UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-K





(Mark
One)


[X] ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For
the Fiscal Year Ended December 31, 2008





OR




[ 
]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934





For
the transition period from ________  to ________








Commission file number000-27848





BIOFIELD
CORP.


(Exact
name of registrant as specified in its charter)






Delaware
            
            13-3703450(State
      of Incorporation)
            
            (IRS
      Employer Identification No.)




1615
      Walnut Street, 3 rdFloor, Philadelphia,
      PA
                
                19102(Address
      of principal executive offices)
                
                (Zip
      Code)





(215)
972-1717


(Registrant’s
telephone number, including area code)







Securities
registered pursuant to Section 12(b) of the Act: none




Securities
registered pursuant to Section 12(g) of the Act:





Common
Stock, $.001 par value


(Title of
Class)










Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.    Yes  [
]    No  [ ]





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(a) of the
Act.    Yes  [
]    No  [ ]





Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes [
]     No [ ]





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ] [ ]





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
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):




Large Accelerated Filer
            
            [
      ]
            
            Accelerated Filer
            [
      ]Non-Accelerated
      Filer
            
            [
      ]
            
            Smaller Reporting Company
            [
      ]





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).    Yes  [
]   No  [ ]





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant, based on the average closing price of the
registrant’s common stock on December 31, 2008 was approximately $867,773,
based on a closing price ($0.035), as reported by the Pink Sheet Electronic OTC
Markets.





The
number of outstanding shares of the registrant’s common stock on March 23,
2009 was 28,486,833 shares of Common Stock and 12,300,000 shares of Series A
Preferred Stock.





PART
I





ITEM
1.  BUSINESS.





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.





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.





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 HypergenomicsTM and NucleosomicsTM cancer diagnostics products,
and any other cancer diagnostic products developed during the term of the
Distribution AgreementThe Company
expects to begin marketing the OraCalm device, for oral herpes, via direct web
based/internet marketing, retail, wholesale and through physicians and hospitals
in 2009.





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.





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.








The
BDS Technology





Based on
clinical trial results to date involving over 3,000 patients, the BDS has
demonstrated the following benefits:





·
            It
      is noninvasive;


·
            It
      is radiation-free;


·
            It
      is compression-free;


·
            It
      produces objective results within 20 minutes without the need for
      interpretation by a radiologist;






















2




·
            The
      device is portable and can be transported via mobile van
      units; ·
              The
      BDS test can be performed in a physician’s office or other similar
      location by a medical technician with a few days
  training;
 ·
              It
      has performed better in certain respects than other existing breast cancer
      detection technologies. Clinical trials to date have demonstrated
      advantages of the BDS in (1) detecting more malignant tumors, especially
      smaller cancers missed by other detection technologies; (2) reducing the
      number of equivocal decisions; (3) reducing the number of false positives;
      and (4) reducing the number of certain expensive follow-up diagnostic
      tests, such as surgical biopsies, ultrasounds and diagnostic mammograms;
      and
 ·
              The
      estimated cost of the BDS is expected to be significantly less than the
      cost of purchasing, installing, operating and interpreting the results
      from diagnostic x-ray mammography or other diagnostic imaging
      equipment.


At a
simplistic level, the BDS detects and analyzes electrical potential cell changes
associated with the development of epithelial cancers, such as breast cancer,
using a non-invasive and objective test taking less than 20 minutes, which helps
a physician determine the probability that a previously identified lesion is
malignant or benign and whether the lesion should be removed by biopsy or
whether other action should be taken.  Epithelial cancers are related
to the outside layer of cells that cover all the free, open surfaces of the body
including the skin, and mucous membranes that communicate with the outside of
the body, and include cancer of the breast, ovaries, skin, prostate and
colon.





Epithelial
cancers are characterized by small changes in the electrical charge of the
affected tissue.  These changes, when they occur, result in a
depolarization of the charge distribution found in normal epithelial tissue
which lines many solid organs, including the stomach, colon, prostate,
endometrium, lung and breast.  This depolarization appears to be
progressive as cell transformation and carcinogensis occur, and is measurable at
the skin surface.





The BDS
employs single-use sensors of our own design, which 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 taken and analyzed using a pre-programmed
algorithm to measure differentials which may exist between test points. The
higher the BDS' output, the greater the probability that the patient has cancer
in the area examined. The physician can use this information, together with
other available clinical information, to determine the appropriate course of
action.





The
current version of the BDS is intended to be used as an adjunct to physical
examination or relevant imaging modalities to provide physicians and patients
with immediate and objective information about the probability that a previously
identified lesion is malignant or benign, without regard to the size, weight or
volume of the lesion.  The device currently is intended for palpable
breast lesions in women under 55 years of age.  We believe that the
BDS, 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 clinical studies, the BDS
performed statistically better in the clinically difficult subgroup of women 55
years of age and younger, for whom certain diagnostic imaging modalities, such
as mammography and ultrasound, are generally considered less
effective.





We
previously conducted clinical trials involving leading medical institutions and
breast cancer specialists and over 3,000 participants in the United States,
Europe and Asia.  The participants were women with suspicious breast
lesions, detected either by x-ray mammography screening or a physical
examination (self or by physician).  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, and although our device cannot determine the presence of breast
cancer in all cases, we believe that our device, together with other available
information, could reduce diagnostic uncertainty and decrease the number of
diagnostic procedures, including surgical biopsies performed on suspicious
lesions.





Based on
our clinical experience with the BDS for testing women that have symptoms of
breast cancer  (often referred to as symptomatic women) and our belief
that the electrophysiological characteristics of cancer are similar for both
lesions that can be felt in a physical examination  (palpable) and
those lesions that cannot be felt in a physical
examination  (non-palpable), we believe that our technology should be
adaptable for breast cancer screening in women who have not demonstrated any
symptoms of breast cancer (often referred to as asymptomatic
women).  Based on this belief, current management is working with
leading experts, institutions, and/or agencies in China and other parts of Asia
and the U.S. on the development, including the possibility of joint U.S.-Asian
clinical trials, of a prototype design of an enhanced version of our device,
which may be of use as a screening system.  The enhanced version of
our device would contain additional data channels to allow for more sensors to
surround the breast or other area where a lesion is present and an algorithm to
better analyze the data received.  Current management is also working
on developing new sensors and sensor configuration for the proposed screening
device.








3





We
believe that the need exists for products to provide early and accurate
detection of types of epithelial cancers other than breast
cancer.  Our previous preclinical research had 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.  Current management is proceeding to work with leading experts,
institutions, and/or agencies in China and other parts of Asia and the U.S. on
the development, including joint clinical trials, of the BDS for cancers other
than breast cancer.





For more
information the BDS and its history, development, clinical trials, and
limitations, see the Company’s prior SEC filings, published studies, and
website, including the more detailed discussion on the BDS in the Company’s Form
10-KSB forthe year
ended December 31, 2005 filed May 30, 2006.





The
State of Breast Cancer Globally





The
description about breast cancer and current detection technologies contained in
the Company’s Form 10-KSB for the year ended December 31, 2005 filed May 30,
2006, has not changed materially.  As reported in, among other
publications, the October 15, 2007 edition of Time Magazine, breast cancer is
the most common and lethal form of cancer for women in the
world.  According to the World Health Organization, more than 1.2
million cases are identified worldwide each year, and about 500,000 new and
existing patients will die from the disease. In the U.S., breast cancer will be
diagnosed in 1 in 8 women.  A woman’s chance of developing breast
cancer during her lifetime is about 1 out of 7 or 13.4
percent.  According to studies, the chance that breast cancer will be
the cause for a woman’s death is 1 in 33 or three percent.





Once
considered a malady, which was perceived to have mostly afflicted white,
affluent women in the industrialized hubs of North America and Western Europe,
today breast cancer is spreading around the world. Asia, Africa, Eastern Europe,
and Latin America have all seen their caseload spike.  By 2020, 70% of
all breast cancer cases worldwide will be in developing countries. As reported
in the Time article, below are the incidence rate in 2002 of breast cancer cases
per 100,000 people in countries other than the U.S. and Western
Europe:





Country
            Incidence
      Rate per 100,000 people1
            Total
      PopulationChina
            18.7
            1,321,222,000India
            19.1
            1,169,016,000Indonesia
            26.1
            231,627,000Mexico
            26.4
            106,535,000The
      Philippines
            46.6
            88,706,300Japan
            32.7
            127,750,000South
      Africa
            35.0
            48,577,000Malaysia
            30.8
            27,329,000





1Source:
Time Magazine, October 15, 2007, Special Report-Global Breast Cancer, A Disease
Breaks Free, pp. 38-39, (citing International Agency for Research on Cancer,
Danish Cancer Society, National Cancer Institute, and other
sources).





However,
as the reach of the disease is expanding, the reach of detection and treatment
is not.  For a women battling breast cancer in the industrialized
West, new diagnosis and treatment options are more available, accessible, and
affordable.  This is not so elsewhere.  In the U.S., an
estimated $8.1 billion is spent to diagnose and treat breast cancer each year,
and the ubiquity of mammography machines, clinics and specialists show what that
money can buy.  Other parts of the world are not as
fortunate.





Sources
suggest several factors why women outside the U.S. and Western Europe are not
benefiting from early detection.  Some women in other parts of the
world just do not know much about breast cancer, much less options such as
mammography.  If they know, there are cultural perceptions about
motherhood or femininity in certain parts of the world, which discourage women
to seek medical help.  The specter of surgical biopsies or other
invasive or painful modalities and the likelihood of false positives are other
factors which may discourage women from seeking medical help. Of course, money
is a problem as is availability and accessibility to facilities with mammography
or other detection modalities.  Mammography and other current
detection modalities are expensive to purchase, operate, and
interpret.  In certain instances, they require specialized facilities
and personnel.  In many areas, mammograms are limited to major medical
centers, many of which are simply not available or accessible to women outside
the United States and Western Europe.  Whatever the factors, the
unfortunate consequence is that the percentage of cancers caught at an early
stage in certain countries overseas is too low.  Thus, early awareness
and detection are even more compelling in areas of the world outside North
America and Western Europe.






4





The
Company under MKG is working with government representatives in China, the
Philippines, and elsewhere to adopt broad-based early awareness and detection
initiatives and campaigns to develop demand for the Company’s BDS and other
products.





Recent
studies have also raised concerns about the effectiveness in certain
circumstances of mammography, which ever since the 1980s has long been
considered the gold standard for detecting breast tumors. A 2007 study in the
New England Journal of Medicine (NEJM) concluded that a highly promoted and
widely used computerized system for examining mammograms is leading to less
accuracy, not more.  According to the study, this type of mammography
not only failed to detect more cancers, it led to more false alarms that
resulted in additional testing and biopsies for spots on mammograms that turned
out to be harmless.  See April 5, 2007 New York Times article, “Study
to Detect Breast Cancer,” The NEJM study sparked heated debates about options in
addition to mammography.  Much of the debate centered about magnetic
resonance imaging (MRI).  While MRIs can produce a more detailed
picture of breast tissue, they are expensive and tend to produce more false
positives than mammograms. The New York Times article reported that MRIs would
cost healthcare insurers and providers an additional $1 billion per
year.





For more
information, see the Company’s prior SEC filings, published studies, and
website, including the more detailed discussion on breast cancer and current
detection modalities in the Company’s Form 10-KSB for the year ended December
31, 2005 filed May 30, 2006.





Company
History





The
March 30, 2006 MKG Acquisition





On March
30, 2006, MKG acquired a controlling interest in the Companyas a result
of a series of agreements detailed in and attached to the Company’s April 6,
2006 Form 8-K.





In
connection with MKG’s acquisition of control of the Company, all of the
Company’s prior royalty, distribution, employment, research and development, and
consulting agreements were terminated and directors John Stephens and Dr.
Raymond Long, resigned from
the Board of Directors andJames MacKay
and Michael Yom were elected to the Board.   MacKay became
chairman and Yom president.  Dr. David Long remained a board member
until his death in April 2006.





The
Debt Conversion





In
connection with MKG acquisition of a controlling interest in the Company, MKG
acquired approximately $2 million of the Company’s indebtedness.  On
January 17, 2008, the Company issued 9,994,550 shares of common stock and
12,300,000 shares of Series A Preferred Stock to complete the debt conversion
contemplated by the agreements detailed in and attached to the Company’s April
6, 2006 Form 8-K.  Each share of Series A Preferred Stock entitles the
holder thereto to two (2) votes. The debt conversion occurred as follows:








Amount
      of
                Converted
      Debt
              Shares
      of Capital Stock Issued upon the Conversion
              Conversion
      Price
                per
      Share$   499,727.50
              9,994,550
      shares of common stock, par value $0.001/share
              $0.05/share$1,230,000.00
              12,300,000
      shares of Series A Preferred Stock, par value $0.001/share
              $0.10/share





As a
result of the issuance of common stock and voting preferred stock pursuant to
the debt conversion, the transfer of stock by LFCG to MKG pursuant to the Long
Agreement, and MKG’s assignment to Mr. MacKay (including 5,898,495 shares), Mr.
MacKay became the holder of shares of the Company's capital stock entitling
himtoapproximately
51.96% of all of the votes entitled to be cast by stockholders of the Company on
a fully-diluted basisFor more
details on the terms of the Series A Preferred Stock, see the Company’s Form 8-K
filed January 23, 2008.








5





Government
Regulation





Unless
indicated otherwise below, there were no material events or developments in 2008
related to government regulation, manufacturing, marketing and sales, patents
and proprietary information, licenses and other agreements, research &
development, competition, employees, and risk factors from the sections relating
to those subjects in the Company prior SEC’s filings including its Form 10-KSB
for fiscal year ending December 31, 2007 filed April 15, 2008.





TheCompanyhas refocused its energies to
distributing the BDS in foreign marketsThe Company plansto reinitiate effortsto obtainU.S. FDAapproval of the BDS when sufficient
resources are available.The Company believes that the
government and industry relationships, the possible significant clinical data
and research and development, and revenues it secures abroad willadvanceefforts to secure U.S. FDA
approval.





With its
new management team, the Company also resumed work to obtain CE mark
certification for the BDS.





Manufacturing





Under
prior management, the BDS device and sensors were manufactured in the
U.S.  The company which prior management engaged to design the
prototype of the BDS device has manufacturing facilities in Ireland. In addition
to these options, the Company under MKG is working with technical,
manufacturing, and regulatory experts to manufacture the new prototype device
and the sensors overseas, including China and Mexico.  The Company is
also considering other FDA-certified manufacturing facilities in the U.S., which
manufacture similar non-invasive technology.





Licenses
and Other Agreements





As of
March 30, 2006, the date of the MKG Acquisition, all licensing, royalty,
distribution, and employment agreements had been terminated or were
terminated.  This was a condition precedent to the MKG
Acquisition.  Under the Long Agreement, MKG agreed to give the Longs a
royalty equal to 1% of the Company’s net sales worldwide for three years
commencing as of March 31, 2006.  MKG also entered into a three-year,
$60,000 per year consulting agreement with Dr. David Long or his
nominee.





Marketing and
Sales





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.  The Company has also 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
HypergenomicsTM and NucleosomicsTM cancer diagnostics products, and any other
cancer diagnostic products developed during the term of the Distribution
Agreement.





Employees





In
September 2008, Michael Antonoplos resigned as a director and as the Company’s
chief executive officer, chief accounting officer and secretary, although
Michael Antonoplos continues to serve the Company as a consultant.  In
September 2008, David Bruce Hong was appointed to the Board of Directors and
hired as the President of the Company, Shepard G. Bentley, was hired as the
Chief Executive Officer, Steven M. Waszak, was hired as the Chief Financial
Officer, and Shiva Sharareh, PhD, was hired as the Chief Technology
Officer.











6






ITEM
1A.  RISK FACTORS





We Expect to Continue to
Incur Significant Operating Losses Which Endangers our Viability as a
Going-Concern





The
Company has never established adequate sources of operating revenue and had
incurred net operating losses since our inception.  At December 31,
2008, we had an accumulated deficit of approximately $85.2
million.  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, mainly due to the anticipated expenses associated with the
pre-market approval process and proposed commercialization of our device,
research and development and marketing activities and administration
costs.  Our continuing losses have caused our independent accountants
to qualify their audit report regarding our use of "going concern" basis of
accounting in preparation of our 2008 consolidated financial
statements.  Although the Company, under MKG, is
now focused on distributing the BDS and complementary products overseas relying
on MKG’s foreign government, industry, and distribution relationships, there can
be no reasonable assurances, however, that such efforts will be to establish
predictable and scalable sources of revenue.





Our Cash Flow Problems Have
Caused Us to be Delinquent in Payments to Vendors and Other
Creditors





Since
1998, our lack of financial resources has caused us to delay payment of our
obligations as they became due in the ordinary course of our
business.  Such delays have damaged some of our vendor and
professional relationships, and have caused us to incur additional expenses in
the payment of late charges and penalties.  As of December 31, 2008,
we had a working capital deficiency of approximately $10.0 million and accounts
payable, primarily to service providers and vendors, aggregating approximately
$1.4 million, substantially all of which are past due. These amounts have
increased since December 31, 2007





We Will Require Significant
Additional Capital to Continue Operations Which May Not be
Available





Our
continued losses and operational plan require us to secure substantial equity
financing to continue in business.  As a result of our weak financial
position, lack of operating history, and inherent risk, the cost of obtaining
new finance will continue to be very high, and if arrangements involve issuance
of shares, the future dilution could be significant.  There can be no
reasonable assurances that equity financing, if available, can be obtained when
needed or on terms favorable to the Company or the existing holders of our
equity securities.





We Have a Limited Operating
History





We have
had a limited history of operations.  Since inception in October 1987,
we have engaged principally in the development of our device, which has not been
approved for sale in the United States, and recently in securing distribution
rights for complimentary products.  Consequently, we have little
experience in manufacturing, marketing and selling our products and no
meaningful history upon which you can evaluate the likelihood of our ultimate
success.  There can be no reasonable assurances, the Company will be
successful.





We May Not Be Able to Obtain
Government Regulatory Approval to Market and Sell Our
Products





Regulation
by governmental authorities in the United States will be 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 pre-clinical and clinical testing and other
pre-market approval procedures prescribed by the FDA. 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
we cannot assure that, as new laws and regulations are adopted, these actions
will not have an adverse effect on us.





We May Never be Able to
Bring Our Device to Market or Sustain Its Sales After Regulatory
Approval





Our
device faces a high degree of uncertainty, including the following:





·
            We
      may not be able to obtain United States regulatory approval. Obtaining
      regulatory approval may take significantly more time and cost
      significantly more money than anticipated.  Lack of United
      States regulatory approval has significantly affected our ability to sell
      our device outside of the United
States.


·
            We
      may not be able to produce our device in commercial quantities at
      reasonable cost.
















7





·
            We
      may not be able to successfully market our device or find an appropriate
      corporate partner, if necessary, to assist us in the marketing of our
      device. Our device may not gain satisfactory market acceptance. Our device
      may be superseded by another product commercialized for the same use or
      may infringe patents issued to others, which would prevent us from
      marketing and selling our device. ·
              After
      approval, our device 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 successfully market our device or sustain its sales, our business,
financial condition and results of operations will be significantly and
adversely affected.





We are Currently Dependent
on a Single Product Which Has Not Yet Been Commercialized





We intend
to develop additional applications for our device, based on its core technology,
none of these applications is expected to result in a commercial product for at
least several years, if at all.  Consequently, until such time, if at
all, as our device is approved for commercial distribution in the United States,
limited distribution of our device overseas will account for substantially all
of our revenues, if any.  The Company, under MKG, is proceeding to
distribute the BDS overseas and is working with foreign government, medical, and
other experts to develop the BDS for additional applications such as screening
and diagnosis of other cancers.  Moreover, the Company, under MKG, is
working to acquire the rights to other medical technologies.  There
can be no reasonable assurances that such efforts will be
successful.





Our Contract Manufacturers
May be Unable to Produce Commercial Quantities of Our
Products





Our
current contract manufacturer for our device has not yet completed the redesign
of a new version of our device due to our delay in payment for its redesign
services and has not yet manufactured our device. We cannot assure you that it
will complete its redesign services or be able to manufacture in volume, when,
or if, the need may arise. If this situation occurs, our business could be
significantly and adversely affected.  Given the interest generated
overseas, the Company, under MKG, is considering many options with regard to
manufacture, both in the U.S. and overseas, including China, India, and
Mexico.  There can be no reasonable assurances that such efforts will
be successful.





If Our Single Source
Suppliers are Unable to Deliver, Our Business Would Suffer





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 device and its 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 device as planned.  Our dependence upon third
parties for the manufacture and supply of our device and components may
significantly and adversely affect our ability to attain profitability and our
ability to manufacture and deliver our device on a timely and competitive
basis.





We May Not be Able to Apply
Our Technology to Other Uses and Products





We cannot
assure you that our technology will be approved and accepted for breast cancer
screening or for the detection of other cancers.  Furthermore, we also
cannot assure you, even if we can develop any new products or uses for our
current device that such products or uses would be approved by the FDA or by any
comparable foreign regulatory bodies, or would be commercially
viable.





Our Device Will Be Subject
to Continuing Review by the FDA Which Could Impact On Our Ability to Sell It in
the Future





Any
changes to our device or the manner in which it is used after it is 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.








8





A Failure of Our Contract
Manufacturers to Comply with FDA Regulations Would Impact on Our Ability to Sell
Our Device





We cannot
assure that our manufacturers will be in compliance with the FDA's quality
system regulations and good manufacturing practices, when the FDA inspects them,
or that they will continue to maintain this compliance. A failure to maintain
compliance could significantly delay approval of our pre-market application to
the FDA for our device or prevent us from marketing it 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 cannot
assure you that the foreign regulatory approvals that we have received, which
allow us to sell the prior version of our device in certain foreign countries,
will not be withdrawn or that our redesigned device, when completed, will
receive regulatory approval. Our failure to continue to maintain these approvals
or to obtain any additional foreign approvals could have a significant adverse
effect on our business.





Changes to Health Care
Reimbursement Regulations and Practices 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 generate reasonable profit. In addition, we
also cannot assure you that the U.S. government or foreign governments will not
implement a system of price controls.  Any change in the existing
system might significantly affect our ability to market our products
profitably.





Health Care Insurers May Not
Reimburse for the Use of Our Products





Governmental
health authorities, private health insurers and other organizations may not
approve the cost for the use of our device as an authorized medical expenditure
under their programs, which would severely restrict the marketability of our
device.





Certain Foreign Governments
May Not Give Reimbursement Code for Our Device





Government
health authorities, especially in the countries where most of the reimbursements
flow through government agencies, may not provide us with a reimbursement code,
which is required for claiming the cost for the use of our device from
government agencies.  If we are unable to obtain such reimbursement
codes in major markets, marketability of our device may be severely
restricted.





We Expect to Encounter
Difficulty in Hiring Required Personnel and the Loss of any Key Personnel Could
Adversely Affect our Operations





As a
small medical technology company, we are heavily dependent upon the talents of
key personnel.  Due to lack of funding, we are unable to pay current
salaries, and thus retention of employees is a difficult.  We use
services of some of the ex-employees as consultants when we have the cash and if
they are available to perform the required services.  Competition for
qualified personnel in the medical device and 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 will be significantly adversely affected.





Our Results of Operations
May Suffer if Foreign Trade is Restricted or Foreign Regulations are
Modified





Until we
receive approval from the FDA to market our device in the United States, 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 and our ability to achieve profitable operations.  Future
impositions 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.








9





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 device, as well as any other products that 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 inability to
successfully compete in the industry would have a significant adverse effect on
our business.





Our Device 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 device
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 our device.  Commercial
availability of any new product could render our device obsolete, which would
have a significant adverse effect on our business.





Product Liability Claims in
Excess of the Amount of Our Insurance Could 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 our
device does not purport to diagnose any patient, we cannot assure you that we
will not be subjected to future claims and potential liability. We cannot assure
you that claims against us arising with respect to our device will be
successfully defended or that any insurance which we then carry will be
sufficient to cover liabilities arising from these claims.  A
successful claim against us in excess of any insurance coverage, which we may
have, 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 obtain or maintain liability insurance on acceptable
terms.





Our Contract Manufacturers
Use Potentially Hazardous Materials, the Replacement of Which Could Affect Our
Costs





Although
we do not manufacture any of our products, we understand that various cleaning
solvents, used in connection with the contract manufacture of our products, may
contain potentially hazardous materials.  As a result, our contract
manufacturers, in the future, could become subject to stringent federal, state
and local laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal of
these materials.  We cannot assure you that we will not incur
significant future price increases imposed by our contract manufacturers to
comply with environmental laws, rules, regulations and policies, or that our
business will not be significantly and adversely affected by current or future
environmental laws, rules, regulations and policies or by any releases or
discharges of hazardous materials.





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 patents will not be
invalidated or that our patents 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 is 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 currently do not have
adequate financial resources required toenforce, through litigation,our intellectual property rights.  In addition, litigation
could result in a substantial diversion of managerial time and resources, which
could adversely affect our business.








10





Our Device May Infringe
Third Party Intellectual Property Rights





Other
companies may have obtained other proprietary rights to technology that may be
potentially useful to us. It is possible that a third party could successfully
claim that our device or its components infringe on its 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 that we
could afford and we may not have the ability to timely redesign our device. If
we are required to pay material damages or are unable to obtain these rights or
are unable to successfully redesign our device at a reasonable cost, 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 Our
Stockholders





MKG owns
a majority of the outstanding voting securities and can determine the election
of our directors, and as a result, our policies and the outcome of all important
matters that 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 Lack Independent
Directors





We cannot
assure you that our Board of Directors will have any independent
directors   In the absence of a majority of independent
directors, our Board of Directors could establish policies and enter into
transactions without independent review.  This presents the potential
for a conflict of interest between MKG, management, and our stockholders, and
may increase our difficulty in raising necessary financing.  In
addition, we cannot establish an audit committee or compensation committee
without independent directors, which could prohibit us from listing our shares
of common stock for trading on a recognized national securities exchange or on
any electronic exchange regulated by NASDAQ.  MKG, intends to
restructure the Company’s board of directors in the future to bring recruit
independent directors to preserve or prepare for future potential listing
opportunities.  There can be no reasonable assurances that such
efforts will be successful.





WeHave Issued 12,300,000
shares ofPreferred Stock





The
Company issued 12,300,000 shares of voting preferred stock of the Company to Mr.
MacKay to consummate the conversion of the Converted Debt.  Each share
of voting preferred stock entitles the holder thereto to two (2) votes. For a
description of the Series A Preferred Stock, see the Company’s Form 8-K filed
January 23, 2008.





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 to the interests of our
stockholders, and also could limit the price certain investors might be willing
to pay for shares of our common stock.








11





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.





If We Fail to Remain Current
on Our Reporting Requirements, We Could be Removed
from the OTC Bulletin Board, We Could be Investigated by the SEC or We Could
Incur Liability to Our Shareholders.





Companies
trading on the OTC Bulletin Board, such as us, must be reporting issuers under
Section 12 of the Securities Exchange Act of 1934, as amended, and must be
current in their reports under Section 13, in order to maintain price quotation
privileges on the OTC Bulletin Board. If we fail to remain current on our
reporting requirements, we could be removed from the OTC Bulletin Board. As a
result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary market.
Failure to remain current in our reporting obligations might also subject us to
SEC investigation or private rights of action by our shareholders.





Our Common Stock is Subject
to the "Penny Stock" Rules of the SEC and the Trading Market in Our
Securities is
Limited, Which Makes Transactions in Our Stock Cumbersome and May Reduce the
Value of an Investment in Our Stock.





The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain
exceptions.  For any transaction involving a penny stock, unless
exempt, the rules require:





·
            that
      a broker or dealer approve a person's account for transactions in penny
      stocks;


·
            and
      the broker or dealer receive from the investor a written agreement to the
      transaction, setting forth the identity and quantity of the penny stock to
      be purchased.





In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:





·
            obtain
      financial  information and investment  experience
      objectives of the person; and


·
            make
      a reasonable determination that the transactions in penny stocks are
      suitable for that person and the person has
      sufficient  knowledge and experience in
      financial  matters to be capable of evaluating the risks of
      transactions in penny stocks.





The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:





·
            sets  forth  the  basis  on  which  the  broker  or  dealer  made  the
      suitability determination; and


·
            that
      the broker or dealer received a
      signed,  written  agreement from the investor prior to
      the transaction.





Generally,
brokers may be less willing to execute transactions in securities subject to the
"penny stock" rules.  This may make it more difficult for investors to
dispose of our common stock and cause a decline in the market value of our
stock.





Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions.  Finally, monthly statements have
to be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks.





Stock Issued by the Company
is Subject to Rule 144 of the Securities Act of 1933





Stock
issued by the Company is subject to Rule 144 of the Securities Act of 1933 and
the restrictions therein.








12





In
addition to the above risk factors, see the risk factors set forth in the
Company’s Form 10-KSB for fiscal year ending December 31, 2007 filed April 15,
2008.  These include risks associated with the political and economic
environment, foreign currency exchange and the legal system in foreign
countries. The economy of China and other foreign countries differs
significantly from the economies of the western industrialized nations in such
respects as structure, level of development, growth rate,
capital   reinvestment, repatriation, resource allocation,
self-sufficiency, rate of inflation and balance of payment positions, among
others. While certain foreign governments such as China have enacted laws
encouraging foreign investment, it remains to be seen how uniformly they will be
enforced and interpreted.





As to
China, a major focus of the Company, under MKG, the Chinese economy has
experienced significant growth in the past several years, but such growth has
been uneven among various sectors of the economy and geographic
regions.  Such development and growth may present risks to entities
operating in China.  Because of the challenges created by such growth,
the Chinese government has indicated and taken certain steps to control such
growth and address such challenges. Actions by Chinese government to control
inflation, for example, have restrained economic expansion in the recent past
across several industrial sectors.  Similar and continued actions by
the Chinese government in the future could have a significant adverse effect on
domestic economic condition in China. There can be no reasonable assurances that
there will not be any changes respecting Chinese government, economy, laws, and
regulation which may adversely affect the Company.





ITEM
2.  PROPERTY.





As of May
2007, the Company moved its corporate headquarters from King of Prussia,
Pennsylvania to 1615 Walnut Street, 3rd and 4th Floors, Philadelphia,
Pennsylvania, following the Company’s default under the King of Prussia office
lease in March 2008.  For 2008, the rent was approximately,
$42,000.  Until June 2007, the Company subleased space at the
Alpharetta facility, and was paying month to month rent, to maintain inventory
and clinical, device and other files.  In June 2007, pursuant of a
3-year lease, the Company relocated all of its operations to a new office in
King of Prussia, Pennsylvania.  The monthly rent for the King of
Prussia office was approximately $4,000 including utilities.





ITEM
3.  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 is in process
of working out any remaining issue with the Landlord.





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
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.





None.





13


PART
II





ITEM
5.  MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS


AND
ISSUER PURCHASES OF EQUITY SECURITIES.





MARKET
INFORMATION





Our
common stock, par value $.001 per share, was quoted on the Pink Sheets
Electronic Market, Inc. currently; our common stock is listed in the "Pink
Sheets" published by Financial Insight Systems, Inc.





The
following table sets forth the high and low per share daily closing sales prices
for our common stock as reported by the Pink Sheets Electronic Market, Inc for
the periods indicated.





YEAR
      ENDING DECEMBER 31, 2008
              High
              LowFirst
      Quarter
              0.15
              0.11Second
      Quarter
              1.60
              1.10Third
      Quarter
              1.20
              0.30Fourth
      Quarter
              0.50
              0.04YEAR
      ENDING DECEMBER 31, 2007First
      Quarter
              0.20
              0.02Second
      Quarter
              0.10
              0.06Third
      Quarter
              0.38
              0.07Fourth
      Quarter
              0.28
              0.11





On March
23, 2009, the closing sale price for our common stock was $0.20 per share, as
reported by the Pink Sheets Electronic Market, Inc.





HOLDERS





As of
March 23, 2009, there were 256 holders of record of our common stock, including
Cede & Co., who held 20,207,465 shares for an undisclosed number of
beneficial holders.





DIVIDENDS





We have
not declared or paid any dividends since our inception, and do not intend to pay
any cash dividends in the foreseeable future, although we have not entered into
any agreement which restricts our ability to pay dividends.  We
currently anticipate that we will retain all earnings, if any, for use in the
operation and expansion of our business.





TRANSACTIONS
INVOLVING UNREGISTERED SECURITIES





As
discussed in more detail in the above “debt conversion” section and in the
Company’s Form 8-K filed January 23, 2008 and the Form SC 13D filed January 28,
2008, in accordance with the Long Agreement on January 17, 2008, the Company
issued 9,994,550 shares of common stock and 12,300,000 shares of Series A
Preferred Stock of the Company to James MacKay to consummate the conversion of
the Converted Debt.  Each share of voting preferred stock entitles the
holder thereto to two (2) votes.





Pursuant
to employment agreements with David Bruce Hong, Shepard G. Bentley, Steven M.
Waszak, and Shiva Sharareh, PhD, the Company has agreed to issue 250,000,
2,500,000, 2,000,000, and 2,000,000 shares of common stock,
respectively.





On March
4, 2009, The Company issued and sold 880,000 shares of common stock and issued
2,813,333 shares of common stock upon conversion of $422,000 of
debt.





REPURCHASES
OF SECURITIES





None.








14





ITEM
7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS.





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-KSB for 2006
and 2005 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.





THE COMPANY’S FOCUS ON FOREIGN
MARKETS UNDER MKG





Prior
management’s focus was on securing U.S. FDA approval to distribute the BDS in
the U.S. Under MKG, the Company has reoriented its energies towards generating
sales in foreign markets 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.  Included among the foreign markets are China (including
Hong Kong, Taiwan and Macau), India, the Philippines, Indonesia, Malaysia,
Singapore, Vietnam, and other parts of Asia, Mexico, Latin America, the
Caribbean, Africa, Europe, and the Middle East.  The initial countries
MKG are focusing on account for approximately one half of the world’s female
population.  As articulated in the October 15, 2007 Time Magazine
article, MKG recognized from the outset that breast cancer is no longer an
affliction which only concerns certain segments of women in the U.S. and Western
Europe but is tragically a global challenge.  Given the nature of the
BDS, the Company believes that the BDS can play a role to help save lives in
foreign countries, which for a variety of reasons may not have the detection
technologies present in the U.S. and Western Europe.





Since
2007, MKG has been working with leading government, medical, distribution, and
manufacturing representatives, agencies, and institutions in China, India, the
Philippines and other parts of Asia to incorporate the BDS as part of early
detection and awareness initiatives. Since 2007, MKG has also been working with
those representatives, agencies, and institutions to manufacture the BDS device
and sensors overseas; to conduct clinical trials, including joint U.S.-Asian
trials; to further develop the BDS device and sensors for screening purposes;
and to further develop the BDS device and sensors for cancers other than breast
cancer.





MKG
Initiatives in Foreign Markets





In 2007,
MKG continued to meet with significant government, healthcare, distribution, and
manufacturing contacts to distribute, manufacture, and develop the BDS in
foreign markets. MKG strategy is to form strategic alliances, in the form of a
joint venture or sublicense, with entities with significant funding, government
relationships and distribution networks, especially those associated with
hospital systems, regulatory expertise, and manufacturing capabilities. The
joint venture assumes all responsibilities and expenses within the designated
territory to distribute the BDS, secure regulatory approval for the BDS, conduct
clinical trials and development, and in some cases to manufacture the
BDS.





To help
ongoing strategic initiatives in Asia, the Company and MKG opened an office in
Hong Kong in April 2008. The office oversees and is responsible for our ongoing
demonstrations and our sales, regulatory, and other strategic initiatives in
Asia, including the People’s Republic of China, Hong Kong, Taiwan, India, the
Philippines, Japan, Indonesia, South Korea, Vietnam, Singapore, and
Malaysia.  The new office is located at 3412, China Merchants Tower,
168-200 Connaught Road, Sheung Wan, Hong Kong. The new office is headed by David
Hong, who will head Biofield operations for all of Asia.





China





In 2007,
MKG had discussions with representatives of Chinese government, including those
associated with China’s state and military hospitals, about potential orders of
the BDS and sensors.  Chinese representatives expressed significant
interest in the BDS and discussed, among other things, potential orders for
Chinese hospitals; designating top Chinese medical institutions and doctors to
work with the Company on additional clinical trials and R&D including joint
U.S.-Chinese trials and including on screening and cancers other than breast
cancer; incorporating the BDS into Chinese early detection initiatives and a
cancer fund established for the indigent.








15





From the
middle of 2007 to the first part of 2008, significant discussions occurred in
Shanghai, Beijing, Hong Kong, Guangdong Province, Tianjin, Guangxi Province,
Taiwan and Macau with leading Chinese healthcare bureaus, officials, medical
institutions, and physicians.  Successful demonstrations were
conducted in Shanghai, Beijing, and Hong Kong.  Several Chinese
government and hospital representatives also attended the Company’s well
received breast cancer symposium in Manila in the fall of 2007. In March-April
2008, an initial demonstration of the BDS was successfully conducted in Shanghai
at the facilities of a division of Chinese government organization which is a
leading testing center in Shanghai involved with reviewing and bringing new
healthcare technologies to China.  Additional demonstrations are
planned in Shanghai for training, studies and data collection-related
purposes.  The Company has received significant interest from leading
Chinese entities interested in distributing the BDS in China and is evaluating
each opportunity.  Upon recertification of the CE mark, the Company
intends to obtain FDA certification for China.  The Company believes
that orders for the BDS device and sensors will be placed in China following FDA
approval.  The Company is working with leading Chinese representatives
to secure the governmental authorization to distribute and possibly manufacture
the BDS device and sensors in China.





In
April-May 2008, demonstrations of the BDS were conducted in Shanghai before
Shanghai Jiashen Lifecare Investment Management Company Limited (CareLife) at
the Shanghai International Medical Exchange Centre, a division under the
Shanghai Municipal Health Bureau (SIMEC), a leading testing center in Shanghai
for new medical technologies for China. Patients with known malign and benign
tumors were tested; each time BDS accurately identified the nature of the tumor.
A follow-up trip was arranged to train doctors and technicians closely related
to SIMEC and to begin to collect data for studies in Shanghai, China’s largest
city considered the heart of China’s medical community.





As result
of the Shanghai demonstrations, MKG has signed a memorandum of understanding
(MOU) with Carelife’s appointed agent, China International Medical Exchange Ltd
(CIME), to form a joint venture in China with Carelife.  Carelife
works with the Shanghai Municipal Health Bureau and leading Chinese medical
testing centers, insurance companies, financial institutions, businesses
(domestic and foreign), hospitals, and doctors to provide healthcare coverage
for persons referred by banks and insurance companies in China and is setting up
medical centers throughout China. One of Carelife’s focuses is to provide health
coverage for cancer. Carelife is also setting up an electronic data collection
system to collect critical medical data to help early detection.





The
closing documents were executed at the June 16 signing ceremony covered by media
in mainland China and Hong Kong for the new Chinese national healthcare JV
arranged by James MacKay and MKG -- Worldwide Lifecare Limited (the Carelife JV)
-- which will provide Biofield’s Breast Cancer technology and other
comprehensive medical technology and services in China.





The Carelife JV will open a network
across China of medical clinic centers, call centers and data centers for
research and development. The first medical clinic center will open inFebruary2009at Carelife’s China Headquarters in
Shanghai.Carelife is
currently in discussions regarding a possiblepartnership with China’s National
Labor Unionwhich would
befunded with an
investment by Chinese Government and others of approximately US $363million to open more than
500 medical clinic centers across Chinaat different Labor Union centers
covering 60% of China’s urban population.This national networkwouldbe part of China’s national healthcare
program to instill best healthcare management practices and to address critical
problems related to its aging population.China’s top insurance companies (China
Life Insurance and Ping An Insurance) and top bank, China Industrial Commercial
Bank, have agreed to refer subscribers, employees, and clients to join the
Carelife network.





The
Carelife JV will provide Biofield’s BDS technology, among others, through this
national 500+ medical clinic center network. The medical clinic centers will
also introduce BDS to hospitals and government-owned medical care units for
China’s general population. Carelife’s target diagnostic penetration rate in
urban China is 20% - representing at least 25 million diagnoses per
year.





Extensive
discussions are taking place with the Chinese Ministry of Health and Chinese
Food and Drug Administration to form a strategic alliance between them and MKG
which would expand the distribution of the BDS device and sensors in China from
the 500 Bio Centers to China’s state-owned and military hospitals.





MKG has
also signed a Joint Venture and Exclusive Distribution Agreement with Fame Star
Investment Limited (FSIL) to form a new JV, the MacKay Medical Group Limited
(“MKMG”) for the distribution, testing, and further development of the BDS and
other medical technology in Hong Kong and Macau. With FSIL’s strategic
relationships within the healthcare community in Hong Kong and Macau, the new JV
will work with, and distribute BDS to, leading clinical testing centers,
hospitals, and medical institutions in Hong Kong to prepare a medical study and
clinical trial for BDS.








16





India





Since
2007, MKG has had discussions with hospital, medical and distribution
representatives from India, including those associated with certain national,
regional and municipal government entities and leading hospital systems and
distribution networks in India, about the distribution of the BDS in India.
Following the successful demonstration of the BDS at the October 24, 2007 major
breast cancer detection symposium in Manila, which was attended by leading
Indian representatives, there was significant interest from Indian
representatives about potential significant orders and about distributing and
securing regulatory approval for the BDS in India and other countries in the
Indian subcontinent including Nepal and Bangladesh. The Company expects to
conclude a distribution arrangement in India in or about the middle of 2009 and
to generate purchase orders for 2010.





The
Philippines, Indonesia and Malaysia





In 2007,
MKG had repeated meetings with, and have conducted demonstrations for,
significant government, church, healthcare, and distribution representatives in
the Philippines. On March 8, 2007, MKG delivered a BDS device and three cases of
sensors to a hospital in the Philippines.  The hospital has started to
take the unit to the provinces as part of their mobile health systems
services.  MKG believes that the Filipino Government and the Catholic
Church in the Philippines will publicly endorse the BDS as part of national
initiatives promoting early detection of breast cancer.  In 2007
certain bills were introduced before the Filipino Congress (S.B. No. 78, The
Breast Cancer Detection Act of 2007, and S.B. 1815, an Act Creating a Center for
Breast Cancer Control and Prevention), which would require local government
units to conduct a quarterly breast cancer detection program and would establish
the Center for Breast Cancer Control and Prevention.





In
October 2007, MKG formed a joint venture with Eastern Petroleum Corporation, one
of the leading business and petroleum companies in the
Philippines.  The joint venture is called the MacKay Eastern Medical
Group (“MacKay Eastern”) and will bear the exclusive responsibility and expense
to distribute, market, gain regulatory approval for, and further develop the BDS
and related technologies in the Philippines, Indonesia and
Malaysia.  In October 2007, an initial order of 10 devices and 20
cases of sensors was sold and delivered to the joint venture.





On
October 24, 2007, the joint venture presented the BDS at a major breast cancer
detection symposium in Manila attended by approximately 200 guests, including
representatives from 100 of the top hospitals and medical institutions in the
Philippines and government and industry representatives from the Philippines,
China and India.  Following the successful demonstration of the BDS at
the October 24, 2007 major breast cancer detection symposium in Manila,
discussions are taking place about potential orders for 2009
delivery.





In late
2007 through the middle of 2008, MacKay Eastern began launching and conducting
demonstrations and testing of the BDS device and sensors in parts of the
Philippines.  In December 2007, MacKay Eastern launched the BDS device
and sensors in General Santos City.  In 2007, it also began working
with certain hospitals and clinics in the Philippines.  Since late
2007, MacKay Eastern has worked closely with leading national and city
representatives regarding government initiatives to provide breast cancer
detection for government employees.





The
Company anticipates receiving purchase orders for the BDS devices and sensors in
2009, including from representatives associated with national, city, and
municipal Filipino government, including the Congress of the
Philippines.  These potential purchase orders would be associated with
the possible enactment of the new breast cancer detection legislation and
national initiatives discussed above by the Congress of the Philippines, which
believes that the Company and its technology can play a significant role in the
national initiatives.





Mexico





In
January 2007, on behalf of the Company, certain representatives successfully
conducted patient demonstrations and seminars of the BDS in Mexico City before
more than 50 OB/GYN and other physicians, nurses, officials, and representatives
from leading hospitals, clinics, laboratories, pharmaceutical companies, and
other health providers based in Mexico and other countries in Latin America. The
demonstrations and seminars were conducted by a noted physician in Mexico City
on female patients with pre-confirmed malignant and benign tumors. Biofield’s
device tested successfully in the patient demonstrations, generating substantial
interest among Mexican OBY/GYN and healthcare communities. The purpose of the
demonstrations and seminars was to introduce Biofield’s technology to leading
opinion makers in the Mexican healthcare community and to seek to secure
purchase orders for the device and sensors. Subsequent meetings and discussions
have taken place with leading hospitals, clinics, physicians, and other opinion
leaders in Mexico, many of which also have clinics, stores, or other facilities
in other Latin American countries. Presentations of Biofield’s technology were
also made on Mexican TV.   (See Company’s press release dated
February 23, 2007, a copy of which is available online at
www.biofield.com.)








17





Continued
discussions have taken place with the Mexican representatives who conducted the
Mexico City demonstration (as well as with other
representatives).  Discussions have taken place about sublicensing the
BDS for Mexico and Spanish-speaking countries in Latin America, purchase orders
for the BDS devices and sensors and securing regulatory approval and
establishing manufacturing facilities for the BDS in
Mexico.  Significant interest has been generated from
Mexico.  MKG has been discussing sublicense arrangements with certain
Mexican representatives who were proceeding to secure the necessary funding to
conduct manufacturing, distribution and regulatory approval in
Mexico.





The
Singapore Sale





On
February 28, 2007, Biofield sold a BDS device and three cases of sensors to
leading distributor in Singapore. The gross proceeds totaled
$24,950.  The distributor is an industry leader in Singapore in
biomedical engineering, which serves all the major medical centers and hospitals
in Singapore.  The end user is a nationally and internationally
acclaimed institution in Singapore, which is recognized as an innovator for
cutting edge technologies, including those in the biomedical science industry
and medical device field, and for its commitment to public and community
service. The sale was the result of a tender which was awarded to the
Company.  In addition to using the BDS for diagnostic purposes, the
end user is conducting significant research which may impact the use of the BDS
for screening purposes.  The distributor believes its clients may be
interested in buying the BDS devices and sensors. (See Company’s press release
dated February 28, 2007, a coy of which is available online at
www.biofield.com.)





Other
Foreign Markets





Since
2007, MKG has had discussions with representatives in other foreign countries
concerning South Africa, Japan, and other countries in the Middle East and
Africa.  The Company under prior management presented the BDS to
leading government, hospital, and medical representatives from South Africa,
including First Lady Mbeki.  During the same trip, the Company met
with leading government representatives from Botswana.  Significant
interest was received including interest about transporting the BDS through
mobile van units.  There are currently several BDS devices in South
Africa.  The Company has also conducted demonstrations for leading
Japanese representatives. One of the Company’s prior clinical trials took place
in Japan.  Discussions have also taken place about distributing the
BDS in Middle Eastern countries such as Iraq, Saudi Arabia, United Arab
Emirates, Kuwait, Jordan, and Lebanon.





In
November 2008, MKG signed a Joint Venture and Distribution Agreement to form The
MacKay Distribution Limited (MKDL) for the European market. MKDL has since been
in extreme close negotiations with a major Spanish Medical Distribution Group
for Spain and Portugal. Since then, one demo unit was sent to the Spanish
company for testing purposes and both entities have agreed to roll out a BDS
road show within Spain during mid 2009 after the CE
re-certification.  Pending CE re-certification, the Company
anticipates receiving orders for the BDS devices and sensors in late 2009.





The
MKG Master License





As reported in and attached to its Form
8-K filed July 31,2007,
the Company signed a master license agreement (the “Agreement”) with
MKG.Pursuant
to the Agreement, the Company granted to MKG an exclusive (even to the Company),
sub licensable, royalty-bearing, worldwide license to make, have made, use,
import, offer for sale, and sell devices, sensors and other products or services
incorporating the Company’s patented and unpatented breast cancer detection
technology, including, but not limited to, the BDS, the Biofield Breast Cancer
Proliferation Detection System, the Breast Cancer Diagnostic Device, and the
Biofield Breast Examination or BBESM  (collectively, the
“Technology”).  The Company also granted MKG, on a worldwide basis,
the Exclusive Distribution, Manufacturing, Development, Clinical, and R&D
Rights (as those terms are defined in the Agreement) with regard to the
Technology. Under the Agreement, MKG assumes from the Company the sole
responsibility and expense to market, manufacture, further develop (clinically
and technically), and otherwise commercialize the Technology. MKG further
assumes from the Company the sole responsibility and expense to secure
additional regulatory approvals and to conduct additional clinical trials, as
well as research and development.  MKG will also make commercially
reasonable efforts to, among other things, further develop the Technology for
screening, as opposed to purely diagnostic, purposes and for cancers other than
breast cancer.








18





In return
for the exclusive worldwide license, MKG will pay the Company royalties based on
gross receipts received by MKG and its affiliates in connection with the
Technology. MKG must pay minimum royalties. In addition to royalties, MKG will
pay the Company licensing fees based upon certain milestones. The term of the
Agreement is 10 years with automatic renewals for additional 10-year terms
unless terminated by one of the parties pursuant to the terms of the
Agreement.





MKG and
the Company have discussed transferring to the Company a majority interest in
the entity that holds the master license agreement. No agreement has been
reached pending resolution of the consideration to be paid to MKG and
satisfactory resolution of the tax, regulatory and other issues in the U.S. and
Asia.





Developments
in the U.S.




On
September 18, 2008, the board of directors of Biofield Corp., a Delaware
corporation ("Biofield") approved the execution of an Exclusive Distribution
Agreement with NeuroMed Devices, Inc., ("NeuroMed Devices") a Nevada corporation
with principal offices at Oakley, Utah and Laguna Niguel, California,
USA.




Under the
terms of the Exclusive Distribution Agreement, Biofield obtained exclusive
worldwide distribution rights to NeuroMed Devices’ OraCalm (for oral herpes) and
ViraCalm (for genital herpes) non-invasive medical devices for the treatment of
oral and genital herpes. During the three year term of the Exclusive
Distribution Agreement Biofield must meet certain performance minimums in order
to retain exclusivity. Biofield believes it will be able to meet these
performance minimums and extend the initial term of the Exclusive Distribution
Agreement prior to its expiration.




OraCalm
and ViraCalm devices employ non-invasive neuromodulation techniques.
Neuromodulation is a noninvasive treatment modality in which a unique
combination of electrical signals, frequencies and waveforms are transmitted to
higher centers in the brain using a patented mechanism. This unique technology
encourages the manufacture and secretion of brain neurochemicals using a
mechanism that cannot be simulated by drugs or conventional electrotherapy
devices.




Neuromodulation
technology relies on a sophisticated frequency pattern that uses carefully
calculated patterns of changing frequencies. The term Neuromodulation is used to
describe two very different treatment approaches, one invasive, the other
non-invasive.




Invasive
Neuromodulation - refers to the surgical implant of electrodes in the brain or
elsewhere in the body.




Non-Invasive
Neuromodulation - refers to the use of electrodes outside the body with no
surgery or implantation of any device within the body.




NeuroMed
Devices entered into the Exclusive Distribution Agreement with Biofield because
of Biofield’s access to Asian and other worldwide markets to commercialize these
two devices once the applicable regulatory approvals have been obtained.
NeuroMed Devices’ regulatory path for both devices will be to seek FDA approval.
"Over-the-Counter" approvals will also be sought so that a physician's
prescription will not be necessary for the purchase of these devices. In
addition to U.S. regulatory approvals, NeuroMed Devices plans to seek a CE Mark
for Europe, as well as regulatory approvals elsewhere worldwide. Currently,
regulatory approvals and intellectual property protection are in progress in
Hong Kong and the Peoples Republic of China via several mechanisms including the
China Counsel for Promotion of International Trade, the Chinese equivalent of
the FDA.




Patents
on the technology for both the Oral and Genital Herpes devices, and Method of
Treatment, were filed with the United States Patent and Trademark Office in
November 2000. The international filing date was November 2001. Patent
application No. 6,618,625, "Method and Apparatus for the Treatment of Viral
Diseases" was issued on Sept 9, 2003 (Silverstone, 2003). Publication date of
the continuance was September. 2004. The European patent # 1359971 was approved
on July 2006 and has been issued in FRANCE, GERMANY, ITALY, SPAIN and the UNITED
KINGDOM. The AUSTRALIAN patent application, # 2001298007, was issued on May 25,
2007. The INDIAN patent application, No. 624/KOLNP/03, was issued April 2, 2008.
NeuroMed Devices awaits results of patent applications elsewhere.








19





LONG-TERM
STRATEGY AND GOALS





The long
term strategy and goal of the Company is to become a leading provider of
state-of-the-art medical and healthcare-related technology throughout the
world.  The Company’s immediate goal is the distribution and
manufacture of the BDS in foreign markets and subsequently in the U.S. upon
securing U.S. FDA approval.  The Company is also working with medical
experts in the U.S., Asia, the Middle East, and Europe on advanced medical and
healthcare-related technologies other than the BDS, which MKG can use its
government and industry relationships in Asia and elsewhere to distribute,
manufacture and further develop.  While many of these other
technologies relate to women’s health and non-invasive technologies, other
technologies relate to fields such as hospital and data management, emergency or
triage management, diabetes, obesity, and childhood diseases and
care.





On the
BDS, the Company’s goal is to exploit MKG’s government, medical, distribution,
manufacturing and other relationships overseas to develop the BDS as a leading
breast cancer detection modality outside the U.S.  The initial focus
is on China, India, the Philippines, Indonesia, Malaysia, and
Mexico.  The Company plans to extend its marketing efforts to other
parts of Asia, Latin America, the Caribbean, Africa, Europe, and the Middle
East.  With sales, acceptance and support from leading government,
medical, and industry representatives, clinical trial results, and further
research and development from those countries, the Company intends to reinitiate
efforts before the U.S. FDA to distribute the improved version of the BDS in the
U.S.




In order
to expand revenue generation activities, the Company has secured and intends to
explore other opportunities to acquire rights to distribute additional medical
products.  On September 18, 2008, the Company entered into an
Exclusive Distribution Agreement with NeuroMed Devices, Inc. with principal
offices at Oakley, Utah and Laguna Niguel, California, USA. Biofield obtained
exclusive worldwide distribution rights to NeuroMed Device’s OraCalm (for oral
herpes) and ViraCalm (for genital herpes) non-invasive medical devices for the
treatment of oral and genital herpes. During the three year term of the
Exclusive Distribution Agreement Biofield must meet certain performance minimums
in order to retain exclusivity. Biofield believes it will be able to meet these
performance minimums and extend the initial term of the Exclusive Distribution
Agreement prior to its expiration. OraCalm and ViraCalm devices employ
non-invasive neuromodulation techniques. Neuromodulation is a noninvasive
treatment modality in which a unique combination of electrical signals,
frequencies and waveforms are transmitted to higher centers in the brain using a
patented mechanism. This unique technology encourages the manufacture and
secretion of brain neurochemicals using a mechanism that cannot be simulated by
drugs or conventional electrotherapy devices.




Neuromodulation
technology relies on a sophisticated frequency pattern that uses carefully
calculated patterns of changing frequencies. The term Neuromodulation is used to
describe two very different treatment approaches, one invasive, the other
non-invasive. Invasive Neuromodulation - refers to the surgical implant of
electrodes in the brain or elsewhere in the body. Non-Invasive Neuromodulation -
refers to the use of electrodes outside the body with no surgery or implantation
of any device within the body.




NeuroMed
Devices entered into the Exclusive Distribution Agreement with the Company
because of the Company’s access to Asian and other worldwide markets to
commercialize these two devices once the applicable regulatory approvals have
been obtained. NeuroMed Devices’ regulatory path for both devices will be to
seek FDA approval. "Over-the-Counter" approvals will also be sought so that a
physician's prescription will not be necessary for the purchase of these
devices. In addition to U.S. regulatory approvals, NeuroMed Devices plans to
seek a CE Mark for Europe, as well as regulatory approvals elsewhere worldwide.
Currently, regulatory approvals and intellectual property protection are in
progress in Hong Kong and the Peoples Republic of China via several mechanisms
including the China Counsel for Promotion of International Trade, the Chinese
equivalent of the FDA.




Patents
on the technology for both the Oral and Genital Herpes devices, and Method of
Treatment, were filed with the United States Patent and Trademark Office in
November 2000. The international filing date was November 2001. Patent
application No. 6,618,625, "Method and Apparatus for the Treatment of Viral
Diseases" was issued on Sept 9, 2003 (Silverstone, 2003). Publication date of
the continuance was September. 2004. The European patent # 1359971 was approved
on July 2006 and has been issued in FRANCE, GERMANY, ITALY, SPAIN and the UNITED
KINGDOM. The AUSTRALIAN patent application, # 2001298007, was issued on May 25,
2007. The INDIAN patent application, No. 624/KOLNP/03, was issued April 2, 2008.
NeuroMed Devices awaits results of patent applications elsewhere.








20







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
December 31, 2008, we had a working capital deficiency of approximately $10.0
million, an increase of $2.4 from December 31, 2007. Our cash and cash
equivalents were $0 at December 31, 2008, as compared to $13,328 at December 31,
2007.





At
December 31, 2008 and 2007, we had no value on the balance sheet for the
inventory, as a full reserve has been recorded.





During
2008, we had a net loss of approximately $11.1 million, compared to
approximately $1.3 million for 2007, an increase of approximately $9.8 million.
The increase was primarily due to the Company’s issuance of $8,667,009 of common
stock, in lieu of cash compensation, to Directors and Officers, in efforts to
update the design of BDS device and sensors for distribution and manufacture in
China, the Philippines and other parts of Asia. During the year ended December
31 2008, our net cash used in operating activities was approximately $0.5
million, compared to approximately $1.0 million for the year ended December 31,
2007, a decrease of approximately $0.5 million.  The decrease was
primarily due to cost of common stock issued for services, an increase in
accounts payable and accrued expenses offset primarily by the net
loss.





During
the year ended December 31, 2008, accrued expenses increased to approximately
$2.1 million, from approximately $0.4 million at December 31, 2007, an increase
of approximately $1.7 million or 425%.  The increases were primarily
due to accrued legal expenses of approximately $650,000, as well as accrued
compensation for management, of approximately $1 million.





During
the year ended December 31, 2008, we had depreciation and amortization in
connection with operating activities of $1,390 compared to $816 for the year
ended December 31, 2008, an increase of $574.





Cash
Flows Activities





During
2008, our operating activities utilized $503,308, which included a net loss of
$11,091,561, offset by the non-cash issuance of $8,667,010 in common stock, in
lieu of cash compensation, to Directors and Officers, in efforts to update the
design of BDS device and sensors for distribution and manufacture in China, the
Philippines and other parts of Asia. There were no investing activities during
the fiscal year ended December 31, 2008. Our financing activities provided
$489,980.  We had proceeds from bank overdraft of $9,912, issuance of
notes payable of $187,058, borrowings on line of credit of $76,740, as well as
advances of stockholder and related parties of $216,270.





During
2007, our operating activities utilized $969,487 of net cash, our investing
activities utilized $6,948 and our financing activities provided $987,402 of net
cash, representing proceeds of issuance of notes payable of $66,808, proceeds of
issuance of common stock of $100,000, proceeds from borrowings on line of credit
of $342,180, proceeds from notes financing costs of $281,805 and advances
aggregating $196,609 from certain of his affiliates and MKG,
respectively.





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 engaged in several discussions with significant
funders, although we currently have no commitments for
financing.  There is no guarantee that we will be successful in
raising the funds required.





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.








21





RESULTS
OF OPERATIONS





Comparison
of the Year Ended December 31, 2008 with the Year Ended December 31,
2007:





In fiscal
year ended December 31, 2008 we had no revenue. Revenue for the same period in
2007 was $109,390.





In fiscal
year ended December 31, 2008 we had no cost of sales. Cost of sales for the same
period in 2007 was $19,664.





In fiscal
year ended December 31, 2008 we had no gross profit. Gross profit for the same
period in 2007 was $89,726.





We did
not incur any research and development expenses in 2008 or 2007.





Selling,
general and administrative expenses increased by $9,708,911 or 1,182%, to
$10,530,286 in 2008, from $821,375 in 2007.  The increase was largely
attributable to $8,667,010 worth of common stock issued, in lieu of cash
compensation, to Directors and Officers, in efforts to update the design of BDS
device and sensors for distribution and manufacture in China, the Philippines
and other parts of Asia, consulting expenses of new management and facilities;
consultants and professional expenses, as well as expenses related to
travel.





We had
net interest expense of $561,275 in 2008, compared to $545,223 in 2007, an
increase of $16,052, or 2.9%. This increase was the result of accrued interest
on higher loan balances in fiscal year ended December 31, 2008, when compared to
loan balances for the same period in 2007.





As a
result of the foregoing, we incurred a net loss of $11,091,561 in 2008, compared
to $1,276,873 in 2007, an increase of $9,814,689, or 769%.





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 currently have no commitments for
financing.  There is no guarantee that we will be successful in
raising the funds required.





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 12 months. However, if thereafter, 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.





PRODUCT
RESEARCH AND DEVELOPMENT





Material
research and development expenditures are expected during the next 12 months, as
the Company and MKG proceed to distribute and manufacture the BDS overseas,
further develop the BDS, and possibly reinitiate efforts before the U.S.
FDA.  The Company and MKG have engaged and are working with the
original inventor of the BDS and his current company to help update the design
of the BDS, including the update of certain components of the BDS and for
screening purposes, so that the BDS can be distributed and possibly manufactured
in Asia.  The Company and MKG are also working with its current sensor
manufacturer to update the design of the BDS sensors, including for screening
purposes.  Under the master license agreement with MKG, much of the
expenses, with the exception of the efforts before the U.S. FDA, will be borne
on MKG or MKG’s sublicensees.




ACQUISITION
OR DISPOSITION OF PLANT AND EQUIPMENT





Overseas
sales of an updated version of the BDS device and sensors are expected to occur
during the next 12 months, including in the Philippines and in China (from the
more than 500 Bio Centers are being opened throughout China by MKG and its
Chinese partners).  We are also working to manufacture more devices
and sensors for prospective orders.  The acquisition of significant
property, plant or equipment is also expected during the next 12 months, as MKG
and its sublicensee proceed to distribute and manufacture the BDS device and
sensors overseas and are working with the original inventor of the BDS device
and his company as well as its current sensor manufacturer to distribute and
manufacture the BDS device and sensor in China, the Philippines, and other parts
of Asia.  Much of the expenses will be borne by MKG as the master
licensee or MKG’s sublicensees. MKG is working with the Company to best vend
back the master license agreement into the Company to maximize the return to the
Company of anticipated sales in China and the Philippines, and attorneys and a
leading accounting firm are considering tax, regulatory and other implications
in the U.S. and Asia.








22





NUMBER
OF EMPLOYEES





From our
inception through the MKG Acquisition on March 30, 2006, we relied on the
services of outside consultants and had two full time employees.  From
the MKG Acquisition to September, 2008, we relied on the services of MKG
representatives and outside consultants.  In September 2008, David
Bruce Hong was appointed to the Board of Directors and hired as the President of
the Company, Shepard G. Bentley, was hired as the Chief Executive Officer,
Steven M. Waszak, was hired as the Chief Financial Officer, and Shiva
Sharareh, PhD, was hired as the Chief Technology Officer. The Company and MKG
have engaged and are working with the original inventor of the BDS and his
current company to help update the design of the BDS, including the update of
certain components of the BDS and for screening purposes, so that the BDS can be
distributed and possibly manufactured in Asia.  The Company and MKG
are also working with its current sensor manufacturer to update the design of
the DBS sensors, including for screening purposes.





OFF-BALANCE
SHEET ARRANGEMENTS





None.





ITEM
8.  FINANCIAL STATEMENTS.





Our
consolidated financial statements and the report of Jewett, Schwartz, Wolfe
& Associates are attached to this Annual Report on Form 10-KSB beginning on
page F-1 and are incorporated herein by reference.





ITEM
9A.  CONTROLS AND PROCEDURES.





Disclosure
Controls and Procedures





An
evaluation was carried out under the supervision and with the participation of
the Company’s management, including its Chief Executive Officer and its Chief
Financial Officer, of the effectiveness of the Company’s disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. 
Based upon this review, management concluded that our disclosure controls and
procedures are effective.





There
have been no significant changes in internal control over financial reporting
(as defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of
1934) that occurred during the fiscal period covered by this report that have
materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.





Management’s
Annual Report on Internal Control Over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-5(f)
under the Securities Exchange Act of 1934).  Our management assessed the
effectiveness of our internal control over financial reporting as of December
31, 2008.  In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control-Integrated Framework.  Our management has concluded that,
as of December 31, 2008, our internal control over financial reporting is
effective based on these criteria.





This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s independent registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to
provide only management’s report in this annual report.





Limitations
of Disclosure Controls and Procedures





Our
management, including our Chief Executive Officer and Chief Accounting Officer,
does not expect that our disclosure controls or internal control over financial
reporting will prevent all errors or all instances of fraud.  A control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the control system’s objectives will be met. 
Further, 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 our 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.  Controls can also be circumvented by the individual acts
of some persons, by collusion of two or more people, or by management override
of the controls.  The design of any system of controls is based in part
upon certain assumptions about the likelihood of future events, and any design
may not succeed in achieving its stated goals under all potential future
conditions.  Over time, controls may become inadequate because of changes
in conditions or deterioration in the degree of compliance with policies or
procedures.  Because of the inherent limitation of a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.








23





CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING





As
required by Rule 13a-15(d), the Company's Chairman 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.





ITEM
9B.  OTHER INFORMATION.





None.





PART
III





ITEM
      10.     DIRECTORS, EXECUTIVE OFFICERS, CORPORATE
      GOVERNANCE.





As of
March 31, 2009, our directors and executive officers are:





Name
              Age
              Positions
      and OfficesJames
      MacKay
              49
              DirectorDominic
      Man-Kit Lam
              60
              Director,
      Chairman of the BoardShepard
      G. Bentley
              47
              Chief
      Executive OfficerDavid
      Bruce Hong
              38
              President,
      DirectorSteven
      M. Waszak
              47
              Chief
      Financial OfficerShiva
      Sharareh, PhD
              47
              Chief
      Technology Officer





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 respective successor is elected and qualified, or
until his earlier resignation or removal.  Our executive officers are
appointed by, and serve at the discretion of, our Board of Directors for a term
ending at the first meeting of our Board of Directors after the next annual
meeting of stockholders, or until his earlier resignation.





James
MacKay.  Mr. MacKay is a global entrepreneur and venture
capitalist respected by governments, financiers, businesses and other
organizations throughout the world.  Mr. MacKay has been involved in a
number of significant international projects with other associates. His contacts
extend to leading government and industry representatives from France, the
United Kingdom, China, Japan, Korea, Thailand, Singapore, India and the
Philippines, among other countries. During his career, he has helped fund and
operate and/or been otherwise involved in significant ventures worldwide,
including, but not limited, to ventures associated with individuals in the
musical and entertainment industry; leading hotels and resorts in Europe, the
Caribbean, and/or Asia; individuals in the aviation industry; leading technology
related to global tracking, homeland/global security, and anti-counterfeiting;
port development and initiatives between Asia and the United States; passenger
and cargo air traffic  servicing parts of Asia and beyond; leading
healthcare/medical technology, especially those servicing the Philippines and
China; and mining and oil in Asia.  Mr. MacKay is chairman of True
Product ID, Inc.  (OTC:  TPDI), chairman of the MacKay
Group, Ltd.








24





Dominic Man-Kit
Lam.  Dr. Lam’s achievements have been recognized at the
highest levels in China and the United States. Dr. Lam (60 years old) received
the Presidential Medal of Merit from President Bush who also appointed him to a
Presidential Committee in 1989. Dr. Lam obtained his bachelor, masters and
doctorate degrees by the age of 22 (Lakehead University, B.S. Mathematics, 1967;
University of British Columbia, M.S. Theoretical Physics, 1968; University of
Toronto, Ph.D. Medical Biophysics 1970). He studied under two Nobel Laureates at
Harvard Medical School (postdoctoral training) before joining the Harvard
Faculty at Harvard (assistant professor of physiology) and subsequently at Texas
Medical Center in Houston. In 1985, he started the first biotech company in
Texas (Houston Biotechnology, Inc.), took it public in 1988 and was widely
recognized as the Father of Texas Biotechnology. He was also chairman of the
board of directors and chief executive officer of Agristar, Inc., a publicly
listed Delaware corporation, until its acquisition by another entity in 1999. In
1989, he was invited to establish the Hong Kong Institute of Biotechnology to
help Hong Kong’s high tech development. In 1993, Dr. Lam founded LifeTech Group
to develop, manufacture and market the best Eastern and Western healthcare
products. Dr. Lam is also a well-known philanthropist who first brought “Project
Orbis”, the flying eye hospital, to China in 1982. To pursue his charitable
mission, Dr. Lam moved back to Hong Kong in 1999 and founded the World Eye
Organization to prevent and treat eye diseases for the poor, initially in China
and subsequently around the world. Dr. Lam has authored over 100 research
articles, some of them in prestigious journals such as Nature, 6 books published
by MIT and holds over 17 U.S. and international patents. In 2001, one of Dr.
Lam’s patents entitled “Edible Vaccines” was named by MIT as one of “five
patents that will transform business and technology” and by Time Magazine as one
of ten most important developments in the 21st century. Dr. Lam has received
numerous honors and awards, including honorary professor at the Chinese Academy
of Science (1985), the US High Tech Entrepreneur of the Year (1989) and Asian
Society Man of the Year (1991). A more detailed CV of Dr. Lam is available at
the registrant’s website, www.biofield.com and www.Dominiclam.net.





Shepard G.
Bentley, R.A.C.  Shepard (“Shep”) Bentley started in industry
in 1984 as a Research Technician at the Hospital Corporation of America, Inc.
Later in 1988, he joined Kendall-McGaw Laboratories, Inc. in production
management for ethical and non-parenteral drugs supporting intravascular
medicine. In 1993, he founded and managed Rising Star, Inc. as its CEO for
the purpose of producing high quality instrumentation. He sold his
business and joined Comarco Wireless Technologies as a director
in 1999. In 2001, he formed Medical Quality Systems, providing the
life sciences industry with regulatory expertise. Simultaneously, he served
as Volcano Therapeutics’ Director of Quality. Shortly after 9/11, Shep was
called back to active duty in the Marines. He returned from Iraq in 2003,
left active duty in 2004, and retired as a Lieutenant Colonel in 2005. Upon
his return, Shep formed Synergy Biomedical, LLC, serving as its President
in collaboration with Washington, D.C. – based Synergy, Inc. to provide
biomedical regulatory expertise to the device and pharmaceutical industry
of Southern California. After the acquisition of Synergy by
ICF International, Inc., Shep spun off to form and manage Bentley
Biomedical Consulting, LLC, in June 2006. He has also founded Contract
Medical Device Services, Inc., serving as its President, to enable
prototyping and pre-production of medical product concepts. Shep Bentley
obtained his bachelor’s degree from The University of The South, and
performed his advanced studies at Johannes Gutenberg University in Mainz,
Germany. He is active with the Orange County Technology Alliance Network
(OCTANe). Furthermore, he is an active member of the International Society
of Quality of Life Research, the Association for the Advancement of Medical
Instrumentation, and he holds the Regulatory Affairs Certification (RAC).
He maintains a Top Secret security clearance, and speaks a number of
languages.





David Bruce
Hong.  Mr. Hong served as head of the registrant’s Hong Kong
office and as such was in charge of the registrant’s operations for all of
Asia.  Educated in the United States and England, Hong previously
helped oversee distribution, sales and business development for Asian and
multinational companies in a variety of diverse industries in the People’s
Republic of China, Hong Kong, Macau, Taiwan, Philippines, Thailand, Malaysia,
Indonesia, Japan and the United States, serving as CEO, a board member, director
for the Asian-Pacific Region, director for business development, and other
capacities. He helped oversee distribution, sales, promotions, and business
development in the Asian-Pacific Region for such companies as 7-Eleven, KFC,
Sands, 3M, Audi, Budweiser, Citibank, J. Walter Thompson, and Nestle, among
others. He was also a licensed financial controller within the insurance
industry for more than 10 years, and has extensive logistic management
experience. Hong is working with significant contacts within the Chinese
healthcare industry, including Chinese health and other officials, hospitals,
doctors, pharmaceutical and insurance companies to promote and demonstrate
Biofield’s technology.  Mr. Hong was instrumental in helping to
conduct the highly successful demonstration of the BDS in Shanghai which
resulted in the endorsement of the BDS by Chinese Government.





Steven
Waszak.  Prior to joining the registrant, Mr. Waszak served as
Chief Financial Officer and Chief Operating Officer of Zetera Corporation;
Irvine, CA from 2005.  Zetera Corporation is a developer of networked
storage, for the home, office, and business computing markets.  Prior
to joining Zetera Corporation, Mr. Waszak was VP Sales Operations, Ciena
Corporation, Linthicum, MD during 2004 and 2005.  Ciena
Corporation is a global supplier of networking communications software and
equipment.  Prior to joining Ciena Corporation, Mr. Waszak was Chief
Financial Officer and Chief Operating Officer, Internet Photonics; Shrewsbury,
New Jersey from 2001 until it was sold to Ciena Corporation in
2004.  Internet Photonics was a Bell Labs/Lucent spin-off, and a
leading supplier of carrier-grade optical Ethernet transport solutions and
intelligent wavelength platforms enabling network operators to sell high
bandwidth services.  Mr. Waszak served on the Board of Directors of
SMTEK International; Los Angeles, CA from 2001 – 2004, where he was chairman of
audit committee and compensation committee and played a pivotal role in
negotiating the company sale to CTS Corporation.  Mr. Waszak earned a
BS in Accounting from Loyola Marymount University and has attended seminars at
Northwestern Kellogg Graduate School of Business and Harvard Business
School.








25




Shiva Sharareh,
PhD.  Prior to joining the registrant, Dr. Sharareh was founder
of Finite Medical Inc., Laguna Niguel, California, from June 2007; Vice
President of Product Development & Operations, Neuromed Devices
Inc, Laguna Niguel, California, from July 2007; and Vice President of
Product Development, Vertech Inc., Laguna Niguel, California, from June
2008.  Finite Medical Inc. is a consulting company that focuses in
early stage product development and Animal/Clinical Feasibility conformation of
electromechanical disposable devices.  At Nuromed, Dr. Sharareh
developed a conceptual design of oral herpes, genital herpes, and clinical
depression devices based on neuromodulation technology.  At Vertech,
Dr. Sharareh developed a conceptual design and prototype of a therapeutic
delivery spinal catheter.  From November 2007 until June 2008, Dr.
Sharareh was Sr. Director, Device Development at Interface Associates, Inc. of
Laguna Niguel, California.  Interface Associates helps start up
companies bring next generation conceptual ideas to validation stage and market
launch.  From April 2003 until June 2007, Dr. Sharareh held various
positions at Biosense Webster, a Johnson & Johnson Company, Diamond
Bar, California.  At the time of her resignation, she was Director,
Advanced Technology and Clinical Feasibility.  Dr. Sharareh holds a
PhD from University of British Columbia; a MS in Chemical Engineering,
University of New Mexico; and a BS in Chemical Engineering, University of
New Mexico, Albuquerque, New Mexico.





No family
relationship exists among any of our directors or executive officers. None of
our directors would be considered to be independent.  We do not have
an Audit Committee. Our prior Board of Directors adopted a Code of Ethics, which
applies to our principal executive officer, principal financial officer,
principal accounting officer or controller and persons performing similar
functions.  A copy of our Code of Ethics will be furnished, without
charge, to any person upon written request to Michael Antonoplos, the Company’s
interim chief executive officer, chief accounting officer and secretary our
principal executive offices.





SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE





Section
16(a) of the Exchange Act requires the Company's directors, executive officers
and persons who beneficially own more than ten percent of the Company's Common
Stock, to file initial reports of beneficial ownership and reports of changes in
beneficial ownership with the SEC. Executive officers, directors and greater
than ten percent beneficial owners are required by the SEC to furnish the
Company with copies of all Section 16(a) forms they file.





Based
upon a review of the copies of such forms furnished to the Company and written
representations from the Company's executive officers and directors, the Company
believes that during fiscal year ended December 31, 2008 all Section 16(a)
filing requirements applicable to its executive officers, directors and greater
than ten percent beneficial owners were complied with on a timely basis, except
that David Bruce Hong, Shepard G. Bentley, Steven M. Waszak, and Shiva
Sharareh, PhD, failed to timely file Form 3s,  was hired as the Chief
Technology Officer.  The Company will assist in getting all required
reports timely filed in the future.





As set
forth below in Item 11, there is only one beneficiary owner, James MacKay, the
Company’s chairman of the board of directors, who holds 15,893,045 shares of
common stock or 29.29% of the Company’s total outstanding common stock,
12,300,000 shares of preferred stock, and approximately 51.96% of all of the
votes entitled to be cast by stockholders of the Company on a fully-diluted
basis (i.e., counting all outstanding options and warrants on an as-exercised
basis).  None of the other directors or officers currently holds any
stock.





CORPORATE
GOVERNANCE







Our board
of directors has determined that none of our directors are "independent" as that
term is defined by the National Association of Securities Dealers Automated
Quotations ("NASDAQ"). See "Lack of Committees" for the NASDAQ definition of
"Independent Director."














26




The
following table shows the overall compensation earned for the 2008 fiscal year
with respect to each non-employee and non-executive director as of December 31,
2008.




Director
      CompensationName
                (a)
              Fees
      Earned or Paid in Cash
                (b)
              Stock
      Awards
                (c)
              Option
      Awards
                (d)(1)
              Non-Equity
      Incentive Plan Compensation
                (e)(2)
              Change
      in Pension Value and Nonqualified Deferred Compensation
      Earnings
                (f)
              All
      Other Compensation
                (g)(3)
              Total
                (j)James
      MacKay
              -
              -
              -
              -
              -
              -
              -Dominic
      Man-Kit Lam
              -
              -
              -
              -
              -
              -
              -David
      Bruce Hong
              -
              -
              -
              -
              -
              -
              -







(1)  Reflects
dollar amount expensed by the company during applicable fiscal year for
financial statement reporting purposes pursuant to FAS 123R. FAS 123R requires
the company to determine the overall value of the options as of the date of
grant based upon the Black-Scholes method of valuation, and to then expense that
value over the service period over which the options become exercisable (vest).
As a general rule, for time-in-service-based options, the company will
immediately expense any option or portion thereof which is vested upon grant,
while expensing the balance on a pro rata basis over the remaining vesting term
of the option. For a description FAS 123 R and the assumptions used in
determining the value of the options under the Black-Scholes model of valuation,
see the notes to the financial statements included with this Form
10-K.




(2)  Excludes
awards or earnings reported in preceding columns.




(3)  Includes
all other compensation not reported in the preceding columns, including (i)
perquisites and other personal benefits, or property, unless the aggregate
amount of such compensation is less than $10,000; (ii) any "gross-ups" or other
amounts reimbursed during the fiscal year for the payment of taxes; (iii)
discounts from market price with respect to securities purchased from the
company except to the extent available generally to all security holders or to
all salaried employees; (iv) any amounts paid or accrued in connection with any
termination (including without limitation through retirement, resignation,
severance or constructive termination, including change of responsibilities) or
change in control; (v) contributions to vested and unvested defined contribution
plans; (vi) any insurance premiums paid by, or on behalf of, the company
relating to life insurance for the benefit of the director; (vii) any consulting
fees earned, or paid or payable; (viii) any annual costs of payments and
promises of payments pursuant to a director legacy program and similar
charitable awards program; and (ix) any dividends or other earnings paid on
stock or option awards that are not factored into the grant date fair value
required to be reported in a preceding column.




ITEM
11.   EXECUTIVE AND OTHER COMPENSATION.





On March
31, 2007, the Company entered into a consulting arrangement with Michael
Antonoplos, who later became the Company’s interim chief executive officer,
chief accounting officer, and secretary as well as a
director.  Pursuant to the consulting arrangement, Mr. Antonoplos
would receive the following monthly consulting fees:





April
      2007
              $  15,000May
      2007
              $  13,000June
      2007
              $  12,000July
      to December 2008
              $  10,000








27





Compensation
of Executive Officers




The
following table provides certain summary information concerning the compensation
paid or accrued by us and our subsidiaries, to or on behalf of our Chief
Executive Officer.  Other than as set forth in the table, no executive
officer’s cash salary and bonus exceeded $100,000 in any of the applicable
years.  The following information includes the dollar value of base
salaries, bonus awards, the value of restricted shares issued in lieu of cash
compensation and certain other compensation, if any, whether paid or
deferred:





Name
      and Principal Position
              Year
              Salary
                ($)
              Bonus
                ($)
              Stock
      Awards
                ($)
              Option
      Awards
                ($)
              Non-Equity
      Incentive Plan Compensation
              Change
      in
                Pension
      Value
                and
                Nonqualified
      Deferred Compensation Earnings
                ($)
              All
      Other Compensation ($)
              Total
      ($)Michael
      Antonoplos
                Former
      Chief Executive Officer
              2008
                2007
                2006
              120,000
                100,000
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
              120,000
                100,000
                -Shepard
      G. Bentley,
                Chief
      Executive Officer
              2008
              87,500
              -
              8,507
              -
              -
              -
              -
              96,007Steven
      M. Waszak,
                Chief
      Financial Officer
              2008
              72,917
              -
              6,806
              -
              -
              -
              -
              79,723David
      Bruce Hong, President
              2008
              29,167
              -
              851
              -
              -
              -
              -
              30,018Shiva
      Sharareh, PhD
              2008
              114,167
              -
              6,806
              -
              -
              -
              -
              120,973














28





Outstanding
Equity Awards at year end








Option
      Awards
              Stock
      AwardsName
      and Principal Position
              Number
      of Securities Underlying Options
                (#)
      Exercisable
              Number
      of Securities Underlying Options
                (#)
      Unexercisable
              Equity
      Incentive Plan Awards: Number of Securities Underlying Unexercised
      Unearned Options
                (#)
              Option
      Exercise Price
                ($)
              Option
      Expiration Date
              Number
      of Shares of Units of Stock that have not Vested
                (#)
              Market
      Value of Shares or Units of Stock that have not Vested
                ($)
              Equity
      Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
      that have not Vested
                (#)
              Equity
      Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
      Other Rights that have not Vested
                ($)Michael
      Antonoplos
                Former
      Chief Executive Officer
              -
              -
              -
              -
              -
              -
              -
              -
              -Shepard
      G. Bentley,
                Chief
      Executive Officer
              2,500,000
              -
              -
              -
              -
              -
              -
              -
              -Steven
      M. Waszak,
                Chief
      Financial Officer
              2,000,000
              -
              -
              -
              -
              -
              -
              -
              -David
      Bruce Hong, President
              250,000
              -
              -
              -
              -
              -
              -
              -
              -Shiva
      Sharareh, PhD
              2,000,000
              -
              -
              -
              -
              -
              -
              -
              -








EMPLOYMENT
CONTRACTS





In
September 2008, the Company entered into employment agreements with David Bruce
Hong, the President of the Company and a director, Shepard G. Bentley, the Chief
Executive Officer, Steven M. Waszak, the Chief Financial Officer, and Shiva
Sharareh, PhD, the Chief Technology Officer..





Under the
terms of his Employment Agreement, Bentley will serve as our Chief Executive
Officer for a period of three years. During his term of employment, he will earn
a base salary of $300,000 per year.  In addition to base salary, he may be
paid an annual bonus as our Compensation Committee determines in its sole
discretion. He will be entitled to participate in and be covered under all
welfare benefit plans or programs maintained for executive officers. Bentley is
also entitled to receive 2,500,000 restricted shares of the registrant’s common
stock.





Under the
terms of his Employment Agreement, Waszak will serve as our Chief Financial
Officer for a period of three years. During his term of employment, he will earn
a base salary of $250,000 per year.  In addition to base salary, he may be
paid an annual bonus as our Compensation Committee determines in its sole
discretion. he will be entitled to participate in and be covered under all
welfare benefit plans or programs maintained for executive officers. Waczak is
also entitled to receive 2,000,000 restricted shares of the registrant’s common
stock.








29





Under the
terms of her Employment Agreement, Dr. Sharareh will serve as our Chief
Technology Officer for a period of three years. During her term of employment,
she will earn a base salary of $220,000 per year and a one time payment of Fifty
Thousand U.S. Dollars ($50,000) payable at ninety days and another one time
payment of  Fifty Thousand U.S. Dollars ($50,000) payable at one
hundred and eighty days, as two equal parts of a deferred signing bonus.
 In addition to base salary, she may be paid an annual bonus as our
Compensation Committee determines in its sole discretion. She will be entitled
to participate in and be covered under all welfare benefit plans or programs
maintained for executive officers. Dr. Sharareh is also entitled to receive
2,000,000 restricted shares of the registrant’s common stock.





Under the
terms of the Employment Agreement, Hong will serve as our president for a period
of three years. During his term of employment, Hong will earn a base salary of
$8,333.33 per month for the 1st six months and $10,000 per month thereafter.
 In addition to base salary, Hong may be paid an annual bonus as our
Compensation Committee determines in its sole discretion. Hong will be entitled
to participate in and be covered under all welfare benefit plans or programs
maintained for executive officers.  Hong is also entitled to receive
250,000 restricted shares of the registrant’s common stock.








ITEM
      12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.





The
following table sets forth, as of April 11, 2009, 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 directors, (c) each of the persons named in the Summary
Compensation Table appearing under Item 10. - "Executive
Compensation",


and (d)
all our directors and executive  officers, as a group (six 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.





Name
              
              Shares Beneficially Owned
              
              PercentageJames
      MacKay, Director (1)
              
              15,893,045
      (2)
              
              64%Dominic
      Man-Kit Lam, Director
              
              -
              
              -Michael
      Antonoplos, Former Chief Executive Officer
              
              -
              
              -Shepard
      G. Bentley, Chief Executive Officer
              
              2,500,000
              
              10%Steven
      M. Waszak, Chief Financial Officer
              
              2,000,000
              
              8%David
      Bruce Hong, President
              
              250,000
              
              1%Shiva
      Sharareh, PhD, Chief Technology Officer
              
              2,000,000
              
              8%All
      Directors and Officers as a group (6 persons)
              
              22,643,045
              
              91%


(1)
            The
      address of all of our directors is 1615 Walnut Street, 3rd Floor,
      Philadelphia, PA 19102


(2)
            Total
      common stock equivalents, consisting of 24,793,500 shares of Common Stock
      and 12,300,000 shares of Series A Preferred Stock.  Each Series
      A Preferred Share has two votes per share and is convertible into two
      shares of common stock, for approximately 51.96% of all of the votes
      entitled to be cast by stockholders of the
  Company.





CHANGE
OF CONTROL





As set
forth above, on March 30, 2006, MKG took control of the Company and its
management, board, operations, and controlling interest.





As a
result of the debt conversion described above and in the Company’s Form 8-K
filed January 23, 2008, James MacKay became the holder of shares of the
Company’s capital stock entitling him to approximately 51.96% of all of the
votes entitled to be cast by stockholders of the Company on a fully-diluted
basis (i.e., counting all outstanding options and warrants on an as-exercised
basis).








30





ITEM
13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.





On July
27, 2007, the Company signed a master license agreement (the “Agreement”) with
MKG. Pursuant to the Agreement, the Company granted to MKG an exclusive (even to
the Company), sub licensable, royalty-bearing, worldwide license to make, have
made, use, import, offer for sale, and sell devices, sensors and other products
or services incorporating the Company’s patented and unpatented breast cancer
detection technology, including, but not limited to, the BDS device, the
Biofield Breast Cancer Proliferation Detection System, the Breast Cancer
Diagnostic Device, and the Biofield Breast Examination or BBESM
 (collectively, the “Technology”).  The Company also granted MKG, on a
worldwide basis, the Exclusive Distribution, Manufacturing, Development,
Clinical, and research and development rights (as those terms are defined in the
Agreement) with regard to the Technology. Under the Agreement, MKG assumes from
the Company the sole responsibility and expense to market, manufacture, further
develop (clinically and technically), and otherwise commercialize the
Technology. MKG further assumes from the Company the sole responsibility and
expense to secure additional regulatory approvals and to conduct additional
clinical trials and R&D.





In return
for the exclusive worldwide license, MKG will pay the Company royalties based on
gross receipts received by MKG and its affiliates in connection with the
Technology. MKG must pay minimum royalties. In addition to royalties, MKG will
pay the Company licensing fees based upon certain milestones. The term of the
Agreement is 10 years with automatic renewals for additional 10-year terms
unless terminated by one of the parties pursuant to the terms of the
Agreement.





ITEM
14.  PRINCIPAL ACCOUNTING FEES AND SERVICES.





The
following table sets forth fees billed to us by our independent accountants
during the fiscal years ended December 31, 2008 and December 31, 2007 for: (i)
services rendered for the audit of our annual financial statements and the
review of our quarterly financial statements, (ii) services rendered that are
reasonably related to the performance of the audit or review of our financial
statements and that are not reported as Audit Fees, (iii) services rendered in
connection with tax compliance, tax advice and tax planning, and (iv) all other
fees for services  rendered. "Audit Related Fees" consisted of
consulting fees regarding accounting issues. "All Other Fees" consisted of fees
related to this Annual Report.  Since we have no audit committee, none
of these services were approved by an audit committee, and we have no
pre-approval policies or procedures.








Year
      ended December 31,2008
                2007Audit
      Fees1
                $54,000
                $54,000Audit
      Related Fees2Tax
      Fees3All
      Other Fees4Total
                $54,000
                $54,000





1
            The
      aggregate fees billed for the audit of our annual financial statements and
      review of our financial statements, which were included in our Forms
      10-Q.


2
            The
      aggregate fees billed for assurance and related services that are
      reasonably related to the performance of the audit or the review of our
      financial statements and not included as "Audit
  Fees."


3
            The
      aggregate fees billed for professional services rendered for tax
      compliance, tax advice and tax
planning.


4
            The
      aggregate fees billed for products and services provided other than Audit
      Fees, Audit-Related Fees or Tax
Fees.





Policy on
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Auditors





The
Company currently does not have a designated Audit Committee, and accordingly,
the Company's Board of Directors' policy is to pre-approve all audit and
permissible non-audit services provided by the independent
auditors.  These services may include audit services, audit-related
services, tax services and other services. Pre-approval is generally provided
for up to one year and any pre-approval is detailed as to the particular service
or category of services and is generally subject to a specific budget. The
independent auditors and management are required to periodically report to the
Company's Board of Directors regarding the extent of services provided by the
independent auditors in accordance with this pre-approval, and the fees for the
services performed to date.  The Board of Directors may also
pre-approve particular services on a case-by-case basis.








31








PART
IV


ITEM
15.  Exhibits, Financial Statement Schedules.








ITEM 13.  EXHIBITS AND REPORTS ON FORM
8-K.





(a)
Financial Statements





The
following documents are filed under "ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA," beginning on page F-1 through page F-12 and are included as
part of this Form 10-K as the financial statements of the Company for the years
ended December 31, 2008 and 2007:





Reports
      of Independent Registered Public Accounting
  Firms


Balance
      Sheets


Statements
      of Operations


Statement
      of Stockholders' Equity


Notes
      to Financial Statements





(b)
Exhibits.





2. Plan
of purchase, sale, reorganization, arrangement, liquidation or succession. -
None





3. (i)
Articles of incorporation.





3.1
            Fifth
      Amended and Restated  Certificate of Incorporation of Biofield
      Corp., as filed with the Secretary of State of the State of Delaware on
      October 6, 2000. (1)





3. (ii)
By-laws.





3.2
            By-laws
      of Biofield Corp. (2)





4.
Instruments defining the rights of security holders, including
indentures.





4.1
            Form
      of Promissory Note, due December 31, 2004, issued by Biofield Corp. in
      2003 private placement. (8)





4.2
            Form
      of Subscription Agreement between Biofield Corp. and investors who
      participated in 2003 private placement.
(8)





9. Voting
trust agreement and amendment. - None





10.
Material contracts.





10.01
            Registration
      Rights Agreement between Biofield Corp. and John D. Stephens dated as of
      April 22, 1993. (3)





10.02
            Form
      of Stock Purchase Option Agreement between Biofield Corp. and Abel
      Laboratories, Inc., dated as of June 1, 1992.
  (3)





10.03
            Patent
      Royalty Agreement between Biofield Corp. and Abel Laboratories, Inc.,
      dated as of June 1, 1992. (3)








32





10.04
            Master
      Laboratory Services Agreement between Biofield Corp. and Abel
      Laboratories, Inc., dated as of January 1, 1994.
  (3)





10.05
            Biofield
      Corp. 1992 Stock Incentive Plan.
(3)





10.6
            Biofield
      Corp. 1996 Stock Option Plan, as amended.
(4)





10.7
            Biofield
      Corp. 1996 Stock Option Plan for Non-Employee Directors.
    (3)





10.8
            Escrow
      Agreement among C. Leonard Gordon, Biofield Corp. and Warshaw Burstein
      Cohen Schlesinger & Kuh, LLP, as escrow agent, dated December 28,
      1999. (1)





10.9
            License
      Agreement between Biofield Corp. and Cardio Dynamics International
      Corporation dated October 16, 2000.
(1)





10.10
            Share
      Option Agreement, dated as of March 16, 1995, between Biofield Corp. and
      David M. Long, Jr., M.D. (1)





10.11
            Form
      of Share Option Agreement between Biofield Corp. and Raymond A. Long,
      M.D., dated September 5, 2001. (5)





10.12
            Share
      Option Agreement, dated as of November 29, 2001, with David M. Long, Jr.,
      M.D. (5)





10.13
            Share
      Option Agreement, dated as of November 29, 2001, with John D. Stephens.
      (5)





10.14
            Form
      of Share Option Agreement, dated November 29, 2001, with Steven Preiss.
      (5)





10.15
            Form
      of Share Option Agreement, dated November 29, 2001, with various Biofield
      Corp. employees. (5)





10.16
            10%
      Convertible Promissory Note, dated November 8, 2002 by Biofield Corp. in
      favor of David M. Long, Jr. (6)





10.17
            Demand
      Promissory Note, dated January 3, 2003, by Biofield Corp. in favor of
      David M. Long Separate Property Trust.
(7)





10.18
            Investment
      Banking Services Agreement, dated March 5, 2003, between Biofield Corp.
      and iCapital Finance, Inc. (7)





10.19
            Consulting
      Agreement, dated March 5, 2003, between Biofield Corp. and Randall
      Letcavage and Rosemary Nguyen. (7)





10.20
            Redesign
      Agreement, dated October 15, 2001, between Biofield Corp. and TriVirix
      International Limited. (7)





10.21
            Form
      of Share Option Agreement, dated February 4, 2003, with various Biofield
      Corp. employees. (10)





10.22
            Service
      Agreement, dated July 8, 2003, between Biofield Corp. and MRB Investor
      Relations, LLC. (10)





10.23
            Agreement
      for Financial Advisor, Investment Banker & Placement Agent, dated
      April 25, 2003 between Biofield Corp and Brooks Houghton & Company,
      Inc. and Brooks, Houghton Securities, Inc.
(10)





10.24
            Agreement,
      dated February 9, 2004, between Biofield Corp. and ROI Group Associates,
      Inc. (10)








33





10.25
            Agreement,
      dated October 16, 2003 between Biofield Corp, and CGF Securities, LLC.
      (10)





10.26
            Change
      in Terms Agreement, dated December 11, 2003, between Biofield Corp. and
      California Bank & Trust. (10)





10.27
            Agreement,
      dated June 11, 2003, as amended December 11, 2003, by Biofield Corp. to
      John Stephens. (10)





10.28
            Consulting
      agreement between The Mackay Group, Inc. and Dr. David Long dated March
      30, 2006. (11)





10.29
            Stock
      Acquisition and Voting Agreement between The Mackay Group, Inc. and Dr.
      David Long, Jr., Donna R Long, Dr. Raymond A Long, the Long Family Trust
      and the Long Family Partners II LP dated March 30, 2006.
    (11)


10.30
            Sale
      of Shares Agreement for the sale and purchase of shares in VALIBIO dated
      December 2008. (12)





10.31
            Exclusive
      Distribution Agreement between The Company and ValiBio dated December
      2008. (12)











13.           Annual
report to security holders for the last fiscal year, Form 10-Q or 10-QSB or
quarterly report to security holders. – Not applicable.





14.          
Code of ethics





14.1
            Code
      of Ethics adopted on February 16, 2004.
(10)





16.           Letter
on change in certifying accountant





16.1
            Letter
      from Deloitte & Touche, LLP, Certified Public Accountants to the
      Commission, dated November 24, 2003.
(9)





18.           Letter
on change in accounting principles - Not applicable.





20.           Other
documents or statements to security holders or any other document incorporated
by reference. - None





21.           Subsidiaries
of the small business issuer: Biofield International,
Inc.  -  Incorporated in Delaware





22.           Published
report regarding matters submitted to vote of security holders - Not
applicable.





23.           Consent
of experts and counsel - None





24.           Power
of attorney - Not applicable.





27.           Financial
Data Schedule - Not applicable.





31.           Rule
13a-14(a)/15d-14(a) Certifications





*31.1
      Certification of Shepard G. Bentley Chief Executive
  Officer





*31.2
      Certification of Steven M. Waszak Chief Financial
  Officer





32.           Section
1350 Certifications





*32.1
      Certification of Shepard G. Bentley Chief Executive
  Officer








34






*32.2
      Certification of Steven M. Waszak Chief Financial
  Officer





99.  Additional
Exhibits - None





- - - - -
- - - - - - - - - - - - - - - - - -





(*) Filed
herewith.




(1
                                                                  )
                                                                  Filed
      with the Securities and Exchange Commission as an exhibit to Biofield's
      Registration Statement on Form 10-SB (Registration No. 0-27848) which
      became effective on October 18, 2000.(2
                                                                  )
                                                                  Incorporated
      by reference to Biofield's Annual Report on Form 10-K for the fiscal year
      ended December 31, 1996.(3
                                                                  )
                                                                  Incorporated
      by reference to Biofield's Registration Statement on Form S-1
      (Registration No. 333-00796) declared effective on March 19,
      1996.(4
                                                                  )
                                                                  Incorporated
      by reference to Biofield's Annual Report on Form 10-K for the fiscal year
      ended December 31, 1997.(5
                                                                  )
                                                                  Incorporated
      by reference to Biofield's Annual Report on Form 10-KSB for the fiscal
      year ended December 31, 2001.(6
                                                                  )
                                                                  Incorporated
      by reference to Biofield's Quarterly Report on Form 10-QSB for the fiscal
      quarter ended September 30, 2002.(7
                                                                  )
                                                                  Incorporated
      by reference to Biofield's Annual Report on Form 10-KSB for the fiscal
      year ended December 31, 2002.(8
                                                                  )
                                                                  Incorporated
      by reference to Biofield's Annual Report on Form 10-KSB for the fiscal
      year ended December 31, 2004.(9
                                                                  )
                                                                  Incorporated
      by reference to Biofield's Current Report on Form 8-K filed on April 6,
      2006.(b
                                                                  )
                                                                  Reports
      on Form 8-K - None


















35


SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.










BIOFIELD
      CORP.By: 
       /s/  Shepard G.
      BentleyShepard G.
      BentleyChief
      Executive OfficerBy: 
      /s/  Steven
      WaszakSteven
      WaszakChief
      Financial Officedr




Dated:  April
13, 2009














36


Report of
Independent Registered Public Accounting Firm








To The
Shareholders and Board of Directors of Biofield Corp.





We
have audited the accompanying balance sheets of Biofield Corp. (a Development
Stage Company) as of December 31, 2008 and 2007 and the related statements of
operations, changes in stockholders’ deficit and cash flows for the years ended
December 31, 2008 and 2007 and the period from October 16, 1987 (inception)
through December 31, 2008.  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 the standards of the Public Company
Accounting Oversight Board (United States).  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 provided a reasonable basis
for our opinion.





In
our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Biofield Corp. as of December 31,
2008 and 2007, and the results of its operations and its cash flows for the
years ended December 31, 2008 and 2007 and the period from October 16, 1987
(inception) through December 31, 2008 in conformity with accounting principles
generally accepted in the United States.





The
accompanying financial statements referred to above have been prepared assuming
that the Company will continue as a going concern.  As more fully
described in Note 1, the Company’s need to seek new sources or methods of
financing or revenue to pursue its business strategy, raise substantial doubt
about the Company’s ability to continue as a going
concern.  Management’s plans as to these matters are also described in
Note 1.  The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.













Jewett,
      Schwartz, Wolfe & Associates/s/ Jewett, Schwartz, Wolfe &
      Associates
              Hollywood, Florida




April 10,
2009





37




BIOFIELD
      CORP.(A
      Development Stage Company)CONSOLIDATED
      BALANCE SHEETSDecember
      31,
                        
                        
                        December
      31,ASSETS
                        
                        2008
                        
                        
                        2007CURRENT
      ASSETS:Cash
      and cash equivalents
                        
                        $
                        -
                        
                        
                        $
                        13,328Prepaids
                        
                        
                        -
                        
                        
                        
                        9,000Notes
      receivable
                        
                        
                        -
                        
                        
                        
                        11,004Total
      current assets
                        
                        
                        -
                        
                        
                        
                        33,332PROPERTY
      AND EQUIPMENT - Net
                        
                        
                        5,211
                        
                        
                        
                        6,601TOTAL
      ASSETS
                        
                        $
                        5,211
                        
                        
                        $
                        39,933LIABILITIES
      AND STOCKHOLDERS’ DEFICITCURRENT
      LIABILITIES:Bank
      overdraft
                        
                        $
                        9,912
                        
                        
                        $
                        -Accounts
      payable
                        
                        
                        1,402,514
                        
                        
                        
                        1,402,513Accrued
      interest
                        
                        
                        991,849
                        
                        
                        
                        720,334Accrued
      expenses
                        
                        
                        2,058,823
                        
                        
                        
                        430,489Due
      to affiliate
                        
                        
                        329,686
                        
                        
                        
                        329,686Advances
      from stockholder
                        
                        
                        2,378,973
                        
                        
                        
                        2,162,703Notes
      payable
                        
                        
                        2,410,951
                        
                        
                        
                        2,223,893Line
      of credit
                        
                        
                        418,920
                        
                        
                        
                        342,180Total
      current liabilities
                        
                        
                        10,001,628
                        
                        
                        
                        7,611,798Commitments
      and contigenciesSTOCKHOLDERS’
      DEFICIT:Preferred
      stock, $.001 par value, 12,300,000 shares authorized,12,300,000
      shares issued and outstanding at December 31, 2008and,
      2007, respectively
                        
                        
                        12,300
                        
                        
                        
                        12,300Common
      stock, $.01 par value, 50,000,000 shares authorized,24,793,500
      shares issued at December 31, 2008 and 4,514,294 sharesissued
      and 999,455 shares issuable at December 31, 2007,
    respectively
                        
                        
                        247,935
                        
                        
                        
                        55,138Treasury
      stock - 2,306,131 shares
                        
                        
                        (3,100
                        )
                        
                        
                        (3,100
                        )Stock
      subscriptions
                        
                        
                        3,849
                        
                        
                        
                        3,849Additional
      paid-in capital
                        
                        
                        74,935,552
                        
                        
                        
                        66,461,340Accumulated
      deficit during development stage
                        
                        
                        (85,192,953
                        )
                        
                        
                        (74,101,392
                        )Total
      stockholders’ deficit
                        
                        
                        (9,996,417
                        )
                        
                        
                        (7,571,865
                        )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
                        
                        $
                        5,211
                        
                        
                        $
                        39,933













F-1







BIOFIELD
      CORP.(A
      Development Stage Company)CONSOLIDATED
      STATEMENTS OF OPERATIONSPeriod
      October 16,Year
      Ended
                                                                
                                                                1987
      (Date ofDecember 31,
                                                                
                                                                
                                                                Inception)
      Through2008
                                                                
                                                                
                                                                2007
                                                                
                                                                
                                                                December
      31, 2008REVENUE
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                109,390
                                                                
                                                                
                                                                $
                                                                244,522COST
      OF SALESCost
      of goods sold
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                19,664
                                                                
                                                                
                                                                
                                                                95,111Loss
      on write down of inventory
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                693,500GROSS
      PROFIT
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                89,726
                                                                
                                                                
                                                                
                                                                (544,089
                                                                )OPERATING
      EXPENSES:Research
      and development
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                40,481,889Selling,
      general, and administrative
                                                                
                                                                
                                                                10,530,286
                                                                
                                                                
                                                                
                                                                821,375
                                                                
                                                                
                                                                
                                                                42,641,985Impairment
      of intangible assets
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                194,268Gain
      on disposition of fixed assets
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (8,084
                                                                )Total
      operating expenses
                                                                
                                                                
                                                                10,530,286
                                                                
                                                                
                                                                
                                                                821,375
                                                                
                                                                
                                                                
                                                                83,310,058OTHER
      INCOME (EXPENSE):Interest
      income
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                2,476,722Interest
      expense
                                                                
                                                                
                                                                (561,275
                                                                )
                                                                
                                                                
                                                                (545,224
                                                                )
                                                                
                                                                
                                                                (3,605,123
                                                                )Amortization
      of shares issued to lendersand
      other finance costs
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (405,523
                                                                )Royalty
      income and other
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                214,867Net
      other expense
                                                                
                                                                
                                                                (561,275
                                                                )
                                                                
                                                                
                                                                (545,224
                                                                )
                                                                
                                                                
                                                                (1,319,057
                                                                )LOSS
      BEFORE INCOME TAXES
                                                                
                                                                
                                                                (11,091,561
                                                                )
                                                                
                                                                
                                                                (1,276,873
                                                                )
                                                                
                                                                
                                                                (85,173,204
                                                                )PROVISION
      FOR INCOME TAXES
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (19,749
                                                                )NET
      LOSS
                                                                
                                                                $
                                                                (11,091,561
                                                                )
                                                                
                                                                $
                                                                (1,276,872
                                                                )
                                                                
                                                                $
                                                                (85,192,953
                                                                )NET
      LOSS PER SHARE:Basic
      and Diluted
                                                                
                                                                $
                                                                (0.46
                                                                )
                                                                
                                                                $
                                                                (0.02
                                                                )WEIGHTED-AVERAGE
      SHARESBasic
      and Diluted
                                                                
                                                                
                                                                23,897,943
                                                                
                                                                
                                                                
                                                                53,704,609















F-2


BIOFIELD
      CORP.(A
      Development Stage Company)CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' DEFICITAdditional
                  
                  
                  Def
      fered Accumulated
                  
                  
                  Foreign
      Currency
                  
                  
                  
                  
                  
                  TotalSeries
      A
                  
                  
                  
                  
                  
                  Series
      B
                  
                  
                  
                  
                  
                  Series
      C
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  Treasury
                  
                  
                  Stock
                  
                  
                  Paid
      In
                  
                  
                  Deficit
      Development
                  
                  
                  Translation
                  
                  
                  
                  
                  
                  ComprehensivePreffered
      Stock
                  
                  
                  Amount
                  
                  
                  Preffered
      Stock
                  
                  
                  Amount
                  
                  
                  Preffered
      Stock
                  
                  
                  Amount
                  
                  
                  Common
      Stock
                  
                  
                  Amount
                  
                  
                  Stock
                  
                  
                  Subscriptions
                  
                  
                  Capital
                  
                  
                  Stage
                  
                  
                  Adjustment
                  
                  
                  Total
                  
                  
                  LossSale
      of Common Stock, October 16, 1987(date
      of inception) (.16 per share, net)
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  54,902
                  
                  
                  $
                  55
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  91,898
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  91,953Issuance
      of Common Stock in connection withpatent
      acquisition (.001 per share)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  23,529
                  
                  
                  
                  24
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  276
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  300Net
      loss, October 16, 1987 to March 31, 1988
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (159,359
                  )
                  
                  
                  -
                  
                  
                  
                  (159,359
                  )Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (159,359
                  )BALANCE
      AT MARCH 31, 1988
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  78,431
                  
                  
                  $
                  79
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  92,174
                  
                  
                  $
                  (159,359
                  )
                  
                  $
                  -
                  
                  
                  $
                  (67,106
                  )Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (495,520
                  )
                  
                  
                  -
                  
                  
                  
                  (495,520
                  )Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (495,520
                  )BALANCE
      AT MARCH 31, 1989
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  78,431
                  
                  
                  $
                  79
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  92,174
                  
                  
                  $
                  (654,879
                  )
                  
                  $
                  -
                  
                  
                  $
                  (562,626
                  )Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (233,347
                  )
                  
                  
                  -
                  
                  
                  
                  (233,347
                  )Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (233,347
                  )BALANCE
      AT MARCH 31, 1990
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  78,431
                  
                  
                  $
                  79
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  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
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  78,431
                  
                  
                  $
                  79
                  
                  
                  $
                  (300
                  )
                  
                  $
                  -
                  
                  
                  $
                  92,174
                  
                  
                  $
                  (1,173,405
                  )
                  
                  $
                  -
                  
                  
                  $
                  (1,081,452
                  )Retirement
      of Common Stock held in treasury
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (23,529
                  )
                  
                  
                  (24
                  )
                  
                  
                  300
                  
                  
                  
                  -
                  
                  
                  
                  (276
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Issuance
      of Common Stock in exchange for notesand
      debt with accrued interest (2.90 per share, net)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  43,137
                  
                  
                  
                  43
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,248,638
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,248,681Sale
      of Common Stock (.82 per share, net)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,451
                  
                  
                  
                  2
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  19,998
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  20,000Amortization
      of deferred compensation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  136,880
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  136,880Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (461,061
                  )
                  
                  
                  -
                  
                  
                  
                  (461,061
                  )Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (461,061
                  )BALANCE
      AT MARCH 31, 1992
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  100,490
                  
                  
                  $
                  100
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,497,414
                  
                  
                  $
                  (1,634,466
                  )
                  
                  $
                  -
                  
                  
                  $
                  (136,952
                  )Sale
      of Common Stock (7.67 per share, net)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  55,748
                  
                  
                  
                  55
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,275,223
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,275,278Exercise
      of Common Stock options
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  245
                  
                  
                  
                  1
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  624
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  625Amortization
      of deferred compensation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  477,453
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  477,453Change
      in par value of common stockfrom
      .0001 to .001
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,408
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,408
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3,099,637
                  )
                  
                  
                  -
                  
                  
                  
                  (3,099,637
                  )Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (3,099,637
                  )BALANCE
      AT MARCH 31, 1993
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  156,483
                  
                  
                  $
                  1,564
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  6,249,306
                  
                  
                  $
                  (4,734,103
                  )
                  
                  $
                  -
                  
                  
                  $
                  1,516,767(brought
      forward)Exercise
      of Common Stock options
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  74
                  
                  
                  
                  1
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  187
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  188Sale
      of Series A Preferred Stock(3.97
      per share, net)
                  
                  
                  2,119,896
                  
                  
                  
                  2,120
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,411,370
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,413,490Issuance
      of Series A Preferred Stock inexchange
      for notes (4.50 per share)
                  
                  
                  222,222
                  
                  
                  
                  222
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  999,778
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,000,000Issuance
      of Common Stock warrants
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,119
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,119Amortization
      of deferred compensation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,580,320
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,580,320Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (6,899,515
                  )
                  
                  
                  -
                  
                  
                  
                  (6,899,515
                  )Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (6,899,515
                  )BALANCE
      AT MARCH 31, 1994
                  
                  
                  2,342,118
                  
                  
                  $
                  2,342
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  156,556
                  
                  
                  $
                  1,565
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  17,243,080
                  
                  
                  $
                  (11,633,618
                  )
                  
                  $
                  -
                  
                  
                  $
                  5,613,369Sale
      of Series B Preferred Stock(4.04
      per share, net)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  481,644
                  
                  
                  
                  482
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,947,149
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,947,631Issuance
      of Common Stock warrants
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  6
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  6Amortization
      of deferred compensation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  14,859
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  14,859Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (4,959,312
                  )
                  
                  
                  -
                  
                  
                  
                  (4,959,312
                  )Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (4,959,312
                  )BALANCE
      AT DECEMBER 31, 1994
                  
                  
                  2,342,118
                  
                  
                  $
                  2,342
                  
                  
                  
                  481,644
                  
                  
                  $
                  482
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  156,556
                  
                  
                  $
                  1,565
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  19,205,094
                  
                  
                  $
                  (16,592,930
                  )
                  
                  $
                  -
                  
                  
                  $
                  2,616,553












F-3






Sale
      of Series C Preferred Stock(4.11
      per share, net)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,914,771
                  
                  
                  
                  2,915
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  11,977,856
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  11,980,771Issuance
      of Common Stock warrants
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  161
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  161Amortization
      of deferred compensation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  195,874
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  195,874Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (8,739,858
                  )
                  
                  
                  -
                  
                  
                  
                  (8,739,858
                  )Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (8,739,858
                  )BALANCE
      AT DECEMBER 31, 1995
                  
                  
                  2,342,118
                  
                  
                  $
                  2,342
                  
                  
                  
                  481,644
                  
                  
                  $
                  482
                  
                  
                  
                  2,914,771
                  
                  
                  $
                  2,915
                  
                  
                  
                  156,556
                  
                  
                  $
                  1,565
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  31,378,985
                  
                  
                  $
                  (25,332,788
                  )
                  
                  $
                  -
                  
                  
                  $
                  6,053,501Sale
      of Common Stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  181,900
                  
                  
                  
                  1,819
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  18,026,419
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  18,028,238Conversion
      of Series A, B, and CPreferred
      Stock to Common Stock
                  
                  
                  (2,342,118
                  )
                  
                  
                  (2,342
                  )
                  
                  
                  (481,644
                  )
                  
                  
                  (482
                  )
                  
                  
                  (2,914,771
                  )
                  
                  
                  (2,915
                  )
                  
                  
                  304,647
                  
                  
                  
                  3,047
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,692
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Exercise
      of Common Stock warrants
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  206
                  
                  
                  
                  2
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  20,145
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  20,147Amortization
      of deferred compensation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  26,093
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  26,093Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (10,036,090
                  )
                  
                  
                  -
                  
                  
                  
                  (10,036,090
                  )Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (10,036,090
                  )BALANCE
      AT DECEMBER 31, 1996
                  
                  
                  
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  643,310
                  
                  
                  $
                  6,433
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  49,454,334
                  
                  
                  $
                  (35,368,878
                  )
                  
                  $
                  -
                  
                  
                  $
                  14,091,889Sale
      of Common Stock (2.92 per share, net)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  286,767
                  
                  
                  
                  2,868
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,377,583
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,380,451Warrants
      exchanged for Common Stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  64,364
                  
                  
                  
                  644
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (644
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Exercise
      of Common Stock options
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,067
                  
                  
                  
                  50
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  168,541
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  168,591Exercise
      of Common Stock warrants
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  953
                  
                  
                  
                  10
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  93,299
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  93,309Issuance
      of Common Stock for consulting
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,500
                  
                  
                  
                  25
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  99,975
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  100,000services
      (4.00 per share, net)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  62,579
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  62,579Amortization
      of deferred compensationNet
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (10,151,041
                  )
                  
                  
                  -
                  
                  
                  
                  (10,151,041
                  )Foreign
      currency translation adjustment
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,333
                  
                  
                  
                  1,333Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (10,149,708
                  )BALANCE
      AT DECEMBER 31, 1997
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  
                  
                  
                  $
                  -
                  
                  
                  
                  1,002,961
                  
                  
                  $
                  10,030
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  58,255,667
                  
                  
                  $
                  (45,519,919
                  )
                  
                  $
                  1,333
                  
                  
                  $
                  12,747,111Repurchase
      of Common Stockfor
      treasury (2,246,131 shares)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (100
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (100
                  )Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (10,654,597
                  )
                  
                  
                  -
                  
                  
                  
                  (10,654,597
                  )Foreign
      currency translation adjustment
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  55,891
                  
                  
                  
                  55,891Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (10,598,706
                  )BALANCE
      AT DECEMBER 31, 1998
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  
                  
                  
                  $
                  -
                  
                  
                  
                  1,002,961
                  
                  
                  $
                  10,030
                  
                  
                  $
                  (100
                  )
                  
                  $
                  -
                  
                  
                  $
                  58,255,667
                  
                  
                  $
                  (56,174,516
                  )
                  
                  $
                  57,224
                  
                  
                  $
                  2,148,305Sale
      of Common Stock (.05 per share, net)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,400,000
                  
                  
                  
                  14,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  686,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  700,000Net
      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
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  
                  
                  
                  $
                  -
                  
                  
                  
                  2,402,961
                  
                  
                  $
                  24,030
                  
                  
                  $
                  (100
                  )
                  
                  $
                  -
                  
                  
                  $
                  58,941,667
                  
                  
                  $
                  (57,428,212
                  )
                  
                  $
                  14,204
                  
                  
                  $
                  1,551,589Issuance
      of right to purchase Common Stockin
      lieu of compensation (0.45 per share)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  198,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  198,000Sale
      of common stock (0.05 per share)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  50,000
                  
                  
                  
                  500
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  24,500
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  25,000Sale
      of common stock (0.50 per share)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  300,000
                  
                  
                  
                  3,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,497,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,500,000Memorandum
      entry to record as expense forhonorary
      services rendered by a shareholder
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  100,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  100,000Repurchase
      of Common Stockfor
      treasury (60,000 shares)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3,000
                  )Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,522,233
                  )
                  
                  
                  -
                  
                  
                  
                  (1,522,233
                  )Foreign
      currency translation adjustment
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (14,204
                  )
                  
                  
                  (14,204
                  )Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (1,522,233
                  )BALANCE
      AT DECEMBER 31, 2000
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  
                  
                  
                  $
                  -
                  
                  
                  
                  2,752,961
                  
                  
                  $
                  27,530
                  
                  
                  $
                  (3,100
                  )
                  
                  $
                  -
                  
                  
                  $
                  60,761,167
                  
                  
                  $
                  (58,950,445
                  )
                  
                  
                  
                  
                  
                  $
                  1,835,152Memorandum
      entry to record as expense forhonorary
      services rendered by a shareholder
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  100,000
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  100,000Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,238,687
                  )
                  
                  
                  -
                  
                  
                  
                  (2,238,687
                  )Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (2,238,687
                  )BALANCE
      AT DECEMBER 31, 2001
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  2,752,961
                  
                  
                  $
                  27,530
                  
                  
                  $
                  (3,100
                  )
                  
                  $
                  -
                  
                  
                  $
                  60,861,167
                  
                  
                  $
                  (61,189,132
                  )
                  
                  $
                  -
                  
                  
                  $
                  (303,535
                  )Exercise
      of Common Stock options
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  6,275
                  
                  
                  
                  63
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  15,623
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  15,686Memorandum
      entry to record as expense forhonorary
      services rendered by a shareholder
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  100,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  100,000Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,888,789
                  )
                  
                  
                  -
                  
                  
                  
                  (2,888,789
                  )Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (2,888,789
                  )BALANCE
      AT DECEMBER 31, 2002
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  2,759,235
                  
                  
                  $
                  27,593
                  
                  
                  $
                  (3,100
                  )
                  
                  $
                  -
                  
                  
                  $
                  60,976,790
                  
                  
                  $
                  (64,077,921
                  )
                  
                  $
                  -
                  
                  
                  $
                  (3,076,638
                  )




F-4






Issuance
      of Common Stock for consultingservices
      (0.30 per share, net)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,000
                  
                  
                  
                  50
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  14,950
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  15,000Issuance
      of Common Stock for consultingservices
      (0.32 per share, net)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  46,875
                  
                  
                  
                  468
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  149,532
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  150,000Issuance
      of Common Stock for consultingservices
      (0.11 per share, net)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  27,500
                  
                  
                  
                  275
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  29,975
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  30,250Issuance
      of Common Stock as incentive forfunding
      by issue of notes (0.25 per share net)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  318,750
                  
                  
                  
                  3,188
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  793,687
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  796,875Common
      Stock (410,358 shares) to be issuedfor
      interest accrued on stockholder's advances
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  410
                  
                  
                  
                  101,976
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  102,386Memorandum
      entry to record as expense forhonorary
      services rendered by a shareholder
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  100,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  100,000Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,164,698
                  )
                  
                  
                  -
                  
                  
                  
                  (2,164,698
                  )Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (2,164,698
                  )BALANCE
      AT DECEMBER 31, 2003
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  3,157,360
                  
                  
                  $
                  31,574
                  
                  
                  $
                  (3,100
                  )
                  
                  $
                  410
                  
                  
                  $
                  62,166,910
                  
                  
                  $
                  (66,242,619
                  )
                  
                  $
                  -
                  
                  
                  $
                  (4,046,825
                  )Issuance
      of Common Stock as incentive forfunding
      by issue of notes (0.25 per share net)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  181,250
                  
                  
                  
                  1,813
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  451,312
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  453,125Issuance
      of Common Stock as incentive forfunding
      by issue of notes (0.31 per share net)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  189,500
                  
                  
                  
                  1,895
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  585,555
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  587,450Sale
      of Common Stock (0.10 per share)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  122,400
                  
                  
                  
                  1,224
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  160,601
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  161,825Common
      Stock (286,421 shares) to be issuedfor
      interest accrued on stockholder's advances
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  287
                  
                  
                  
                  64,456
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  64,743Common
      Stock (2,500,000 shares) to be issuedfor
      payment penalty on notes payable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,500
                  
                  
                  
                  347,500
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  350,000Memorandum
      entry to record as expense forhonorary
      services rendered by a shareholder
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  100,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  100,000Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3,846,517
                  )
                  
                  
                  -
                  
                  
                  
                  (3,846,517
                  )Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (3,846,517
                  )BALANCE
      AT DECEMBER 31, 2004
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  3,650,510
                  
                  
                  $
                  36,506
                  
                  
                  $
                  (3,100
                  )
                  
                  $
                  3,197
                  
                  
                  $
                  63,876,334
                  
                  
                  $
                  (70,089,136
                  )
                  
                  $
                  -
                  
                  
                  $
                  (6,176,199
                  )Sale
      of Common Stock ( for not less than $0.10 per share)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  324,033
                  
                  
                  
                  3,240
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  382,178
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  385,418Common
      Stock (2,310,300 shares) to be issuedfor
      interest accrued on stockholder's advances
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,310
                  
                  
                  
                  83,430
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  85,740Issue
      of shares of Common Stock for paymentpenalty
      on notes payable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  89,750
                  
                  
                  
                  897
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  17,052
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  17,949Issue
      of shares of Common Stock for paymentpenalty
      on notes payable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  250,000
                  
                  
                  
                  2,500
                  
                  
                  
                  -
                  
                  
                  
                  (2,500
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Memorandum
      entry to record as expense forhonorary
      services rendered by a shareholder
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  100,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  100,000Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,926,292
                  )
                  
                  
                  -
                  
                  
                  
                  (1,926,292
                  )Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (1,926,292
                  )BALANCE
      AT DECEMBER 31, 2005
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  4,314,294
                  
                  
                  $
                  43,143
                  
                  
                  $
                  (3,100
                  )
                  
                  $
                  3,007
                  
                  
                  $
                  64,458,994
                  
                  
                  $
                  (72,015,428
                  )
                  
                  $
                  -
                  
                  
                  $
                  (7,513,384
                  )Common
      Stock (841,438 shares) to be issuedfor
      interest accrued on stockholder's advances
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  842
                  
                  
                  
                  24,401
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  25,243Options
      issued for consulting services
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  47,512
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  47,512Memorandum
      entry to record as expense forhonorary
      services rendered by a shareholder
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  25,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  25,000Debt
      converted to stock
                  
                  
                  12,300,000
                  
                  
                  
                  12,300
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  999,455
                  
                  
                  
                  9,995
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,707,433
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,729,728Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (809,091
                  )
                  
                  
                  -
                  
                  
                  
                  (809,091
                  )Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (809,091
                  )BALANCE
      AT DECEMBER 31, 2006
                  
                  
                  12,300,000
                  
                  
                  
                  12,300
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,313,749
                  
                  
                  
                  53,138
                  
                  
                  
                  (3,100
                  )
                  
                  
                  3,849
                  
                  
                  
                  66,263,340
                  
                  
                  
                  (72,824,519
                  )
                  
                  
                  -
                  
                  
                  
                  (6,494,992
                  )Issuance
      of Common Stock for cash
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  100,000
                  
                  
                  
                  1,000
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  99,000
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  100,000Issuance
      of Common Stock issued for conversion of debt
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  100,000
                  
                  
                  
                  1,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  99,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  100,000Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,276,873
                  )
                  
                  
                  -
                  
                  
                  
                  (1,276,873
                  )Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (1,276,873
                  )BALANCE
      AT DECEMBER 31, 2007
                  
                  
                  12,300,000
                  
                  
                  $
                  12,300
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  5,513,749
                  
                  
                  $
                  55,138
                  
                  
                  $
                  (3,100
                  )
                  
                  $
                  3,849
                  
                  
                  $
                  66,461,340
                  
                  
                  $
                  (74,101,392
                  )
                  
                  $
                  -
                  
                  
                  $
                  (7,571,865
                  )10
      for 1 Reverse split of Common Stock
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -10
      for 1 Reverse split of Common Stock - Rounding
      differences
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  51Issuance
      of Common Stock for consulting services
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  19,179,700
                  
                  
                  
                  191,797
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,375,212
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  8,567,009Issuance
      of Common Stock for subscriptions
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  100,000
                  
                  
                  
                  1,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  99,000
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  100,000Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  (11,091,561
                  )
                  
                  
                  
                  
                  
                  
                  (11,091,561
                  )Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (11,091,561
                  )BALANCE
      AT DECEMBER 31, 2008
                  
                  
                  12,300,000
                  
                  
                  $
                  12,300
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  24,793,500
                  
                  
                  $
                  247,935
                  
                  
                  $
                  (3,100
                  )
                  
                  $
                  3,849
                  
                  
                  $
                  74,935,552
                  
                  
                  $
                  (85,192,953
                  )
                  
                  $
                  -
                  
                  
                  $
                  (9,996,417
                  )
















F-5






BIOFIELD
      CORP. ( A DEVELOPMENT STAGE COMPANY)CONSOLIDATED
      STATEMENTS OF CASH FLOWSPeriod
      October 16,1987
      (Date ofYear
      Ended
                                
                                
                                Inception)
      ThroughDecember
      31,
                                
                                
                                December
      31,2008
                                
                                
                                2007
                                
                                
                                2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                                
                                $
                                (11,091,561
                                )
                                
                                $
                                (1,276,873
                                )
                                
                                $
                                (85,192,953
                                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                                
                                
                                1,390
                                
                                
                                
                                816
                                
                                
                                
                                2,762,596Amortization
      of premiums on short-term investments
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                156,692Amortization
      of deferred financing costs
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                2,129,643Loss
      on disposal of property and equipment
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                194,102Loss
      on license and settlement agreements
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                49,026Loss
      on abandonment of patent applications
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                303,234Loss
      on inventory write-down
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                693,500Impairment
      of intangible assets
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                194,268Vendor
      settlements
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (77,257
                                )Noncash
      compensation
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                3,533,451Gain
      from disposition of fixed assets
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (159,473
                                )Interest
      paid in common stock
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                575,260Commisions
      and discounts on sale of common stock
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                96,919Loan
      repayment default payable in shares of common stock
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                350,000Consultancy
      fees paid in options
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                242,762Issuances
      of common stock for outstanding stock obligations
                                
                                
                                8,667,010
                                
                                
                                
                                -
                                
                                
                                
                                8,667,010Changes
      in assets and liabilities:Notes
      receivable
                                
                                
                                11,004
                                
                                
                                
                                (11,004
                                )
                                
                                
                                11,004Inventories
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (693,500
                                )Prepaids
                                
                                
                                9,000
                                
                                
                                
                                (766
                                )
                                
                                
                                (131,816
                                )Due
      to affiliate
                                
                                
                                -
                                
                                
                                
                                (8,234
                                )
                                
                                
                                337,921Accounts
      payable and accrued liabilities
                                
                                
                                1,899,849
                                
                                
                                
                                326,574
                                
                                
                                
                                5,278,761Net
      cash used in operating activities
                                
                                
                                (503,308
                                )
                                
                                
                                (969,487
                                )
                                
                                
                                (60,678,850
                                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Acquisitions
      of property and equipment
                                
                                
                                -
                                
                                
                                
                                (6,948
                                )
                                
                                
                                (2,610,691
                                )Costs
      incurred for patents and patent applications
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (782,527
                                )Proceeds
      from sale of property and equipment
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                294,748Purchases
      of short-term investments
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (26,476,638
                                )Proceeds
      from sale and maturity of short-term investments
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                26,406,378Net
      cash used in investing activities
                                
                                
                                -
                                
                                
                                
                                (6,948
                                )
                                
                                
                                (3,168,730
                                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Bank
      overdraft
                                
                                
                                9,912
                                
                                
                                
                                -
                                
                                
                                
                                9,912Repayments
      of capitalized lease obligations
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (82,234
                                )Proceeds
      from issuance of preferred stock - net
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                22,341,892Proceeds
      from issuance of common stock and common stock warrants -
    net
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                35,203,258Proceeds
      from exercise of common stock
                                
                                
                                -
                                
                                
                                
                                100,000
                                
                                
                                
                                298,546Proceeds
      from issuance of notes payable
                                
                                
                                187,058
                                
                                
                                
                                66,808
                                
                                
                                
                                1,676,058Proceeds
      from borrowings on line of credit
                                
                                
                                76,740
                                
                                
                                
                                342,180
                                
                                
                                
                                76,740Notes
      financing costs
                                
                                
                                -
                                
                                
                                
                                281,805
                                
                                
                                
                                262,077Advances
      from stockholder and related party
                                
                                
                                216,270
                                
                                
                                
                                196,609
                                
                                
                                
                                3,493,156Repayments
      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
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                2,546,533Net
      cash provided by financing activities
                                
                                
                                489,980
                                
                                
                                
                                987,402
                                
                                
                                
                                63,948,110NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                                
                                
                                (13,328
                                )
                                
                                
                                10,967
                                
                                
                                
                                100,530EFFECT
      OF EXCHANGE RATE CHANGES
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (111,497
                                )BEGINNING
      OF PERIOD
                                
                                
                                13,328
                                
                                
                                
                                2,361
                                
                                
                                
                                -END
      OF PERIOD
                                
                                $
                                -
                                
                                
                                $
                                13,328
                                
                                
                                $
                                (10,967
                                )Supplementary
      disclosure of cash flow information:Cash
      paid for interest
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                -Cash
      paid for taxes
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                -








See notes to consolidated financial
statements.








F-6






BIOFIELD
      CORP.(A
      Development Stage Company)CONSOLIDATED
      STATEMENTS OF CASH FLOWS (continued)Period
      October 16,1987
      (Date ofDecember
      31,
                            
                            
                            Inception)
      Through2008
                            
                            
                            2007
                            
                            
                            December
      31, 2008SUPPLEMENTAL
      DISCLOSURES OF CASHFLOW
      INFORMATION:Cash
      paid for interest
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            857,003Cash
      paid for taxes
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -SUPPLEMENTAL
      SCHEDULE FOR NONCASHINVESTING
      AND FINANCING ACTIVITIES:During
      the fiscal year ended December 31, 2005, 897,500 shares of Common
      Stockdue
      as penalty for non-payment of notes payable on maturity
      issued:
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            17,949During
      the fiscal year ended December 31, 2005, a principal shareholder and his
      associates repaidthe
      Company's line of credit and the debt is reflected in the financial
      statements asadvances
      from stockholder:
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            1,200,000During
      the fiscal year ended December 31, 2007, 1,000,000 shares of Common
      Stockissued
      to former employee, in liue of accrued liabilities
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            100,000
























F-7






BIOFIELD
CORP.


(A
Development Stage Company)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
1 – ORGANIZATION




Organization





Biofield
Corp. (the “Company”) has developed a highly proprietary system to assist in
detecting breast cancer. The procedure is non-invasive and radiation- and
compression-free. The procedure produces objective results within 20 minutes
without the need for interpretation by a radiologist.  The Company’s
breast cancer diagnostic device, the Biofield Diagnostic System (“BDS”), employs
single-use sensors to measure and analyze changes in cellular electrical charge
distributions associated with the development of epithelial cancers, such as
breast cancer.  The new prototype of the device is portable and the
size of a laptop computer.  The sensors are similar in size to an EEG/
EKG sensor. The current system is a final complete product and has received CE
mark certification from the European regulatory authorities. The CE mark
certification, which permits companies to market in European
Union member countries, was received in connection with our
former facility in Alpharetta, Georgia.  The Company is considering
other facilities which have already secured CE Mark
certification.  The Company currently operates in the biomedical
device market segment.  The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries.





Through
March 31, 2006, the Company’s focus and resources were primarily directed
towards securing approval of the BDS from the U.S. Food and Drug Administration
(“U.S. FDA”) to distribute in the U.S.  The Company continued to incur
significant losses associated with these activities and generated little or no
sales.  Subsequent to March 31, 2006, The MacKay Group (“MKG”) took
control of the Company’s management and operations (the “MKG Acquisition”).
Post-MKG Acquisition, the Company changed its primary focus towards penetrating
foreign markets with significant populations of women, where MKG had significant
industry and government contacts and relationships, where the need for the BDS
appeared compelling, and where the regulatory hurdles were not as burdensome.
The Company has secured or is working to secure significant government,
distribution, research and development and manufacture networks in the People’s
Republic of China, India, the Philippines and other parts of Asia, Mexico, Latin
America, the Caribbean, Africa, Europe, and the Middle East.  The
Company will continue its efforts to secure U.S. FDA approval. The Company
believes that the government and industry relationships, the possible
significant clinical data and research and development (especially as it may
pertain to screening and other cancers), and revenues it secures abroad will
facilitate its efforts to secure U.S. FDA approval in the future.





From
April 1, 2006 to December 31, 2006, the Company’s time, energies, and resources
were focused towards transitioning the Company from prior management to
MKG.  This included the tasks of moving the Company’s facilities,
inventory, and operations from Alpharetta, Georgia to Philadelphia, Pennsylvania
and transferring and reorganizing voluminous amounts of clinical and
technological data, and financial records.  The Company has since
completed the move to a facility in King of Prussia,
Pennsylvania.  With the transfer of vital financial and regulatory
records, the Company diligently proceeded during 2007 to bring all of its
Security and Exchange Commission (“SEC”) filings current. During the transition,
MKG successfully reduced approximately $2 million of the Company’s debt by
converting it to stock, and continues to work toward further debt
reduction.





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.





The
Company, as of December 31, 2008, is still considered to be in the development
stage.








F-8





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. Management’s
plans regarding these matters, with the objective of improving liquidity and
sustaining profitability in future years encompass the following:





·
            Move
      from a development stage entity to an operating
  entity;


·
            Settling
      legacy outstanding obligations;


·
            Continued
      review of all expenditures in order to minimize
  costs;


·
            Raise
      additional working capital as necessary;
and


·
            Generate
      revenue from foreign markets such as China and India where MKG has
      significant government and industrial
  relationships.





In the
absence of additional financing the Company may be unable to satisfy past due
obligations. Management believes that the actions presently being taken provide
the opportunity to improve liquidity and sustain profitability. However, there
are no assurances that management’s plans will be achieved. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty. Ultimately, the Company must
achieve profitable operations if it is to be a viable entity.





The
Company has never declared or paid any cash dividends on capital stock and do
not intend to pay any cash dividends in the foreseeable future.





NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Principals
of Consolidation




The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All material inter-company transactions and balances
have been eliminated in consolidation.





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.





Cash
and Cash Equivalents





The
Company considers all highly liquid debt securities purchased with original or
remaining maturities of three months or less to be cash equivalents. The
carrying value of cash equivalents approximates fair value.





Inventory
and Inventory Valuation Reserve





Inventories
are stated at the lower of cost or market, determined by the first-in, first-out
(FIFO) method, including provisions for obsolescence.  Obsolescence is
based upon assumptions concerning future demand, market conditions and
anticipated timing of the release of next generation products.  If
actual market conditions or future demand are less favorable than those
projected by management, or if next generation products are released earlier
than anticipated, additional inventory write-downs may be required.





Fair
Value of Financial Instruments





Cash and
cash equivalents, prepaid expenses and other current assets, accounts payable
and accrued expenses, as reflected in the consolidated financial statements,
approximate fair value because of the short-term maturity of these instruments.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.








F-9





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.  Repairs and maintenance are expensed as
incurred.





Patents
and Other Intangible Assets





The costs
of patents are amortized on a straight-line basis over their estimated economic
life, but not exceeding 17 years. For the years ended December 31, 2008 and
2007, we have no intangible assts.





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.





Income
Taxes





The
Company accounts for income taxes under Statement of Financial Account Standards
(“SFAS”) No. 109, Accounting for Income Taxes (“SFAS No. 109”). Deferred
income tax assets and liabilities are determined based upon differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Due to the net loss incurred in all periods, there is
no provision for income taxes provided as a full valuation allowance has been
established.




Derivative
Financial Instruments





The
Company does not use derivative instruments to hedge exposures to cash flow,
market, or foreign currency risks.





The
Company reviews the terms of convertible debt and equity instruments that are
issued to determine whether there are embedded derivative instruments, including
the embedded conversion option, that are required to be bifurcated and accounted
for separately as a derivative financial instrument. When the risks and rewards
of any embedded derivative instrument are not “clearly and closely” related to
the risks and rewards of the host instrument, the embedded derivative instrument
is generally required to be bifurcated and accounted for
separately.





The
conversion option has the risks and rewards associated with an equity
instrument, not a debt instrument, because its value is related to the value of
our common stock. Nonetheless, if the host instrument is considered to be
“conventional convertible debt” (or “conventional convertible preferred stock”),
bifurcation of the embedded conversion option is generally not required.
However, if the instrument is not considered to be conventional convertible debt
(or conventional convertible preferred stock), bifurcation of the embedded
conversion option may be required in certain circumstances. Generally, where the
ability to physical or net-share settle the conversion option is deemed to be
not within the control of the Company, the embedded conversion option is
required to be bifurcated and accounted for as a derivative financial instrument
liability. The Company currently does not have any such instruments requiring
classification as a liability.





In
connection with the sale of convertible debt and equity instruments, the Company
may also issue freestanding options or warrants. Additionally, the Company may
issue options or warrants to non-employees in connection with consulting or
other services they provide. Although the terms of the options and warrants may
not provide for net-cash settlement, in certain circumstances, physical or
net-share settlement may be deemed to not be within the control of the Company
and, accordingly, the Company may be required to account for these freestanding
options and warrants as derivative financial instrument liabilities, rather than
as equity. The Company currently does not have any such instruments requiring
classification as a liability.








F-10





Derivative
financial instruments are required to be initially measured at their fair value.
For derivative financial instruments that shall be accounted for as liabilities,
the derivative instrument is initially recorded at its fair value and is then
re-valued at each reporting date, with changes in the fair value reported as
charges or credits to income.





If the
embedded derivative instrument is to be bifurcated and accounted for as a
liability, the total proceeds received will be first allocated to the fair value
of the bifurcated derivative instrument. If freestanding options or warrants
were also issued and are to be accounted for as derivative instrument
liabilities (rather than as equity), the proceeds are next allocated to the fair
value of those instruments. The remaining proceeds, if any, are then allocated
to the convertible instrument itself, usually resulting in that instrument being
recorded at a discount from its face amount. In circumstances where a
freestanding derivative instrument is to be accounted for as an equity
instrument, the proceeds are allocated between the convertible instrument and
the derivative equity instrument, based on their relative fair
values.





During
2008 and 2007 none of the above mentioned convertible debt and equity
instruments were considered to be derivative instruments.





Warrants





The
Company issues warrants to purchase the Company’s common stock in conjunction
with debt and certain preferred stock issues. Warrants are accounted for in
accordance with the provisions of Accounting Principles Bulletin (“APB”) No. 14,
“Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants”
(“APB No.14”) and Emerging Issues Task Force (“EITF”) No. 00-19, “Accounting for
Derivative Financial Instruments Accounting for Derivative Financial Instruments
Indexed to or Potentially Settled in Indexed to or Potentially Settled in a
Company’s Own Stock” (“EITF 00-19”). The fair value of warrants granted in
conjunction with debt and equity issuances is estimated on the grant date using
the Black-Scholes option pricing model. The value of warrants is separated from
the total consideration of each issue and included as an element of additional
paid-in capital.





Net
Loss Per Share





Basic and
diluted net losses per common share are presented in accordance with SFAS
No.128, “Earning Per Share,” for all periods presented. Stock subscriptions,
options and warrants have been excluded from the calculation of the diluted loss
per share for the years ended December 31, 2008 and 2007, because all such
securities were anti-dilutive. The net loss per share is calculated by dividing
the net loss by the weighted average number of shares outstanding during the
periods.





Reclassification





Certain
amounts in the prior year consolidated financial statements have been
reclassified for comparative purposes to conform to the presentation in the
current year consolidated financial statements.





Impairment
of Long-Lived Assets





The
Company has adopted SFAS No. 144 “Impairment of Long-Lived Assets”, which
requires that long-lived assets and certain identifiable intangibles held and
used by the Company be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Events relating to recoverability may include significant
unfavorable changes in business conditions, recurring losses, or a forecasted
inability to achieve break-even operating results over an extended
period.  The Company evaluates the recoverability of long-lived assets
based upon forecasted undiscounted cash flows.  Should impairment in
value be indicated, the carrying value of intangible assets will be adjusted,
based on estimates of future discounted cash flows resulting from the use and
ultimate disposition of the asset. SFAS No. 144 also requires that assets to be
disposed of be reported at the lower of the carrying amount or the fair value
less costs to sell.








F-11





Research
and Development





The
Company accounts for research and development costs in accordance with the SFAS
No. 2, “Accounting for Research and Development Costs”. Accordingly, internal
research and development costs are expensed as incurred.  Third-party
research and developments costs are expensed when the contracted work has been
performed or as milestone results have been
achieved.  Company-sponsored research and development costs related to
both present and future products are expensed in the period
incurred.  Total expenditures on research and product development
incurred for the period from October 16, 1987 (date of inception) to December
31, 2008 were $40,481,889.  In 2008 and 2007 there were no additional
expenditures on research and product development.





Comprehensive
Income





SFAS No.
130, “Reporting Comprehensive Income”, establishes standards for reporting and
displaying of comprehensive income, its components and accumulated
balances.  Comprehensive income is defined to include all changes in
equity, except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS No. 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.




RECENT
ACCOUNTING PRONOUNCEMENTS





Employers’
Disclosures about Postretirement Benefit Plan Assets





In
December 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position on Financial Accounting Standard (“FSP FAS”) No. 132(R)-1,
“Employers’ Disclosures about Postretirement Benefit Plan
Assets.”  This FSP amends FASB Statement No. 132(R) (“SFAS No.
132(R)”), “Employers’ Disclosures about Pensions and Other Postretirement
Benefits,” to provide guidance on an employer’s disclosures about plan assets of
a defined benefit pension or other postretirement plan.  FSP FAS No.
132(R)-1 also includes a technical amendment to SFAS No. 132(R) that requires a
nonpublic entity to disclose net periodic benefit cost for each annual period
for which a statement of income is presented.  The required
disclosures about plan assets are effective for fiscal years ending after
December 15, 2009.  The technical amendment was effective upon
issuance of FSP FAS No. 132(R)-1.  The Company is currently assessing
the impact of FSP FAS No. 132(R)-1 on its consolidated financial position and
results of operations.





Effective
Date of FASB Interpretation No. 48 for Certain Nonpublic
Enterprises





In
December 2008, the FASB issued FSP FIN No. 48-3, “Effective Date of FASB
Interpretation No. 48 for Certain Nonpublic Enterprises.”  FSP FIN No.
48-3 defers the effective date of FIN No. 48, “Accounting for Uncertainty in
Income Taxes,” for certain nonpublic enterprises as defined in SFAS No. 109,
“Accounting for Income Taxes.”  However, nonpublic consolidated
entities of public enterprises that apply U.S. generally accepted accounting
principles (GAAP) are not eligible for the deferral.  FSP FIN No. 48-3
was effective upon issuance.  The impact of adoption was not material
to the Company’s consolidated financial condition or results of
operations.





Disclosures
by Public Entities (Enterprises) about Transfers of Financial Assets and
Interests in Variable Interest Entities





In
December 2008, the FASB issued FSP FAS No. 140-4 and FIN No. 46(R) -8,
“Disclosures by Public Entities (Enterprises) about Transfers of Financial
Assets and Interests in Variable Interest Entities.”  This FSP amends
SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,” to require public entities to provide
additional disclosures about transfers of financials assets.  FSP FAS
No. 140-4 also amends FIN No. 46(R)-8, “Consolidation of Variable Interest
Entities,” to require public enterprises, including sponsors that have a
variable interest entity, to provide additional disclosures about their
involvement with a variable interest entity.  FSP FAS No. 140-4 also
requires certain additional disclosures, in regards to variable interest
entities, to provide greater transparency to financial statement
users.  FSP FAS No. 140-4 is effective for the first reporting period
(interim or annual) ending after December 15, 2008, with early application
encouraged.  The Company is currently assessing the impact of FSP FAS
No. 140-4 on its consolidated financial position and results of
operations.








F-12





Accounting
for an Instrument (or an Embedded Feature) with a Settlement Amount That is
Based on the Stock of an Entity’s Consolidated Subsidiary





In
November 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) Issue No.
08-8, “Accounting for an Instrument (or an Embedded Feature) with a Settlement
Amount That is Based on the Stock of an Entity’s Consolidated
Subsidiary.”  EITF No. 08-8 clarifies whether a financial instrument
for which the payoff to the counterparty is based, in whole or in part, on the
stock of an entity’s consolidated subsidiary is indexed to the reporting
entity’s own stock.  EITF No. 08-8 also clarifies whether or not stock
should be precluded from qualifying for the scope exception of SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” or from being
within the scope of EITF No. 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock.”  EITF No. 08-8 is effective for fiscal years beginning on or
after December 15, 2008, and interim periods within those fiscal
years.  The Company is currently assessing the impact of EITF No. 08-8
on its consolidated financial position and results of operations.





Accounting
for Defensive Intangible Assets





In
November 2008, the FASB issued EITF Issue No. 08-7, “Accounting for Defensive
Intangible Assets.”  EITF No. 08-7 clarifies how to account for
defensive intangible assets subsequent to initial measurement.  EITF
No. 08-7 applies to all defensive intangible assets except for intangible assets
that are used in research and development activities.  EITF No. 08-7
is effective for intangible assets acquired on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  The Company is currently assessing the impact of EITF No. 08-7
on its consolidated financial position and results of operations.





Equity
Method Investment Accounting Considerations





In
November 2008, the FASB issued EITF Issue No. 08-6 (“EITF No. 08-6”), “Equity
Method Investment Accounting Considerations.”  EITF No. 08-6 clarifies
accounting for certain transactions and impairment considerations involving the
equity method.  Transactions and impairment dealt with are initial
measurement, decrease in investment value, and change in level of ownership or
degree of influence.  EITF No. 08-6 is effective on a prospective
basis for fiscal years beginning on or after December 15, 2008.  The
Company is currently assessing the impact of EITF No. 08-6 on its consolidated
financial position and results of operations.





Determining
the Fair Value of a Financial Asset When the Market for That Asset is Not
Active





In
October 2008, the FASB issued FSP FAS No. 157-3, “Determining the Fair Value of
a Financial Asset When the Market for That Asset is Not Active.”  This
FSP clarifies the application of SFAS No. 157, “Fair Value Measurements,” in a
market that is not active.  The FSP also provides examples for
determining the fair value of a financial asset when the market for that
financial asset is not active.  FSP FAS No. 157-3 was effective upon
issuance, including prior periods for which financial statements have not been
issued.  The impact of adoption was not material to the Company’s
consolidated financial condition or results of operations.





Issuer’s
Accounting for Liabilities Measured at Fair Value with a Third-Party Credit
Enhancement





In
September 2008, the FASB issued EITF Issue No. 08-5 (“EITF No. 08-5”), “Issuer’s
Accounting for Liabilities Measured at Fair Value with a Third-Party Credit
Enhancement.”  This FSP determines an issuer’s unit of accounting for
a liability issued with an inseparable third-party credit enhancement when it is
measured or disclosed at fair value on a recurring basis.  FSP EITF
No. 08-5 is effective on a prospective basis in the first reporting period
beginning on or after December 15, 2008.  The Company is currently
assessing the impact of FSP EITF No. 08-5 on its consolidated financial position
and results of operations.








F-13





Disclosures
about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement
No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date
of FASB Statement No. 161





In
September 2008, the FASB issued FSP FAS No. 133-1, “Disclosures about Credit
Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and
FASB Interpretation No. 45; and Clarification of the Effective Date of FASB
Statement No. 161.”  This FSP amends FASB Statement No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” to require
disclosures by sellers of credit derivatives, including credit derivatives
embedded in a hybrid instrument.  The FSP also amends FASB
Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others,” to require
and additional disclosure about the current status of the payment/performance
risk of a guarantee.  Finally, this FSP clarifies the Board’s intent
about the effective date of FASB Statement No. 161, “Disclosures about
Derivative Instruments and Hedging Activities.”  FSP FAS No. 133-1 is
effective for fiscal years ending after November 15, 2008.  The
Company is currently assessing the impact of FSP FAS No. 133-1 on its
consolidated financial position and results of operations.





Endowments
of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an
Enacted Version of the Uniform Prudent Management of Institutional Funds Act,
and Enhanced Disclosures for all Endowment Funds





In August
2008, the FASB issued FSP FAS No. 117-1, “Endowments of Not-for-Profit
Organizations: Net Asset Classification of Funds Subject to an Enacted Version
of the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”), and
Enhanced Disclosures for all Endowment Funds.”  The intent of this FSP
is to provide guidance on the net asset classification of donor-restricted
endowment funds.  The FSP also improves disclosures about an
organization’s endowment funds, both donor-restricted and board-designated,
whether or not the organization is subject to the UPMIFA.  FSP FAS No.
117-1 is effective for fiscal years ending after December 31,
2008.  Earlier application is permitted provided that annual financial
statements for that fiscal year have not been previously issued.  The
Company is currently assessing the impact for FSP FAS No. 117-1 on its
consolidated financial position and results of operations.





Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities





In
June 2008, the FASB issued EITF Issue No. 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities.” EITF No. 03-6-1 addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting
and, therefore, need to be included in the earnings allocation in computing
earnings per share under the two-class method. The EITF 03-6-1 affects entities
that accrue dividends on share-based payment awards during the awards’ service
period when the dividends do not need to be returned if the employees forfeit
the award. EITF 03-6-1 is effective for fiscal years beginning after
December 15, 2008. The Company is currently assessing the impact of EITF
03-6-1 on its consolidated financial position and results of
operations.





Determining
Whether an Instrument (or an Embedded Feature) Is Indexed to an entity's Own
Stock





In June
2008, the FASB ratified EITF Issue No. 07-5, "Determining Whether an Instrument
(or an Embedded Feature) Is indexed to an Entity's Own Stock.”  EITF
07-5 provides that an entity should use a two step approach to evaluate whether
an equity-linked financial instrument (or embedded feature) is indexed to its
own stock, including evaluating the instrument's contingent exercise and
settlement provisions.  It also clarifies on the impact of foreign
currency denominated strike prices and market-based employee stock option
valuation instruments on the evaluation.  EITF 07-5 is effective for
fiscal years beginning after December 15, 2008.  The Company is
currently assessing the impact of EITF 07-5 on its consolidated financial
position and results of operations.





Accounting
for Financial Guarantee Insurance Contracts—an interpretation of FASB Statement
No. 60





In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts – an interpretation of FASB Statement No.
60.”  This statement requires that an insurance enterprise recognize a
claim liability prior to an event of default (insured event) when there is
evidence that credit deterioration has occurred in an insured financial
obligation.  SFAS No. 163 also clarifies how SFAS No. 60 applies to
financial guarantee insurance contracts, including the recognition and
measurement to be used to account for premium revenue and claim liabilities to
increase comparability in financial reporting of financial guarantee insurance
contracts by insurance enterprises.  SFAS No. 163 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and all interim periods within those fiscal years, except for some disclosures
about the insurance enterprise’s risk-management activities of the insurance
enterprise be effective for the first period (including interim periods)
beginning after issuance of SFAS No. 163.  Except for those
disclosures, earlier application is not permitted.








F-14





Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)





In
May 2008, the FASB issued FSP Accounting Principles Board (“APB”) Opinion
No. 14-1, “Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement).” The FSP
clarifies the accounting for convertible debt instruments that may be settled in
cash (including partial cash settlement) upon conversion.  The FSP
requires issuers to account separately for the liability and equity components
of certain convertible debt instruments in a manner that reflects the issuer's
nonconvertible debt (unsecured debt) borrowing rate when interest cost is
recognized.  The FSP requires bifurcation of a component of the debt,
classification of that component in equity and the accretion of the resulting
discount on the debt to be recognized as part of interest expense in our
consolidated statement of operations.  The FSP requires retrospective
application to the terms of instruments as they existed for all periods
presented.  The FSP is effective for fiscal years beginning after
December 15, 2008 and early adoption is not permitted.  The Company is
currently evaluating the potential impact of FSP APB 14-1 upon its consolidated
financial statements.







The
Hierarchy of Generally Accepted Accounting Principles







In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles.”  SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements.  SFAS No. 162 is effective 60
days following the SEC's approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity
with Generally Accepted Accounting Principles".  The implementation of
this standard will not have a material impact on the Company's consolidated
financial position and results of operations.





Determination
of the Useful Life of Intangible Assets





In April
2008, the FASB issued FSP FAS No. 142-3, “Determination of the Useful Life of
Intangible Assets”, which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
intangible assets under SFAS No. 142 “Goodwill and Other Intangible
Assets”.  The intent of this FSP is to improve the consistency between the
useful life of a recognized intangible asset under SFAS No. 142 and the period
of the expected cash flows used to measure the fair value of the asset under
SFAS No. 141 (revised 2007) “Business Combinations” and other U.S. generally
accepted accounting principles.    The Company is currently
evaluating the potential impact of FSP FAS No. 142-3 on its consolidated
financial statements.





Disclosure
about Derivative Instruments and Hedging Activities





In March
2008, the FASB issued SFAS No. 161, “Disclosure about Derivative Instruments and
Hedging Activities, an amendment of SFAS No. 133.” This statement requires that
objectives for using derivative instruments be disclosed in terms of underlying
risk and accounting designation. The Company is required to adopt SFAS No. 161
on January 1, 2009. The Company is currently evaluating the potential impact of
SFAS No. 161 on the Company’s consolidated financial statements.










F-15





Delay in
Effective Date





In
February 2008, the FASB issued FSP FAS No. 157-2, “Effective Date of FASB
Statement No. 157.” This FSP delays the effective date of SFAS No. 157 for
all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually)
to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years. The impact of adoption was not material to the
Company’s consolidated financial condition or results of
operations.





Business
Combinations





In
December 2007, the FASB issued SFAS No. 141(R) “Business
Combinations.”  This Statement replaces the original SFAS No.
141.  This Statement retains the fundamental requirements in SFAS
No. 141 that the acquisition method of accounting (which SFAS No. 141
called the purchase method) be used for all business combinations and for an
acquirer to be identified for each business combination. The objective of SFAS
No. 141(R) is to improve the relevance, and comparability of the information
that a reporting entity provides in its financial reports about a business
combination and its effects. To accomplish that, SFAS No. 141(R) establishes
principles and requirements for how the acquirer:




a.
            Recognizes
      and measures in its financial statements the identifiable assets acquired,
      the liabilities assumed, and any noncontrolling interest in the
      acquiree.






b.
            Recognizes
      and measures the goodwill acquired in the business combination or a gain
      from a bargain purchase.






c.
            Determines
      what information to disclose to enable users of the financial statements
      to evaluate the nature and financial effects of the business
      combination.






This
Statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008 and may not be applied before
that date. The Company is unable, at this time, to determine the effect that its
adoption of SFAS No. 141(R) will have, if any, on its consolidated results of
operations and financial condition.




Noncontrolling
Interests in Consolidated Financial Statements—an amendment of ARB No.
51




In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51.”  This
Statement amends the original Accounting Review Board (ARB) No. 51 “Consolidated
Financial Statements” to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. This Statement is effective for fiscal
years and interim periods within those fiscal years, beginning on or after
December 15, 2008 and may not be applied before that date.  The
Company is unable, at this time, to determine the effect that its adoption of
SFAS No. 160 will have, if any, on its consolidated results of operations and
financial condition.




Fair
Value Option for Financial Assets and Financial Liabilities




In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of SFAS No.
115,” which becomes effective for the Company on February 1, 2008, permits
companies to choose to measure many financial instruments and certain other
items at fair value and report unrealized gains and losses in earnings. Such
accounting is optional and is generally to be applied instrument by instrument.
The election of this fair-value option did not have a material effect on its
consolidated financial condition, results of operations, cash flows or
disclosures.








F-16






Fair
Value Measurements






In
September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements.”  SFAS No. 157 provides guidance for using fair value to
measure assets and liabilities.  SFAS No. 157 addresses the requests
from investors for expanded disclosure about the extent to which companies’
measure assets and liabilities at fair value, the information used to measure
fair value and the effect of fair value measurements on earnings. SFAS No. 157
applies whenever other standards require (or permit) assets or liabilities to be
measured at fair value, and does not expand the use of fair value in any new
circumstances. SFAS No. 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and was adopted by the Company in
the first quarter of fiscal year 2008. There was no material impact on the
Company’s consolidated results of operations and financial condition due to the
adoption of SFAS No. 157.






Accounting
Changes and Error Corrections




In May
2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections,”
which replaces APB Opinion No. 20, "Accounting Changes," and SFAS No. 3,
"Reporting Accounting Changes in Interim Financial Statements - An Amendment of
APB Opinion No. 28.”  SFAS No. 154 provides guidance on the accounting
for and reporting of accounting changes and error corrections, and it
establishes retrospective application, or the latest practicable date, as the
required method for reporting a change in accounting principle and the reporting
of a correction of an error. SFAS No. 154 is effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15,
2005. The Company adopted SFAS No. 154 in the first quarter of fiscal year 2007
and did not have a material impact on its consolidated results of operations and
financial condition.





NOTE
3 – MATERIAL DEVELOPMENTS





The March
30, 2006 MKG Acquisition





On March
30, 2006, MKG took control of the Company’s management and operations as a
result of a series of agreements.  The explicit objective of the
agreements was to give MKG control of the Company’s management, board,
operations, and 51% of the Company’s common shares on a fully diluted
basis.  The change of control was effectuated by way of, among other
things, stock acquisitions, debt conversion, and board changes.  As of
the MKG Acquisition, all of the Company’s prior royalty, distribution,
employment, research and development, and consulting agreements had been or were
terminated.





MKG
acquired all of the Company’s common shares (8,747,528 shares) owned by the
Company’s former chairman and chief executive officer, Dr. David Long and his
family and affiliates, pursuant to a Stock Acquisition and Voting Agreement (the
“Long Agreement”) and a Stock Acquisition Agreement between MKG and the David
and Donna Long Family Foundation (the “Long Foundation
Agreement”).  In total, MKG acquired approximately 17.49% of all
common shares of the Company on a fully diluted basis or approximately 20.6% of
all outstanding shares of common stock of the Company issued as of December 31,
2005 and  5,898,495 of those shares were subsequently assigned to
James MacKay as MKG’s designee in accordance with the Long Agreement and Long
Foundation Agreement.





Under the
Long Agreement, MKG agreed to take control of the Company’s management and
operations, fund the Company, help restructure the Company’s debt, and use its
government and industry contacts and relationships in Asia, Europe, and
elsewhere to distribute, manufacture, and develop the BDS in foreign
markets.  Additionally, MKG agreed to give the Longs a royalty equal
to 1% of the Company’s net sales worldwide for three years commencing as of
March 31, 2006.  MKG also entered into a three-year, $60,000 per year
consulting agreement with Dr. David Long or his nominee.





The
Debt Conversion





The Long
Agreement also provided for the reduction of $2 million of the Company’s debt
owed to Dr. David Long and his family and affiliates by way of an assignment of
this debt to MKG and the subsequent conversion of the debt into
stock.








F-17





Under the
Long Agreement, the Longs and their affiliates (“LFCG”) assigned approximately
$2 million (comprising principal and accrued interest) of the total debt (over
$4.3 million) owed them by the Company to MKG.  MKG was entitled to
designate which portion of the total LFCG debt to assign.  The
assigned debt was to be converted into stock of the Company at $0.05 per share
(the “Converted Shares”).  Upon conversion, MKG retained a portion of the
Converted Shares so that, together with the shares MKG acquired from LFCG and
the David and Donna Long Family Foundation, MKG would then hold 51% of all the
shares of Common Stock issued and outstanding on a fully-diluted basis.
 Any shares remaining of the Converted Shares not retained by MKG were to
be transferred to LFCG, provided that LFCG agreed to deliver a proxy with
respect to all voting rights associated with those remaining
shares.  In addition, pursuant to the Long Agreement, to the extent
that any other debt owed to LFCG by the Company is converted into shares of
Common Stock, LFCG agreed to transfer 51% of such shares to MKG.





On April
3, 2006 MKG made a demand on the Company to effectuate the debt conversion,
designating certain portions of the total LFCG debt.  In accordance
with the Long Agreement, $499,728 of the assigned debt was authorized to be
converted into 9,994,550 pre-reverse stock split common shares and $1,230,000 of
the assigned debt into 12,300,000 shares of the Preferred Series A stock of the
Company, with such shares to be issued to James MacKay as MKG’s designee.
 Mr. MacKay is the principal of MKG and is Chairman of the Board of the
Company.  All remaining portions of the assigned debt, classified on
the balance sheet as notes payable and not converted (e.g., $270,273), were
retained by MKG and are entitled to be converted at a later time.  The
preferred shares were deemed to be issued during 2007 and the common shares
authorized to be converted were considered to be issuable as of December 31,
2007.  Each share of voting preferred stock entitles the holder
thereto to two (2) votes.





On
January 17, 2008, the Company issued 9,994,550 shares of common stock and
12,300,000 shares of voting preferred stock of the Company to Mr. MacKay to
consummate the conversion of the Converted Debt.





As a
result of the issuance of common stock and voting preferred stock pursuant to
the conversion of Converted Debt, Mr. MacKay became the holder of shares of the
Company’s capital stock entitling him to approximately 51.96% of all of the
votes entitled to be cast by stockholders of the Company on a fully-diluted
basis (i.e., counting all outstanding options and warrants on an as-exercised
basis).





The
MKG Master License





On July
27, 2007, the Company signed a master license agreement (the “Agreement”) with
MKG. Pursuant to the Agreement, the Company granted to MKG an exclusive (even to
the Company), sub licensable, royalty-bearing, worldwide license to make, have
made, use, import, offer for sale, and sell devices, sensors and other products
or services incorporating the Company’s patented and unpatented breast cancer
detection technology, including, but not limited to, the BDS device, the
Biofield Breast Cancer Proliferation Detection System, the Breast Cancer
Diagnostic Device, and the Biofield Breast Examination or BBESM
 (collectively, the “Technology”).  The Company also granted MKG, on a
worldwide basis, the Exclusive Distribution, Manufacturing, Development,
Clinical, and research and development rights (as those terms are defined in the
Agreement) with regard to the Technology. Under the Agreement, MKG assumes from
the Company the sole responsibility and expense to market, manufacture, further
develop (clinically and technically), and otherwise commercialize the
Technology. MKG further assumes from the Company the sole responsibility and
expense to secure additional regulatory approvals and to conduct additional
clinical trials and research and development.





In return
for the exclusive worldwide license, MKG will pay the Company royalties based on
gross receipts received by MKG and its affiliates in connection with the
Technology. MKG must pay minimum royalties. In addition to royalties, MKG will
pay the Company licensing fees based upon certain milestones. The term of the
Agreement is 10 years with automatic renewals for additional 10-year terms
unless terminated by one of the parties pursuant to the terms of the
Agreement.










F-18





NOTE
4 - INVENTORIES





Inventories
at December 31, 2008 and 2007 consisted of the following:





2008
                
                
                2007Components
      and supplies
                
                $
                -
                
                
                $
                37,749Finished
      goods
                
                
                -
                
                
                
                437,669-
                
                
                
                475,418Less:  Reserve
      for potential losses
                
                
                -
                
                
                
                (475,418
                )$
                -
                
                
                $
                -





During
2007 eleven devices, which had been fully reserved, were sold.





NOTE
5 – PROPERTY, PLANT AND EQUIPMENT





Property,
plant and equipment at December 31, 2008 and 2007 consisted of the
following:





2008
                
                
                2007Furniture
      and Office equipment
                
                $
                61,686
                
                
                $
                61,686Plant
      and production equipment
                
                
                144,308
                
                
                
                141,308205,994
                
                
                
                205,994Less:  Accumulated
      depreciation
                
                
                200,783
                
                
                
                199,393$
                5,211
                
                
                $
                6,601








Depreciation
expenses in 2008, 2007 and for the period from inception through December 31,
2008, were $1,390, $816 and $2,762,596, respectively.





NOTE
6 - PATENT AND PATENT APPLICATION COSTS





In
December 2005, during the Company’s annual review of the carrying values of
patents and trademarks, management determined that, due to increased uncertainty
in obtaining FDA’s approval to sell the Company’s device in the United States,
the recoverability of the carrying values of Patents and Trade Marks was in
doubt. Management was unable to determine and project future undiscounted cash
flows for these assets with reasonable accuracy due to the uncertainties.
Consequently, the Company recorded an impairment charge of $194,268 for the full
carrying value of these assets as a component of operating expenses in the
statement of operations as a separate line item.





Three was
no amortization expense for patents for the years ended December 31, 2008 and
2007.  Amortization expense from inception through December 31, 2008,
was $486,860.





NOTE
7 - ACCRUED EXPENSES





Accrued
expenses at December 31, 2008 and 2007 consisted of the following:





2008
                
                
                2007Professional
      fees
                
                $
                848,704
                
                
                $
                132,573Due
      to officers
                
                
                985,833
                
                
                
                -Due
      to ex-employees
                
                
                117,245
                
                
                
                117,245Other
                
                
                107,041
                
                
                
                180,672$
                2,058,823
                
                
                $
                430,489








F-19





Due to
severe cash flow constraints experienced by the Company in 2003, its employees
were not paid salaries from April 16, 2003 to October 31, 2003.  Five
of its six employees then agreed to the deferment of the payment of the salary
due to them, payable with 100% interest thereon, until the receipt of the
proceeds from new funding.  The Company also granted options to
acquire 514,227 shares of Common Stock to these employees at an exercise price
of $0.33 per share, the closing market price of the Company’s shares of Common
Stock on the date of the grant in consideration for the reduction in
remuneration accepted by them during the first four months of
2003.  On September 11, 2007, the Company agreed to issue its former
chief operating officer, John Stephens, 1,000,000 shares of common stock for
services rendered.  The share price at the close of the market on
September 11, 2007 was $0.10.  As of December 31, 2008, the unpaid
salary and interest thereon, together with unpaid remuneration for subsequent
periods, amounting to $117,245 and is recorded as accrued expenses in the
financial statements.





NOTE
8 – DUE TO AFFILIATE





As of
December 31, 2008 and 2007 the Company had recorded $329,686, for amounts due to
affiliates.





The
Company, over time, recorded amounts due to Abel Laboratories, which was an
affiliate of the Company’s former Chairman, CEO and principal shareholder, Dr.
David Long. The amount due to Abel Laboratories is related to various laboratory
expenses and, as of December 31, 2008 and 2007, remained constant at
$329,686.  Interest does not accrue on the amount due, there is no
maturity date and the amount is due on demand and does not have any convertible
features.





NOTE
9 – ADVANCES FROM STOCKHOLDER





As of
December 31, 2008 and 2007, the Company had recorded $2,278,973 and $2,162,703,
respectively, for advances from stockholder.





The
Company’s operations from 2002 to the March 30, 2006 MKG Acquisition were
primarily funded through advances, among other funding vehicles, by its then
majority shareholder, chairman, and chief executive officer, Dr. David Long, and
his family and affiliates LFCG.  As of December 31, 2005, the
Company’s overall debt to LFCG was approximately $4,425,853, of which $3,488,816
was recorded as advances from stockholder.





On March
30, 2006, to induce MKG to take control of the Company and to effectuate the
transfer to MKG of 51% of the Company’s stock on a fully diluted basis, LFCG
agreed to assign MKG approximately $2 million of the total debt owed to it by
the Company (the “Assigned Debt”). Under the MKG-LFCG Agreement, the Assigned
Debt was to be converted into stock of the Company at a conversion rate
commensurate to $0.05 per common share. On April 3, 2006, MKG made a demand on
the Company to effectuate the debt conversion.





The
advances bear interest at 10% per annum. In 2008 and 2007, the Company accrued
$239,220 and $263,418, respectfully, of interest for this account and has record
this amount in advances from stockholder.  All interest accruing on
the advances from stockholder are payable to LFCG and total
$289,760.  There is no maturity date for the advances from stockholder
and only $270,273, which is retained by MKG, is entitled to be converted to
stock at a later time.  The remaining amount outstanding is still
assigned to LFCG.





NOTE
10 – NOTES PAYABLE





Notes
Payable





During
2006, the Company issued notes totaling $110,000 for past due
obligations.  These notes bear interest at 18% through the maximum
amount allowed by law. For the year ended December 31, 2008 and 2007, $23,400
and $19,800 of interest, respectively, was recorded in accrued
interest.  These notes were due at various dates during 2007 and 2008
and are in default. The Company continues to work with the holders of these
notes to resolve the defaults.





Notes
Payable to Stockholder





As of
December 31, 2008 and 2007, the Company had recorded $808,383 and $801,702,
respectively, for notes payable to stockholder.  In 2002, the Company
issued a 10% promissory convertible note in the principal amount of $450,000 to
a stockholder. The note, with accrued unpaid interest, has no maturity date and
is convertible at the option of the holder into subscriptions of common stock at
a rate of $0.40 per share.  Interest for 2008 and 2007 totaled $73,489
and $66,808, respectively, and has been added to the note amount.








F-20





Notes
Payable for Private Placements





Over the
course of time, the Company sold various private placements in various
increments of units of debt and common stock. These notes payable, as of
December 31, 2008 and 2007, totaled $1,379,000.  Interest accrues at
either 12% or 18%, depending upon the date of placement of note, and for 2008
and 2007 totaled $239,220, each, and has been recorded in accrued
interest.  The notes for these private placements were due on various
dates and the Company is currently in default. Until the notes issued under the
private placements are repaid, the holders of the notes have the right to
participate in any offering by the Company of its equity securities (including
convertible debt) by using the notes (and accrued interest thereon) to acquire
such equity securities at a 25% discount from the offering price (and if the
offering is of convertible debt to acquire such debt at face with a conversion
feature at a 25% discount).





NOTE
11 – LINE OF CREDIT





On
January 5, 2007 MKG agreed to advance additional funds to the Company under a
line of credit.  Under the line of credit, monies advanced by MKG
would bear 12% simple annual interest.  There was no maturity
date.  MKG had the option to convert the principal and accrued
interest into stock at a share price equal to the lesser of: (a) the 70% of the
share price at the close of the market as of receipt of funds; or (b) the terms
extended by the Company to a funder making a total equity investment of at least
US $1 million or in connection with a merger/acquisition or change in control.
In 2007, MKG advanced the Company approximately $342,000.  The
interest accrued for MKG advances in 2008 and 2007 was $23,158 and $19,185,
respectively.





NOTE
12 – STOCKHOLDERS’ EQUITY





Treasury
Stock





In
December 1998, the Company repurchased 2,246,131 shares of Common Stock for
$100. In June 2000, the Company repurchased 60,000 shares of Common Stock for
$3,000 from an executive who resigned.  The Company holds all of these
shares in its treasury.  There are no changes as of December 31,
2008.





Options
Issued for Consulting Fees





The
Company issued 1.2 million options based upon the fair value of service render
at $47,512 for consulting fees recognized in operating results for the year
ended December 31, 2006. These options have an exercise price of $0.04 per share
and expire on February 23, 2011. During 2008 and 2007 there were no options
issued or exercised.





Shares
Due for Interest Accrued on Advances From Stockholder





Interest
on certain advances from stockholder are payable in stock subscriptions of
common stock. At December 31, 2006, stock subscriptions of common stock have
been reserved for issuance in payment of the then accrued interest and the total
accrued interest of $25,243 was added to additional paid-in capital and stock
subscriptions, pending the issuance of 841,438 shares of common
stock.





NOTE
13 - INCOME TAXES





The
benefit for income taxes from continued operations for the years ended December
31, 2008 and 2007, consist of the
following:










F-21





December
      31,2008
                  
                  
                  2007Current:Federal
      and State
                  
                  $
                  -
                  
                  
                  $
                  -Deferred:Federal
      and State
                  
                  
                  4,286,709
                  
                  
                  
                  497,9804,286,709
                  
                  
                  
                  497,980Increase
      in valuation allowance
                  
                  
                  (4,286,709
                  )
                  
                  
                  (497,980
                  )Benefit
      for income taxes, net
                  
                  $
                  -
                  
                  
                  $
                  -





The above
benefits for 2008 and 2007 were calculated using a federal and State tax
estimated rate as noted below:





December
      312008
                
                
                2007Statutory
      federal and State income tax rate
                
                
                39.00
                %
                
                
                34.00
                %Valuation
      allowance
                
                
                (39.00
                %)
                
                
                (34.00
                %)Effective
      tax rate
                
                
                0.00
                %
                
                
                0.00
                %





The net
deferred tax assets and liabilities are comprised of the following:





2008
                
                
                2007Deferred
      tax assets:Current
                
                $
                -
                
                
                $
                -Net
      operating loss carry forward
                
                
                30,717,241
                
                
                
                25,919,923Research  and
      development credits
                
                
                -
                
                
                
                510,609Total
      deferred tax assets
                
                
                30,717,241
                
                
                
                26,430,532Less
      valuation allowance
                
                
                (30,717,241
                )
                
                
                (26,430,532
                )Net
      deferred income tax asset
                
                $
                -
                
                
                $
                -





At
December 31, 2008, the Company had federal net operating loss carry-forwards
totaling approximately $85 million, which will begin expiring in years 2009
through 2027. However, substantially all of the net operating loss carry
forwards are not utilizable, as a result of the limitations imposed by Section
382 of the Internal Revenue Code, due to ownership changes in 1992, 1995, 1997,
1999 and 2006.  To the extent that these losses and general business
credits are utilizable, they may be offset against future U.S. taxable income,
if any, during the carry forward period.





NOTE
14 - COMMITMENTS





As of
April 1, 2006, the Company moved its corporate headquarters from Alpharetta,
Georgia to 1615 Walnut Street, 3rd and 4th Floors, Philadelphia,
Pennsylvania.  In June 2007, pursuant to a three-year lease, the
Company relocated all of its operations to a new office in King of Prussia,
Pennsylvania.  The monthly rent for the King of Prussia office is
approximately $4,000, including utilities.





Rent2009
                
                $
                42,5722010
                
                
                17,920Total
                
                $
                102,015








F-22





In light
of the Company's arrangements with a certified medical device manufacturing
facility to help co-manage the Company's U.S. operations, the Company is working
to terminate the King of Prussia office lease with the landlord, which sent a
default notice on March 10, 2008, and which after applying the security deposit
is effectively owed a balance for the Company's occupancy during April
2008.





Pursuant
the Long Agreement, the Company is required to pay LFCG collectively a 1%
royalty with respect to net sales of the Company’s products worldwide for three
years commencing March 30, 2006.





Pursuant
to the March 30, 2006 Consulting Agreement, the Company is required to pay Dr.
David Long or his nominees $60,000 per annum in consulting fees for three years
commencing March 30, 2006.





The
Company is 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 current proceeding
concerning us that a governmental authority may be contemplating.





NOTE
15 - ROYALTY AGREEMENT





As a
condition precedent to MKG’s agreement to take control of the Company and as was
agreed upon and represented by the Company’s prior management and board, all
royalty agreements existing as of March 30, 2006, had either expired or had been
terminated or were since terminated.





As part
of the Long Agreement, LFCG was given a royalty of 1% of the net sales of the
Company’s products worldwide for a three-year period commencing as of March 30,
2006.





The
Company entered into a master license agreement with MKG giving MKG an exclusive
(even to the Company), sub licensable, royalty-bearing license to make, have
made, use, import, offer for sale, and sell devices, sensors, and other products
or services incorporating the Company’s technology.  In return, MKG
agreed to pay the Company royalties based upon a gross receipts step scale. MKG
was further subject to a minimum royalty payment requirement. MKG also agreed to
pay the Company a licensing fee in accordance with certain milestone
requirements. The term of the Master License Agreement is 10 years, with
automatic renewals for additional 10-year terms, unless properly terminated in
accordance with the terms and conditions of the Agreement.





NOTE
16 – THE COMPANY COMPLETES ITS 1 FOR 10 REVERSE STOCK SPLIT OF ITS COMMON
STOCK





On April
2, 2008, the Company filed a preliminary information statement (Schedule PRE
14C) with the SEC, reporting that on March 28, 2008 its board of directors (the
"Board") unanimously adopted a resolution seeking shareholder approval to amend
the Company's Articles of Incorporation to effect an 1 for 10 reverse split of
Biofield's Common Stock (the "Reverse Split"). On March 31, 2008, astockholder of the Company
holding over a majority of the total voting rights for all issued and
outstanding shares of common and preferred stock of the Company executed a
written consent authorizing the Board to amend the Company's Articles of
Incorporation to effect the Reverse Split at any time prior to March 31,
2009.  The Board believed that the proposed Reverse Split would
benefit the Company by increasing the per share market price of its common
stock, a factor in whether the Common Stock meets investing guidelines for
certain institutional investors and investment funds, although there was no
assurance that the market price would increase. The SEC had 10 days from the
April 2, 2008 filing date to comment on the Information Statement. The Company
did not receive any comments on the Information Statement from the SEC within
the 10-day period; filed a definitive information statement (Schedule DEF 14C)
with the SEC on April 22, 2008; and mailed on April 23, 2008 the definitive
information statement to all shareholders of record as of April 1, 2008 (as
identified in the certified shareholder list received from the Company's
transfer agent). The Company filed on May 23, 2008 with the Secretary of State
for the State of Delaware a Certificate of Amendment to the Certificate of
Incorporation in connection with the Reverse Split. NASDAQ OMX, Corporate Data
Operations subsequently approved the Reverse Split, advised the Company that the
Reverse Split would take effect on June 20, 2008. The Company's new symbol
assigned on that date is BZEC.  The Company's new CUSIP number is
090591 603.








F-23





On June
20, 2008 the Company executed a 1 for 10 reverse split of its common stock.
Immediately prior to the stock split, there were 60 million shares authorized
and 55,137,486 shares issued and outstanding. Subsequent to the stock split,
there were 60 million shares authorized, 5,513,749 shares issued and
outstanding. Preferred shares were not affected by the reverse stock split.
Additionally, 19,279,751 shares of common stock were issued post reverse stock
split in the third quarter ended September 30, 2008, bring the total common
stock outstanding to 24,793,500.





NOTE
17 - SUBSEQUENT EVENTS





On March
4, 2009, the Company issued and sold 3,693,333 shares of common stock, par value
$.001, as follows:





Number
              Purchaser
              Consideration
              Price
      Per Share880,000
              Capital
      Growth Equity Fund I, LLC
              $110,000
      in cash
              $0.1252,480,000
              Capital
      Growth Equity Fund I, LLC
              conversion
      of $372,000 of debt
              $0.15333,333
              Capital
      Growth Financial, LLC
              conversion
      of $50,000 of debt
              $0.15





Capital
Growth Equity Fund I, LLC and Capital Growth Financial, LLC are "accredited
investors" as that term is defined in Rule 501 of Regulation D of the Securities
Act of 1933, as amended (the “Securities Act”), and the issuance of the
securities was accomplished without registration under the Securities Act in
reliance on the exemptions from the registration requirements of the Securities
Act afforded by Section 4(2), including Rule 506 of Regulation D promulgated by
the Securities and Exchange Commission under the Securities Act.





On
February 9, 2009, effective December 11, 2008, the Company 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 HypergenomicsTM and NucleosomicsTM cancer diagnostics
products, and any other cancer diagnostic products developed during the term of
the Distribution Agreement.





The
parties have agreed that, during March 2009, the Company will purchase 10 shares
of Valibio (approximately 1.6% of the outstanding shares) for
€100,000.  Additionally, the Company intends to acquire an additional
53 shares of Valibio (approximately 8.48% of the outstanding shares) for
€500,000 on or before September 1, 2009.  The Stock Purchase Agreement
also provides Biofield with the right to acquire up to an additional 100 shares
of Valibio (approximately 16% of the outstanding shares) for a price per share
of €9,600 if purchased prior to December 11, 2009, €10,650 if purchased prior to
December 11, 2010, and €11,616 if purchased prior to December 11,
2011.  The right to purchase up to an additional 100 shares of Valibio
expires on December 11, 2011.





The
Distribution Agreement has a term of 10 years, with automatic renewal for
additional 10 year terms subject to the right of either party to elect not to
renew.  Valibio has the right to terminate Biofield’s distribution
rights in any country in which (a) no sales occur during the 2 yr period
that commences on the date any required governmental approval is secured and (b)
in any country in which sales decline by more than 50% over the average sales in
the 2 preceding years.  Valibio also has the right to terminate the
Distribution Agreement in certain events including non-payment which continues
for 14 days after written notice.


F-24