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Table of Contents

 
 
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
Commission File No: 0-27848
BIOFIELD CORP.
(Name of registrant in its charter)
     
Delaware   13-3703450
(State of other jurisdiction of Incorporation or Organization)   (Employer Identification Number)
     
175 Strafford Avenue — Suite One — Wayne, PA
(Address of principal executive offices)
  19087
(Zip Code)
(215) 972-1717
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 30 days: Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of accelerated filer and large accelerated filer in Rule 12b-12 of the Exchange Act (Check one):
             
Large Accelerated Filer o   Accelerated Filer o   Non-Accelerated Filer o   Smaller Reporting Company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes o No þ
AS OF NOVEMBER 13, 2009, THERE WERE 36,261,833 SHARES OF COMMON STOCK OUTSTANDING AND 12,300,000 SHARES OF VOTING PREFERRED STOCK OUTSTANDING.
 
 

 

 


TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS
STATEMENTS OF OPERATIONS (Unaudited)
STATEMENTS OF CASH FLOWS (Unaudited)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4T. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2


Table of Contents

PART I—FINANCIAL INFORMATION
ITEM 1.  
FINANCIAL STATEMENTS
BIOFIELD CORP.
(A Development Stage Company)
BALANCE SHEETS
                 
    September 30,     December 31,  
    2009     2008  
    (Unaudited)     (Audited)  
ASSETS
               
 
               
CURRENT ASSETS:
               
Cash and cash equivalents
  $     $  
 
           
Total current assets
           
 
               
PROPERTY AND EQUIPMENT — Net
    4,169       5,211  
 
           
 
               
TOTAL ASSETS
  $ 4,169     $ 5,211  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ DEFICIT
               
 
               
CURRENT LIABILITIES:
               
Bank overdraft
  $ 14,659     $ 9,912  
Accounts payable
    1,402,514       1,402,514  
Accrued interest
    1,202,470       991,849  
Accrued expenses
    828,822       2,058,823  
Due to affiliate
    329,686       329,686  
Advances from stockholder
    2,557,396       2,378,973  
Notes payable
    2,471,580       2,410,951  
Line of credit
    418,920       418,920  
 
           
 
               
Total current liabilities
    9,226,046       10,001,628  
 
           
 
               
Commitments and contingencies
               
 
               
STOCKHOLDERS’ DEFICIT:
               
Preferred stock, $.001 par value, 12,300,000 shares authorized, 12,300,000 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively
    12,300       12,300  
Common stock, $.01 par value, 60,000,000 shares authorized, 37,386,833 and 24,793,500 shares issued at September 30, 2009 and December 31, 2008, respectively
    373,868       247,935  
Treasury stock - 2,306,131 shares
    (3,100 )     (3,100 )
Stock subscriptions
    3,849       3,849  
Additional paid-in capital
    76,219,621       74,935,552  
Accumulated deficit during development stage
    (85,828,416 )     (85,192,953 )
 
           
Total stockholders’ deficit
    (9,221,878 )     (9,996,417 )
 
           
 
               
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
  $ 4,169     $ 5,211  
 
           
See notes to financial statements.

 

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BIOFIELD CORP.
(A Development Stage Company)
STATEMENTS OF OPERATIONS (Unaudited)
                                         
                                    Period October 16,  
    For the Three Months Ended     For the Nine Months Ended     1987 (Date of  
    September 30,     September 30,     Inception) Through  
    2009     2008     2009     2008     September 30, 2009  
 
                                       
REVENUE
  $     $     $     $     $ 244,522  
COST OF SALES
                                       
Cost of goods sold
                      8,172       95,111  
Loss on write down of inventory
                            693,500  
 
                             
GROSS PROFIT
                      8,172       (544,089 )
 
                             
 
                                       
OPERATING EXPENSES:
                                       
Research and development
                            40,481,889  
Selling, general, and administrative
    26,348       8,637,305       185,789       8,898,838       42,827,773  
Impairment of intangible assets
                            194,268  
Gain on disposition of fixed assets
                            (8,084 )
 
                             
Total operating expenses
    26,348       8,637,305       185,789       8,898,838       83,495,846  
 
                             
 
                                       
OTHER INCOME (EXPENSE):
                                       
Interest income
                      88       2,476,722  
Interest expense
    (149,891 )     (130,962 )     (449,674 )     (417,965 )     (4,054,885 )
Finance costs
                            (405,523 )
Other
                            214,867  
 
                             
Net other expense
    (149,891 )     (130,962 )     (449,674 )     (417,877 )     (1,768,819 )
 
                             
 
                                       
LOSS BEFORE INCOME TAXES
    (176,239 )     (8,768,267 )     (635,463 )     (9,324,887 )     (85,808,754 )
 
                                       
PROVISION FOR INCOME TAXES
                            (19,749 )
 
                             
 
                                       
NET LOSS
  $ (176,239 )   $ (8,768,267 )   $ (635,463 )   $ (9,324,887 )   $ (85,828,503 )
 
                             
 
                                       
NET LOSS PER SHARE:
                                       
Basic and Diluted
  $ (0.00 )   $ (0.47 )   $ (0.02 )   $ (0.95 )        
 
                               
 
                                       
WEIGHTED-AVERAGE SHARES:
                                       
Basic and Diluted
    37,049,876       18,459,992       31,495,722       9,844,856          
 
                               
See notes to financial statements.

 

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BIOFIELD CORP.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (Unaudited)
                         
                    Period October 16,  
    For the Nine Months Ended     1987 (Date of  
    September 30,     Inception) Through  
    2009     2008     September 30, 2009  
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                       
Net loss
  $ (635,463 )   $ (9,324,887 )   $ (85,828,416.00 )
Adjustments to reconcile net loss to net cash used in operating activities:
                       
Depreciation and amortization
    1,042       1,042       2,763,638  
Amortization of premiums on short-term investments
                156,692  
Amortization of deferred financing costs
                2,129,643  
Loss on disposal of property and equipment
                194,102  
Loss on license and settlement agreements
                49,026  
Loss on abandonment of patent applications
                303,234  
Loss on inventory write-down
                693,500  
Impairment of intangible assets
                194,268  
Vendor settlements
                (77,257 )
Noncash compensation
                3,533,451  
Gain from disposition of fixed assets
                (159,473 )
Interest paid in common stock
                575,260  
Commissions and discounts on sale of common stock
                96,919  
Loan repayment default payable in shares of common stock
                350,000  
Consultancy fees paid in options
                242,762  
Issuances of common stock for outstanding stock obligations
          8,667,010       8,667,010  
Changes in assets and liabilities:
                       
Notes receivable
          9,912       11,004  
Inventories
                (693,500 )
Prepaids
                (131,816 )
Due to affiliate
                329,687  
Accounts payable and accrued liabilities
    210,622       298,388       5,489,383  
 
                 
Net cash used in operating activities
    (423,799 )     (348,535 )     (61,110,883 )
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
Acquisitions of property and equipment
                (2,610,691 )
Costs incurred for patents and patent applications
                (782,527 )
Proceeds from sale of property and equipment
                294,748  
Purchases of short-term investments
                (26,476,638 )
Proceeds from sale and maturity of short-term investments
                26,406,378  
 
                 
Net cash used in investing activities
                (3,168,730 )
 
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
Bank overdraft
    4,747             14,659  
Repayments of capitalized lease obligations
                (82,234 )
Proceeds from issuance of preferred stock — net
                22,341,892  
Proceeds from common stock subscriptions
    110,000             35,313,258  
Proceeds from exercise of common stock
    70,000             368,546  
Proceeds from issuance of notes payable
          96,265       1,676,058  
Proceeds from borrowings on line of credit
          76,740       76,740  
Financing costs for notes payable
    60,629             322,706  
Advances from stockholder and related party
    178,423       162,202       3,671,579  
Repayments of advances from stockholder
                (1,874,728 )
Repurchases of common stock held in treasury
                (3,100 )
Proceeds from notes payable issued to stockholder and related party
                2,546,533  
 
                 
Net cash provided by financing activities
    423,799       335,207       64,371,909  
 
                 
 
                       
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
          (13,328 )     92,296  
 
                       
EFFECT OF EXCHANGE RATE CHANGES
                (77,637 )
 
                       
BEGINNING OF PERIOD
          13,328        
 
                 
 
                       
END OF PERIOD
  $     $     $ 14,659  
 
                 
See notes to financial statements.

 

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BIOFIELD CORP.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (Unaudited) — (continued)
                         
    As for the Nine Months     Period October 16,  
    Ended     1987 (Date of  
    September 30,     Inception) Through  
    2009     2008     September 30, 2009  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
                       
Cash paid for interest
  $     $     $ 857,003  
 
                 
Cash paid for taxes
  $     $     $  
 
                 
 
                       
SUPPLEMENTAL SCHEDULE FOR NONCASH INVESTING AND FINANCING ACTIVITIES:
                       
 
                       
Common stock shares issued for penalty for non-payment of notes payable on maturity
  $     $     $ 17,949  
 
                 
 
                       
Repayment of debt by shareholders
  $     $     $ 1,200,000  
 
                 
 
                       
Issuance of common stock for accrued liabilities
  $ 1,230,002     $     $ 1,330,002  
 
                 
See notes to financial statements.

 

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BIOFIELD CORP.
A DEVELOPMENT STAGE COMPANY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION
Biofield Corp. is a development-stage medical technology company, which has developed an advanced medical device and associated diagnostic system (the Biofield Diagnostic System or “BDS”) to assist in detecting breast cancer. The financial statements are presented on the basis that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. The Company has incurred operating losses since its inception. This condition raises substantial doubt as to the Company’s ability to continue as a going concern as such continuance is dependent upon the Company’s ability to raise sufficient capital.
The accompanying interim unaudited financial information has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company as of September 30, 2009 and the related operating results and cash flows for the interim period presented have been made. The results of operations of such interim periods are not necessarily indicative of the results of the full year. This financial information should be read in conjunction with the Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. There have been no changes in significant accounting policies since December 31, 2008.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Estimates that are critical to the accompanying financial statements arise from the determination of the fair value of the Company’s investment. Because such determination involves subjective judgment, it is at least reasonably possible that the Company’s estimates could change in the near term with respect to this matter.
Revenue Recognition
The Company has adopted and follows the guidance provided in the SEC’s Staff Accounting Bulletin (“SAB”) No. 104, which provides guidance on the recognition, presentation and disclosure of revenue in the financial statements.
Reclassification
Certain amounts in the prior year financial statements have been reclassified for comparative purposes to conform to the presentation in the current year financial statements.

 

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NOTE 3 — ACCOUNTING STANDARDS UPDATES
In June 2009, the Financial Accounting Standards Board (FASB) issued its final Statement of Financial Accounting Standards (SFAS) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles a Replacement of FASB Statement No. 162”. SFAS No. 168 made the FASB Accounting Standards Codification (the Codification) the single source of U.S. GAAP used by nongovernmental entities in the preparation of financial statements, except for rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws, which are sources of authoritative accounting guidance for SEC registrants. The Codification is meant to simplify user access to all authoritative accounting guidance by reorganizing U.S. GAAP pronouncements into roughly 90 accounting topics within a consistent structure; its purpose is not to create new accounting and reporting guidance. The Codification supersedes all existing non-SEC accounting and reporting standards and was effective for the Company beginning July 1, 2009. Following SFAS No. 168, the Board will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will issue Accounting Standards Updates (ASU). The FASB will not consider ASUs as authoritative in their own right; these updates will serve only to update the Codification, provide background information about the guidance, and provide the bases for conclusions on the change(s) in the Codification. The adoption of this standard did not have a material impact on the Company’s financial position and results of operations.
In August 2009, the FASB issued ASU 2009-05 which includes amendments to Subtopic 820-10, “Fair Value Measurements and Disclosures—Overall”. The update provides clarification that in circumstances, in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the techniques provided for in this update. The amendments in this ASU clarify that a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability and also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. The guidance provided in this ASU is effective for the first reporting period, including interim periods, beginning after issuance. The adoption of this standard did not have a material impact on the Company’s financial position and results of operations.
In September 2009, the FASB issued ASU 2009-06, Income Taxes (Topic 740), “Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities”, which provides implementation guidance on accounting for uncertainty in income taxes, as well as eliminates certain disclosure requirements for nonpublic entities. For entities that are currently applying the standards for accounting for uncertainty in income taxes, this update shall be effective for interim and annual periods ending after September 15, 2009. For those entities that have deferred the application of accounting for uncertainty in income taxes in accordance with paragraph 740-10-65-1(e), this update shall be effective upon adoption of those standards. The adoption of this standard is not expected to have an impact on the Company’s financial position and results of operations since this accounting standard update provides only implementation and disclosure amendments.
In September 2009, the FASB published ASU No. 2009-12, “Fair Value Measurements and Disclosures (Topic 820) — Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”. This ASU amends Subtopic 820-10, “Fair Value Measurements and Disclosures — Overall”, to permit a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). This ASU also requires new disclosures, by major category of investments including the attributes of investments within the scope of this amendment to the Codification. The guidance in this Update is effective for interim and annual periods ending after December 15, 2009. Early application is permitted. The adoption of this standard is not expected to have an impact on the Company’s financial position and results of operations since this accounting standard update provides only implementation and disclosure amendments.

 

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In October 2009, the FASB published ASU 2009-13, “Revenue Recognition (Topic 605)-Multiple Deliverable Revenue Arrangements”, which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. Specifically, this guidance amends the criteria in Subtopic 605-25, “Revenue Recognition-Multiple-Element Arrangements”, for separating consideration in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method and also requires expanded disclosures. The guidance in this update is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The adoption of this standard is not expected to have an impact on the Company’s financial position and results of operations since this accounting standard update provides only implementation and disclosure amendments.
In October 2009, the FASB published ASU 2009-14, “Software (Topic 985)-Certain Revenue Arrangements that Include Software Elements” and changes the accounting model for revenue arrangements that include both tangible products and software elements. Under this guidance, tangible products containing software components and nonsoftware components that function together to deliver the tangible product’s essential functionality are excluded from the software revenue guidance in Subtopic 985-605, “Software-Revenue Recognition”. In addition, hardware components of a tangible product containing software components are always excluded from the software revenue guidance. The guidance in this ASU is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The adoption of this standard is not expected to have an impact on the Company’s financial position and results of operations since this accounting standard update provides only implementation and disclosure amendments.
Other ASUs not effective until after September 30, 2009, are not expected to have a significant effect on the Company’s financial position or results of operations.
NOTE 4 — EQUITY
During the nine months ended September 30, 2009, the Company issued a total of 12,593,333 shares of common stocks. In first quarter of 2009 the Company issued for cash 3,693,333 shares of common stock for $110,000. In the second and third quarters of 2009 the Company issued 8,900,000 shares of common stock in settlement of accrued liabilities. The value of the common shares issued was $1,230,002.
NOTE 5 — SUBSEQUENT EVENTS
ValiRx Plc
On December 11, 2008, Biofield Corp. (the “Corporation”) entered into a Sale of Shares Agreement (the “Stock Purchase Agreement”) with Valirix, plc, to acquire a minority interest in Valibio, SA and contemporaneously entered into an Exclusive Distribution Agreement (the “Distribution Agreement”) with Valibio, SA which granted Biofield exclusive distribution rights worldwide (excluding Belgium) for ValiRx plc’s Human Papilloma Virus (HPV) diagnostic test for cervical cancer, ValioRx’s Hypergenomics™ and Nucleosomics™ cancer diagnostics products, and any other cancer diagnostic products developed during the term of the Distribution Agreement.
On May 13, 2009, ValiRx Plc and the Corporation entered into a letter agreement amending the Stock Purchase Agreement (the “Amendment”) whereby Biofield agreed to make payments towards the 660,000 Euro purchase price (the “Purchase Price”) prior to certain dates which, to date, had not been made.
Thereafter, on September 22, 2009, ValiRx and the Corporation further amended the Stock Purchase Agreement pursuant to Amendment No. 2 (“Amendment No. 2”), which extended the payment date of the Purchase Price until December 31, 2009. As security for extending the payment date of the Purchase Price until December 31, 2009, Mr. James MacKay, a shareholder of the Corporation, transferred 1,500,000 shares of preferred stock, par value $0.001 per share (the “Preferred Shares”), of Biofield Corp. to ValiRx, provided Mr. MacKay retains voting control of the Preferred Shares per the Pledge Agreement and Voting Agreement executed concurrently with Amendment No. 2. The last of this series of documents comprising the transaction, the Pledge Agreement, was executed and delivered by Mr. MacKay on October 2, 2009 after the close of business, thereby completing the transaction.

 

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In the event the Purchase Price is not satisfied prior to December 31, 2009, ValiRx may elect to either (i) convert the Preferred Shares into common stock and to apply the proceeds of any and all eventual sales in payment and satisfaction of the Purchase Price, or (ii) collect on the Purchase Price in full. If ValiRx chooses (i) above, any such sales of shares shall not exceed twenty percent (20%) of the total volume of the five (5) preceding trading days, on a weekly basis; further, if such converted shares do not cover the unpaid balance of the Purchase price, additional shares shall be delivered to ValiRx to satisfy the obligation in full. Any shares remaining after the purchase Price has been paid, shall be returned to Mr. MacKay.
In the event the Corporation raises capital in one or more private placements prior to December 31, 2009, Biofield shall satisfy the Purchase Price out of the use of proceeds of such raise by applying 10% of the proceeds below $500,000, plus 15% of the proceeds above $500,000 up to the Purchase Price.
In three separate transactions, the Company acquired additional distribution rights to products of another ValiRx plc subsidiary, ValiMedix Limited. Subject to performance minimums, the Company has acquired the exclusive distribution rights for Mexico, Canada and the PRC (China), to a product line of home self check test kits. The Products are: (i) Stomach Ulcer Test; (ii) Blood Glucose Test; (iii) Cholesterol Test; (iv) Urine Infection Test; (v) Bowel Health Test; (vi) Multi Drug Test; (vii) Menopause Test; and (viii) Prostate Health Test. All have CE certification. The agreements are for a five (5) year term with certain renewal rights.
Changes in Management
On November 15, 2009 the Board of Directors of the Company accepted the resignation of Dr. Dominic Lam. Since 2008, the increasing time demands of Dr. Lam’s other business and charitable ventures that predate his involvement with the Company have prevented him from devoting the time required to carry on as a Board member of the Company. His departure was mutually amicable.
Effective March 15, 2009, two of the Company’s former officers Shepard G. Bentley and Dr. Shiva Sharareh both agreed, in writing, to: i) the return and cancellation of all shares issued to them (Mr. Bentley 2.5 million shares; Dr. Sharareh 2 million shares) and; ii) forfeit any right to receive any and all accrued salary. The Company received the certificates and cancelled the related shares in the fourth quarter of 2009. The Company reduced the accrued salaries of the two officers by approximately $585,000.
Conversion of Debt
In late 2008, in an effort to help re-structure the Company’s balance sheet and bring value to the Noteholders, Michael and Alan Jacobs, the former principals of Capital Growth Financial, began providing consulting services to the Company. After extensive discussions regarding the Company’s status and plans, the Capital Growth Equity Fund I LLC, of which the Jacobs are the managing members, and which was the lead investor in the Note offering to the Noteholders, converted its Note into Common Stock of Biofield. Thereafter, the Jacobs, on the Company’s behalf, contacted the Noteholders and encouraged them to also convert.
During the fourth quarter of 2009, the Board of Directors of the Company reached an agreement with a number of Noteholders. Under the terms of the Exchange Agreement pursuant to which the Company offered the Noteholders the option of converting their outstanding Notes and all accrued interest into Common Stock at the rate of five shares for every $1.00 face amount of their respective Notes.
As a result, 17 Noteholders have signed the Exchange Agreement and the Company has authorized the issuance of the exchange shares to them, thereby reducing the existing debt. At a minimum, a reduction in debt of $2,750,000, based upon the share exchange by the current responders, will be reflected in the Company’s financial statements in the fourth quarter of 2009. Any additional conversions by remaining Noteholders will be added to this amount and reflected in the appropriate accounting period.

 

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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.
Certain statements contained in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report are forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, forward-looking statements can be identified by terminology such as “may,” “will”, “should”, “expect”, “anticipate”, “intend”, “plan”, “believe”, “estimate”, “potential”, or “continue”, the negative of these terms or other comparable terminology. These statements involve a number of risks and uncertainties. Actual events or results may differ materially from any forward-looking statement as a result of various factors, including those described above and in the Company’s last Form 10-K for 2008 under “Risk Factors”. 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.
Overview
Biofield Corp. is a development-stage medical technology company which has developed an advanced medical device and associated diagnostic system (the Biofield Diagnostic System or “BDS”) to assist in detecting breast cancer, has secured exclusive marketing rights to products for treatment of oral and genital herpes and a diagnostic test for cervical cancer, and seeks to secure marketing rights for other complimentary products.
In March of 2006, MacKay Group Limited (“MKG”) acquired control of the Company. Prior to the date MKG acquired control of the Company, the Company was focused on securing approval of the BDS from the U.S. Food and Drug Administration (“U.S. FDA”). These efforts were unsuccessful and led to MKG’s acquisition of control of the Company. Under MKG, the Company has focused on developing markets outside the United States with significant populations of women, where MKG has significant industry and government relationships, where the need for the BDS appears compelling, and where the regulatory hurdles are not as burdensome. These markets include China (including Hong Kong and Macau), India, the Philippines, Indonesia, Malaysia, and other parts of Asia. The Company also intends to develop markets in Mexico, Latin America, the Caribbean, Africa, Europe, and the Middle East. As the Company’s resources permit, the Company will seek U.S. FDA approval of the BDS. The Company believes its strategy of developing foreign markets will provide additional clinical data and research and development (including as it may pertain to screening and other cancers) which will facilitate its efforts to secure U.S. FDA approval.
Most of 2006 was consumed in connection with the series of transactions which resulted in acquiring control of the Company. Unless indicated otherwise below, any material events in 2006 related to events, which predated 2006 and the MKG acquisition, and which were reported in detail in the Company’s prior SEC’s filings including its Form 10-KSB for fiscal year ending December 31, 2005 filed May 30, 2006
In 2007, the Company moved its facilities, inventory and operations from Alpharetta, Georgia to King of Prussia, Pennsylvania and transferred and reorganized voluminous amounts of clinical and technological data and financial records, resumed filing annual and quarterly reports with the Securities and Exchange Commission (“SEC”) and brought all of its filings current, converted approximately $2 million of the Company’s debt to equity stock, and began a number of foreign market initiatives which are discussed in Item 6 of the Company’s Form 10-KSB for fiscal year ending December 31, 2007 filed April 15, 2008.
In 2008, the Company recommitted its efforts to secure CE mark certification for BDS, recruited a new management team, opened an office in Hong Kong, in conjunction with the Company’s controlling stockholder, MKG, opened a sales office in Bangalore, India, moved its US offices from King of Prussia, Pennsylvania to Philadelphia, Pennsylvania, and embarked on a strategy to assemble a portfolio of medical technology products that can be distributed using the same sales channels the Company intends to use to market the BDS.

 

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In furtherance of its strategy to develop revenue while pursuing the CE mark for BDS, the Company obtained exclusive, worldwide distribution rights from NeuroMed Devices, Inc. for NeuroMed’s OraCalm device, for oral herpes, and Vira Calm device, for genital herpes. In early 2009, the Company obtained exclusive, worldwide distribution rights (excluding Belgium) from Valibio, SA for ValiRx plc’s Human Papilloma Virus (HPV) diagnostic test for cervical cancer, ValioRx’s Hypergenomics™ and Nucleosomics™ cancer diagnostics products, and any other cancer diagnostic products developed during the term of the Distribution Agreement The Company expects to begin marketing the OraCalm device, for oral herpes, via direct web based/internet marketing, retail, wholesale and through physicians and hospitals by the end of 2009.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations since inception almost entirely by the issuance of our securities, interest income on the then unutilized proceeds from these issuances and with loans made directly, or guaranteed and collateralized, by Dr. David Long and certain of his affiliates (until the MKG Acquisition) and by MKG (after the MKG Acquisition).
At September 30, 2009, we had a working capital deficiency of $9,226,046.
Our assets totaled $4,169 at September 30, 2009. There were no cash and cash equivalents at September 30, 2009.
Operating Activities
During the nine months ended September 30, 2009, we had a net loss of $635,463, compared to $9,324,887 for the nine months ended September 30, 2008, a decrease of $8,689,424 or 93.2%. During the nine months ended September 30, 2009, our net cash used in operating activities was $423,799, compared to $348,535 for the nine months ended September 30, 2008, an increase of $75,264 or 21.6%. The increase was primarily due to a decrease in net loss of $8,689,424 for the nine months ended September 30, 2009, compared the same period in 2008, offset by a decrease in noncash compensation of $8,667,010 for the nine months ended September 30, 2009.
During the nine months ended September 30, 2009 and 2008, we had depreciation and amortization in connection with operating activities of $1,042.
Investing Activities
There were no investing activities ended September 30, 2009 and September 30, 2008.
Financing Activities
As of September 30, 2009, The Company had a cash overdraft of $14,659. There were no cash overdrafts for the same period in 2008. We had proceeds from issuance of common stock subscription of $110,000 for the nine months ended September 30, 2009, there were no cash proceeds from issuance of common stock subscription for the same period in 2008. We had proceeds from issuance of common stock of $70,000 for the nine months ended September 30, 2009, there were no cash proceeds from issuance of common stock for the same period in 2008. During the nine months ended September 30, 2009, we had no proceeds from issuance of notes payable compared to $96,265 for the nine months ended September 30, 2008. During the nine months ended September 30, 2009, we had no proceeds from borrowings on line of credit compared to $76,740 for the nine months ended September 30, 2008. Proceeds from advances from stockholders and related party was $178,423 for the nine months ended September 30, 2009 compared to $162,202 for the same period in 2008.
While we have raised capital to meet our working capital and financing needs in the past, additional financing is required in order to meet our current and projected cash flow deficits from operations and development. We are seeking financing in the form of equity in order to provide the necessary working capital. We are currently working on commitments for financing. There is no guarantee that we will be successful in raising the funds required.

 

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By adjusting its operations and development to the level of capitalization, management believes it has sufficient capital resources to meet projected cash flow deficits through the next twelve months. However, if we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition.
The independent auditors report, on our December 31, 2008 financial statements, states that our recurring losses raise substantial doubts about our ability to continue as a going concern.
RESULTS OF OPERATIONS
Comparison of the three month period ended September 30, 2009 with the three month period ended September 30, 2008.
There were no sales in the three months ended September 30, 2009 and 2008.
The total operating expenses for the three months ended September 30, 2009 and 2008 were $26,348 and $8,637,305 respectively, representing a decrease of $8,610,957 or 99.7%. This decrease is due primarily to expenses related to new management in 2008.
We did not incur any research and development expenses or impairment to intangible assets in the fiscal quarters ending September 30, 2009 and 2008.
Interest expense for the three months ended September 30, 2009 and 2008 were $149,891 and $130,962, representing an increase of $18,929 or 14.5%. The increase is a direct result of increased debt in the second quarter of 2009.
As a result of the foregoing, we incurred a net loss of $176,239 for the three months ended September 30, 2009, compared to $8,768,267 for the three months ended September 30, 2008, a decrease of $8,592,028, or 98.0%.
Comparison of the nine month period ended September 30, 2009 with the nine month period ended September 30, 2008.
There were no sales in the nine months ended September 30, 2009. We incurred $8,172 in costs related to sales that did not materialize in the nine months ended September 30, 2008.
The total operating expenses for the nine months ended September 30, 2009 and September 30, 2008 were $185,789 and $8,898,838 respectively, representing a decrease of $8,713,049 or 98.0%. This decrease is due primarily to consultant’s expenses in 2008. Total operating expenses for these nine months were related to selling, general and administrative expenses.
Interest expense for the nine months ended September 30, 2009 and September 30, 2008 were $449,674 and $417,965, representing an increase of $31,797 or 7.6%. The increase is a direct result of increased debt in the nine months ended September 30, 2009.
As a result of the foregoing, we incurred a net loss of $635,463 for the nine months ended September 30, 2009, compared to $9,324,887 for the nine months ended September 30, 2008, a decrease of $8,689,424, or 93.2%.
OFF-BALANCE SHEET ARRANGEMENTS
None.

 

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ITEM 3.  
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4T.  
CONTROLS AND PROCEDURES
Our chief executive officer and chief financial officer (the “Certifying Officers”) are responsible for establishing and maintaining disclosure controls and procedures for our company and our subsidiary. Such officers have concluded (based upon his evaluation of these controls and procedures as of the end of the period covered by this report) that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in this report is accumulated and communicated to management, including our principal executive officers as appropriate, to allow timely decisions regarding required disclosure.
The Certifying Officers have also indicated that there were no significant changes in our internal controls or other factors that could significantly affect such controls subsequent to the date of his evaluation, and there were no corrective actions with regard to significant deficiencies and material weaknesses.
Our management, including the Certifying Officers, does not expect that our disclosure controls or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
As required by Rule 13a-15(d), the Company’s Chief Executive Officer and Chief Accounting Officer, also conducted an evaluation of Biofield’s internal controls over financial reporting to determine whether any changes occurred during the fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. During the preparation of the Company’s financial statements as of and for the year ended December 31, 2008, the Company concluded that the then current system of disclosure controls and procedures needed improvement, partly due to the transition to new management, facilities, and auditors. As a result of this conclusion, the Company initiated changes in internal control. It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.
Lack of Adequate Accounting Staff
Due to limitations in financial and management resources, the Company does not have adequate accounting staff. As a result, the Company took steps to address its understaffed finance and accounting team to correct this material weakness. The Company engaged an independent contractor with extensive CFO-level management and SEC reporting experience in public companies. The Company feels this addition to the Company’s finance and accounting team will improve the quality of future period financial reporting.

 

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PART II. OTHER INFORMATION
Item 1.  
Legal Proceedings
As result of the Company’s arrangement with third party to help manage the Company’s operations and development of the BDS, the Company has forwarded much of what was in its King of Prussia office to the third party’s certified manufacturing and regulatory facilities near Atlanta, Georgia, and seeks to vacate the King of Prussia office. The landlord of the Company’s King of Prussia office has subsequently filed for and obtained a judgment in confession. Counsel, for both sides, is in discussions to work out a settlement terminating the lease. The monthly rent is approximately $3,500 and it is a 3 year lease. As of April 10, 2009, the Company had worked out all remaining issues with the Landlord and final payment on the lease has been made.
The Company was also advised that a judgment in the amount of $16,228 has been entered against it and its former officer, Michael Yom. The Company’s counsel was advised of this matter only after judgment was entered and is considering appropriate relief. The Complaint only states that this company sued for the price of goods sold and/or services provided on a book account, although the Company’s present management is unaware of what goods and/or services were allegedly provided to this company.
The Company filed an action seeking a declaratory judgment and injunctive relief against William R. Dunavant in the Eastern District of Pennsylvania. The Company is seeking a determination that Company has no obligation to pay the remuneration contemplated by the consulting agreement with Mr. Dunavant and injunctive relief to prevent Mr. Dunavant from continuing to violate the confidentiality and restrictive covenants in the consulting agreement.
We are not a party to any other 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 current proceeding concerning us that a governmental authority may be contemplating.
Item 1A.  
Risk Factors
In addition to other information set forth in this Report, you should carefully consider the risk factors previously disclosed in “Item 1A to Part 1” of our Annual Report on Form 10-K for the year ended December 31, 2008. There were no material changes from the risk factors during the three and nine months ended September 30, 2009.
Item 2.  
Unregistered Sale of Equity Securities and Use of Proceeds
None.
Item 3.  
Defaults Upon Senior Securities
None.
Item 4.  
Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of our securities holders during the fiscal quarter ended September 30, 2009.

 

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Item 5.  
Other information
On March 15, 2009, Mr. Shepard Bentley, Mr. Steve Waszak and Dr. Shiva Sharareh advised the Company’s board of directors of their intention to resign. Notwithstanding, no signed resignations were submitted by either of the aforementioned officers.
Subsequently, Messrs. Bentley and Waszak continued to assist the Company with regards to its SEC filings and certain other matters. The Company believes that such persons intended to finalize their resignations following the filing of the Company’s quarterly report on Form 10-Q for the period ended March 31, 2009 as filed with the Securities and Exchange Commission on May 15, 2009.
However, prior to August 18, 2009 no such signed resignations had been received by the Company despite requests for same. Accordingly, on August 18, 2009, the Board of Directors of the Company took action removing Mr. Shepard Bentley, Mr.  Steve Waszak and Dr.  Shiva Sharareh from their respective positions with the Company effective May 16, 2009, and appointed David Bruce Hong as the Company’s Chief Executive Officer and Chief Financial Officer, effective May 16, 2009, and ratified all actions taken by the prior offices of which the Board of Directors was aware of. Mr. Bentley and Dr. Sharareh have subsequently submitted their signed resignations to the Company. To date no signed resignation has been received by the Company from Mr. Waszak despite requests for same.
Item 6.  
Exhibits and Reports on Form 8-K
Exhibits
         
31.    
Rule 13a-14(a)/15d-14(a) Certifications
       
 
       
*31.1 Certification of David Bruce Hong Chief Executive Officer
       
 
       
*31.2 Certification of David Bruce Hong Chief Financial Officer
       
 
32.      
Section 1350 Certifications
       
 
       
*32.1 Certification of Bruce Hong Chief Executive Officer
       
 
       
*32.2 Certification of Bruce Hong Chief Financial Officer

 

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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
         
  BIOFIELD CORP.
 
 
Date: November 19, 2009  By:   /s/ David Bruce Hong    
    David Bruce Hong   
    Chief Executive Officer   
     
  /s/ David Bruce Hong    
  David Bruce Hong
Chief Accounting Officer 
 

 

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