UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
PURSUANT TO SECTION 12(b) OR (b) 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 Biofield Diagnostic System is intended to provide physicians and
patients with immediate and objective information concerning the probability
that a previously identified lesion is malignant or benign. 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 younger women, for whom certain diagnostic imaging modalities 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.
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,
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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.
In November 1998, we decided to eliminate certain operations due to
lack of adequate financial resources. In December 1998, our common stock was
de-listed from trading on The Nasdaq Stock Market due primarily to our lack of
compliance with certain financial requirements and, in March 1999, we terminated
our reporting obligations under the Securities Exchange Act of 1934.
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. Simultaneously, our Board
of Directors appointed Dr. David Long as a director, whereupon the remaining
directors and our then Chief Executive Officer 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.
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 the United States, in 1996, the ACS
estimated that approximately 184,000 women would be diagnosed with, and
approximately 44,000 women would die as a result of, breast cancer. 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
20 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
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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.
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.
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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 characterizing a lesion
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. Sensor readings are measured
and analyzed using a pre-programmed algorithm.
We anticipate that the output from a Biofield Test will be part of a
written report that will include an objective reading on a number scale. The
higher the number, 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 should be competitive
with current costs of diagnostic mammography and ultrasound.
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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 conducted over 3,000 clinical investigations of the Biofield
Diagnostic System 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
results obtained were then compared to the biopsy results. Based on our clinical
studies to date, 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.
OTHER POSSIBLE PRODUCTS
Based on our clinical experience with the Biofield Diagnostic System
for testing symptomatic women and our belief that the electrophysiological
characteristics of cancer are similar for both palpable and non-palpable
lesions, we believe that our technology should be adaptable for breast cancer
screening in asymptomatic women. Based on this belief, we have developed a
prototype design of an enhanced version of the Biofield Diagnostic System, with
additional data channels and a dedicated algorithm, for use as a screening
system. 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, and we cannot assure you when, if ever,
any further efforts will be made to further develop the proposed device.
We believe that the need exists for products which will provide early
and accurate detection of types of epithelial cancers 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.
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.
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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 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.
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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
address deficiencies related to the findings from our clinical trials. The FDA
stated that it had concerns about the design of our study and, in particular,
the selection of the algorithm we used in analyzing the study's data. The FDA
advised us to first select a final algorithm and then test it with independent
data. The FDA also advised us that the design of our clinical trials needed to
provide data to support the indications for use of the Biofield Diagnostic
System, and should include the impact on patient management.
Since then, we have had ongoing 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 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
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provide another 200 to 300 cases performed under real-life conditions in the
field where the Biofield Diagnostic Device will be used. We believe the
information from these clinical studies and the Study will provide additional
evidence on efficacy for the FDA. We intend to resubmit our application for PMA
approval promptly upon completion of our additional clinical trials and data
analysis. 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 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.
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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 these products. These
certifications permit us to commence sales in Europe and other countries that
recognize CE Mark Certification.. 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
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.
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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 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
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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.
We intend to pursue efforts to obtain reimbursement status in major European
markets, although we cannot assure you of the level of success, if any, of our
anticipated efforts. In certain countries, our ability to achieve any market
penetration may depend upon the availability of third party governmental
reimbursement.
PATENTS AND PROPRIETARY INFORMATION
We have a number of issued U.S. and foreign patents relating to our
products and technology, as well as 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.
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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
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.
We are in the process of negotiating a license agreement with a
manufacturer of disposable electrical bio-impendence devices for its use of our
interconnect design patent on cables to be manufactured by it. Until such time,
if at all, as our negotiations are completed, we cannot assure you that our
negotiations will be successful. Revenues from the licensing arrangement, if
successfully negotiated, are not expected to be significant during 2000.
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 the foreseeable future.
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,
including imaging equipment such as MRI systems, x-ray mammography equipment,
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ultrasound or high frequency ultrasound systems, stereotactic needle biopsy and
thermography, diaphonography, electrical impedance and transilluminational
devices, compete with our Biofield Diagnostic System. Companies which produce
devices utilizing these tools, and other companies, may be developing, or could
in the future attempt to develop, additional products which assist in diagnosing
cancers, including non-invasive products which 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 July 31, 2000, we had three full-time employees, three part-time
employees and used substantial time of an independent consultant. Of these
persons, four are involved primarily in management and administrative functions,
two are involved primarily in marketing and one is involved in quality
management. 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.
OTHER FACTORS THAT COULD AFFECT US
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
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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
$57,864,000 as of March 31, 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 require substantial additional funds for our clinical testing,
operating expenses, regulatory processes, 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 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
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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. 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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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 a modest
amount, 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 Business Uses Hazardous Materials Which
Could Lead to Environmental Liability
Although we do not manufacture any of our products, a portion of our
manufacturing processes involves the controlled use of potentially hazardous
materials. We may in the future become subject to stringent federal, state and
local laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal of
these materials. We cannot assure you that we will not incur significant future
costs 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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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 15,192,508 shares of our common stock, or 68.5% of our outstanding shares. As
a result, Dr. David Long has the ability to determine the election of our
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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.
We May Not Have Sufficient Shares Of Common Stock
Available to Complete Our Necessary Financing
As of August 7, 2000, we had available only 2,816,522 shares of our
common stock for issuance, of which 505,096 shares have been reserved for
issuance upon exercise of outstanding options. We believe that any near term
financing will involve either common stock or preferred stock convertible into
our common stock. We will require stockholder approval to increase the number of
shares of common stock that we are authorized to issue. We cannot assure you
that we will be able to obtain this approval, in a timely manner, if at all. If
we are unable to timely obtain necessary approval, if and when it is required,
our ability to fund our operations would be significantly adversely affected.
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.
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Resales of Restricted Shares Held By Our Current Directors and
Executive Officers May Lower the Market Price of Our Common Stock
At August 7, 2000, 22,183,478 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.
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 August 7, 2000,
options to purchase a total of 505,096 shares of our common stock were
outstanding with a weighted average exercise price of $7.21 per share, of which
options to purchase 552,503 shares of common stock were exercisable. In
addition, 1,134,601 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.
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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.
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.
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, our Board of Directors appointed Dr. David
Long as a director, whereupon the remaining directors and our then Chief
Executive Officer 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.
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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 our
technology and its development for use in the detection of other cancers.
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.
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.
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Comparison of the Unaudited Quarter Ended March 31, 2000 with the Unaudited
Quarter Ended March 31, 1999
Although we incurred $88,703 of research and development expenses
during the 1999 quarter, none of such expenses were incurred during the 2000
quarter. 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 decreased by approximately
$44,000 or 9% to $438,417 in the 2000 quarter compared to $482,813 in the 1999
quarter. During 1999, we closed our international operating unit, terminated
substantially all of our employees and significantly scaled back substantially
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. In addition, during the 2000 quarter,
we authorized the issuance of an aggregate of 500,000 unregistered shares of our
common stock to three newly-elected executive officers and two newly-appointed
non-affiliated directors at a price of $.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 $.05 per share, the difference, which aggregated $225,000, was
accounted for as compensation expense and offset the reduction in other selling,
general and administrative expenses in the 2000 quarter.
In our quest for funding and to mitigate our liabilities, we sold fixed
assets in the 1999 quarter for a net gain of $159,474. We had no similar
transaction in the 2000 quarter.
Net interest income decreased by $9,802 or 79% to $2,560 in the 2000
quarter compared to $12,402 in the 1999 quarter, 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 $435,857 in the
2000 quarter, compared to a net loss of $339,640 in the 1999 quarter.
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 March 31, 2000, our working capital had been
reduced to approximately $771,000 and our unrestricted cash and cash equivalents
had been reduced to approximately $478,000. Our invested funds consisted
primarily of investment grade corporate obligations, money market funds and
certificates of deposits. In addition, at December 31, 1999 and March 31, 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
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executive officer, which funds have been deposited for the payment of
continuance 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.
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 quarter, our operating activities
utilized $213,423 of net cash, primarily to fund operating activities, our
investing activities used $21,381 of net cash, primarily to acquire property and
equipment.
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. As at July 31, 2000, we believe that our
current working capital, together with a recently obtained $500,000 line of
credit obtained 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, will be sufficient to meet our
projected minimum operating needs and capital expenditures, at least through
December 31, 2000, 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. Preliminary efforts have already commenced to selectively locate
appropriate investors, although we do not anticipate that substantial efforts to
raise this funding will commence before the end of Summer 2000, if not later.
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.
At December 31, 1999, we estimated that we had available net operating
loss carryforwards of approximately $54.3 million for Federal and state
purposes, which expire in years 2000 through 2019. However, substantially all of
these carryforwards 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.
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
one-year leases, one of which expires August 31, 2000 and the other of which
expires February 14, 2001. Annual rent payments for these leases aggregate
$24,240.
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We intend to move our operations to 2737 Via Orange Way, Spring Valley,
California during the fourth quarter of 2000 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. 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 our 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 July 31, 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.
Shares Beneficially
Name (1) Owned (2) Percent of Class
-------- ------------------- ----------------
Long Family Partners II, LP (3) 7,861,275 35.4%
David M. Long, Jr., M.D. Ph.D 11,180,253 50.4%
Raymond A. Long M.D 4,012,255 18.1%
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, 15,672,557 70.4%
as a group
-------------------------------------
* 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.
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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) 7,861,275 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) 3,310,891 shares held of record, and (c) 8,087 shares held
in "street name" by a family partnership.
(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.
(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 200,000 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 its control.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Our directors and the executive officers are:
Name Age Positions and Offices With Biofield
---- --- -----------------------------------
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
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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 private research laboratory which, from time to
time, conducts research and development on a contract basis relating to medical
devices and pharmaceutical applications. 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
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 for more
than the past five years also has been Chairman of Arthur Taylor & Company, a
private investment firm. 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.
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W. Robert Berg was appointed to be a director of our company on June 9,
2000 and intends to take office after the filing of 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. Thereafter, until he retired in January 2000, Mr. Berg was
President of the SeaMED Division of Plexis. 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 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
Long-Term
Compensation
Annual Compensation Awards
---------------------------- ----------
No. of
Securities
Name and Underlying
Principal Positions Year Salary Bonus Other Options
------------------- ---- ------ ----- ----- ----------
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
----------------------------
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.
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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.
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 its non-employee directors an
honorarium of $3,750 per quarter, no cash fee is currently being paid by us to
its directors. In January 2000, upon their appointment as directors, we agreed
to sell, and subsequently sold, to its each of its two independent directors
(Amy S. Langer and Arthur Taylor) 100,000 unregistered shares of common stock at
a price of $.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 June 30, 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.
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We do not have any employment contracts or termination of employment
and change-in- control arrangements with any of its executive officers. In
January 2000, upon their appointment as executive officers, we agreed to sell,
and subsequently sold, to each of John D. Stephens, its Senior Vice President
and Chief Operating Officer, and Nancy Bruyneel, its Vice President of Worldwide
Sales and Marketing, 100,000 unregistered shares of common stock at a price of
$.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.
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, up
to a maximum of $2 million, as well as a portion of the proceeds we may receive
from the license of the patent to others. 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.
On December 28, 1999, Dr. David Long and his son, Raymond, and their
affiliated entities, purchased an aggregate of 14 million unregistered shares of
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common stock from us for an aggregate of $700,000, or $.05 per share, a price
determined by the then Board of Directors (consisting of C. Leonard Gordon,
Harvey Horowitz and D. Carl Long) to be the fair market value of these shares.
The closing sale price for our common stock on December 28, 1999, as reported by
The Nasdaq Stock Market, Inc. InfoQuote service furnished by Financial Insight
Systems, Inc., was $.11 per share. Simultaneously, Dr. David Long was appointed
a director of our company and the other directors (which included all of our
executive officers) resigned from all of their positions with our company and
released us from all claims which they may have had against us. 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.
Transactions in 2000
In January 2000, our Board of Directors approved the sale to its each
of Amy S. Langer and Arthur Taylor, its two independent directors, of 100,000
shares of common stock, without any registration rights, at a price of $.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. Ms.
Langer and Mr. Taylor have waived their rights to any payment for their services
as directors with respect to the year 2000. At the same time, the Board of
Directors approved the sale to each of John D. Stephens, its newly elected
Senior Vice President and Chief Operating Officer, and Nancy Bruyneel, its 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 $.05 per
share. If either of these executive officer voluntarily terminates his or her
relationship with us or is terminated by us for just cause, as defined, within
one year after this sale, we have the right to repurchase their shares for their
original purchase price.
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.
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 obligations
owed to him by us including the obligations under his employment agreement and
his consulting arrangement. In consideration for the release, we paid $60,000 to
Carl Long 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
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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 obligations owed by us
to him and any of 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 $.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 obligations owed by our company to him and any of 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.
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.
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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 199 8 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
consultant to our company and as Chairman of our Scientific and Clinical
Advisory Boards and was paid consulting fees of $150,000 annually. 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. Commencing in 1995, we
retained Oncophysics Research and Development Company, an entity affiliated with
Dr. Davies to conduct certain research projects. We paid this entity nothing in
1999, $195,000 in 1998 and $300,000 in 1997.
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 25,000,000 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,
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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
August 7, 2000, we had a total of 22,183,478 shares of common stock outstanding.
Preferred Stock. Our preferred stock consists of 2,350,000 shares of
Series A Convertible Preferred Stock, 500,000 shares of Series B Convertible
Preferred Stock, 4,450,000 shares of Series C Convertible Preferred Stock,
3,000,000 shares of Series D Convertible Preferred Stock and 2,000,000 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.
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 Dow Jones &
Company, Inc. for the periods thereafter.
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Year Ended December 31, 1998 High Sale Low Sale
---------------------------- --------- --------
First Quarter 4.87 2.5625
Second Quarter 4.62 3.6250
Third Quarter 4.87 1.6250
Fourth Quarter 1.75 0.0938
Year Ended December 31, 1999
----------------------------
First Quarter 0.37 0.0938
Second Quarter 0.21 0.0469
Third Quarter 0.15 0.0625
Fourth Quarter 0.23 0.0312
Year Ending December 31, 2000 (Through August 7)
------------------------------------------------
First Quarter 2.25 0.1250
Second Quarter 1.03 0.3438
Third Quarter (through August 7) 0.75 0.0469
On August 7, 2000, the high and low per share sales prices for our
common stock were $.4063 and $.4063, respectively, as reported by Dow Jones. 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.
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,
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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.
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.
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3. On December 28, 1999, we sold in a private placement an aggregate of 14
million shares of our common stock, at $.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 $.05 per share, to each of three then
proposed 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 $.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.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Fourth Amended and Restated Certificate of Incorporation, as
amended, 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
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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 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
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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.
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
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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.
(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,
43
<PAGE>
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.
(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.
44
<PAGE>
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):
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.
45
<PAGE>
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
<PAGE>
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 Note 13)
<PAGE>
BIOFIELD CORP.
(A Development Stage Company)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------------------------------------
December 31, March 31,
------------------------------ ------------
ASSETS 1999 1998 2000
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 523,677 $ 245,789 $ 288,874
Restricted cash 109,300 109,300
Short-term investments 189,519 1,184,976 189,519
Inventories 697,821 564,555 697,821
Other current assets 54,743 99,680 66,043
------------ ------------ ------------
Total current assets 1,575,060 2,095,000 1,351,557
PROPERTY AND EQUIPMENT - Net 42,086 303,240 54,211
OTHER ASSETS 110,466 88,021 107,216
PATENT AND PATENT APPLICATION - Net 410,954 672,818 407,610
------------ ------------ ------------
TOTAL $ 2,138,566 $ 3,159,079 $ 1,920,594
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 430,461 $ 774,140 $ 445,926
Due to affiliate 55,516 142,934 55,516
Accrued Expenses 101,000 93,701 78,420
------------ ------------ ------------
Total current liabilities 586,977 1,010,775 579,862
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 21,783,478 shares at December 31, 1999 and 1998,
and March 31, 2000, respectively 24,030 10,030 24,030
Less - Treasury stock - 2,246,131 shares (100) (100) (100)
Additional paid-in capital 58,941,667 58,255,667 59,166,667
Accumulated deficit during development stage (57,428,212) (56,174,517) (57,864,069)
Foreign currency translation adjustment 14,204 57,224 14,204
------------ ------------ ------------
Total stockholders' equity 1,551,589 2,148,304 1,340,732
------------ ------------ ------------
TOTAL $ 2,138,566 $ 3,159,079 $ 1,920,594
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
BIOFIELD CORP.
(A Development Stage Company)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------------------
Year Ended
December 31,
------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
OPERATING EXPENSES:
Research and development $ 292,900 $ 6,693,729 $ 7,080,060
Selling, general, and administrative 1,097,601 4,324,814 3,565,397
(Gain) loss on disposition of
fixed assets (109,696) 61,800
------------ ------------ ------------
Total operating expenses 1,280,805 11,080,343 10,645,457
OTHER INCOME (EXPENSE):
Interest income 28,882 425,746 517,690
Interest expense (1,773) (3,524)
------------ ------------ ------------
Net other income 27,109 425,746 514,166
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (1,253,696) (10,654,597) (10,131,291)
PROVISION FOR INCOME TAXES (19,749)
------------ ------------ ------------
NET LOSS $ (1,253,696) $(10,654,597) $(10,151,040)
============ ============ ============
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>
CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------------------------------------------
Period October 16,
1987 (Date of Three Months Ended Period October 16,
Inception) March 31, 1987 (Date of
Through ------------------------------ Inception) Through
December 31, 1999 2000 1999 March 31, 2000
----------------- ------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
OPERATING EXPENSES:
Research and development $ 39,773,374 $ 88,703 $ 39,773,374
Selling, general, and administrative 19,685,993 $ 438,417 482,813 20,124,410
(Gain) loss on disposition of
fixed assets (47,896) (159,474) (47,896)
------------ ------------ ------------ ------------
Total operating expenses 59,411,471 438,417 412,042 58,849,888
OTHER INCOME (EXPENSE):
Interest income 2,452,346 2,560 12,402 2,454,906
Interest expense (449,338) (449,338)
------------ ------------ ------------ ------------
Net other income 2,003,008 2,560 12,402 2,005,568
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (57,408,463) (435,857) (399,640) (57,844,320)
PROVISION FOR INCOME TAXES (19,749) (19,749)
------------ ------------ ------------ ------------
NET LOSS $(57,428,212) $ (435,857) $ (399,640) $(57,864,069)
============ ============ ============ ============
NET LOSS PER SHARE:
Basic and Diluted $ (0.01) $ (0.05)
============ ============
WEIGHTED-AVERAGE SHARES
Basic and Diluted 21,783,478 7,783,478
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
BIOFIELD CORP.
(A Development Stage Company)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------------------------------------
Series A Series B Series C
Preferred Stock Preferred Stock Preferred Stock Common Stock
---------------- ---------------- --------------- ------------------
Shares Amount Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <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) 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 - - - - 1,565,563 $ 1,565
(carried forward) --------- ------- ------- ------- ------- ------ --------- -------
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------------------------------------
Deficit
Accumulated Foreign
Additional During Currency Total
Paid-In Treasury Development Translation Comprehensive
Capital Stock Stage Adjustment Total Loss
----------- -------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sale of Common Stock, October 16, 1987
(date of inception) ($.16 per share, net) $ 91,898 $ 91,953
Issuance of Common Stock in connection with patent
acquisition ($.001 per share) 276 300
Net loss, October 16, 1987 to March 31, 1988 $ (159,359) (159,359)
Total comprehensive income (loss) $ (159,359)
----------- ------ ----------- -------- ---------- ===========
BALANCE AT MARCH 31, 1988 92,174 - (159,359) - (67,106)
Net loss (495,520) (495,520)
Total comprehensive income (loss) $ (495,520)
----------- ------ ----------- -------- ---------- ===========
BALANCE AT MARCH 31, 1989 92,174 - (654,879) - (562,626)
Net loss (233,347) (233,347)
Total comprehensive income (loss) $ (233,347)
---------- ------ ----------- -------- ---------- ===========
BALANCE AT MARCH 31, 1990 92,174 - (888,226) - (795,973)
Acquisition of 235,294 shares of Common Stock
($.001 per share) $ (300) (300)
Net loss (285,179) (285,179)
Total comprehensive income (loss) $ (285,179)
----------- ------ ----------- -------- ---------- ===========
BALANCE AT MARCH 31, 1991 92,174 (300) (1,173,405) - (1,081,452)
Retirement of Common Stock held in treasury (276) 300
Issuance of Common Stock in exchange for notes
and debt (with accrued interest) ($2.90 per share, net) 1,248,638 1,248,681
Sale of Common Stock ($.82 per share, net) 19,998 20,000
Amortization of deferred compensation 136,880 136,880
Net loss (461,061) (461,061)
Total comprehensive income (loss) $ (461,061)
----------- ------ ----------- -------- ---------- ===========
BALANCE AT MARCH 31, 1992 1,497,414 - (1,634,466) - (136,952)
Sale of Common Stock ($7.67 per share, net) 4,275,223 4,275,278
Exercise of Common Stock options 624 625
Amortization of deferred compensation 477,453 477,453
Change in par value of common stock
from $.0001 to $.001 (1,408)
Net loss (3,099,637) (3,099,637)
Total comprehensive income (loss) $(3,099,637)
----------- ------ ----------- -------- ---------- ===========
BALANCE AT MARCH 31, 1993 $ 6,249,306 - (4,734,103) - 1,516,767
Exercise of Common Stock options 187 188
Sale of Series A Preferred Stock
($3.97 per share, net) 8,411,370 8,413,490
Issuance of Series A Preferred Stock in
exchange for notes ($4.50 per share) 999,778 1,000,000
Issuance of Common Stock warrants 2,119 2,119
Amortization of deferred compensation 1,580,320 1,580,320
Net loss (6,899,515) (6,899,515)
Total comprehensive income (loss) $(6,899,515)
----------- ------ ------------ -------- ---------- ===========
BALANCE AT MARCH 31, 1994 $17,243,080 - $(11,633,618) - $5,613,369
(carried forward) ----------- ------ ------------ -------- ----------
(Continued)
</TABLE>
F-4
<PAGE>
BIOFIELD CORP.
(A Development Stage Company)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------------------------------------
Series A Series B Series C
Preferred Stock Preferred Stock Preferred Stock Common Stock
------------------- ----------------- ----------------- --------------------
Shares Amount Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1994 2,342,118 2,342 - - - - 1,565,563 1,565
(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 - - 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 2,342,118 2,342 481,644 482 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 (2,342,118) (2,342) (481,644) (482) (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)
Net loss (unaudited)
Total comprehensive income (loss) (unaudited)
---------- ------ -------- ----- ---------- ------ ---------- -------
BALANCE AT MARCH 31, 2000 (unaudited) - - - - - - 21,783,478 $24,030
========== ====== ======== ===== ========== ====== ========== =======
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------------------------------------
Deficit
Accumulated Foreign
Additional During Currency Total
Paid-In Treasury Development Translation Comprehensive
Capital Stock Stage Adjustment Total Loss
------------ ---------- ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1994 17,243,080 - (11,633,618) - 5,613,369
(brought forward)
Sale of Series B Preferred Stock
($4.04 per share, net) 1,947,149 1,947,631
Issuance of Common Stock warrants 6 6
Amortization of deferred compensation 14,859 14,859
Net loss (4,959,312) (4,959,312)
Total comprehensive income (loss) $ (4,959,312)
------------ ------ ------------ -------- ----------- ============
BALANCE AT DECEMBER 31, 1994 19,205,094 - (16,592,930) - 2,616,553
Sale of Series C Preferred Stock
($4.11 per share, net) 11,977,856 11,980,771
Issuance of Common Stock warrants 161 161
Amortization of deferred compensation 195,874 195,874
Net loss (8,739,858) (8,739,858)
Total comprehensive income (loss) $ (8,739,858)
------------ ------ ------------ -------- ----------- ============
BALANCE AT DECEMBER 31, 1995 31,378,985 - (25,332,788) - 6,053,501
Sale of Common Stock ($9.91 per share, net) 18,026,419 18,028,238
Conversion of Series A, Series B, and Series C
Preferred Stock to Common Stock 2,692
Exercise of Common Stock warrants 20,145 20,147
Amortization of deferred compensation 26,093 26,093
Net loss (10,036,090) (10,036,090)
Total comprehensive income (loss) $(10,036,090)
------------ ------ ------------ -------- ----------- ============
BALANCE AT DECEMBER 31, 1996 49,454,334 - (35,368,878) - 14,091,889
Sale of Common Stock ($2.92 per share, net) 8,377,583 8,380,451
Warrants exchanged for Common Stock (644)
Exercise of Common Stock options 168,541 168,591
Exercise of Common Stock warrants 93,299 93,309
Issuance of Common Stock for consulting 99,975 100,000
services ($4.00 per share, net) 62,579 62,579
Amortization of deferred compensation
Net loss (10,151,041) (10,151,041)
Foreign currency translation adjustment $ 1,333 1,333
Total comprehensive income (loss) $(10,149,708)
------------ ------ ------------ -------- ----------- ============
BALANCE AT DECEMBER 31, 1997 58,255,667 - (45,519,919) 1,333 12,747,111
Repurchase of Common Stock (100) (100)
Net loss (10,654,597) (10,654,597)
Foreign currency translation adjustment 55,891 55,891
Total comprehensive income (loss) $(10,598,706)
------------ ------ ------------ -------- ----------- ============
BALANCE AT DECEMBER 31, 1998 58,255,667 (100) (56,174,516) 57,224 2,148,305
Sale of Common Stock ($.05 per share, net) 686,000 700,000
Net loss (1,253,696) (1,253,696)
Foreign currency translation adjustment (43,020) (43,020)
Total comprehensive income (loss) $ (1,296,716)
------------ ------ ------------ -------- ----------- ============
BALANCE AT DECEMBER 31, 1999 58,941,667 (100) (57,428,212) 14,204 1,551,589
Issuance of right to purchase Common Stock
in lieu of compensation ($0.45 per share) (unaudited) 225,000 225,000
Net loss (unaudited) (435,857) (435,857)
Total comprehensive income (loss) (unaudited) $ (435,857)
------------ ------ ------------ -------- ----------- ============
BALANCE AT MARCH 31, 2000 (unaudited) $ 59,166,667 $ (100) $(57,864,069) $ 14,204 $ 1,340,732
============ ====== ============ ======== ===========
(Concluded)
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
BIOFIELD CORP.
(A Development Stage Company)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------------------------------------------------------
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)
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 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
=========== ============ ============
<CAPTION>
Period October 16, Three Months Period October 16,
1987 (Date of Ended March 31, 1987 (Date of
Inception) Through ---------------------- Inception) Through
December 31, 1999 2000 1999 March 31, 2000
------------------ -----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(57,428,212) $(435,857) $ (399,640) $(57,864,069)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 2,507,821 12,600 10,050 2,520,421
Amortization of premiums (discount) on short-term investments 156,692 156,692
Loss on disposal of property and equipment 154,290 154,290
Loss on license and settlement agreement 49,026 49,026
Loss on abandonment of patent applications 248,006 248,006
Vendor settlements (77,257) (77,257)
Noncash compensation 2,710,451 225,000 2,935,451
Gain from disposition of fixed assets (159,473) (159,743) (159,473)
Interest paid in Common Stock 297,148 297,148
Changes in assets and liabilities:
Other current assets (779,268) (11,300) (108,122) (790,568)
Other assets (218,459) 3,250 (9,862) (215,209)
Due to affiliate 54,530 54,530
Accounts payable and accrued expenses 488,830 (7,116) (170,024) 481,714
------------ --------- ---------- ------------
Net cash used in operating activities (51,995,875) (213,423) (837,341) (52,209,298)
------------ --------- ---------- ------------
INVESTING ACTIVITIES
Acquisition of property and equipment (2,564,829) (19,975) (2,584,804)
Costs incurred for patents and patent applications (759,020) (1,406) (760,426)
Proceeds from sale of property and equipment 294,748 291,331 294,748
Purchases of short-term investments (26,476,638) (26,476,638)
Proceeds from sales and maturities of short-term investments 26,319,946 26,319,946
------------ --------- ---------- ------------
Net cash provided by (used in) investing activities (3,185,793) (21,381) 291,331 (3,207,174)
------------ --------- ---------- ------------
FINANCING ACTIVITIES
Repayments of capitalized lease obligations (82,234) (82,234)
Proceeds from issuance of Series A Preferred Stock - net 8,413,490 8,413,490
Proceeds from issuance of Series B Preferred Stock - net 1,947,631 1,947,631
Proceeds from issuance of Series C Preferred Stock - net 11,980,771 11,980,771
Proceeds from issuance of Common Stock and Common Stock
warrants - net 31,498,206 31,498,206
Proceeds from exercise of Common Stock options and Common
Stock warrants 282,860 282,860
Proceeds from bank borrowings 520,000 520,000
Payment on bank borrowings (520,000) (520,000)
Repayment of advances from stockholder (145,000) (145,000)
Repurchase of Common Stock held in treasury (100) (100)
Proceeds from notes payable issued to stockholder and related
party 2,096,533 2,096,533
------------ --------- ---------- ------------
Net cash provided by (used in) financing activities 55,992,157 55,992,157
------------ --------- ---------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 810,489 (234,804) (546,010) 575,685
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (97,293) (97,293)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 713,196 1,430,765
------------ --------- ---------- ------------
END OF PERIOD $ 713,196 $ 478,392 $ 884,755 $ 478,392
============ ========= ========== ============
</TABLE>
F-6
<PAGE>
BIOFIELD CORP.
(A Development Stage Company)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------------------------------------------------------------------------------------------
Period October 16, Period October 16,
December 31, 1987 (Date of 1987 (Date of
--------------------------- Inception) Through Inception) Through
1999 1998 1997 December 31, 1999 March 31, 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 sold if cash is needed and, therefore, are
F-8
<PAGE>
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. 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 stock options based on the guidance in Accounting
Principles Board Opinion 25, Accounting for Stock Issued to Employees. 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.
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
F-9
<PAGE>
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 three months ended March 31, 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 has not determined the effect, if
any, of the adoption of SFAS No. 133 on its financial position or results
of operations.
3. INVENTORIES
Inventories at December 31, 1999 and 1998 and March 31, 2000 consisted of
the following:
December 31, March 31,
------------------------ -----------
1999 1998 2000
(unaudited)
Components and supplies $ 100,882 $ 100,393 $ 100,882
Finished goods 596,939 464,162 596,939
--------- --------- ---------
$ 697,821 $ 564,555 $ 697,821
========= ========= =========
F-10
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and 1998 consisted of the
following:
1999 1998
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
========== ==========
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.
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
F-12
<PAGE>
inventor or 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 of
F-13
<PAGE>
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. In addition, during 1995, the Company granted Dr. Long options
to acquire 24,510 shares of Common Stock at $10.20 per share exercisable
for services to be rendered, as such services are rendered. These options
expire June 1, 2002.
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
F-14
<PAGE>
sales or net license fees, if any, collected 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
F-15
<PAGE>
persons who were directors and executive officers of 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.
F-16
<PAGE>
11. STOCK OPTIONS
At December 31, 1999, the Company has three stock option plans (the
"Plans"), which are described below.
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 1,147,060
---------
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.
The Company (as licensor) has entered into a nonexclusive letter of intent
with a manufacturer (as licensee) of thoracic electrical bioimpedance
devices to make, use, and sell certain components of the Biofield
Diagnostic System. The licensee will remit certain royalties on units
manufactured for a period of four years subject to renewal for an
additional two-year period.
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
each of its three principal employees who also are 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.
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.
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 Fourth Amended and Restated Certificate of Incorporation of Biofield
Corp., as filed with the Secretary of State of the State of Delaware on
March 3, 1995, as amended by Certificates of Amendment filed with the
Secretary of State of the State of Delaware on December 20, 1995 and
February 26, 1996.(1)
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)
45
<PAGE>
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.
*6.09 Repair and Service Agreement, between Biofield Corp. and SeaMED, a
Plexus company, dated May 3, 2000.
6.10 Employment Agreement between Biofield Corp. and Mark L. Faupel, Ph.D.,
dated as of October 1, 1992. (2)
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.(3)
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.
*6.18 Escrow Agreement among C. Leonard Gordon, Biofield Corp. and Warshaw
Burstein Cohen Schlesinger & Kuh, LLP, as escrow agent, dated December
28, 1999.
46
<PAGE>
*6.19 Form of Stock Purchase Agreement between Biofield Corp. and each of
Arthur Taylor and Amy Langer, dated January 10, 2000.
*6.20 Form of Stock Purchase Agreement between Biofield Corp. and each of
John Stephens and Nancy Bruyneel, dated January 10, 2000.
7. Material foreign patents. - none
10. Consents -none
------------------------
(*) 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) Incorporated by reference to Biofield's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997.
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: August 11, 2000 By: /s/ DAVID M. LONG, JR.
------------------------------------
David M. Long, Jr., M.D., Ph.D.
Chairman and Chief Executive Officer
47
