock, if any, then outstanding. Our common stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to our common stock. All outstanding shares
of our common stock are fully paid and non-assessable. As of December 27, 2000,
we had a total of 25,183,478 shares of common stock outstanding.
Preferred Stock. Our preferred stock consists of 12,300,000 shares of
un-designated preferred stock. Our Board of Directors has the authority, without
further action by our stockholders, to issue shares of preferred stock in one or
more series and to fix the rights, preferences and privileges of the series,
including voting rights, terms of redemption, redemption prices, liquidation
preferences, number of shares constituting any series or the designation of this
series, without further vote or action by our stockholders. Although it
presently has no intention to do so, our Board of Directors, without stockholder
approval, could issue preferred stock with voting and conversion rights which
could adversely affect the voting power of the holders of our common stock. This
provision may have a potential anti-takeover effect and the issuance of
preferred stock could delay or prevent a change of control of our company. At
the present time, we have no shares of preferred stock outstanding.
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Part II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
Our common stock, par value $.001 per share, traded, until February
9, 1999, on the Nasdaq National Market, at which time it was delisted as a
result of our continued failure to comply with certain listing requirements.
Since that date, and until July 21, 2000, our common stock was quoted on the OTC
Bulletin Board. Commencing July 24, 2000, our common stock has been listed in
the "Pink Sheets" published by The National Quotation Bureau, Inc.
The following table sets forth the high and low per share sales
prices for our common stock (a) as reported by The Nasdaq Stock Market, Inc. for
the periods indicated through February 9, 1999, and (b) as reported by as
reported by The Nasdaq Stock Market, Inc. InfoQuote service furnished by
Financial Insight Systems, Inc. for the periods thereafter.
YEAR ENDED DECEMBER 31, 1998 HIGH SALE LOW SALE
---------------------------- --------- --------
First Quarter 4.875 2.5625
Second Quarter 4.625 3.6250
Third Quarter 4.875 1.6250
Fourth Quarter 1.750 0.0938
YEAR ENDED DECEMBER 31, 1999
----------------------------
First Quarter 0.3750 0.0938
Second Quarter 0.2188 0.0469
Third Quarter 0.1562 0.0625
Fourth Quarter 0.2344 0.0312
YEAR ENDING DECEMBER 31, 2000 (THROUGH DECEMBER 27)
---------------------------------------------------
First Quarter 2.2500 0.1250
Second Quarter 1.0312 0.3438
Third Quarter 1.3500 0.3000
Fourth Quarter (through December 27) 1.0200 0.3400
On December 27, 2000, the closing sale price for our common stock
was $0.45, as reported by The Nasdaq Stock Market, Inc. InfoQuote service
furnished by Financial Insight Systems, Inc. As of August 7, 2000, there were
approximately 124 holders of record of our common stock, including Cede & Co.,
who held an aggregate of 4,242,157 shares for an undisclosed number of
beneficial holders.
We have not declared or paid any dividends since our inception, and
do not intend to pay any cash dividends in the foreseeable future. We currently
anticipate that we will retain all earnings, if any, for use in the operation
and expansion of our business.
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ITEM 2. LEGAL PROCEEDINGS.
We are not a party to any pending legal proceeding which is not
routine litigation incidental to our business or which involves a claim for
damages exceeding 10% of our current assets, nor are we aware of any proceeding
that a governmental authority is contemplating.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1997, we have sold the following securities without
registration under the Securities Act of 1933:
1. On September 24, 1997, we issued 25,000 shares of our common stock to
Compass Group International Incorporated, a non-affiliated third party, as
consideration for management recruitment consulting services rendered to us,
which we valued at $100,000. These shares were issued in a transaction exempt
from registration under Section 4(2) of the Securities Act of 1933,without the
intervention of any underwriter. In connection with this issuance, we entered
into a registration rights agreement and subsequently registered these shares
for resale pursuant to a registration statement on Form S-3, registration no.
333-43701, which was declared effective by the SEC on February 9, 1998.
2. On December 17, 1997, we sold in a private placement an aggregate of
2,867,670 shares of our common stock, at a price of $3.15 per share, yielding
aggregate gross proceeds to us of $9,033,160. The placement was exempt from
registration under Section 4(2) of the Securities Act of 1933 and Regulation D
under this Act. We used the net proceeds of the placement, estimated to be
approximately $8,400,000, for funding clinical trials, research and development,
manufacturing, European marketing and general corporate purposes. Hambrecht &
Quist LLC acted as the placement agent for this placement and received a fee
(including expenses) of $250,000.
Concurrent with the closing of the placement, we issued an aggregate
of 643,639 shares of our common stock in exchange for outstanding warrants to
purchase an aggregate of 1,574,930 shares of our common stock. These outstanding
warrants (which had a weighted average exercise price of $10.40) were issued in
connection with a 1995 private offering of units of our securities. Although we
did not receive any proceeds from the warrant exchange, holders of the warrants
were required to invest in the placement to participate in the warrant exchange.
Participants in the warrant exchange were required to agree not to sell or offer
to sell their shares of common stock acquired in the warrant exchange, without
our prior written consent, for a period of one year from the date of the
issuance of these shares, and we agreed not to release any of these participants
from their "lock-up" agreements without the prior written consent of Hambrecht &
Quist LLC.
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The principal stockholders who participated in the warrant exchange
and the placement were:
The Goldman Sachs Group, L.P. and related investors, who purchased
730,157 shares of our common stock in the placement and exchanged
warrants for 444,510 shares of our common stock in the warrant exchange.
C. Leonard Gordon (jointly with his wife, Margot Gordon), who purchased
79,365 shares of our common stock in the placement and exchanged warrants
for 8,437 shares of our common stock in the warrant exchange.
H & Q Healthcare Investors and H & Q Life Science Investors, who purchased
an aggregate of 428,572 shares of our common stock in the placement and
exchanged warrants for an aggregate of 27,780 shares of our common stock
in the warrant exchange.
The Travelers Indemnity Company and The Phoenix Insurance Company, who
purchased an aggregate of 79,363 shares of our common stock in the
placement and exchanged warrants for an aggregate of 55,562 shares of our
common stock in the warrant exchange.
In connection with the consummation of the placement, we entered
into a registration rights agreement and subsequently registered for resale the
shares of our common stock issued in the placement pursuant to a registration
statement on Form S-3, registration no. 333-43701, which was declared effective
by the Securities and Exchange Commission on February 9, 1998.
3. On December 28, 1999, we sold in a private placement an aggregate of 14
million shares of our common stock, at $0.05 per share, for an aggregate of
$700,000 to Dr. David Long, who currently is our Chairman and chief executive
officer, his son, Raymond, and two of their affiliated entities. The placement
was exempt from registration under Section 4(2) of the Securities Act of 1933.
We incurred no expenses in this sale, the proceeds of which were used for
working capital, to fund current operations and to purchase $19,975 of property
and equipment.
4. From January 11, 2000 through June 8, 2000, we sold an aggregate of
100,000 shares of our common stock, for $0.05 per share, to each of three then
executive officers (Nancy Bruyneel, John D. Stephens and Anita Thibeault), none
of whom are affiliated with the family of Dr. David Long, effective upon their
election, in consideration for their agreements to be employed by us for a
period of at least one year at an annual base salary of $100,000. At the same
time, we sold 100,000 shares of our common stock, for $0.05 per share, to each
of Amy S. Langer and Arthur Taylor, contingent upon their agreement to become a
director and initially serve without the payment of any cash consideration
therefor. These transactions had been authorized by our Board of Directors on
December 29, 1999. We incurred no expenses in this sale, the aggregate proceeds
of which were used for working capital, to fund current operations. The
placement was exempt from registration under Section 4(2) of the Securities Act
of 1933. In connection with the June 30, 2000 resignation of her employment by
Ms. Thibeault, our company repurchased 60,000 of the shares of common stock
purchased by her for $0.05 per share.
5. On December 15, 2000, we sold in a private placement an aggregate of
three million shares of our common stock, at $0.50 per share, for an aggregate
of $1,500,000, of which 484,000 shares were sold to Dr. David Long and the
balance of which was sold to nine persons not affiliated with Dr. Long or the
other management of the Company. The other principal investors were John W.
Jordon, who purchased 1,000,000 shares for $500,000, and two investment
companies registered under the Investment Company Act of 1940 (H&Q Healthcare
Investors and H&Q Life Sciences Investors) which are advised by Hambrecht &
Quist Capital Management Inc and which also purchased an aggregate of 1,000,000
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shares for $500,000. The placement was exempt from registration under Section
4(2) of the Securities Act of 1933. No fees or expenses were paid to any third
parties in connection with the sale. We incurred approximately $20,000 of
expenses in this sale (substantially all of which were for our legal fees). The
net proceeds of the sale are being used for working capital, to fund current
operations, to pay for the relocation of our facilities to California and to
repay $286,000 of bank borrowings.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Fifth Amended and Restated Certificate of Incorporation
provides as follows:
EIGHTH. Any person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(whether or not by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, incorporator, employee or
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, incorporator, employee, partner,
trustee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise (including an employee benefit plan), shall be
entitled to be indemnified by the Corporation to the full extent then
permitted by law against expenses (including counsel fees and
disbursements), judgments, fines (including excise taxes assessed on a
person with respect to an employee benefit plan), and amounts paid in
settlement incurred by him in connection with such action, suit, or
proceeding. Such right of indemnification shall inure whether or not the
claim asserted is based on matters which antedate the adoption of this
Article EIGHTH. Such right of indemnification shall continue as to a
person who has ceased to be a director, officer, incorporator, employee,
partner, trustee, or agent and shall inure to the benefit of the heirs and
personal representatives of such a person. The indemnification provided by
this Article EIGHTH shall not be deemed exclusive of any other rights
which may be provided now or in the future under any provision currently
in effect or hereafter adopted of the By-Laws by any agreement, by vote of
stockholders, by resolution of disinterested directors, by provision of
law, or otherwise.
NINTH. No director of the Corporation shall be liable to the Corporation
or any of its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision does not eliminate the
liability of the director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve international misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit.
For purposes the prior sentence, the term "damages shall, to the extent
permitted by law, include without limitation, any judgment, fine, amount
paid in settlement, penalty, punitive damages, excise or other tax
assessed with respect to an employee benefit plan, or expense of any
nature (including, without limitation, counsel fees and disbursements).
Each person who serves as a director of the Corporation while this Article
NINTH is in effect shall be deemed to be doing so in reliance on the
provisions of this Article NINTH, and neither the amendment or repeal of
this Article NINTH, nor the adoption of any provision of this Certificate
of Incorporation inconsistent with this Article NINTH, shall apply to or
have any effect on the liability or alleged liability of any director or
the Corporation for, arising out of, based upon, or in connection with any
acts or omissions of such director occurring prior to such amendment,
repeal, or adoption of an inconsistent provision. The provisions of this
Article NINTH are cumulative and shall be in addition to and independent
of any and all other limitations on or eliminations of the liabilities of
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directors of the Corporation, as such, whether such limitations or
eliminations arise under or are created by any law, rule, regulation,
by-law, agreement, vote of shareholders or disinterested directors, or
otherwise.
Article VI of our By-Laws, as currently in effect, provides as
follows:
SECTION 1. INDEMNIFICATION. Any person who was or is a party or threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of
the fact that he or she is or was a Director, officer, employee or agent
of the Corporation or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise (including employee
benefit plans) hereinafter an "indemnitee"), shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the
General Corporation Law, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification than
permitted prior thereto), against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such indemnitee in connection with such action, suit or
proceeding, if the indemnitee acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of
the Corporation, and with respect to any criminal action or proceeding,
had no reasonable cause to believe such conduct was unlawful. The
termination of the proceeding, whether by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not,
of itself, create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation and, with respect to any
criminal action or proceeding, had reasonable cause to believe such
conduct was unlawful.
Any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of
the Corporation to procure a judgment in its favor by reason of the fact
that he or she is or was a Director, officer, employee or agent of another
Corporation, partnership, joint venture, trust or other enterprise
(including employee benefit plans) shall be indemnified and held harmless
by the Corporation to the fullest extent authorized by the General
Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification than permitted
prior thereto), against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or
settlement of such action or suit if he or she acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless and only
to the extent that the Court in which such suit or action was brought,
shall determine, upon application, that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such
court shall deem proper.
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SECTION 2. EXPENSES. All reasonable expenses incurred by or on behalf of
the indemnitee in connection with any suit, action or proceeding, may be
advanced to the indemnitee by the Corporation.
SECTION 3. NON-EXCLUSIVITY. The rights to indemnification and to
advancement of expenses conferred in this article shall not be exclusive
of any other right which any person may have or hereafter acquire under
any statute, the Certificate of Incorporation, a By-Law of the
Corporation, agreement, vote of stockholders or disinterested Directors or
otherwise.
SECTION 4. BINDING EFFECT. The indemnification and advancement of expenses
provided by this article shall continue as to a person who has ceased to
be a Director, officer, employee or agent and shall inure to the benefit
of the heirs, executors and administrators of such person.
Article 145 of the Delaware General Corporation Law provides as
follows:
(a) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right
of the corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by
the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause
to believe the person's conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that the person's
conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure
a judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in
a manner the person reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only
to the extent that the Court of Chancery or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem
proper.
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(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the present or former director, officer, employee or agent is proper in
the circumstances because the person has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) by a committee of such directors
designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (4) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of
an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in this
section. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon
such terms and conditions, if any, as the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as to
action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any
liability asserted against such person and incurred by such person in any
such capacity, or arising out of such person's status as such, whether or
not the corporation would have the power to indemnify such person against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as
such person would have with respect to such constituent corporation if its
separate existence had continued.
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(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best
interests of the corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. The Court
of Chancery may summarily determine a corporation's obligation to advance
expenses (including attorneys' fees).
From time to time, we have entered into indemnity agreements with
various of our executive officers and directors. Pursuant to a Severance
Agreement and Release, dated December 28, 1999, with D. Carl Long, our former
Vice Chairman, President and a director, we agreed as follows:
Biofield shall, to the fullest extent permitted by applicable law, and in
accordance with (i) Biofield's By-laws in existence at the time of the
applicable incident, or (ii) Biofield's By-laws in existence as of the
date hereof or Biofield's By-laws in existence at the time you seek
indemnification, as the case may be, to the extent any such Biofield
By-laws afford you greater indemnification rights, indemnify you and hold
you harmless from any cost, expense or liability arising out of or
relating to any acts or decisions made by you in the course of your
employment by Biofield or your other positions (including directorships)
with Biofield. If and to the extent that Biofield, from time to time,
obtains or continues any director and/or officer liability insurance
policy or other insurance policy providing coverage against similar claims
after the date hereof that includes coverage for persons who were officers
or directors of Biofield prior to the effective date of any such policy,
Biofield shall not take, nor permit or cause to be taken, any action which
excludes you from coverage under any such policy unless such exclusion
relates to similarly situated persons.
Pursuant to a Release Agreement, dated December 28, 1999, with C.
Leonard Gordon, our former Chairman, Chief Executive Officer and a director, we
agreed as follows (a similar Release Agreement simultaneously was entered into
with Harvey Horowitz, a former director):
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Biofield shall, to the fullest extent permitted by applicable law, and in
accordance with (i) Biofield's By-laws in existence at the time of the
applicable incident, or (ii) Biofield's By-laws in existence as of the
date hereof or Biofield's By-laws in existence at the time Mr. Gordon
seeks indemnification, as the case may be, to the extent any such Biofield
By-laws afford Mr. Gordon greater indemnification rights, indemnify Mr.
Gordon and hold Mr. Gordon harmless from any cost, expense or liability
arising out of or relating to any acts or decisions made by Mr. Gordon in
the course of Mr. Gordon's positions (including directorships) with
Biofield.
Since March 17, 1993, we have carried a Directors and Officers
Liability and Reimbursement Policy with Zurich-American Insurance Group covering
"Any person who has been, now is or shall become a duly elected director or a
duly elected of appointed officer of the Company." The limits of liability are
$3,000,000 for each loss, as defined, and for each policy period, as defined, in
each instance with a $75,000 deductible. The policy is written on a claims made
basis.
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PART F/S
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report.................................................F-1
Consolidated Balance Sheets..................................................F-2
Consolidated Statements of Operations........................................F-3
Consolidated Statements of Stockholders' Equity..............................F-4
Consolidated Statements of Cash Flows........................................F-6
Notes to Consolidated Financial Statements...................................F-8
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INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Biofield Corp.
We have audited the accompanying consolidated balance sheets of Biofield Corp.
(a development stage company) (the "Company") as of December 31, 1999 and 1998
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999 and
for the period October 16, 1987 (date of inception) through December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1999
and 1998 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 and for the period October 16,
1987 (date of inception) through December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 12 to the Consolidated Financial Statements, the Company is
in the development stage as of December 31, 1999.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
April 6, 2000
(June 20, 2000 as to the first paragraph of Note 13)
F-1
<PAGE>
BIOFIELD CORP.
(A Development Stage Company)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------------------------------------------------
December 31, September 30,
------------------------------ -------------
ASSETS 1999 1998 2000
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 523,677 $ 245,789 $ 62,222
Restricted cash 109,300 109,300
Short-term investments 189,519 1,184,976 1,194
Inventories 697,821 564,555 705,153
Other current assets 54,743 99,680 76,677
------------ ------------ ------------
Total current assets 1,575,060 2,095,000 954,546
PROPERTY AND EQUIPMENT - Net 42,086 303,240 62,386
OTHER ASSETS 110,466 88,021 110,466
PATENT AND PATENT APPLICATION - Net 410,954 672,818 408,959
------------ ------------ ------------
TOTAL $ 2,138,566 $ 3,159,079 1,536,357
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 430,461 $ 774,140 $ 531,820
Line of credit borrowings 176,000
Due to affiliate 55,516 142,934 55,516
Accrued expenses 101,000 93,701 55,500
------------ ------------ ------------
Total current liabilities 586,977 1,010,775 818,836
COMMITMENT AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Preferred Stock, $.001 par value; no shares issued
or outstanding
Series A Convertible - authorized 2,350,000 shares,
Series B Convertible - authorized 500,000 shares,
Series C Convertible - authorized 4,450,000 shares,
Series D Convertible - authorized 3,000,000 shares,
Undesignated - authorized 2,000,000 shares,
Common Stock, $.001 par value; authorized 25,000,000
shares; issued and outstanding 21,783,478, 7,783,478,
and 22,223,478 shares at December 31, 1999 and 1998,
and September 30, 2000, respectively 24,030 10,030 24,530
Less - Treasury stock - 2,246,131, 2,246,131
and 2,306,131 shares at December 31, 1999 and 1998,
and September 30, 2000, respectively (100) (100) (3,100)
Additional paid-in capital 58,941,667 58,255,667 59,128,167
Accumulated deficit during development stage (57,428,212) (56,174,517) (58,432,076)
Foreign currency translation adjustment 14,204 57,224
------------ ------------ ------------
Total stockholders' equity 1,551,589 2,148,304 717,521
------------ ------------ ------------
TOTAL $ 2,138,566 $ 3,159,079 $ 1,536,357
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
BIOFIELD CORP.
(A Development Stage Company)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
----------------------------------------------------------------------------------------------------------------
Year Ended Period October 16,
December 31, 1987 (Date of
------------------------------------------------ Inception) Through
1999 1998 1997 December 31, 1999
-----------------
<S> <C> <C> <C> <C>
OPERATING EXPENSES:
Research and development $ 292,900 $ 6,693,729 $ 7,080,060 $ 39,773,374
Selling, general, and administrative 1,097,601 4,324,814 3,565,397 19,685,993
(Gain) loss on disposition of
fixed assets (109,696) 61,800 (47,896)
------------ ------------ ------------ ------------
Total operating expenses 1,280,805 11,080,343 10,645,457 59,411,471
OTHER INCOME (EXPENSE):
Interest income 28,882 425,746 517,690 2,452,346
Interest expense (1,773) (3,524) (449,338)
------------ ------------ ------------ ------------
Net other income 27,109 425,746 514,166 2,003,008
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (1,253,696) (10,654,597) (10,131,291) (57,408,463)
PROVISION FOR INCOME TAXES (19,749) (19,749)
------------ ------------ ------------ ------------
NET LOSS $ (1,253,696) $(10,654,597) $(10,151,040) $(57,428,212)
============ ============ ============ ============
NET LOSS PER SHARE:
Basic and Diluted $ (0.16) $ (1.06) $ (1.53)
============ ============ ============
WEIGHTED-AVERAGE SHARES
Basic and Diluted 7,783,478 10,029,609 6,630,787
============ ============ ============
<CAPTION>
Nine Months Ended Period October 16,
September 30, 1987 (Date of
------------------------------ Inception) Through
2000 1999 September 30, 2000
(unaudited) ------------------
(unaudited)
<S> <C> <C> <C>
OPERATING EXPENSES:
Research and development $ 51,170 $ 39,773,374
Selling, general, and administrative $ 1,007,770 892,848 20,693,763
(Gain) loss on disposition of
fixed assets (109,696) (47,896)
------------ ------------ ------------
Total operating expenses 1,007,770 834,322 60,419,241
OTHER INCOME (EXPENSE):
Interest income 6,675 23,133 2,459,021
Interest expense (2,769) (452,107)
------------ ------------ ------------
Net other income 3,906 23,133 2,006,914
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (1,003,864) (811,189) (58,412,327)
PROVISION FOR INCOME TAXES (19,749)
------------ ------------ ------------
NET LOSS $ (1,003,864) $ (811,189) $(58,432,076)
============ ============ ============
NET LOSS PER SHARE:
Basic and Diluted $ (0.05) $ (0.10)
============ ============
WEIGHTED-AVERAGE SHARES
Basic and Diluted 21,954,589 7,783,478
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
BIOFIELD CORP.
(A Development Stage Company)
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Series A Series B
Preferred Stock Preferred Stock
---------------------------- ----------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sale of Common Stock, October 16, 1987
(date of inception) ($.16 per share, net)
Issuance of Common Stock in connection with patent
acquisition ($.001 per share)
Net loss, October 16, 1987 to March 31, 1988
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1988 - - - -
Net loss
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1989 - - - -
Net loss
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1990 - - - -
Acquisition of 235,294 shares of Common Stock
($.001 per share)
Net loss
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1991 - - - -
Retirement of Common Stock held in treasury
Issuance of Common Stock in exchange for notes
and debt (with accrued interest) ($2.90 per share, net)
Sale of Common Stock ($.82 per share, net)
Amortization of deferred compensation
Net loss
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1992 - - - -
Sale of Common Stock ($7.67 per share, net)
Exercise of Common Stock options
Amortization of deferred compensation
Change in par value of common stock
from $.0001 to $.001
Net loss
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1993 - - - -
Exercise of Common Stock options
Sale of Series A Preferred Stock
($3.97 per share, net) 2,119,896 $ 2,120
Issuance of Series A Preferred Stock in
exchange for notes ($4.50 per share) 222,222 222
Issuance of Common Stock warrants
Amortization of deferred compensation
Net loss
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1994 2,342,118 $ 2,342 - -
------------ ------------ ------------ ------------
(carried forward)
<PAGE>
<CAPTION>
Series C
Preferred Stock Common Stock
---------------------------- -----------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sale of Common Stock, October 16, 1987
(date of inception) ($.16 per share, net) 549,020 $ 55
Issuance of Common Stock in connection with patent
acquisition ($.001 per share) 235,294 24
Net loss, October 16, 1987 to March 31, 1988
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1988 - - 784,314 79
Net loss
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1989 - - 784,314 79
Net loss
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1990 - - 784,314 79
Acquisition of 235,294 shares of Common Stock
($.001 per share)
Net loss
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1991 - - 784,314 79
Retirement of Common Stock held in treasury (235,294) (24)
Issuance of Common Stock in exchange for notes
and debt (with accrued interest) ($2.90 per share, net) 431,372 43
Sale of Common Stock ($.82 per share, net) 24,510 2
Amortization of deferred compensation
Net loss
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1992 - - 1,004,902 100
Sale of Common Stock ($7.67 per share, net) 557,475 55
Exercise of Common Stock options 2,451 1
Amortization of deferred compensation
Change in par value of common stock
from $.0001 to $.001 1,408
Net loss
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1993 - - 1,564,828 $ 1,564
Exercise of Common Stock options 735 1
Sale of Series A Preferred Stock
($3.97 per share, net)
Issuance of Series A Preferred Stock in
exchange for notes ($4.50 per share)
Issuance of Common Stock warrants
Amortization of deferred compensation
Net loss
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1994 - - 1,565,563 $ 1,565
------------ ------------ ------------ ------------
(carried forward)
<PAGE>
<CAPTION>
Deficit Foreign
Additional Accumulated During Currency
Paid-In Treasury Development Translation
Capital Stock Stage Adjustment
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sale of Common Stock, October 16, 1987
(date of inception) ($.16 per share, net) $ 91,898
Issuance of Common Stock in connection with patent
acquisition ($.001 per share) 276
Net loss, October 16, 1987 to March 31, 1988 $ (159,359)
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1988 92,174 - (159,359) -
Net loss (495,520)
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1989 92,174 - (654,879) -
Net loss (233,347)
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1990 92,174 - (888,226) -
Acquisition of 235,294 shares of Common Stock
($.001 per share) $ (300)
Net loss (285,179)
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1991 92,174 (300) (1,173,405) -
Retirement of Common Stock held in treasury (276) 300
Issuance of Common Stock in exchange for notes
and debt (with accrued interest) ($2.90 per share, net) 1,248,638
Sale of Common Stock ($.82 per share, net) 19,998
Amortization of deferred compensation 136,880
Net loss (461,061)
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1992 1,497,414 - (1,634,466) -
Sale of Common Stock ($7.67 per share, net) 4,275,223
Exercise of Common Stock options 624
Amortization of deferred compensation 477,453
Change in par value of common stock
from $.0001 to $.001 (1,408)
Net loss (3,099,637)
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1993 $ 6,249,306 - (4,734,103) -
Exercise of Common Stock options 187
Sale of Series A Preferred Stock
($3.97 per share, net) 8,411,370
Issuance of Series A Preferred Stock in
exchange for notes ($4.50 per share) 999,778
Issuance of Common Stock warrants 2,119
Amortization of deferred compensation 1,580,320
Net loss (6,899,515)
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1994 $ 17,243,080 $ - $(11,633,618) -
------------ ------------ ------------ ------------
(carried forward)
<PAGE>
<CAPTION>
Total
Comprehensive
Total Loss
------------ ------------
<S> <C> <C>
Sale of Common Stock, October 16, 1987
(date of inception) ($.16 per share, net) $ 91,953
Issuance of Common Stock in connection with patent
acquisition ($.001 per share) 300
Net loss, October 16, 1987 to March 31, 1988 (159,359)
Total comprehensive income (loss) $ (159,359)
------------ ============
BALANCE AT MARCH 31, 1988 (67,106)
Net loss (495,520)
Total comprehensive income (loss) $ (495,520)
------------ ============
BALANCE AT MARCH 31, 1989 (562,626)
Net loss (233,347)
Total comprehensive income (loss) $ (233,347)
------------ ============
BALANCE AT MARCH 31, 1990 (795,973)
Acquisition of 235,294 shares of Common Stock
($.001 per share) (300)
Net loss (285,179)
Total comprehensive income (loss) $ (285,179)
------------ ============
BALANCE AT MARCH 31, 1991 (1,081,452)
Retirement of Common Stock held in treasury
Issuance of Common Stock in exchange for notes
and debt (with accrued interest) ($2.90 per share, net) 1,248,681
Sale of Common Stock ($.82 per share, net) 20,000
Amortization of deferred compensation 136,880
Net loss (461,061)
Total comprehensive income (loss) $ (461,061)
------------ ============
BALANCE AT MARCH 31, 1992 (136,952)
Sale of Common Stock ($7.67 per share, net) 4,275,278
Exercise of Common Stock options 625
Amortization of deferred compensation 477,453
Change in par value of common stock
from $.0001 to $.001
Net loss (3,099,637)
Total comprehensive income (loss) $ (3,099,637)
------------ ============
BALANCE AT MARCH 31, 1993 1,516,767
Exercise of Common Stock options 188
Sale of Series A Preferred Stock
($3.97 per share, net) 8,413,490
Issuance of Series A Preferred Stock in
exchange for notes ($4.50 per share) 1,000,000
Issuance of Common Stock warrants 2,119
Amortization of deferred compensation 1,580,320
Net loss (6,899,515)
Total comprehensive income (loss) $ (6,899,515)
------------ ============
BALANCE AT MARCH 31, 1994 $ 5,613,369
------------
(carried forward)
(Continued)
</TABLE>
F-4
<PAGE>
BIOFIELD CORP.
(A Development Stage Company)
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Series A Series B
Preferred Stock Preferred Stock
----------------------------- -----------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1994 2,342,118 2,342 - -
(brought forward)
Sale of Series B Preferred Stock
($4.04 per share, net) 481,644 482
Issuance of Common Stock warrants
Amortization of deferred compensation
Net loss
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1994 2,342,118 2,342 481,644 482
Sale of Series C Preferred Stock
($4.11 per share, net)
Issuance of Common Stock warrants
Amortization of deferred compensation
Net loss
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1995 2,342,118 2,342 481,644 482
Sale of Common Stock ($9.91 per share, net)
Conversion of Series A, Series B, and Series C
Preferred Stock to Common Stock (2,342,118) (2,342) (481,644) (482)
Exercise of Common Stock warrants
Amortization of deferred compensation
Net loss
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1996 - - - -
Sale of Common Stock ($2.92 per share, net)
Warrants exchanged for Common Stock
Exercise of Common Stock options
Exercise of Common Stock warrants
Issuance of Common Stock for consulting
services ($4.00 per share, net)
Amortization of deferred compensation
Net loss
Foreign currency translation adjustment
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1997 - - - -
Repurchase of Common Stock
Net loss
Foreign currency translation adjustment
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1998 - - - -
Sale of Common Stock ($.05 per share, net)
Net loss
Foreign currency translation adjustment
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1999 - - - -
Issuance of right to purchase Common Stock
in lieu of compensation ($0.45 per share) (unaudited)
Sale of common stock ($0.05 per share) (unaudited)
Repurchase of common stock (unaudited)
Net loss (unaudited)
Foreign currency translation adjustment (unaudited)
Total comprehensive income (loss) (unaudited)
------------ ------------ ------------ ------------
BALANCE AT SEPTEMBER 30, 2000 (unaudited) - - - -
============ ============ ============ ============
<PAGE>
<CAPTION>
Series C
Preferred Stock Common Stock
----------------------------- -----------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1994 - - 1,565,563 1,565
(brought forward)
Sale of Series B Preferred Stock
($4.04 per share, net)
Issuance of Common Stock warrants
Amortization of deferred compensation
Net loss
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1994 - - 1,565,563 1,565
Sale of Series C Preferred Stock
($4.11 per share, net) 2,914,771 2,915
Issuance of Common Stock warrants
Amortization of deferred compensation
Net loss
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1995 2,914,771 2,915 1,565,563 1,565
Sale of Common Stock ($9.91 per share, net) 1,819,000 1,819
Conversion of Series A, Series B, and Series C
Preferred Stock to Common Stock (2,914,771) (2,915) 3,046,474 3,047
Exercise of Common Stock warrants 2,058 2
Amortization of deferred compensation
Net loss
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1996 - - 6,433,095 6,433
Sale of Common Stock ($2.92 per share, net) 2,867,670 2,868
Warrants exchanged for Common Stock 643,639 644
Exercise of Common Stock options 50,674 50
Exercise of Common Stock warrants 9,531 10
Issuance of Common Stock for consulting 25,000 25
services ($4.00 per share, net)
Amortization of deferred compensation
Net loss
Foreign currency translation adjustment
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1997 - - 10,029,609 10,030
Repurchase of Common Stock (2,246,131)
Net loss
Foreign currency translation adjustment
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1998 - - 7,783,478 10,030
Sale of Common Stock ($.05 per share, net) 14,000,000 14,000
Net loss
Foreign currency translation adjustment
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1999 - - 21,783,478 24,030
Issuance of right to purchase Common Stock
in lieu of compensation ($0.45 per share) (unaudited)
Sale of common stock ($0.05 per share) (unaudited) 500,000 500
Repurchase of common stock (unaudited) (60,000)
Net loss (unaudited)
Foreign currency translation adjustment (unaudited)
Total comprehensive income (loss) (unaudited)
------------ ------------ ------------ ------------
BALANCE AT SEPTEMBER 30, 2000 (unaudited) - - 22,223,478 $ 24,530
============ ============ ============ ============
<PAGE>
<CAPTION>
Deficit Foreign
Additional Accumulated During Currency
Paid-In Treasury Development Translation
Capital Stock Stage Adjustment
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1994 17,243,080 - (11,633,618) -
(brought forward)
Sale of Series B Preferred Stock
($4.04 per share, net) 1,947,149
Issuance of Common Stock warrants 6
Amortization of deferred compensation 14,859
Net loss (4,959,312)
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1994 19,205,094 - (16,592,930) -
Sale of Series C Preferred Stock
($4.11 per share, net) 11,977,856
Issuance of Common Stock warrants 161
Amortization of deferred compensation 195,874
Net loss (8,739,858)
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1995 31,378,985 - (25,332,788) -
Sale of Common Stock ($9.91 per share, net) 18,026,419
Conversion of Series A, Series B, and Series C
Preferred Stock to Common Stock 2,692
Exercise of Common Stock warrants 20,145
Amortization of deferred compensation 26,093
Net loss (10,036,090)
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1996 49,454,334 - (35,368,878) -
Sale of Common Stock ($2.92 per share, net) 8,377,583
Warrants exchanged for Common Stock (644)
Exercise of Common Stock options 168,541
Exercise of Common Stock warrants 93,299
Issuance of Common Stock for consulting 99,975
services ($4.00 per share, net) 62,579
Amortization of deferred compensation
Net loss (10,151,041)
Foreign currency translation adjustment $ 1,333
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1997 58,255,667 - (45,519,919) 1,333
Repurchase of Common Stock (100)
Net loss (10,654,597)
Foreign currency translation adjustment 55,891
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1998 58,255,667 (100) (56,174,516) 57,224
Sale of Common Stock ($.05 per share, net) 686,000
Net loss (1,253,696)
Foreign currency translation adjustment (43,020)
Total comprehensive income (loss)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1999 58,941,667 (100) (57,428,212) 14,204
Issuance of right to purchase Common Stock
in lieu of compensation ($0.45 per share) (unaudited) 162,000
Sale of common stock ($0.05 per share) (unaudited) 24,500
Repurchase of common stock (unaudited) (3,000)
Net loss (unaudited) (1,003,864)
Foreign currency translation adjustment (unaudited) (14,204)
Total comprehensive income (loss) (unaudited)
------------ ------------ ------------ ------------
BALANCE AT SEPTEMBER 30, 2000 (unaudited) $ 59,128,167 $ (3,100) $(58,432,076) $ -
============ ============ ============ ============
<PAGE>
<CAPTION>
Total
Comprehensive
Total Loss
------------ ------------
<S> <C> <C>
BALANCE AT MARCH 31, 1994 5,613,369
(brought forward)
Sale of Series B Preferred Stock
($4.04 per share, net) 1,947,631
Issuance of Common Stock warrants 6
Amortization of deferred compensation 14,859
Net loss (4,959,312)
Total comprehensive income (loss) - $ (4,959,312)
------------ ============
BALANCE AT DECEMBER 31, 1994 2,616,553
Sale of Series C Preferred Stock
($4.11 per share, net) 11,980,771
Issuance of Common Stock warrants 161
Amortization of deferred compensation 195,874
Net loss (8,739,858)
Total comprehensive income (loss) $ (8,739,858)
------------ ============
BALANCE AT DECEMBER 31, 1995 6,053,501
Sale of Common Stock ($9.91 per share, net) 18,028,238
Conversion of Series A, Series B, and Series C
Preferred Stock to Common Stock
Exercise of Common Stock warrants 20,147
Amortization of deferred compensation 26,093
Net loss (10,036,090)
Total comprehensive income (loss) $(10,036,090)
------------ ============
BALANCE AT DECEMBER 31, 1996 14,091,889
Sale of Common Stock ($2.92 per share, net) 8,380,451
Warrants exchanged for Common Stock
Exercise of Common Stock options 168,591
Exercise of Common Stock warrants 93,309
Issuance of Common Stock for consulting 100,000
services ($4.00 per share, net) 62,579
Amortization of deferred compensation
Net loss (10,151,041)
Foreign currency translation adjustment 1,333
Total comprehensive income (loss) $(10,149,708)
------------ ============
BALANCE AT DECEMBER 31, 1997 12,747,111
Repurchase of Common Stock (100)
Net loss (10,654,597)
Foreign currency translation adjustment 55,891
Total comprehensive income (loss) $(10,598,706)
------------ ============
BALANCE AT DECEMBER 31, 1998 2,148,305
Sale of Common Stock ($.05 per share, net) 700,000
Net loss (1,253,696)
Foreign currency translation adjustment (43,020)
Total comprehensive income (loss) $ (1,296,716)
------------ ============
BALANCE AT DECEMBER 31, 1999 1,551,589
Issuance of right to purchase Common Stock
in lieu of compensation ($0.45 per share) (unaudited) 162,000
Sale of common stock ($0.05 per share) (unaudited) 25,000
Repurchase of common stock (unaudited) (3,000)
Net loss (unaudited) (1,003,864)
Foreign currency translation adjustment (unaudited) (14,204)
Total comprehensive income (loss) (unaudited) $ (1,018,068)
------------ ============
BALANCE AT SEPTEMBER 30, 2000 (unaudited) $ 717,521
============
See notes to consolidated financial statements. (Concluded)
</TABLE>
F-5
<PAGE>
BIOFIELD CORP.
(A Development Stage Company)
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31,
----------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,253,696) $(10,654,597) $(10,151,040)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 99,467 317,866 413,099
Amortization of premiums (discount) on short-term investments 47,600 44,308
Loss on disposal of property and equipment 49,777 61,800
Loss on license and settlement agreement
Loss on abandonment of patent applications 248,006
Vendor settlements (77,257)
Noncash compensation 116,393 162,579
Gain from disposition of fixed assets (159,473)
Interest paid in Common Stock
Changes in assets and liabilities:
Other current assets (115,495) (392,433) 48,030
Other assets (104,597) 3,873 9,856
Due to affiliate (88,404) (36,881) 179,815
Accounts payable and accrued expenses (259,122) (312,764) (187,510)
------------ ------------ ------------
Net cash used in operating activities (1,660,794) (10,849,143) (9,480,863)
------------ ------------ ------------
INVESTING ACTIVITIES
Acquisition of property and equipment (149,339) (285,698) (2,564,829)
Costs incurred for patents and patent applications (5,066) (62,089) (143,924)
Proceeds from sale of property and equipment 291,331
Purchases of short-term investments (2,153,939) (9,468,509)
Proceeds from sales and maturities of short-term investments 5,935,600 12,164,346
------------ ------------ ------------
Net cash provided by (used in) investing activities 286,265 3,570,233 2,266,215
------------ ------------ ------------
FINANCING ACTIVITIES
Repayments of capitalized lease obligations (2,658) (30,990)
Proceeds from issuance of Series A Preferred Stock - net
Proceeds from issuance of Series B Preferred Stock - net
Proceeds from issuance of Series C Preferred Stock - net
Proceeds from issuance of Common Stock and Common Stock warrants - net 700,000 8,380,451
Proceeds from exercise of Common Stock options and Common Stock warrants 261,900
Proceeds from borrowings on line of credit
Proceeds from bank borrowings
Payment on bank borrowings
Repayment of advances from stockholder
Repurchase of Common Stock held in treasury (100)
Proceeds from notes payable issued to stockholder and related party
------------ ------------ ------------
Net cash provided by (used in) financing activities 700,000 (2,758) 8,611,361
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (674,529) (7,281,668) 1,396,713
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (43,040) (56,266) 2,013
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 1,430,765 8,768,699 7,369,973
------------ ------------ ------------
END OF PERIOD $ 713,196 $ 1,430,765 $ 8,768,699
============ ============ ============
<PAGE>
<CAPTION>
Period October 16,
1987 (Date of Nine Months
Inception) Through Ended September 30,
December 31, 1999 -----------------------------
----------------- 2000 1999
(unaudited)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(57,428,212) $ (1,003,864) $ (811,189)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2,507,821 23,598 59,762
Amortization of premiums (discount) on short-term investments 156,692
Loss on disposal of property and equipment 154,290
Loss on license and settlement agreement 49,026
Loss on abandonment of patent applications 248,006
Vendor settlements (77,257)
Noncash compensation 2,710,451 162,000
Gain from disposition of fixed assets (159,473) (109,696)
Interest paid in Common Stock 297,148
Changes in assets and liabilities:
Other current assets (779,268) (29,266) (80,697)
Other assets (218,459) (9,862)
Due to affiliate 54,530
Accounts payable and accrued expenses 488,830 55,858 (236,472)
------------ ------------ ------------
Net cash used in operating activities (51,995,875) (791,674) (1,188,154)
------------ ------------ ------------
INVESTING ACTIVITIES
Acquisition of property and equipment (43,852) (5,029) (2,608,681)
Costs incurred for patents and patent applications (759,020) (12,254) (12,152)
Proceeds from sale of property and equipment 294,748 290,936
Purchases of short-term investments (26,476,638)
Proceeds from sales and maturities of short-term investments 26,319,946
------------ ------------ ------------
Net cash provided by (used in) investing activities (3,185,793) (56,106) 273,755
------------ ------------ ------------
FINANCING ACTIVITIES
Repayments of capitalized lease obligations (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 Common Stock warrants - net 31,498,206
Proceeds from exercise of Common Stock options and Common Stock warrants 282,860 22,000
Proceeds from borrowings on line of credit 176,000
Proceeds from bank borrowings 520,000
Payment on bank borrowings (520,000)
Repayment of advances from stockholder (145,000)
Repurchase of Common Stock held in treasury (100)
Proceeds from notes payable issued to stockholder and related party 2,096,533 - -
------------ ------------ ------------
Net cash provided by (used in) financing activities 55,992,157 198,000
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 810,489 (649,780) (914,399)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (97,293)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 713,196 1,430,765
------------ ------------ ------------
END OF PERIOD $ 713,196 $ 63,416 $ 516,366
============ ============ ============
<PAGE>
<CAPTION>
Period October 16,
1987 (Date of
Inception) Through
September 30, 2000
------------------
(unaudited)
<S> <C>
OPERATING ACTIVITIES
Net loss $(58,432,077)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2,531,419
Amortization of premiums (discount) on short-term investments 156,692
Loss on disposal of property and equipment 154,290
Loss on license and settlement agreement 49,026
Loss on abandonment of patent applications 248,006
Vendor settlements (77,257)
Noncash compensation 2,872,451
Gain from disposition of fixed assets (159,473)
Interest paid in Common Stock 297,148
Changes in assets and liabilities:
Other current assets (808,534)
Other assets (218,459)
Due to affiliate 54,530
Accounts payable and accrued expenses 544,688
------------
Net cash used in operating activities (52,787,550)
------------
INVESTING ACTIVITIES
Acquisition of property and equipment
Costs incurred for patents and patent applications (771,274)
Proceeds from sale of property and equipment 294,748
Purchases of short-term investments (26,476,638)
Proceeds from sales and maturities of short-term investments 26,319,946
------------
Net cash provided by (used in) investing activities (3,241,898)
------------
FINANCING ACTIVITIES
Repayments of capitalized lease obligations (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 Common Stock warrants - net 31,498,206
Proceeds from exercise of Common Stock options and Common Stock warrants 304,860
Proceeds from borrowings on line of credit 176,000
Proceeds from bank borrowings 520,000
Payment on bank borrowings (520,000)
Repayment of advances from stockholder (145,000)
Repurchase of Common Stock held in treasury (100)
Proceeds from notes payable issued to stockholder and related party 2,096,533
------------
Net cash provided by (used in) financing activities 56,190,157
------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 160,709
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (97,293)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD
------------
END OF PERIOD $ 63,416
============
</TABLE>
F-6
<PAGE>
BIOFIELD CORP.
(A Development Stage Company)
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Period Period
October 16, October 16,
December 31, 1987 (Date of 1987 (Date of
-------------------------------------- Inception) Inception)
1999 1998 1997 Through Through
December 31, September 30,
1999 2000
------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for interest $ - $ - $ 3,524 $ 59,409 $ 59,409
========== ========== ========== ========== ==========
SUPPLEMENTAL SCHEDULE FOR NONCASH
INVESTING AND FINANCING ACTIVITIES:
Acquisition of property and equipment under
capitalized lease transactions $ - $ - $ 55,874 $ 82,234 $ 82,234
========== ========== ========== ========== ==========
During the fiscal 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 $1,000,000
========== ==========
Issuance of Series A Preferred Stock $1,000,000 $1,000,000
========== ==========
At inception, the Company acquired the rights to a
patent and assumed certain liabilities in exchange
for 235,294 shares of Common Stock, as follows:
Fair value of patent acquired $ 112,732 $ 112,732
Liabilities assumed 112,432 112,432
---------- ----------
Issuance of Common Stock $ 300 $ 300
========== ==========
Pursuant to a license and settlement agreement with
respect to an acquired patent (see above), the
Company reacquired during the fiscal year ended
March 31, 1991 its 235,294 shares of Common Stock
issued in connection with the acquired patent, which was
retired during the fiscal year ended March 31, 1992:
Remaining carrying value of patent on date of
license and settlement agreement $ 49,326 $ 49,326
Common Stock returned to the Company 300 300
---------- ----------
Loss on Settlement $ 49,026 $ 49,026
========== ==========
During the fiscal year ended March 31, 1992, the
Company exchanged 431,372 shares of Common
Stock for notes, debt and accrued interest
payable to a principal stockholder:
Notes payable $ 96,660 $ 96,660
Debt 854,873 854,873
Accrued interest 297,148 297,148
---------- ----------
Issuance of Common Stock $1,248,681 $1,248,681
========== ==========
See notes to consolidated financial statements. (Concluded)
</TABLE>
F-7
<PAGE>
BIOFIELD CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. COMPANY
Biofield Corp. (the "Company") is a development stage company that has
developed a system for detecting breast cancer in a non-invasive and
objective procedure. The Company's breast cancer diagnostic device, the
Biofield Diagnostic System, employs single-use sensors of its own design and
a measurement device to detect and analyze changes in cellular electrical
charge distributions associated with the development of epithelial cancers,
such as breast cancer. Principal activities to date include product
development, conducting clinical trials, recruitment of personnel, and
raising capital. The Company operates in one segment, the biomedical device
market.
In March 1996, the Company completed its initial public offering ("IPO") of
1,819,000 shares of Common Stock, par value $.001 per share ("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).
During the first half of 1997, the Company formed a wholly owned Delaware
corporation, Biofield International, Inc., which formed a U.S. branch
located in Switzerland (the "Branch"). The Company closed the Branch in
March 1999.
In December 1997, the Company received net proceeds of approximately $8.4
million from the sale of 2,867,670 shares of 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 previously issued warrants to purchase an
aggregate of 1,574,930 shares of Common Stock (see Note 9).
In November 1998, the Company decided to eliminate certain operations due to
lack of adequate financial resources. In December 1998, the Common Stock was
delisted from trading on The NASDAQ Stock Market due primarily to the
Company's lack of compliance with certain financial requirements and, in
March 1999, the Company's reporting obligations under the Securities
Exchange Act of 1934 were terminated. At such time, the Company announced
that its efforts would be directed to selling its existing technology and/or
raising additional capital.
In December 1999, the Company sold 14 million shares of Common Stock for
$700,000 to two related investors and their affiliated entities.
Simultaneously, the Company's Board of Directors appointed one of such
investors as a director, whereupon the remaining directors and the Company's
then Chief Executive Officer resigned. Thereafter, such investor became
Chairman and Chief Executive Officer of the Company and took action to
reconstitute the Board of Directors.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents and Short-Term Investments - The Company invests
its excess cash in short-term, investment grade corporate obligations, money
market funds, shares of liquid (auction-market) preferred stock and bonds,
and certificates of deposit. For purposes of financial reporting, the
Company considers highly liquid investments with a maturity of three months
or less to be cash equivalents. The Company's short-term investments are
F-8
<PAGE>
sold if cash is needed and, therefore, are considered "available-for-sale."
At December 31, 1999, the cost of short-term investments approximated market
value. Realized gains and losses on short-term investments were immaterial
for the years ended December 31, 1999, 1998, and 1997.
Restricted Cash - Under an agreement with its previous Chairman of the
Board, the Company has placed $109,300 of cash in escrow for payment of
premiums on director and officer insurance for the benefit of its previous
directors and officers (see Note 10). The cash is scheduled to be released
as insurance is obtained covering the period ending March 17, 2003.
Inventory - Inventory is valued at the lower of cost or market. Cost is
determined on the first-in, first-out basis.
Property and Equipment - Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using straight-line methods over the estimated useful lives of the
assets, principally three to five years, or the term of the lease, if
shorter, for leasehold improvements.
Patents - The costs of patents are amortized on a straight-line basis over
their estimated economic life, not to exceed 17 years.
Income Taxes - Deferred tax assets and liabilities are determined for
differences between the financial reporting basis and income tax basis of
the assets and liabilities that will result in taxable or deductible amounts
in the future, based on enacted tax rates applicable to the periods that the
differences are expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized.
Impairment of Long-Lived Assets - Long-lived assets, including patents, are
reviewed for impairment when events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable based on an
analysis of undiscounted future cash flows. Any impairment losses are
reported in the period that the recognition criteria are first applied,
based on the fair value of the asset. Long-lived assets to be disposed of
are reported at the lower of carrying amount or fair value, less estimated
cost of disposition.
Stock-Based Compensation - The Company accounts for compensation cost
related to employee and director stock options based on the guidance in
Accounting Principles Board Opinion 25, Accounting for Stock Issued to
Employees and for compensation cost related to non-employee stock options
based on the guidance in SFAS 123 Accounting for Stock-Based Compensation
and EITF 96-18 Accounting for Equity Instruments with Variable Terms That
Are Issued for Consideration Other Than Employee Services under FASB
Statement No. 123. In 1996, the Company adopted the disclosure requirements
of SFAS No. 123, Accounting for Stock-Based Compensation. This statement
established a fair-value-based method of accounting for compensation cost
related to stock options and other forms of stock-based compensation plans.
The adoption of the recognition provisions related to employee arrangements
under SFAS No. 123 is optional; however, the pro forma effects on operations
had these recognition provisions been elected are required.
Research and Development - Research and development costs are charged to
operations as incurred.
Basic and Diluted 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.
F-9
<PAGE>
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those
estimates.
Comprehensive Income - Effective January 1, 1998, the Company adopted SFAS
No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components,
including revenues, expenses, gains, and losses in a full set of
general-purpose financial statements. The adoption of this statement had no
material effect on the Company's financial statements.
Fair Value of Financial Instruments - The carrying value of the Company's
cash and cash equivalents, accounts payable, and accrued liabilities
approximate their fair values due to the short-term nature of these
instruments.
Unaudited Interim Financial Information - The accompanying unaudited interim
financial statements of the Company have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
information. In the opinion of management, all adjustments (consisting only
of normal recurring entries) considered necessary for a fair presentation
have been included. Operating results for the nine months ended September
30, 2000 are not necessarily indicative of the results that may be expected
for the entire fiscal year or any other interim period.
New Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement (as amended by SFAS
No. 137 and SFAS No. 138) is effective for all fiscal years beginning
after June 15, 2000. This statement establishes accounting and reporting
standards for derivative instruments, including some derivative
instruments embedded in other contracts, and for hedging activities.
Under SFAS No. 133, some contracts that were not formerly considered
derivatives may now meet the definition of a derivative. The Company
intends to adopt SFAS No. 133 effective January 1, 2001. The Company
does not believe that it has significant derivative activity and
accordingly does not expect the adoption of SFAS No. 133 to have a
material impact on its financial position or results of operations.
3. INVENTORIES
Inventories at December 31, 1999 and 1998 and September 30, 2000 consisted
of the following:
1999 1998 2000
(unaudited)
Components and supplies $100,882 $100,393 $108,214
Finished goods 596,939 464,162 596,939
-------- -------- --------
$697,821 $564,555 $705,153
======== ======== ========
F-10
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Furniture and office equipment $ 96,580 $1,042,740
Leasehold improvements 119,430
Production equipment, tooling, and clinical testing equipment 551,220 632,260
---------- ----------
647,800 1,794,430
Less accumulated depreciation and amortization 605,714 1,491,190
---------- ----------
$ 42,086 $ 303,240
========== ==========
</TABLE>
Depreciation expense for the years ended December 31, 1999, 1998, and 1997,
and for the period from inception through December 31, 1999 was $80,696,
$268,469, $386,051, and $2,246,865, respectively.
5. PATENT AND PATENT APPLICATION COSTS
The Company entered into a 15-year agreement dated December 22, 1992 with a
consultant and inventor for the assignment of certain rights relating to
performance under a laboratory service agreement. The Company paid $100,000
for such assignment and agreed to pay royalties of five percent of Net Sales
Price of Covered Inventions (as defined), if any, subject to a limit of
$2,500,000. No royalties have been paid or accrued as of December 31, 1999.
The Company has a patent royalty agreement with a related party and his
corporation which would assign all rights to the Company for patented
inventions, if any, resulting from performance under a laboratory service
agreement (see Note 10). The Company has been issued a United States patent
in which the related party is a named co-inventor. No royalties have been
paid or accrued as of December 31, 1999.
Accumulated amortization for patents was $100,167 and $81,123 at December
31, 1999 and 1998, respectively. Patent amortization expense for the years
ended December 31, 1999, 1998, and 1997, and for the period from inception
through December 31, 1999 was $19,041, $17,904, $14,127, and $163,583,
respectively.
In 1999, the Company evaluated its patent application program and related
costs and, as a result, has written off approximately $247,000 of costs
previously capitalized based on an analysis of undiscounted future cash
flows for the related patents to reflect its patents at their fair value.
6. ACCRUED EXPENSES
Accrued expenses at December 31, 1999 and 1998 consisted of the following:
1999 1998
Professional fees $ 85,000 $ 76,000
Other 16,000 17,701
-------- --------
$101,000 $ 93,701
======== ========
F-11
<PAGE>
7. INCOME TAXES
Due to the Company's operating losses, there was no provision for U.S.
income taxes for the years ended December 31, 1999, 1998, and 1997. The tax
provision in 1997 of approximately $20,000 reflects foreign tax liability
related to the Branch.
At December 31, 1999, the Company had Federal net operating loss
carryforwards of approximately $54.3 million, which expire in years 2000
through 2019. These losses may be offset against future U.S. taxable income,
if any, during the carryforward period. However, substantially all of the
net operating loss carryforwards may not be utilizable as a result of the
limitations imposed by Section 382 of the Internal Revenue Code due to
ownership changes in 1992, 1995, 1997, and 1999.
The tax effects of temporary differences that give rise to deferred tax
assets at December 31, 1999 and 1998 are as follows:
1999 1998
Deferred tax assets:
Deferred compensation $ 825,700 $ 825,700
Net operating loss carryforwards 21,053,100 20,516,800
Research and development credits 314,000 314,000
Other 85,100 142,400
------------ ------------
Total gross deferred tax assets 22,277,900 21,798,900
Less valuation allowance (22,277,900) (21,798,900)
------------ ------------
Net deferred tax assets $ -- $ --
============ ============
The valuation allowances are equal to the deferred tax assets because of the
uncertainty of the future realization of the assets.
8. COMMITMENTS AND CONTINGENCIES
Lease Commitments - Total rental expense relating to operating expenses for
the years ended December 31, 1999, 1998, and 1997, and for the period from
inception through December 31, 1999 was $55,273, $303,662, $121,403, and
$1,137,318, respectively.
In 1998, the Company rented an apartment for its then Chief Executive
Officer within the City of New York and terminated the lease in December
1998. Total rent incurred was $48,000. In 1999, the Company canceled or
terminated various office leases for office facilities that were being
rented for an aggregate of approximately $17,000 per month. Beginning in
1999, the then Chief Executive Officer rented an office under a
month-to-month lease for $1,000 per month, totaling $8,750 for the year
ended December 31, 1999; the lease terminated in early 2000. Currently, the
Company occupies an aggregate of approximately 4,000 square feet near
Atlanta, Georgia under one year leases expiring in August 2000 and February
2001 at an aggregate minimal rental of $24,240 per annum.
Employee Agreements - The Company has no employment agreements with any of
its current employees. Pursuant to an employment agreement with a former
officer, the Company is obligated to pay royalties of two percent and one
percent, respectively, on two inventions for which he was the inventor or
F-12
<PAGE>
co-inventor through December 31, 2005 or until such royalties reach $8
million, whichever occurs first. As of December 31, 1999, no royalties had
been paid or accrued to such former officer.
Vendor Commitments - As part of its ongoing efforts to conserve cash and
maintain its business existence, the Company has negotiated agreements and
settlements with certain vendors. During the period ended December 31, 1999,
certain vendor-payable amounts were settled for an amount approximately
$67,000 less than the invoiced amounts and 1999 operating expenses were
reduced accordingly. In addition, approximately $176,000 of the current
accounts payable balance at December 31, 1999 has been deferred by agreement
with vendors until such time, if any, as the Company obtains adequate
financial resources.
Profit Sharing Plan - In November 1993, the Company adopted a 401(k) Profit
Sharing Plan & Trust (the "401 (k) Plan"), a tax-qualified plan covering all
of its employees. The 401(k) Plan provides that the Company may, as
determined from time to time by the Board of Directors, provide a matching
contribution or an additional amount at its discretion. As of December 31,
1999, the Company had made no contributions to the 401(k) Plan.
9. STOCKHOLDERS' EQUITY
In December 1993, the Company completed a private placement of 2,342,118
shares of its Series A Preferred Stock for an aggregate of $9,413,490 (net
of related expenses of $1,126,041). $1 million of the net proceeds were
exchanged for related party loans (see Note 10).
In September 1994, the Company completed a private placement of 481,644
shares of its Series B Preferred Stock for an aggregate of $1,947,631 (net
of related expenses of $219,761). In connection with such placement, the
Company issued, for no additional consideration, 2,843 warrants to purchase
shares of Common Stock, which warrants expired unexercised in September
1999.
During 1995, the Company completed a private placement of 2,914,771 units of
its securities for an aggregate of $11,980,771 (net of related expenses of
$1,135,699). Each unit consisted of: (i) one share of Series C Preferred
Stock; (ii) one-half of a warrant to purchase a share of Series D Preferred
Stock at $6.00 per share, or upon the occurrence of certain events (which
subsequently occurred), a share of Series C Preferred Stock at $4.50 per
share; and (iii) one-half of a warrant to purchase a share of Series D
Preferred Stock at $6.00 per share. In addition, the purchasers of the units
(the "Unit Purchasers") were granted the right, upon the occurrence of
certain events, to receive an aggregate of 357,192 warrants to purchase an
aggregate of 357,192 shares of Common Stock at an exercise price of $9.18
per share. In connection with the sale of units to certain of the Unit
Purchasers, the Company: (i) paid a selected broker-dealer a commission
equal to seven percent of the aggregate proceeds from the sales of such
units; and (ii) sold to the broker-dealer for $161 warrants to purchase an
aggregate of 78,986 shares of Common Stock at a price of $9.18 per share.
None of the warrants to purchase shares of Common Stock at $9.18 per share
were exercised prior to their expiration on March 3, 2000.
In March 1996, the Company completed its 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). Upon completion of the
IPO: (i) each outstanding share of Series A Preferred Stock automatically
was converted into approximately .5729 shares of Common Stock, (ii) each
outstanding share of Series B Preferred Stock automatically was converted
into approximately .5729 shares of Common Stock, (iii) each outstanding
share of Series C Preferred Stock automatically was converted into .4902
shares of Common Stock, (iv) each outstanding warrant to purchase a share of
Series C Preferred Stock automatically became exercisable for .4902 shares
of Common Stock, and (v) each outstanding warrant to purchase a share of
Series D Preferred Stock automatically became exercisable for .4902 shares
F-13
<PAGE>
of Common Stock. At December 31, 1999, none of the Series C warrants had
been exercised. The Series C warrants entitle the holder to purchase 78,976
shares, 84,425 shares, and 84,425 shares of Common Stock at an exercise
price of $9.18, $12.24, and $9.18 per share, respectively. The Series C
warrants expire on June 30, 2000.
In June 1996, the Company issued to the Unit Purchasers warrants to purchase
an aggregate 357,192 shares of Common Stock at an exercise price of $9.18
per share. None of these warrants were exercised prior to their expiration
on March 3, 2000.
In December 1997, the Company completed a private placement of 2,867,670
shares of Common Stock for aggregate proceeds of $8,380,451 (net of related
expenses of $652,710). Concurrent with such placement, the Company issued to
the Unit Purchasers participating in the placement an aggregate of 643,639
shares of Common Stock in exchange for their previously issued warrants to
purchase an aggregate of 1,574,930 shares of Common Stock.
As at December 31, 1999, the Company had reserved approximately 3.2 million
shares of Common Stock for future issuance upon the exercise and purchase of
previously issued options and warrants outstanding as of such date.
Treasury Stock - In December 1998, the Company purchased 2,246,131 shares of
Common Stock for $100, which shares are held by the Company in its treasury.
Capital Investment in 1999 by New Majority Shareholders - In December 1999,
the Company completed a private placement of 14 million shares of Common
Stock for aggregate proceeds of approximately $700,000.
10. RELATED PARTY TRANSACTIONS
In June 1992, the Company entered into a series of agreements with David M.
Long, M.D., Ph.D. ("Dr. Long"), then a director of the Company, and Dr.
Long's wholly owned corporation, Abel Laboratories, Inc. ("Abel"). One of
the agreements (the "Laboratory Agreement") engaged Abel to provide
specified preclinical research. Although the Laboratory Agreement expired in
December 1993, the parties agreed that any research conducted thereafter by
Abel for the Company will be pursuant to substantially the same terms as the
Laboratory Agreement and will be approved and invoiced on a case-by-case
basis. Abel has conducted preclinical research for the Company since such
time, which aggregated approximately $0, $246,000, and $595,000 during the
years ended December 31, 1999, 1998, and 1997, respectively. Amounts owed to
Abel at December 31, 1999 and 1998 are recorded as due to affiliate in the
accompanying balance sheets.
In connection with the Laboratory Agreement, the Company granted Abel an
option to purchase 61,275 shares of Common Stock at $8.16 per share.
Following completion of the Company's Series A Preferred Stock private
placement in December 1993, the exercise price of the option was reduced to
$2.04 per share based on the market capitalization of the Company at such
time. These options expire June 1, 2002. In addition, during 1995, the
Company granted Dr. Long options to acquire 24,510 shares of Common Stock at
$10.20 per share. These options expired unexercised on March 16, 2000.
The Company, in January 1994, entered into a patent royalty agreement with
Dr. Long and Abel, which assigns all rights to the Company for any patented
inventions resulting from performance under the Laboratory Agreement which
inventions are used by the Company. In return, the Company will pay
royalties calculated by multiplying specified percentages (ranging from 5%
to 20 %) of either future net sales or net license fees, if any, collected
F-14
<PAGE>
from such patented inventions up to a maximum of $2,000,000 per invention.
As of December 31, 1999, the Company has been issued a United States patent
in which Dr. Long is a named co-inventor. As of such date, the Company had
not paid or accrued any royalties to Dr. Long under such agreement.
Dr. Long resigned as a director of the Company in April 1993. In
December 1999, Dr. Long and his son, Raymond Long, M.D., and their
affiliated entities, purchased 14 million shares of Common Stock from the
Company (the "Long Transaction") for an aggregate of $700,000 (see Note
9). Simultaneously, Dr. Long was appointed a director of the Company and
the remaining directors of the Company (C. Leonard Gordon, Harvey
Horowitz, and D. Carl Long) and the Company's then executive officers
resigned. Thereafter, Dr. Long reconstituted the Board of Directors of
the Company, Raymond Long was appointed a director of the Company, and
Dr. Long was elected Chairman and Chief Executive Officer of the Company
by the Board of Directors.
In connection with the Long Transaction, D. Carl Long ("Mr. Long") received
a payment of $60,000 from the Company in consideration for a release of all
obligations owed to him by the Company under his previous employment
agreement and consulting arrangement, and the Company paid Mr. Long's
counsel $7,200 for services rendered to Mr. Long in connection with the
negotiation of such release. Mr. Long is a son of Dr. Long. Mr. Long's
employment agreement, dated July 7, 1997, was for a term through July 7,
2000 and provided for his employment as President and Chief Executive
Officer of the Company, at an initial base compensation of $250,000 annually
plus bonus of $70,000, subject to realization of certain milestones, and
with an automatic 5 percent annual cost-of-living increase. The employment
agreement also acknowledged that Mr. Long had been granted: (i) in March
1997 nonqualified options to purchase 100,000 shares of Common Stock at
$4.75 per share, which options vested immediately and were not subject to
forfeiture including upon his termination of employment; (ii) in July 1997
nonqualified options to purchase 200,000 shares of Common Stock at $2.938
per share, half of which options vested immediately and half of which vested
ratably over the employment term and were not subject to forfeiture upon
vesting, including upon his termination of employment; and (iii) during the
period from 1992 through 1995 nonqualified and incentive options to purchase
an aggregate of 338,238 shares of Common Stock at prices between $1.02 to
$9.18 per share. All of these options were relinquished by Mr. Long by
delivery of his release. Mr. Long entered into his consulting arrangement as
of April 1999, when Mr. Long relinquished his role as Chief Executive
Officer of the Company, at which time the Company recognized that Mr. Long
was owed $60,000 by the Company for previous services rendered (to be paid
when the Company so determined) and agreed to pay Mr. Long $15,000 monthly
as a consulting fee, commencing as of April 15, 1999, until the arrangement
was ended by either party on 30 days' notice. Total compensation paid to Mr.
Long was $177,446, $343,366, $181,655, and $702,467 for the years ended
December 31, 1999, 1998, and 1997 and for the period from inception to
December 31, 1999, respectively. In addition, Mr. Long received
reimbursements for various expenses of $34,503, $184,074, $94,848, and
$313,425 for the years ended December 31, 1999, 1998, and 1997 and for the
period from inception to December 31, 1999, respectively.
An entity controlled by C. Leonard Gordon, who had been Chairman, President,
and Chief Executive Officer of the Company until his resignation at the time
of the Long Transaction, had been receiving a fee of $80,000 annually for
Mr. Gordon's services to the Company. During the years ended December 31,
1999, 1998, and 1997 Mr. Gordon and his affiliated entities received
aggregate payments of $83,889, $85,179, and $122,394, respectively, from the
Company. In connection with the Long Transaction, Mr. Gordon and his wife
sold to Dr. Long their 1,068,034 shares of Common Stock for $53,700. Such
proceeds, along with $109,300 of Company funds (see Note 2) were then
deposited with a third-party escrow agent who was furnished instructions to
release such funds to the Company during the period through March 2002 upon
satisfactory evidence that the Company has continued to obtain, at least
through the period ending March 17, 2003, directors and officers liability
insurance covering the persons who were directors and executive officers of
F-15
<PAGE>
the Company immediately prior to consummation of the Long Transaction
comparable to such insurance which was in effect at such time. In the event
that such insurance is not obtained, the escrow funds are to be delivered to
Mr. Gordon.
Harvey Horowitz, who resigned as a director in connection with the Long
Transaction, had performed legal services for the Company prior to his
resignation. During the years ended December 31, 1999, 1998, and 1997 and
for the period from inception to December 31, 1999, Mr. Horowitz and his
affiliated law firms received aggregate payments of $85,244, $15,174,
$8,677, and $109,095, respectively, for services rendered by Mr. Horowitz.
As part of its continued efforts to pare costs, along with focusing its
efforts on seeking additional funding and strategic alliances, during 1998
and 1999, the Company incurred certain attrition within its top management
positions. Thus, certain events and financial obligations were incurred that
included the following:
o In January 1999, as part of the former Vice President of Operations
separation agreement, a one-time payment of $28,500 was made.
o In accordance with its separation agreement with the former
Vice-President of Sales and Marketing-Europe, the Company paid a
severance of $45,000 during the first quarter of 1999 and the former
employee was allowed to retain any and all proceeds from the disposition
of the office furnishings located at its international business location
in full settlement of any and all obligations owed to the employee.
o In February 1999, the Executive Vice-President and General Counsel, who
had been employed under an agreement expiring March 31, 1999,
resigned. In February 1999, the Company paid a bonus in the amount of
$25,000 for work in connection with the successful disposition of the
Roswell office and related matters. In connection therewith, the
Company entered into a consulting agreement providing for a $7,500
monthly fee, which terminated in March 1999. An aggregate of $15,000
was paid under such agreement during its existence.
Chairman of the Scientific and Clinical Advisory Boards - The Company formed
its Scientific and Clinical Advisory Boards (collectively, the "Advisory
Boards") during 1994. In connection therewith, the Company entered into a
one-year consulting agreement dated January 1, 1994 subject to an annual
renewal option with the Chairman of the Advisory Boards, which provides for
compensation of $150,000 per year. In addition, options to purchase 58,823
shares of Common Stock at $10.20 per share were granted. As of December 31,
1998, such options were fully vested. In June 1997, the Chairman of the
Advisory Boards was granted options to purchase 50,000 shares of Common
Stock at $4.69 per share pursuant to the Biofield Corp. 1996 Option Plan.
Such options vested ratably over a two-year period commencing on June 4,
1997. The Chairman of the Advisory Boards also served as a member of the
Company's Board of Directors from 1997 until his resignation in February
1999.
The Company had entered into a separate one-year agreement dated January 1,
1995, subsequently renewed on an annual basis thereafter, with an entity
affiliated with the Chairman of the Advisory Boards to provide services in
conducting certain research projects. In consideration for the performance
of such research projects, the Company paid $0, $195,000, and $300,000
during the years ended December 31, 1999, 1998, and 1997, respectively.
11. STOCK OPTIONS
At December 31, 1999, the Company has three stock option plans (the
"Plans"), which are described below.
F-16
<PAGE>
The 1992 Employee Stock Incentive Plan (the "1992 Plan") provides for the
grant of stock options, stock appreciation rights ("Rights"), and stock
bonus awards ("Awards") to acquire a maximum of 147,060 shares of Common
Stock. The 1992 Plan permits the granting of incentive stock options
("ISOs") and nonqualified stock options ("NSOs") at the discretion of the
Stock Option Committee (the "Committee"). The 1992 plan provides that the
Committee must establish an exercise price for ISOs and Rights that is not
less than the fair market value per share at the date of grant and an
exercise price of NSOs as shall be determined. Each ISO or Right must expire
within 10 years of the date of grant.
However, if ISOs are granted to persons owning more than 10 percent of the
voting stock of the Company, the exercise price may not be less than 110
percent of the fair market value per share at the date of grant and the term
of such ISOs may not exceed five years. Vesting of options granted under the
1992 Plan is determined by the Committee and has generally been set at the
end of two or three years.
The Biofield Corp. 1996 Option Plan, as amended (the "1996 Plan"), provides
for the grant of options to acquire a maximum of 1,000,000 shares of Common
Stock. The 1996 Plan permits the granting of ISOs and NSOs. ISOs may be
granted to individuals who, at the time of grant, are employees of the
Company or its affiliates. NSOs may be granted to directors, employees,
consultants, and other agents of the Company or its affiliates. The 1996
Plan provides that the exercise price for ISOs may not be less than the fair
market value per share of the Common Stock at the date of grant and an
exercise price for NSOs of not less 85 percent of such fair market value.
Each ISO must expire within 10 years of the date of grant. However, if ISOs
are granted to persons owning more than 10 percent of the voting stock of
the Company, the exercise price may not be less than 110 percent of the fair
market value per share at the date of grant and the term of such ISOs may
not exceed five years. Unless otherwise provided by the 1996 Plan
Administrator, options granted under the 1996 Plan vest at a rate of 25
percent per year over a four-year period.
The Biofield Corp. 1996 Stock Options Plan for Non-Employee Directors (the
"1996 Directors' Stock Plan") provides for the automatic grant of NSOs to
nonemployee directors. Options under the 1996 Directors' Stock Plan may be
granted only to directors of the Company who are not employees of the
Company. Under the 1996 Directors' Stock Plan, 150,000 shares of Common
Stock have been reserved for issuance upon exercise of the options. The 1996
Directors' Stock Plan provides for the automatic grant of options to
eligible directors. Pursuant to the 1996 Directors' Stock Plan, each
eligible director serving on the Board of Directors on the effective date of
the 1996 Directors' Stock Plan automatically received an option to purchase
10,000 shares of Common Stock, subject to vesting in three equal annual
installments. Subsequently, whenever a new director joins the Board, such
director automatically receives options to purchase 10,000 shares of Common
Stock on the date of his or her election to the Board, subject to vesting in
three equal annual installments. In each year other than the year in which
an initial grant of options is received by a director, such director
automatically receives options to purchase 2,500 shares of Common Stock. The
term of each option granted under the 1996 Directors' Stock Plan is 10
years. The exercise price of each option under the 1996 Directors' Stock
Plan must be equal to the fair market value of the Common Stock subject to
the option on the date of the grant.
F-17
<PAGE>
A summary of the status of the Plans as of December 31, 1999, 1998, and 1997
and the changes during the years ended December 31, 1999, 1998, and 1997 is
presented below.
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------- --------------------------- ---------------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 793,648 $ 4.51 724,870 $ 5.02 251,071 $ 9.30
Granted 198,750 3.79 692,700 4.52
Exercised (1,632) 9.18
Canceled (643,648) 4.29 (129,972) 6.32 (217,269) 8.32
-------- ------ -------- ------ -------- ------
Outstanding at end of year 150,000 5.44 793,648 4.51 724,870 5.02
-------- ------ -------- ------ -------- ------
Options exercisable at year end 137,489 5.59 503,792 4.74 415,837 5.30
-------- ------ -------- ------ -------- ------
Options available for future grant 726,027
--------
Weighted-average fair value of options
granted during the period $ N/A $ 3.79 $ 3.61
-------- -------- --------
</TABLE>
All options granted under the Plans have an exercise price equal to the fair
market price of the Common Stock on the grant date.
The Company, through 1998, granted NSOs outside of the Plans to certain
officers and directors of and consultants to the Company, which are
exercisable over various periods through June 24, 2008. Certain of these
NSOs are performance-based options and become exercisable solely upon the
achievement of certain milestones as described in the option agreements, and
certain NSOs granted become exercisable immediately in the event of a merger
or sale of all or substantially all of the assets of the Company. A summary
of the status of the Company's NSOs granted outside of the Plans as of
December 31, 1999, 1998, and 1997 and the changes during the years ended
December 31, 1999, 1998, and 1997 are presented below.
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------- ------------------------------ ----------------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 1,072,262 $ 5.5 1,139,467 $ 5.96 1,362,015 $ 7.03
Granted 10,000 3.88 230,000 4.83
Exercised (49,048) 3.13
Canceled (651,229) 5.21 (77,205) 8.67 (403,500) 9.85
---------- ------ ---------- ------ ---------- ------
Outstanding at end of year 421,033 5.97 1,072,262 5.50 1,139,467 5.96
---------- ------ ---------- ------ ---------- ------
Options exercisable at year end 375,412 5.99 896,004 5.57 945,806 6.04
---------- ------ ---------- ------ ---------- ------
Weighted-average fair value of options
granted during the period $ N/A $ 3.875 $ 3.05
---------- ---------- ----------
</TABLE>
The exercise prices of some NSOs granted during 1995 outside of the Plans
differed from the market price of the Common Stock on the grant date, and a
summary of the weighted-average prices and weighted-average fair values of
the NSOs granted during 1995 outside of the Plans is presented below.
Weighted- Weighted-
Average Average
Exercise Fair
Price Value
Exercise price less than the market price $ 5.10 $ 4.51
Exercise price equal to the market price 9.18 3.86
Exercise price more than the market price 11.90 2.69
F-18
<PAGE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
Number Number
Outstanding Weighted- Exercisable Weighted-
Range at Average at Average
of Exercise December 31, Remaining December 31, Exercise
Prices 1999 Life (Yrs.) 1999 Price
$ 0.25 62,745 2.29 62,745 $ 0.25
2.04 67,402 2.81 61,402 2.04
1.50 11,250 8.04 7,500 3.50
3.88 10,000 8.49 2,500 3.875
4.00 20,000 8.41 15,000 4.00
4.50 40,000 7.64 20,000 4.50
1.62 20,400 3.26 12,900 4.62
1.69 70,000 7.43 70,000 4.688
8.16 135,246 1.88 120,834 8.16
1.18 52,911 0.64 52,911 9.18
9.25 10,000 7.37 10,000 9.25
10.20 71,079 1.94 71,079 10.20
As provided by SFAS 123, the fair value of each option grant before the IPO
is estimated on the date of grant using the minimum value method, and the
fair value of each option grant after the IPO is estimated on the date of
grant using the Black-Sholes option pricing model. The following weighted
average assumptions were used for options grants during 1997 with an
expected life of four years: (i) dividend yield of 0 percent; (ii) expected
volatility of 82.2 percent; and (iii) risk-free interest rate of 6.19
percent. The following weighted average assumptions were used for option
grants during 1997 with an expected life of two years: (i) dividend yield of
0 percent; (ii) expected volatility of 107.84 percent; and (iii) risk-free
interest rate of 6.00 percent. The following weighted-average assumptions
were used for option grants during 1998 with an expected life of two years:
(i) dividend yield of 0 percent; (ii) expected volatility of 72.50 percent;
and (iii) risk-free interest rate of 5.87 percent. The following
weighted-average assumptions were used for option grants during 1998 with an
expected life of four years: (i) dividend yield of 0 percent; (ii) expected
volatility of 72.27 percent; and (iii) risk-free interest rate of 6.26
percent. There were no option grants in 1999.
Had compensation cost for the Plans been determined based on the fair value
at the grant dates consistent with the method of SFAS 123, the Company's net
loss and net loss per common and common equivalent share for the years ended
December 31, 1999, 1998, and 1997 would have been increased to the pro forma
amounts indicated below.
1999 1998 1997
Net loss:
As reported ($1,253,696) ($10,654,597) ($10,151,040)
Pro forma ($1,275,668) ($10,724,550) ($11,834,028)
Basic and diluted loss
per share:
As reported ($0.15) ($1.06) ($1.53)
Pro forma ($0.16) ($1.07) ($1.78)
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to grants made prior
to 1995.
F-19
<PAGE>
12. DEVELOPMENT STAGE COMPANY
The Company is in the development stage and, to date, has generated no
revenues, has incurred expenses, and has sustained losses. Consequently, its
operations are subject to all of the risks inherent in the establishment of
a new business enterprise. For the period from inception through December
31, 1999, the Company had accumulated a deficit of $57,428,212. There can be
no assurance that the Company will have sufficient funds available to
complete its research and development programs or be able to commercially
manufacture or market any products in the future, that future revenues will
be significant, or that any sales will be profitable. The Company expects
operating losses to increase for at least the next several years, due
principally to the anticipated expenses associated with 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.
Presently, the Company is in the process of commencing operations by
building a company infrastructure that includes the hiring of a President,
Chief Operating Officer, and Vice President of Sales for international and
domestic sales and marketing. Further, the Company is beginning the process
of becoming recertified with ISO (International Standards Organization) 9001
and obtaining a CE MARK compliance that will allow the Company to introduce
its product within the European community. The Company expects to have both
completed in the year 2000.
13. SUBSEQUENT EVENTS
In June 2000, the Company entered into a line of credit arrangement with a
commercial bank that provides a credit facility that allows the Company to
borrow up to $500,000 with interest at the bank's prime rate plus one
percent. The terms of the arrangement are for a one-year duration, with
repayment of draw-downs under the credit facility guaranteed by the
Company's chairman and principal stockholder. As of September 31, 2000, the
Company has drawn $176,000 (unaudited) of this credit facility.
In January 2000, the Board of Directors authorized the sale of 100,000
shares of its Common Stock to each of its two nonaffiliated directors and
three of its then principal employees who also were executive officers, at a
price of $0.05 per share, the same price at which shares of Common Stock
were sold by the Company in the Long Transaction. The sale to the directors
was based on their foregoing any compensation for their services to the
Company during the year 2000. The sale to the executive officers was based
on their agreement to accept compensation for the year 2000 at the rate of
$100,000. The Company has recognized $162,000 (unaudited) of compensation
expense related to the issuance of these stock purchase rights. On June 30,
2000, one of the principal employees resigned and the Company repurchased
60,000 of the shares sold to her for an amount equal to her purchase price
therefor ($0.05 per share) (unaudited).
In May 2000, the Company resumed CE Mark Certification and re-certified to
ISO-9001 Quality System for design, production management, sales, and
distribution of its Diagnostic System and accessories (unaudited).
On October 6, 2000, the Company amended its articles of incorporation to
increase the number of authorized shares of common stock from 25,000,000
shares to 40,000,000 shares, and to reclassify all of the authorized shares
of preferred stock to "undesignated preferred" (unaudited).
On December 15, 2000, the Company sold 3,000,000 shares of common stock
pursuant to a private placement for net proceeds of approximately $1,500,000
(unaudited).
F-20
<PAGE>
Part III
ITEM 1. INDEX TO EXHIBITS.
See Item 2 to this Part III.
ITEM 2. DESCRIPTION OF EXHIBITS
2. Articles of incorporation and by-laws
*2.1 Fifth Amended and Restated Certificate of Incorporation of Biofield
Corp., as filed with the Secretary of State of the State of Delaware
on October 6, 2000.
2.2 By-laws of Biofield Corp.(1)
3. Instruments defining the rights of security holders, including
indentures.- none
5. Voting trust agreement and amendment. - none
6. Material contracts.
6.01 Registration Rights Agreement between Biofield Corp. and John D.
Stephens, dated as of April 22, 1993.(2)
6.02 Form of Stock Purchase Option Agreement between Biofield Corp. and
Abel Laboratories, Inc., dated as of June 1, 1992.(2)
6.03 Patent Royalty Agreement between Biofield Corp. and Abel
Laboratories, Inc., dated as of June 1, 1992.(2)
6.04 Registration Rights Agreement by and among Biofield Corp. and Abel
Laboratories, Inc., dated as of April 22, 1993.(2)
6.05 Master Laboratory Services Agreement between Biofield Corp. and Abel
Laboratories, Inc., dated as of January 1, 1994.(2)
6.06 Preproduction Manufacturing Agreement between Biofield Corp. and
SeaMED Corporation, dated as of October 4, 1993.(2)
6.07 Supply Agreement between Biofield Corp. and SeaMED Corporation,
dated November 4, 1996. (1)
6.08 Manufacturing Supply Agreement Amendment between Biofield Corp. and
SeaMED Corporation, dated July 17, 1997. (3)
6.09 Repair and Service Agreement, between Biofield Corp. and SeaMED, a
Plexus company, dated May 3, 2000. (3) 6.10 Employment Agreement
between Biofield Corp. and Mark L. Faupel, Ph.D., dated as of
October 1, 1992. (2)
53
<PAGE>
6.11 Addendum to Employment Agreement between Biofield Corp. and Mark L.
Faupel, Ph.D., dated as of March 12, 1993.(2)
6.12 Addendum to Employment Agreement between Biofield Corp. and Mark L.
Faupel, Ph.D., dated as of April 22, 1993.(2)
6.13 Addendum to Employment Agreement between Biofield Corp. and Mark L.
Faupel, Ph.D., dated as of December 9, 1993.(2)
6.14 Biofield Corp. 1992 Stock Incentive Plan.(2)
6.15 Biofield Corp. 1996 Stock Option Plan, as amended.(4)
6.16 Biofield Corp. 1996 Stock Option Plan for Non-Employee Directors.(2)
6.17 Stock Purchase Agreement between Biofield Corp. and David M. Long,
Jr., M.D., Ph.D., individually and on behalf of Long Family Partners
II, LP, Raymond A. Long and Raymond A. Long u/a 01/01/91, dated
December 28, 1999. (3)
6.18 Escrow Agreement among C. Leonard Gordon, Biofield Corp. and Warshaw
Burstein Cohen Schlesinger & Kuh, LLP, as escrow agent, dated
December 28, 1999. (3)
6.19 Form of Stock Purchase Agreement between Biofield Corp. and each of
Arthur Taylor and Amy Langer, dated January 10, 2000. (3)
6.20 Form of Stock Purchase Agreement between Biofield Corp. and each of
John Stephens and Nancy Bruyneel, dated January 10, 2000. (3)
*6.21 License Agreement between Biofield Corp. and Cardio Dynamics
International Corporation, dated October 16, 2000.
*6.22 Laboratory Services Agreement between Biofield Corp. and Oncophysics
Research and Development Company, dated as of January 1, 1995, and
Amendment No. 1 thereto, dated as January 1, 1996.
*6.23 Letter Agreement, dated June 5, 1998, and Separation Agreement,
dated as of June 5, 1998, between Biofield Corp. and Mark L. Faupel.
*6.24 Share Option Agreement, dated as of March 16, 1995, between Biofield
Corp. and David M. Long, Jr., M.D.
7. Material foreign patents. - none
10. Consents - none
54
<PAGE>
-----------------------
(*) Filed herewith.
(1) Incorporated by reference to Biofield's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
(2) Incorporated by reference to Biofield's Registration Statement on Form
S-1 (Registration No. 333-00796) declared effective on March 19, 1996.
(3) Filed with the Securities and Exchange Commission on August 11, 2000 as an
exhibit to this Registration Statement.
(4) Incorporated by reference to Biofield's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
55
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
BIOFIELD CORP.
(Registrant)
Date: December 29, 2000
BY: /s/ DAVID M. LONG, JR.
------------------------------------
David M. Long, Jr., M.D., Ph.D.
Chairman and Chief Executive Officer
56
