SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006

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

                         COMMISSION FILE NUMBER 0-27848

                                 BIOFIELD CORP.
             (Exact name of registrant as specified in its charter)

                DELAWARE                                        13-3703450
(State or other jurisdiction of incorporation               (I.R.S. Employer
  or organization)                                           Identification No.)

    KING OF PRUSSIA BUSINESS CENTER, SUITE C,
    1019 WEST NINTH AVENUE
    KING OF PRUSSIA, PA                                             19406
  (Address of principal executive offices)                       (Zip Code)

        REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 215-972-1717

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:  NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

  COMMON STOCK, $0.001 PAR VALUE
         (Title of Class)

Check whether the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act   Yes        No  X
                                    ------    ------

Check 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  X
            ------    ------

Check 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 the
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. [ X ]

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

State issuer's revenues for its most recent fiscal year:  $ NIL.

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was sold,  or the average bid and asked  price of such  common  equity,  as of a
specified date within the past 60 days:

       APPROXIMATELY $4,832,122.50 BASED ON THE CLOSING SALE PRICE ($0.15) ON
       OCTOBER  19,  2007,  AS  REPORTED  BY THE NASDAQ  STOCK  MARKET,  INC.
       INFOQUOTE SERVICE




<PAGE>

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest  practicable  date: AS OF OCTOBER 22, 2007,  53,137,486
SHARES OF COMMON STOCK AND 12,300,000 SHARES OF PREFERRED  SHARES,  ALL OF WHICH
WERE SERIES A PREFERRED SHARES.

Documents Incorporated by Reference: NONE.

Transitional Small Business Disclosure Format (check one) Yes __ No X















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                                     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.

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

     o    It is noninvasive;
     o    It is radiation-free;
     o    It is compression-free;
     o    It produces  objective  results within 20 minutes without the need for
          interpretation by a radiologist;
     o    The device is portable and can be transported  via mobile van units. o
          The BDS test can be performed in a physician's office or other similar
          location by a medical  technician  with a few days training.
     o    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
     o    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.

A final complete product,  the current version of the BDS first received CE mark
Certification  in 2000 while the Company's  facilities were based in Alpharetta,
Georgia.  CE mark  certification  is  administered  by the  European  regulatory
authorities  and  permits  medical  device  companies  to market  the  device in
European  Union  member  countries.  The Company  relocated  to King of Prussia,
Pennsylvania  in June  2007  and is  working  on the  steps  needed  for CE mark
certification  from its new  facility.  The  Company is also  considering  other
facilities which have already secured CE mark certification.

On March 30, 2006, MacKay Group Limited ("MKG") took over control of the Company
and its management,  operations,  and controlling interest. Prior management was
focused  on  securing   approval  of  the  BDS  from  the  U.S.  Food  and  Drug
Administration  ("U.S. FDA") to distribute in the U.S.; their efforts,  however,
were not successful and the Company under prior  management  generated little or
no sales and incurred  significant losses.  Under MKG, the Company has proceeded
to penetrate  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 and Macau),
India, the Philippines,  Indonesia,  Malaysia,  and other parts of Asia, Mexico,
Latin America,  the Caribbean,  Africa,  Europe, and the Middle East. Under MKG,
the Company is continuing its efforts and is currently  working with regulatory,
clinical,  legal,  and other  experts to secure U.S. FDA  approval.  The Company
believes  that  the   government  and  industry   relationships,   the  possible
significant  clinical  data and research and  development  (including  as it may
pertain to screening  and other  cancers),  and revenues it secures  abroad will
facilitate its efforts to secure U.S. FDA approval.

Most of 2006 was consumed in connection  with the series of  transactions  which
resulted in MKG's taking over the Company,  the transition to new management and
facilities,  and MKG's  reduction of $2 million of the  Company's  debt.  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



                                       3
<PAGE>

December 31, 2005 available at: http://www.sec.gov/Archives/edgar/data/1007018/
000112178106000104/biofield10ksb123105r.txt.
The reader is urged to read this document in its entirety.

                               The BDS Technology

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
lesion 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


                                       4
<PAGE>

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.

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
U.S.-Asian clinical trials, of the BDS for cancers other than breast cancer.

For more information,  see the Company's prior SEC filings,  published  studies,
and website,  including the more detailed discussion on the BDS and its history,
development,  clinical trials, and limitations in the Company's last Form 10-KSB
for    FY    2005    available    at     http://www.sec.gov/Archives/edgar/data/
1007018/000112178106000104/biofield10ksb123105r.txt. The reader is urged to read
this document in its entirety.

                    The State of Breast Cancer Globally Today

The description about breast cancer and current detection technologies contained
in   the    Company's    last   Form    10-KSB    for   2005    (available    at
http://www.sec.gov/Archives/edgar/data/1007018/
000112178106000104/biofield10ksb123105r.txt.)  has not changed  materially.  The
reader is urged to read this  document in its  entirety.  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 3 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          TOTAL POPULATION
                         100,000 PEOPLE1

------------------------ --------------------------- ---------------------------
China                    18.7                        1,321,222,000
------------------------ --------------------------- ---------------------------
India                    19.1                        1,169,016,000
------------------------ --------------------------- ---------------------------
Indonesia                26.1                        231,627,000
------------------------ --------------------------- ---------------------------
Mexico                   26.4                        106,535,000
------------------------ --------------------------- ---------------------------
The Philippines          46.6                        88,706,300
------------------------ --------------------------- ---------------------------
Japan                    32.7                        127,750,000
------------------------ --------------------------- ---------------------------
South Africa             35                          48,577,000
------------------------ --------------------------- ---------------------------
Malaysia                 30.8                        27,329,000
------------------------ --------------------------- ---------------------------

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


                                       5
<PAGE>


Under MKG and its strategic  relationships  overseas,  the Company has refocused
its  energies  towards  penetrating  the markets in the above  countries,  among
others,  while  bringing on the  personnel  and other  resources  to  reinitiate
efforts before the U.S. FDA. The populations of China, India, Indonesia, Mexico,
the  Philippines,  and Malaysia  account for over  one-half of the world's total
population.

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 fortune.

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
feminity in certain  parts of the world,  which  discourage  women from  seeking
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 are
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.  The Company  under MKG is working with  government  representatives  in
China,  the  Philippines,  and  elsewhere on  broad-based  early  awareness  and
detection initiatives and campaigns.

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,"available at http://www.nytimes.com/2007/04/05/health/05breast.html?_r=1
&n=Top/Reference/Times%20Topics/Organizations/N/New%20England%20Journal%20of%20
Medicine&oref=slogin.  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 last Form 10-KSB for FY 2005 available at
http://www.sec.gov/Archives/edgar/data/1007018/000112178106000104/biofield10ksb
123105r.txt.  The reader is urged to read this document in its entirety.

                                 Company History

Most of 2006 was consumed in connection  with the series of  transactions  which
resulted in MKG's taking over the Company,  the transition to new management and
facilities,  and MKG's reduction of $2 million of the Company's debt. Other than
the MKG Acquisition,  the transition to new management and facilities, and MKG's
reduction of $2 million of the Company's debt, material events in 2006 primarily
related to events which  predated 2006 and the MKG  acquisition,  and which were
reported in detail in the Company prior SEC's filings  including its Form 10-KSB
for    fiscal    year    ending     December    31,    2005     available    at:



                                       6
<PAGE>

http://www.sec.gov/Archives/edgar/data/1007018/000112178106000104/
biofield10ksb123105r.txt.  The  reader  is urged to read  this  document  in its
entirety.

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  detailed in and attached to the Company's
April 6, 2006 Form 8-K, available online at http://www.sec.gov/Archives/edgar/
data/1007018/000112178106000066/biofield8k4606t.htm.
The  reader  is  urged to read  this  document  in its  entirety.  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,  to allow MKG to penetrate  significant  foreign  markets.  The change of
control was effectuated by way of, among other things, stock acquisitions,  debt
conversion,  and board changes. All of the agreements were reviewed and approved
by the Company's then board and by the Company's then securities  counsel. 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 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 between MKG and
Dr. David Long,  Mrs. Donna Long,  Dr. Raymond Long, the Long Family Trust,  and
the Long Family Partners II, LP (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.

In accordance  with the stock  acquisition  agreements  and the Company's  prior
board's  approval  thereof,  board members,  John Stephens and Dr. Raymond Long,
resigned  and were  replaced by James  MacKay and  Michael  Yom.  MacKay  became
chairman and Yom  president.  Dr.  David Long  remained a board member until his
death in  April  2006.  His  board  seat  was  subsequently  filled  by  Michael
Antonoplos,  the Company's current chief executive officer. In 2007, Yom's title
transitioned from president to chief operating officer.

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.

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/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.  The  assignment and debt  conversion  (including  conversion  rate) were
reviewed and approved by the Company's prior  management,  board, and securities
counsel.

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 was to be transferred to LFCG, provided
that LFCG agrees to deliver a proxy with respect to all voting rights associated
with those remaining shares. In addition, pursuant to the Long Agreement, to the


                                       7
<PAGE>

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.  In its demand,  MKG designated the portions of the total LFCG debt,
which was to constitute the $2 million in debt to be assigned by LFCG to MKG and
which was to be converted into shares.  In accordance  with the Long  Agreement,
the  Company's  current board  ratified the prior  board's  approval of the debt
conversion  and  authorized the conversion as of MKG's demand of $499,728 of the
assigned debt into  9,994,550  common shares and $1,230,000 of the assigned debt
into 12,300,000  shares of the Preferred Series A stock of the Company.  Each of
the Series A Preferred  Share  shall have one vote per share and each  Preferred
Share shall be convertible  into two shares of the  Corporation's  common stock,
provided  however  that the  Conversion  Date may not be less than  twelve  (12)
months  after  the date of  issuance  of the  preferred  shares.  All  remaining
portions of the assigned debt not converted  (e.g.,  $270,273)  were retained by
MKG and are entitled to be converted at a later time.

As a result of the  above  stock  acquisitions  and debt  conversion,  MKG holds
and/or is entitled to 35,835,530  shares  (common and preferred) of the Company,
which constitutes a majority of the Company's shares issued and outstanding that
are eligible to vote (65,437,486 shares).

Government   Regulation,   Manufacturing,   Marketing  and  Sales,  Patents  and
Proprietary Information,  Licenses and Other Agreements, Research & Development,
Competition, and Employees
--------------------------------------------------------------------------------

Unless indicated  otherwise below, there were no material events or developments
in 2006 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,    2005     available    at:
http://www.sec.gov/Archives/edgar/data/1007018/
000112178106000104/biofield10ksb123105r.txt.  The  reader  is urged to read this
document in its entirety.

While the Company under MKG has refocused its energies to  distributing  the BDS
in foreign markets,  since 2007 it is working with medical,  regulatory,  legal,
and  other  experts,  agencies,  and  institutions  in the  U.S.  and  China  to
reinitiate efforts before the U.S. FDA. The Company believes that the government
and industry relationships,  the possible significant clinical data and research
and  development,  and revenues it secures abroad will facilitate its efforts to
secure U.S. FDA approval.  The Company is also working with experts on the steps
needed for CE mark certification from its new King of Prussia facility, to which
it relocated in mid 2007, as well as  considering  other  facilities  which have
already secured CE mark certification.

Under prior management, the BDS device and sensors were manufactured in the U.S.
The manufacturer,  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 s working with  technical,  manufacturing,  and
regulatory  experts to  manufacture  the new  prototype  device and the  sensors


                                       8
<PAGE>

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.

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/year  consulting  agreement  with  Dr. David Long or his
nominee.

The Company did not memorialize any employment or consulting  arrangements  into
written agreements in 2006. In 2006, MKG  representatives  and other consultants
worked to effectuate  the transition to new management and facilities and agreed
to defer  compensation  until the  transition  was more  complete.  In 2007, the
Company  under  MKG  is  working  with  leading   medical,   legal,   technical,
manufacturing,  regulatory,  and other experts in the U.S.,  China and elsewhere
to,  among  other  things,  distribute  and  manufacture  the device and sensors
overseas;  reinitiate  efforts  before U.S. FDA;  complete the steps for CE Mark
certification from the Company's new facilities in King of Prussia; maintain its
patents  and other  intellectual  protection,  including,  but not  limited  to,
payment of any maintenance and/or other administrative fees and the commencement
of all necessary  actions to reinstate  patents;  initiate  additional  clinical
trials in the U.S. and abroad,  including  possible  joint  Asian-U.S.  clinical
trials; and continue the development of the BDS device and sensors for screening
purposes and for cancers other than breast cancer.

RISK FACTORS

The U.S.  FDA Has  Rejected  Our Most  Recent  Submission  for  Approval  of the
Biofield Diagnostic Device and Reclassified Our Device
------------------------------------------------------

In March  2004,  we  submitted  our  application  for  clearance  of our device,
pursuant to the U.S. FDA's 510(k)  clearance  procedure to KEMA for review prior
to formal submission to the U.S. FDA. KEMA subsequently  recommended to the U.S.
FDA that our diagnostic  device be approved.  In November 2004, we submitted our
application for formal submission to the U.S. FDA to approve our device.

In December 2004, the U.S. FDA notified us that it had  reclassified  by statute
the BDS into class III (Pre-market  Approval)  pursuant to Section 513(f) of the
Federal  Food,   Drug  and  Cosmetic  Act.  As  a  result  of  the  U.S.   FDA's
reclassification,  we must, absent any subsequent  reclassification,  obtain PMA
approval prior to legally marketing or distributing our device. The basis of the
U.S. FDA's decision was its determination  that the device is not "substantially
equivalent to devices  marketed in U.S.  interstate  commerce...."  The U.S. FDA
also  informed us that although a  manufacturer  whose device is found to be not
substantially  equivalent to a predicate device can request the U.S. FDA to make
a risk-based classification for its device, the U.S. FDA believes that "based on
the review of your device,  general  controls  would be  inadequate  and special
controls difficult to develop,  to provide reasonable  assurance of the device's
safety and effectiveness."

Had the FDA accepted our submission  for  clearance,  we would have been able to
commence sales and marketing efforts in the U.S. immediately.  However, on March
4, 2005 we were  notified by the U.S.  FDA that it had reviewed our petition for
reclassification  and concluded  that we have not  demonstrated  that the device
meets the criteria under section 513(a)(1) of the Federal Food Drug and Cosmetic
act (21 U.S.C. 360c (a)(1)) for classification into class I or II. Therefore the
device is  automatically  classified in class III requiring  approval  through a
pre-market approval.  Consequently,  there can be no assurance that we will ever
obtain FDA  clearance  for the BDS.  At a  minimum,  we will  likely  experience
significant  additional  expense and time in order to obtain  clearance  for our
device from the FDA.

As stated above, at the same time it is proceeding to distribute and manufacture
the  BDS in  foreign  countries,  which  are  subject  to  different  regulatory
requirements  than those of the U.S. FDA, the Company under MKG is  concurrently
working with  regulatory,  medical,  clinical,  legal and  technical  experts to
reinitiate  the Company's  efforts before the U.S. FDA. The Company under MKG is
prepared,  and is working with regulatory,  medical, and clinical experts in the
U.S. and abroad, to proceed ahead to obtain PMA approval.  It is still assessing


                                       9
<PAGE>

however  its  options  to  reclassify  its  device.  Given the  interest  it has
generated with government and medical representatives  overseas, the prospect of
joint Asia-U.S. clinical trials and the number of potential clinical subjects in
heavily  populated  countries in Asia, the Company believes that its initiatives
overseas  will help it when it resubmits  before the U.S.  FDA.  There can be no
reasonable assurance that the Company's efforts to secure U.S. FDA approval will
be successful.

We Need to Obtain Financing in Order to Continue Our Operations or We will Cease
Operations.
--------------------------------------------------------------------------------

Prior to the March 30, 2006 MKG  Acquisition,  we virtually  had no Money.  From
December  2004 to March 30, 2006,  we have  survived on some funding we obtained
from issuance of notes,  sale of our shares abroad and advances made by Dr. Long
and his  affiliates.  As of March 30,  2006,  the Company  owed Dr. Long and his
affiliates approximately $4.3 million. We were unable to repay the $1 million of
12% promissory notes which we issued in a private placement in December 2003 and
January and February 2004, when it became due on December 31, 2004. The $329,000
private placement notes and the $50,000 note to our placement agent, both due on
May 31, 2005, also remain unpaid.  All the notes will bear interest (until paid)
at 1.5% per month after the due dates. Prior to the MKG Acquisition, we had been
seeking long-term  financing through  investment  banking channels for over four
years,  but have not yet been  successful in obtaining  adequate  financing.  We
stated  in our 2005  Form  10-KSB  that  unless  such  resources  timely  become
available, we will be compelled to cease operations.

The  situation did not  materially  change in 2006, as the Company under MKG was
focused on, among other things, the transition to new management and facilities.
In 2006, the Company under MKG did reduce the Company's debt by $2 million,  and
in 2007  is  working  with  several  of its  major  creditors  on  further  debt
reduction.  In 2006,  the  Company  under MKG  relied on  funding in the form of
advances by MKG and the issuance of certain  notes.  In 2007,  the Company under
MKG has  begun  to make  arrangements  overseas,  including  China,  India,  the
Philippines,  Indonesia,  and Mexico,  which should generate  significant  sales
revenues,  and  which  also has  generated  interest  from  certain  significant
investors in the U.S. and abroad. There can be no reasonable assurances that the
Company's funding/ sales efforts will be successful.

We  Anticipate  Significant  Dilution of Our Current  Stockholders  in Obtaining
Necessary Funding
--------------------------------------------------------------------------------

Our $1 million and  $329,000  private  placements  and our  $50,000  note to our
placement  agent required us to issue (in addition to $1.4 million of short-term
notes) an aggregate of approximately  6.9 million shares of our common stock. We
also  issued 2.5  million  shares to the  holders of the notes  under $1 million
private  placement  for not  repaying the notes on December 31, 2004 and 897,500
shares when we  defaulted  in payment of $329,000  and $50,000  notes on May 31,
2005. Due to our weak financial position, lack of operating history and inherent
risk  attached with  start-up  projects,  the cost of obtaining new finance will
continue to be very high, and if arrangements  involve  issuance of shares,  the
future dilutions could be significant.

We Have a Limited Operating History
-----------------------------------

We have had a limited history of operations.  From our inception in October 1987
to the MKG  Acquisition,  we have engaged  principally in the development of our
device, which has not been approved for sale in the United States. Consequently,
we have little experience in manufacturing,  marketing and selling our products.
Since the MKG  Acquisition,  the Company has utilized MKG's foreign  government,
manufacturing, distribution, and industry relationships to proceed to distribute
the BDS overseas.  Moreover,  the Company under MKG is working with  regulatory,
medical,   clinical  and  manufacturing  experts  in  the  U.S.  and  abroad  to
distribute,  manufacture and further develop the BDS. There can be no reasonable
assurances, however, that such efforts will be successful.

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


                                       10
<PAGE>


Prior to the MKG Acquisition,  we had no established source of operating revenue
and had incurred net operating losses since our inception. At December 31, 2005,
we had an accumulated  deficit of approximately  $72 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.  Prior to the MKG  Acquisition,  we  expected  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
2006 consolidated financial statements.  The Company under MKG is now focused on
distributing the BDS overseas based on MKG's foreign government,  industry,  and
distribution   relationships,   which  MKG  believes   will  not  only  generate
significant  revenues and  potentially  bring in investment,  but will also work
with MKG and the Company to further  develop the BDS,  including with respect to
clinical  trials  and  research  and  development.  There  can be no  reasonable
assurances, however, that such efforts will be successful.


Our Business May Never Become Profitable
----------------------------------------

Prior to the MKG Acquisition,  our ability to achieve profitability will depend,
in substantial part, on our ability to obtain  regulatory  approvals in the U.S.
for our device,  and to develop the  capacity to  successfully  manufacture  and
market our device within a reasonable  time.  Prior to the MKG  Acquisition,  we
could not assure you when, or if, we will receive required regulatory  approvals
to manufacture and market our device. Accordingly, prior to the MKG Acquisition,
the extent of future losses and the time required to achieve profitability, were
highly  uncertain.  The Company under MKG is  proceeding  to distribute  the BDS
overseas and is working with government representatives and regulatory, clinical
and  medical  experts  in the U.S.  and Asia to timely  secure  the  appropriate
regulatory  approvals for the applicable  countries.  There can be no reasonable
assurances that such efforts will be successful.

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, 2005, we had a working capital deficiency of $7.8
million and  accounts  payable,  primarily  to service  providers  and  vendors,
aggregating approximately $1.3 million, substantially all of which are past due.
These amounts have  increased  since December 31, 2005. At December 31, 2005, we
also owed our employees approximately  $217,245.  While it was consumed for most
of 2006 in the transition to new management  and  facilities,  the Company under
MKG is  working to reduce its debt with  several of the major  creditors  and in
2006 reduced the debt by $2 million.  There can be no reasonable assurances that
its efforts to further resolve debt will be successful.

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

Prior  to the  MKG  Acquisition,  we  expected  that we  will  need  significant
additional  funding to complete all the steps necessary to receive approval from
the FDA, for operating  expenses and for our marketing  program.  Moreover,  our
fixed  commitments,  including  salaries  and fees  for  current  employees  and
consultants,  rent,  payments  under license  agreements  and other  contractual
commitments,  including  commitments  to previous  service  providers and others
which  are  contingent  upon  improvement  in our cash  position  and have  been
extended until some  indefinite  future time, are  substantial and are likely to
increase.  Prior to the MKG Acquisition,  we did not expect to generate positive
cash flow for at least several  years,  if at all, as revenues,  initially,  are
unlikely to cover funds required for operating expenses,  including the expected
cost of commercializing our device.  Prior to the MKG Acquisition.  we could not
assure you that  additional  financing  would be  available  when  needed or, if
available,  would  be  available  on  acceptable  terms.  Since  2001 to the MKG
Acquisition, insufficient funds have prevented us from implementing our business
strategy  and  have  required  us to  delay,  scale  back or  eliminate  certain
activities.  Since the MKG  Acquisition,  the  Company  under  MKG has  garnered
significant  interest  overseas for the BDS and is proceeding to generate  sales


                                       11
<PAGE>

overseas  and to secure  funding  here and  abroad.  There can be no  reasonable
assurances that such efforts will be successful.

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:

     o    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.

     o    we may not be able to produce our device in  commercial  quantities at
          reasonable cost.

     o    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.

     o    our device may not gain satisfactory market acceptance.

     o    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.

     o    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.

The Company  under MKG is  proceeding  to  distribute  the BDS  overseas and has
cultivated significant foreign government,  medical,  distribution,  regulatory,
and  manufacturing  relationship,  which it believes  will help  reinitiate  its
efforts before the U.S. FDA. Among its foreign initiatives,  MKG is working with
significant government,  medical, distribution and industry entities overseas to
market,  distribute, and promote the BDS. The interest generated so far overseas
has been  significant.  The Company  under MKG is also working with  regulatory,
manufacturing,  clinical  and  technical  experts in the U.S.  and  overseas  to
manufacture the BDS in the U.S.,  China, and Mexico,  among other countries,  at
comparable  manufacturing costs and at the appropriate quality assurance levels.
There can be no reasonable assurances that such efforts will be successful.

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,



                                       12
<PAGE>

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 U.S. FDA or
by any comparable foreign regulatory bodies, or would be commercially viable.

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  preclinical  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.

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

Changes to our  device or the  manner in which it is used  after it is  approved
will  require  additional  approval  by the U.S.  FDA.  Our  failure  to receive
approval of such a change on a timely basis, or at all, would have a significant
adverse effect on our business.

A Failure of Our  Contract  Manufacturers  to Comply with U.S.  FDA  Regulations
Would Impact On Our Ability to Sell Our Device
--------------------------------------------------------------------------------

We cannot  assure that our  manufacturers  will be in  compliance  with the U.S.
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 U.S. 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
-----------------------------------------------------------------------



                                       13
<PAGE>

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 were  unable to hire  permanent
employees.  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.  Given the
interest  MKG has  generated  overseas,  the Company  under MKG is working  with
experts in the U.S.  and  overseas on  distributing,  manufacturing  and further
developing  the BDS  (clinically  and  technically).  There can be no reasonable
assurances that such efforts will be successful.

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.


                                       14
<PAGE>


We Face Substantial  Competition in the Medical  Technology Field and May Not Be
Able to Successfully Compete
--------------------------------------------------------------------------------

The medical technology industry is highly competitive,  particularly in the area
of  cancer  screening  and  diagnostic  products.  We are  likely  to  encounter
significant  competition  with  respect  to our  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


                                       15
<PAGE>

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 to  enforce,  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.

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

On March 30, 2006,  the Long Group entered into three  agreements  with MKG. The
agreements  provide,  among  other  things,  that  MKG will  hold a  controlling
interest in the  Company.  As a result,  MKG has  significant  influence  on the
nomination  and election of our  directors,  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  independent
directors.  Our previous  independent  directors  resigned in December 2002 due,
among other  things,  to our  potential  inability  to maintain  directors'  and
officers'  liability  insurance  and to our  financial  inability to continue to
assure that we will operate as a going concern.  In the absence of a majority of
independent  directors,  our  current  three-member  Board  of  Directors  could
establish policies and enter into transactions  without independent review. This
could  present  the  potential  for a conflict  of  interest  between us and our
stockholders,  and increases 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.  The Company under MKG intends to
restructure  its  board to bring in  independent  directors  as to  preserve  or
prepare for future potential listing  opportunities.  There can be no reasonable
assurances that such efforts will be successful.

We May Issue Preferred Stock
----------------------------

Our Board of Directors  has the  authority to issue up to  12,300,000  shares of
preferred stock and to determine the price, rights, preferences,  conversion and
other  privileges and  restrictions,  including  voting rights,  of those shares
without any vote or action by our common stockholders. The rights of the holders
of the  common  stock  will be subject  to,  and could be  materially  adversely
affected by, the rights of the holders of any preferred stock that may be issued
in the future. The issuance of preferred stock,  while providing  flexibility in
connection with corporate purposes, could have the effect of delaying, deferring


                                       16
<PAGE>

or  preventing a change in control,  discouraging  tender  offers for the common
stock, and materially  adversely affecting the voting rights and market price of
the common stock.

Our Stockholders  Could Be Adversely  Affected by the  Anti-Takeover  Effects of
Delaware Law
--------------------------------------------------------------------------------

We are subject to the provisions of Section 203 of the General  Corporation  Law
of the State of  Delaware.  In general,  Section 203  prohibits a publicly  held
Delaware  corporation  from  engaging  in  a  "business   combination"  with  an
"interested  stockholder"  for a period  of three  years  after  the date of the
transaction  in which the person becomes an interested  stockholder,  unless the
business combination is approved in a prescribed manner or unless the interested
stockholder  acquires at least 85% of the corporation's  voting stock (excluding
shares held by certain  designated  stockholders) in the transaction in which it
becomes an interested  stockholder.  A "business  combination" includes mergers,
asset  sales and other  transactions  resulting  in a  financial  benefit to the
interested   stockholder.   Subject  to  certain   exceptions,   an  "interested
stockholder" is a person who, together with affiliates and associates,  owns, or
within the previous three years did own, 15% or more of the corporation's voting
stock.  This provision of the Delaware law could delay and make more difficult a
business  combination,  even if the business  combination would be beneficial 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.

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.
--------------------------------------------------------------------------------

Our  Obligation to Maintain the  Registration  of Shares of our Common Stock for
Two Years Will be Costly and May Lower the Market Price of Our Common Stock.
--------------------------------------------------------------------------------

We are required to maintain the  effectiveness of the registration  statement of
the shares  issued in our $1 million and  $329,000  private  placements  for two
years from the date of effectiveness. The cost of maintaining such effectiveness
will affect the availability of funds for our business operations.  Furthermore,
sales of these  registered  shares of common stock in the public market,  or the
perception  that these sales could  occur,  could  adversely  affect the trading
price of our common stock and could impair our ability to raise funding  through
an offering of our equity securities.

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 OFF 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:

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


                                       17
<PAGE>

     o    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:

     o    obtain financial  information and investment  experience objectives of
          the person; and
     o    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:
     o    sets  forth  the  basis  on  which  the  broker  or  dealer  made  the
          suitability determination; and
     o    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.

In addition to the above risk factors set forth in the Company's Form 10-KSB for
fiscal year ending  December  31, 2005,  additional  risk factors may arise as a
result of new  management's  focus on  distributing  and  manufacturing  the BDS
overseas, especially in China. 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
see 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  April  1,  2006,  the  Company  moved  its  corporate  headquarters  from
Alpharetta,  Georgia to 1615 Walnut  Street,  3rd and 4th Floors,  Philadelphia,
Pennsylvania.  For 2006, the rent was approximately $4,000. 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 is approximately $4,000 including utilities.


                                       18
<PAGE>


ITEM 3.  LEGAL PROCEEDINGS.

We are  not a  party  to any  pending  legal  proceeding  which  is not  routine
litigation  incidental  to our  business  or which  involves a claim for damages
exceeding 10% of our current assets,  nor are we aware of any current proceeding
concerning us that a governmental authority may be contemplating.

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

None.

                                     PART II

ITEM 5.           MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS
                  AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.

MARKET INFORMATION

Our common  stock,  par value  $.001 per share,  was quoted on the OTC  Bulletin
Board.  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 NASDAQ's  InfoQuote  service for the
periods indicated.

YEAR ENDED DECEMBER 31, 2005 High Low

First Quarter                                    0.186             0.06
Second Quarter                                   0.063             0.02
Third Quarter                                    0.12              0.028
Fourth Quarter                                   0.06              0.03

YEAR ENDING DECEMBER 31, 2006

First Quarter                                    0.055             0.021
Second Quarter                                   0.13              0.035
Third Quarter                                    0.06              0.035
Fourth Quarter                                   0.04              0.021

On October 19,  2007,  the closing sale price for our common stock was $0.15 per
share, as reported by NASDAQ's InfoQuote service.

HOLDERS

As of October 19,  2007,  there were 282 holders of record of our common  stock,
including  shares  the  Company  held in  treasury  and Cede & Co.,  which  held
18,171,384 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

In accordance  with the Long  Agreement and  associated  assignment of debt, the
Company's  current  board  ratified  the  prior  board's  approval  of the  debt
conversion  discussed  above and authorized the conversion as of MKG's demand of


                                       19
<PAGE>


$499,728 of the assigned debt into 9,994,550 common shares and $1,230,000 of the
assigned  debt into  12,300,000  shares of the  Preferred  Series A stock of the
Company.  Each of the Series A Preferred Share shall have one vote per share and
each Preferred Share shall be convertible  into two shares of the  Corporation's
common stock,  provided  however that the  Conversion  Date may not be less than
twelve (12)  months  after the date of issuance  of the  preferred  shares.  All
remaining  portions of the assigned debt not  converted  (e.g.,  $270,273)  were
retained by MKG and are entitled to be converted at a later time.

REPURCHASES OF SECURITIES

None.

ITEM 6.  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 2005  under  "Risk
Factors",  available  online at  http://www.sec.gov/Archives/edgar/data/1007018/
000112178106000104/biofield10ksb123105r.txt.  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
and Macau),  India, the  Philippines,  Indonesia,  Malaysia,  and other parts of
Asia, Mexico, Latin America, the Caribbean, Africa, Europe, and the Middle East.
The  initial  countries  MKG  is  focusing  on  (China,  India,  Indonesia,  the
Philippines,  Mexico,  and Malaysia)  account for  approximately one half of the
world's  female  population.  As articulated in the recent October 15, 2007 Time
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 promote early detection 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.

Under MKG, the Company is continuing its efforts to secure U.S. FDA approval and
in 2007 is working with regulatory,  clinical,  medical, legal and other experts
in the U.S. and Asia towards that end. The Company  believes that the government
and industry relationships,  the possible significant clinical data and research



                                       20
<PAGE>

and  development  (including as it may pertain to screening and other  cancers),
and revenues it secures  abroad will  facilitate  its efforts to secure U.S. FDA
approval.

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.

China

On August 1,  2007,  MKG  signed a  memorandum  of  understanding  (MOU) to form
BIOFIELD  ASIA,  a joint  venture  with United  Premier  Medical  Group  Limited
("UPMG"), a premier healthcare provider,  which in partnership with world renown
Western healthcare providers,  delivers healthcare services to China,  including
through UPMG's VIP OB/GYN  centers in China.  See MKG press release dated August
1, 2007 available online at
http://biz.yahoo.com/bw/070801/20070801005219.html.v=1.

Under the terms of the MOU,  BIOFIELD ASIA will, on an exclusive basis,  market,
distribute,  manufacture,  and further  develop and conduct R&D on the BDS in or
for, among other markets,  mainland China, Hong Kong,  Macau, and Taiwan.  Under
the MOU,  UPMG at its own cost will seek  approval  from the State Food and Drug
Administration  of the People's  Republic of China, and will pay certain sums to
purchase  BDS  devices  and  sensors  and will pay  certain  sums  upon  certain
milestones related to, among others, regulatory approval, manufacture, and sales
in China and certain countries.

The Philippines

In 2007 MKG has 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  support the BDS as part of national  initiatives
promoting  early detection of breast cancer.  MKG is also in discussions  with a
prominent  Filipino  entity about a joint venture to  distribute  the BDS in the
Philippines  and about a possible  purchase  order for devices and sensors.  MKG
believes that the joint venture arrangements will be finalized before the end of
2007.

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 put on the Company's website www.biofield.com.


                                       21
<PAGE>


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. MKG believes that sublicense arrangements will
be finalized before the end of 2007.

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  press  release
dated   February   28,   2007   available   online   at   www.biofield.com   and
http://investor.biospace.com/biospace?GUID=1276816&Page=MediaViewer&Ticker=BZET.

The MKG Master License

As reported in and attached to its Form 8-K filed July 31, 2007 available online
at
http://www.sec.gov/Archives/edgar/data/1007018/000112178107000222/0001121781-07-
000222-index.htm,which  the reader is urged to read in its entirety, 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,  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 and R&D.  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.

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.

Developments in the U.S.

In  2007  the  Company  continued  to  transition  its  operations,  facilities,
inventory,  and  clinical,  technical,  and  financial  records  from its former
offices in  Alpharetta,  Georgia and  California  to the Company's new office in
King of  Prussia.  In July 19, 2007 the Company  moved its  principal  executive
office  from 1615  Walnut  Street,  3rd  Floor,  Philadelphia,  PA 19103 and the
contents of its former Alpharetta,  Georgia facility to King of Prussia Business
Center, Suite C, 1019 West Ninth Avenue, King of Prussia, PA 19406. Now that the
move is  complete,  the  Company  is  undergoing  the steps  needed to audit and
certify  the  King  of  Prussia  office  and  the  re-issuance  of the  CE  Mark
precipitated by the change in facilities.  See the Company's Form 8-K filed July
19,    2007,     available    online    at    http://www.sec.gov/Archives/edgar/
data/1007018/000112178107000218/biofielda8k71907.htm.


                                       22
<PAGE>


In May 2007,  Michael  Antonoplos was appointed as a Company director and as the
Company's interim chief executive  officer.  Kenny Lau, who helped spearhead the
initiatives with UPMG, was also appointed  Company director in July 2007. In May
2007,  Michael Yom's position changed from president to chief operating officer.
See the Company's Form 8-K filed July 19, 2007, available online at http://www.
sec.gov/Archives/edgar/data/1007018/000112178107000218/biofielda8k71907.htm.

The Company  continues to meet and have  discussions with  representatives  with
significant financial and medical expertise to bolster the Company's management,
board, and advisory board. In 2007 the Company  continues to make efforts to (1)
manufacture the new prototype of the BDS device (in the U.S., China,  Mexico and
elsewhere) and (2) reinitiate additional clinical trials in the U.S. which would
help  facilitate  securing  U.S.  FDA  approval.  The Company  has had  repeated
discussions with former  representatives of the Company and physicians  involved
in developing the BDS,  clinical trials and development,  and the use of the BDS
for screening purposes. Those discussions are in addition to the discussions MKG
has had and continues to have with leading  representatives in China, India, the
Philippines  and other foreign  countries.  Several of the  representatives  and
physicians  the  Company is meeting  with have  successfully  secured  U.S.  FDA
approval for other  technology.  Further,  the Company has had  discussions  and
meetings with  healthcare  institutions  in the U.S. about  additional  clinical
trials,  the  use of the BDS in  women's  health  centers,  and  possible  joint
clinical trials with leading medical  institutions in Asia and Europe introduced
by MKG. Given the availability of patients for clinical trials in Asia and MKG's
relationship with leading Asian medical  institutions,  one of MKG's goals is to
conduct  clinical  trials  in  Asia  with  leading  Asian  and  Western  medical
institutions,  which  would  facilitate  efforts to secure  U.S.  FDA  approval.
Finally, the Company has met with engineering and design experts in the U.S. and
China to manufacture the new prototype of the BDS device and further develop the
devise and sensors for  screening.  Device  schematics are now being reviewed by
experts in China to manufacture the new prototype in China.  The Company is also
considering  facilities  in the U.S.  which have been  certified by the U.S. FDA
with regard to non-invasive cancer detection technology.

After  previously  reducing its debt by $2 million in 2006,  in 2007 the Company
continues  to make  efforts  to  reduce  its  debt  with  several  of its  major
creditors.

LONG-TERM STRATEGY AND GOALS

The long term  strategy and goal of the Company under MKG 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  first in  foreign  markets  and  then in the U.S.  upon
securing U.S. FDA  approval.  The Company  under MKG,  however,  is 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  use  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 under MKG will then extend to other parts of Asia,  Latin  America,  the
Caribbean,  Africa,  Europe,  and the Middle East. MKG is currently working with
representatives  from some of those areas.  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
under MKG will reinitiate efforts before the U.S. FDA to distribute the improved
version of the BDS in the U.S.

The  Company  under MKG seeks to gain  acceptance  of the BDS  overseas  at many
levels. The first level is with government. Since 2007 MKG has been working with
government,  healthcare,  hospital  and  other  representatives  in  China,  the
Philippines and elsewhere to incorporate the BDS as part of national initiatives
relating to women's health,  early awareness and detection,  and cancer programs
and funds for the indigent.  Discussions  to date have  generated  interest from
government  not only in  potential  purchase  orders  but also with  respect  to


                                       23
<PAGE>

coordinating the Company's  clinical and R&D efforts with leading local doctors,
hospitals, and agencies; conducting joint U.S.-Asia clinical trials including on
screening and other cancers;  securing the appropriate regulatory approvals; and
manufacturing the BDS overseas.

Second,  MKG  has  been  working  with  leading  foreign  hospital  and  medical
institutions,  which are considered to be influential medical opinion leaders in
the country.  Discussions to date have generated  interest relating to potential
purchase  orders and to potential  joint clinical  trials and  development  with
leading institutions and experts in the U.S. and Europe,  including on screening
and other cancers.

The third level  relates to  distribution.  MKG has been working  with  entities
which are considered among the leading  businesses in the country and which have
established  reputations,  distribution networks, and manufacturing,  logistics,
funding and other resources.  Some of these entities own, manage, and/or operate
hospital and medical networks.  Some are just leading  businesses in the country
with established  distribution  networks and a history and vision of helping the
citizens of its country.

The  fourth  level  relates  to   manufacturing.   MKG  has  been  working  with
manufacturers  in China and Mexico which are reviewing the  schematics and other
materials  relating to the  prototype  device.  MKG has also been working with a
sensor  manufacturer  with  manufacturing  facilities in China,  India,  Eastern
Europe,  and the U.S. MKG recognizes  the importance of properly  reestablishing
manufacturing given regulatory  requirements here and overseas. Its intent is to
first  reestablish  manufacturing  of the prototype  device in the U.S. and then
supplement and/or transfer manufacturing to certified  manufacturing  facilities
in China,  India,  Mexico  and  elsewhere.  It is  working  with  technical  and
regulatory experts in the U.S. and Asia to properly  reestablish  manufacturing.
Its ultimate goal is develop its own certified manufacturing facilities, whether
in the U.S., Asia and/or elsewhere,  which not only would eliminate  outsourcing
but allow manufacture of other possible medical technology.

Ultimately,  the Company under MKG will reinitiate  efforts before the U.S. FDA.
To properly prepare for those efforts, MKG is working with regulatory,  medical,
and legal  experts in the U.S.,  some of which were  involved  in the  Company's
previous  efforts,  and which  have  substantial  experience  with the U.S.  FDA
approval  process.   MKG  believes  that  by  gaining   acceptance  of  the  BDS
(government, medical opinion makers and distribution) in significant and heavily
populated countries such as China, India, the Philippines, Indonesia, and Mexico
and by  supplementing  the Company's  prior  clinical  trials and R&D with joint
U.S.-Asia  clinical trials in countries which  population size presents an ideal
base for clinical  trials,  these efforts will help the Company's future efforts
before  the U.S.  FDA.  China,  India,  the  Philippines,  Indonesia  and Mexico
represent a significant percentage of the world's female population.

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, 2006,  we had a working  capital  deficiency  of  $6,495,646,  a
decrease of  $1,316,942  from December 31, 2005.  Our cash and cash  equivalents
were $2,361 at December 31, 2006, as compared to $2,794 at December 31, 2005.

At December 31, 2006 and December 31, 2005, we had no value on the balance sheet
for the inventory as we decided to make full  provision for all the items in our
inventory.

During 2006,  our  operating  activities  utilized  $378,174 of net cash and our
financing  activities  provided  $377,741  of net  cash,  representing  advances
aggregating $11,823 and $8,234 from Dr. David Long and certain of his affiliates
and MKG respectively. During 2005, our operating activities utilized $861,959 of
net  cash  and  our  financing   activities   provided  $831,611  of  net  cash,
representing advances aggregating  $1,736,361 from Dr. David Long and certain of
his  affiliates,  and  $295,250  from sale of shares of our  common  stock,  and
repayment of the  liability of $1.2 million  liability  under the line of credit
from the advances received from Dr. Long and his affiliates.


                                       24
<PAGE>

Since 2001, we have been seeking additional  third-party  funding.  From 2001 to
March 30, 2006,  we retained a number of different  investment  banking firms to
assist us in locating  available  funding;  however,  we were not  successful in
obtaining any of the  long-term  funding  needed to make us into a  commercially
viable  entity.  From 2001 to March 30, 2006,  Dr. David Long and certain of his
affiliates  have made funding  available  to us to permit us to sustain  certain
minimum  operations.  Since March 30, 2006, funding has primarily come from MKG.
During the period from  December  2003 to February  2004, we were able to obtain
short-term  financing of $1 million from a private  placement (which resulted in
net  proceeds to us of  $811,778,  prior to any  allocation  for the cost of our
required registration of the shares of common stock issued in the placement). On
May 3, 2004, we signed an agreement  with our  placement  agent to secure bridge
financing up to  $800,000,  and we secured  $329,000  under this  placement.  On
September  8,  2004,  we  signed a note in favor of our  private  placement  for
$50,000 under the same terms and conditions as the $329,000  private  placement.
Most of the  proceeds  from this note are set aside to pay for  interest  due on
notes issued under the $1 million and $329,000 private placements.  In 2006, the
Company  under MKG entered  into two notes with two  individuals  for a total of
$110,000  regarding  expenses  incurred in connection  with the  preparation and
submission of the Company's 2005 Form 10-KSB.

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 twelve months.  However, if we are not successful
in generating  sufficient  liquidity  from  operations or in raising  sufficient
capital resources, on terms acceptable to us, this could have a material adverse
effect  on  our  business,  results  of  operations,   liquidity  and  financial
condition.

The independent  auditors  report on our December 31, 2006 financial  statements
states that our recurring losses raise  substantial  doubts about our ability to
continue as a going concern.

RESULTS OF OPERATIONS

Comparison of the Year Ended  December 31, 2006 with the Year Ended December 31,
2005

In 2006 and  2005,  we did not sell any  products  and did not incur any cost of
sales.  As such, we also did not have any cost of sales as a full  provision had
been made for any items sold.

We did not incur any research and development expenses in 2006 or 2005.

Selling,  general and  administrative  expenses decreased by $716,754 or 76%, to
$226,880 in 2006 from $943,634 in 2005. The decrease was largely attributable to
the transition to new management and facilities.

We had net interest expense of $582,233 in 2006 compared to $576,887 in 2005, an
increase of $5,346, or 1%.

Amortization of finance costs were reduced by $595,523 in 2006.

As a result  of the  foregoing,  we  incurred  a net loss of  $809,091  in 2006,
compared to $2,225,312 in 2005, a decrease of $1,416,221, or 64%.


PRODUCT RESEARCH AND DEVELOPMENT


                                       25
<PAGE>


Material  research and development  expenditures are expected during the next 12
months, as MKG as the Company's master licensee and MKG's  sublicensees  proceed
to distribute and  manufacture  the BDS overseas,  further  develop the BDS, and
reinitiate efforts before the U.S. FDA. Much of the expenses, with the exception
of the efforts before the U.S. FDA, will be borne on MKG as the master  licensee
or MKG's sublicensees.

ACQUISITION OR DISPOSITION OF PLANT AND EQUIPMENT

Overseas  sales of the current  version of the BDS and  sensors are  expected to
occur during the next 12 months. 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 overseas.  Much of the
expenses will be borne by MKG as the master licensee or MKG's sublicensees.

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  December  31,  2006,  we  relied  on the  services  of MKG
representatives and outside  consultants and 1 full time employee.  In 2007, the
Company  under  MKG  has  been  working  with  medical,  financial,  regulatory,
technical, legal and other experts in the U.S. and Asia towards distributing and
manufacturing the BDS overseas,  taking the steps for CE Mark  certification for
the  Company's new  facilities,  reinitiating  efforts  before the U.S. FDA, and
further  developing the prototype of the BDS device and the BDS sensors.  Within
the next 12 months, the Company under MKG anticipates  bringing in these experts
as part of the Company's  management,  outside consultants,  board, and advisory
board. In order for us to attract quality personnel,  we anticipate we will have
to offer competitive salaries. relied on the services of outside consultants for
services  and had two full time  employees.  relied on the  services  of outside
consultants  for  services  and had two full time  employees.  As we continue to
expand, we will incur additional cost for personnel.  This projected increase in
personnel is dependent  upon our  generating  revenues and obtaining  sources of
financing. There is no guarantee that we will be successful in raising the funds
required or generating revenues sufficient to fund the projected increase in the
number of employees.

OFF-BALANCE SHEET ARRANGEMENTS

None.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles 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.

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.


                                       26
<PAGE>

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.

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.  In  December  2005,  during  the
Company's  annual  review of the  carrying  values of  patents  and  trademarks,
management  determined that, due to increased  uncertainty about 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  doubtful.  Due to the
uncertainties management was unable to determine and project future undiscounted
cash flows for these assets with reasonable accuracy.  Consequently, the Company
recorded an  impairment  charge of $194,268 to provide in full for these assets,
and this amount is recorded as a component of  operating  expenses in the Income
Statement as a separate line item.

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.

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.

During  2006 and 2005 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.


                                       27
<PAGE>


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, 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.

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,  2005  were  $40,481,889.   In  2006  and  2005  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

In February  2007,  the FASB issued  SFAS No.  159,  "The Fair Value  Option for
Financial  Assets and  Financial  Liabilities  - Including  an amendment of FASB
Statement No. 115" ("SFAS  No.159").  SFAS No. 159 allows companies to choose to
measure many financial  instruments and certain other items at fair value.  SFAS
No. 159 will become  effective  for the Company  beginning in fiscal  2009.  The
Company is currently  evaluating  what effects the adoption of SFAS No. 159 will
have on the Company's future results of operations and financial condition.

In September 2006, the SEC issued SAB No. 108,  Considering the Effects of Prior
Year  Misstatements  when  Quantifying  Misstatements  in Current Year Financial
Statements ("SAB No. 108"). SAB No. 108 provides  guidance on the  consideration
of  the  effects  of  prior  year  misstatements  in  quantifying  current  year
misstatements  for  the  purpose  of  determining  whether  the  current  year's
financial statements are materially misstated.  SAB No. 108 is effective for the
Company  beginning  October 1, 2007. The adoption of SAB No. 108 is not expected
to have a material impact on the Company's consolidated financial statements.

In  September  2006,  the FASB issued SFAS No. 158,  Employer's  Accounting  for
Defined Benefit  Pension and Other  Postretirement  Plans--an  amendment of FASB


                                       28
<PAGE>

Statements  No. 87, 88, 106, and 132(R) ("SFAS No. 158").  SFAS No. 158 requires
an employer to recognize the funded  status of a benefit  plan,  measured as the
difference  between  plan  assets  at  fair  value  and  the  projected  benefit
obligation,  in its statement of financial position.  SFAS No. 158 also requires
an employer to measure  defined  benefit plan assets and  obligations  as of the
date of the  employer's  fiscal  year-end.  SFAS No.  158 is  effective  for the
Company for its fiscal year ended  September 30, 2007.  The Company is currently
evaluating the impact of SFAS No. 158 on its consolidated financial statements.

In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No.  157,  Fair Value  Measurements  ("SFAS  No.  157").  SFAS No. 157  provides
guidance  for using fair value to measure  assets and  liabilities  and requires
additional disclosure about the use of fair value measures, the information used
to measure fair value, and the effect fair-value  measurements have on earnings.
The primary areas in which the Company  utilizes fair value measures are valuing
pension plan assets and liabilities,  valuing hedge-related derivative financial
instruments, allocating purchase price to the assets and liabilities of acquired
companies,  and evaluating long-term assets for potential  impairment.  SFAS No.
157 does not require any new fair value measurements.  SFAS No. 157 is effective
for the Company beginning  October 1, 2008. The Company is currently  evaluating
the impact of SFAS No. 157 on its consolidated financial statements.

In July 2006, the FASB issued  Interpretation No. 48, Accounting for Uncertainty
in Income  Taxes--an  Interpretation  of FASB  Statement  109 ("FIN 48"),  which
prescribes a comprehensive  model for how a company should  recognize,  measure,
present and disclose in its financial  statements  uncertain tax positions  that
the company  has taken or expects to take on a tax return,  including a decision
whether  or not to file a return in a  particular  jurisdiction.  Under this new
guidance, the financial statements will reflect expected future tax consequences
of such  positions  presuming  the taxing  authorities'  full  knowledge  of the
position and all  relevant  facts,  but without  considering  time values.  This
guidance also revises  disclosure  requirements  and introduces a  prescriptive,
annual,  tabular roll-forward of unrecognized tax benefits.  FIN 48 is effective
for annual  periods  beginning  after  December 15, 2006.  The Company is in the
process of  evaluating  the  impact of  adoption  of FIN 48 on its  consolidated
financial statements.

In June 2006,  the FASB ratified the consensus  reached by the EITF in Issue No.
06-3,  How  Taxes   Collected  from  Customers  and  Remitted  to   Governmental
Authorities  Should Be Presented in the Income  Statement (That Is, Gross versus
Net  Presentation)  ("EITF  06-3").  The scope of this  issue  includes  any tax
assessed  by  a   governmental   authority   that  is  directly   imposed  on  a
revenue-producing  activity between a seller and a customer and may include, but
is not limited to, sales,  use,  value-added,  and some excise taxes.  EITF 06-3
requires the disclosure of the method of accounting for the applicable  assessed
taxes and the amount of assessed taxes that are included in revenues if they are
accounted for under the gross method and are significant. EITF 06-3 is effective
for interim and annual reporting  periods beginning after December 15, 2006. The
Company  does not expect the  adoption of EITF 06-3 in 2007 to have an impact on
its consolidated financial statements.

In May  2005,  the FASB  issued  SFAS No.  154,  Accounting  Changes  and  Error
Corrections  ("SFAS No.  154"),  which  replaces APB Opinion No. 20,  Accounting
Changes  and SFAS No. 3,  Reporting  Accounting  Changes  in  Interim  Financial
Statements.  SFAS No. 154  retained  accounting  guidance  related to changes in
estimates, changes in a reporting entity and error corrections. However, changes
in accounting  principles must be accounted for retrospectively by modifying the
financial  statements of prior periods unless it is impracticable to do so. SFAS
No. 154 is effective for accounting changes made in fiscal years beginning after


                                       29
<PAGE>

December  15,  2005.  The  Company  does not  believe  SFAS No.  154 will have a
material impact the consolidated  financial  position,  results of operations or
cash flows.

In December 2004, FASB issued SFAS No. 123 (revised 2004),  Share-Based Payment,
(SFAS  No.  123(R))  which  is a  revision  of  SFAS  No.  123,  Accounting  for
Stock-Based  Compensation (SFAS No. 123). SFAS No. 123(R) supersedes  Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,
(APB No. 25). SFAS No. 123(R)  requires all  share-based  payments to employees,
including  grants of employee  stock  options,  to be  recognized  in the income
statement  based on their  fair  values.  Pro forma  disclosure  is no longer an
alternative.  Additionally,  SFAS No.  123(R)  amends  the  presentation  of the
statement of cash flows and requires  additional  annual  disclosures.  SFAS No.
123(R) is effective for public companies beginning with the first interim period
that begins  after June 15, 2005.  In April 2005,  the  Securities  and Exchange
Commission  adopted a new rule that  postponed the  effective  date for SFAS No.
123(R) to the fiscal year  beginning  after June 15, 2005.  The Company  adopted
SFAS No.  123(R) on January 1, 2006,  but as the Company does not have an option
plan, there was no effect upon implementation.

ITEM 7.  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 8A. CONTROLS AND PROCEDURES.

Based on their  evaluation,  our Chief  Executive  Officer  and Chief  Financial
Officer  concluded  that  partly due to the  transition  to new  management  and
facilities,  our  disclosure  controls and  procedures  need  improvement  as of
December 31, 2006 to ensure timely  reporting  with the  Securities and Exchange
Commission.  Our  management is working to improve our  disclosure  controls and
procedures.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

As  required by Rule  13a-15(d),  the  Company's  Chairman  and Chief  Financial
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, 2006, the Company has concluded that the current system
of  disclosure  controls and  procedures  needs  improvement,  partly due to the
transition to new  management,  facilities,  and  auditors.  As a result of this
conclusion,  the Company is working to improve  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 8B.    OTHER INFORMATION


                                       30
<PAGE>


 None.


                                    PART III

ITEM 9.           DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
                  PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

As of October 22, 2007, our directors and executive officers are:

Name                                Age     Positions and Offices
James MacKay                        47      Chairman of the Board
Michael Antonoplos                  55      Director and Chief Executive Officer
Kenny Lau                           46      Director
Michael Yom                         39      Director and Chief Operating Officer
Joseph Repko                        58      Chief Financial 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.

Dr.  David Long  resigned as chairman and Mr.  James  MacKay was  appointed  our
Chairman  and  a  director  as  of  March  30,  2006.  Mr.  MacKay  is a  global
entrepreneur  and  venture  capitalist  respected  by  governments,  financiers,
businesses and other organizations  throughout the world He 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's  qualifications  and history were set forth
in   the    Company's    last   Form    10-KSB    for   2005    available    at:
http://www.sec.gov/Archives/edgar/data/1007018/000112178106000104/biofield10ksb
123105r.txt.

As of March 30,  2006,  Dr.  Raymond  Long and Mr.  John  Stephens  resigned  as
directors  and Mr.  Michael Yom was appointed as a director and President of the
Company.  As reported in the  Company's  Form 8-K filed July 19,  2007,  Mr. Yom
subsequently  transitioned to the position of chief operating officer. Mr. Yom's
qualifications  and history were set forth in the Company's last Form 10-KSB for
2005 available at http://www.sec.gov/Archives/edgar/data/1007018/000112178106000
104/biofield10ksb123105r.txt.

On April 8, 2006,  Dr. David Long died.  He had continued to serve as a director
after the change in the control of ownership  on March 30, 2006.  As reported in
our Form 8-K  filed on July 19,  2007,  our  current  chief  executive  officer,


                                       31
<PAGE>

Michael  Antonoplos was appointed to the Board to fill the vacancy caused by Dr.
Long's death.  In July 2007, Mr. Kenny Lau was also appointed to the Board.  Mr.
Antonoplos' and Mr. Lau's qualifications are set forth in our July 19, 2007 Form
8-K, available at:

http://www.sec.gov/Archives/edgar/data/1007018/000112178107000218/biofielda8k719
07.htm.

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,  CEO at 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, 2006 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.
Each transaction has been subsequently  reported. See Forms 3, 4, SC 13D and 8-K
filed on April 6, 7, 10, and 11, 2006  available at  www.sec.gov.  In accordance
with the Long Agreement,  in 2007 the Company's current board ratified the prior
board's 2006 approval of the debt conversion and authorized the conversion as of
MKG's demand of $499,728 of the assigned debt into  9,994,550  common shares and
$1,230,000 of the assigned debt into 12,300,000 shares of the Preferred Series A
stock of the Company.  Upon finalization of matters with the Company's  transfer
agent, appropriate filings will be submitted in due course.

ITEM 10.    EXECUTIVE AND OTHER COMPENSATION.

As of March 30, 2006, the date of the MKG Acquisition,  the Company did not have
formal  employment  agreements in 2006. In 2006, MKG  representatives  and other
consultants worked to effectuate the transition to new management and facilities
and  agreed  to  defer   compensation   until  the   transition  was  completed,
distribution and manufacturing was established  overseas,  and funding and sales
revenue were  secured.  In 2007,  the Company  under MKG is working with leading
medical, legal, technical,  manufacturing,  regulatory, and other experts in the
U.S., China and elsewhere to, among other things, distribute and manufacture the
device and sensors  overseas;  reinitiate  efforts before U.S. FDA; complete the
steps for CE Mark  certification  from the Company's  new  facilities in King of
Prussia; maintain its patents and other intellectual protection,  including, but
not limited to, payment of any maintenance and/or other  administrative fees and
the  commencement  of all  necessary  actions to reinstate the patents and other
intellectual  property;  initiate  additional  clinical  trials in the U.S.  and
abroad, including possible joint clinical trials between China and the U.S.; and
continue the  development  of the BDS device and sensors for screening  purposes
and for cancers other than breast cancer.


                                       32
<PAGE>

<TABLE>

STOCK OPTIONS GRANTED

As reported  in its Forms 8-K dated  February  27,  2006 and March 2, 2006,  the
Company,  under prior management  issued to its former Chief Operating  Officer,
John Stephens,  former Chief Sales Officer,  Cri Hilmer,  and outside consultant
Piyush Desai, 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.

COMPENSATION OF DIRECTORS

No cash  compensation  was paid to our directors  during the year ended December
31, 2006, and we have no standard  arrangements  pursuant to which directors are
compensated for any services provided as such.

EMPLOYMENT CONTRACTS

As  of  March  30,  2006,   we  did  not  have  any   employment   contracts  or
change-in-control arrangements with any of our executive officers in 2006.

ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following  table sets forth, as of October 22, 2007, 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 (three 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
------------------------------------- ----------------------------------- -----------------------------------
<S>                                                                       <C>

MacKay Group Limited (1) (3)                    32,015,781 (4)                         50.71(5)
------------------------------------- ----------------------------------- -----------------------------------

James MacKay (Chairman) (1)                    32, 015,781 (4)                         50.71(5)
------------------------------------- ----------------------------------- -----------------------------------

Michael J. Antonoplos (2) (Director                  -0-                                 -0-
and CEO)
------------------------------------- ----------------------------------- -----------------------------------

Kenny Lau (2) (Director)                             -0-                                 -0-
------------------------------------- ----------------------------------- -----------------------------------

Michael Yom (2)                                      -0-                                 -0-
(COO)
------------------------------------- ----------------------------------- -----------------------------------

Joseph Repko (2)                                     -0-                                 -0-
(CFO)
------------------------------------- ----------------------------------- -----------------------------------
</TABLE>


                                       33

<PAGE>


(1) Address is Room 307,  No.31 Lok Yip Road,  Fanling,  New  Territories,  Hong
Kong.
(2) Address is King Of Prussia Business  Center,  Suite C, 1019 West Ninth
Avenue King Of Prussia, PA 19406.
(3) All of the interests in MacKay Group Limited are effectively  owned by James
MacKay.
(4) The Company's Board has also authorized the issuance to MacKay Group
Limited of 12,300,000 shares of Preferred Shares, Series A. Each of the Series A
Preferred  Share shall have one vote per share and each Preferred Share shall be
convertible into two shares of the Corporation's common stock,  provided however
that the  Conversion  Date may not be less than twelve  months after the date of
issuance of the  preferred  shares.
(5) Includes  53,137,486  common shares and
12,300,000 shares of Preferred Shares,  Series A, but excludes  2,306,131 common
shares which the Company is holding in treasury.


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. See above discussions
on MKG Acquisition.




                                       34
<PAGE>


ITEM 12.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The following table sets forth fees billed to us by our independent  accountants
during the fiscal  years ended  December 31, 2006 and December 31, 2005 for: (1)
services  rendered  for the audit of our  annual  financial  statements  and the
review of our quarterly  financial  statements,  (2) 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,  (3)  services  rendered in
connection with tax compliance,  tax advice and tax planning,  and (4) all other
fees for services  rendered.  "Audit Related Fees"  consisted of consulting fees
regarding  accounting issues.  "All Other Fees" consisted of fees related to the
issuance  of  consents  for our SB-2  Registration  Statements  and 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,

                                     2006          2005
                                     ----          ----

       Audit Fees(1)                 ***          $83,037

       Audit Related Fees(2)         -0-            -0-

       Tax Fees(3)                   -0-            -0-

       All Other Fees(4)             -0-             *

       Total                          *           $83,037
---------------------

       (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-QSB.

       (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.













                                       35
<PAGE>



                                   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/ Michael J. Antonoplos
                                  ----------------------------------------------
                                      Michael J. Antonoplos
                                      Chief Executive Officer

Dated:  October 22, 2007


In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated:


                                  /s/ Michael J. Antonoplos
                                  ----------------------------------------------
                                      Michael J. Antonoplos
                                      Chief Executive Officer

Dated:  October 22, 2007


                                  /s/ Joseph Repko
                                  ----------------------------------------------
                                    Joseph Repko
                                   (Chief Financial Officer)

Dated: October 22, 2007


                                       36
<PAGE>



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To The Shareholders and Board of Directors of Biofield Corp.

     We have  audited  the  accompanying  balance  sheet of  Biofield  Corp.  (a
Development  Stage  Company)  as of  December  31, 2006 and 2005 and the related
statements of operations, changes in stockholders' equity and cash flows for the
years ended  December  31,  2006 and 2005 and the period  from  October 16, 1987
(inception)  through  December  31, 2006.  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 audit 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, 2006 and 2005, and the results of its operations and its cash flows
for the years ended  December  31, 2006 and 2005 and the period from October 16,
1987  (inception)  through  December  31,  2006 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
October 12, 2007




                                       37
<PAGE>

<TABLE>

<CAPTION>


BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
-----------------------------------------------------------------------------------------

                                                             December 31,    December 31,
                                                             ------------    ------------
ASSETS                                                             2006           2005
<S>                                                          <C>             <C>

CURRENT ASSETS:
  Cash and cash equivalents                                  $      2,361    $      2,794
  Prepaids                                                          8,234            --
                                                             ------------    ------------
       Total current assets                                        10,595           2,794

PROPERTY AND EQUIPMENT - Net                                          469           1,967
                                                             ------------    ------------
       TOTAL ASSETS                                          $     11,064    $      4,761
                                                             ============    ============

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
  Accounts payable                                           $  1,352,641    $  1,262,440
  Accrued interest                                                438,529         187,459
  Accrued expenses                                                253,786         263,393
  Due to affiliate                                                337,921         329,687
  Advances from stockholder                                     1,966,094       3,488,816
  Notes payable                                                 2,157,085       1,986,350
                                                             ------------    ------------
      Total current liabilities                                 6,506,056       7,518,145
                                                             ------------    ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:
  Preferred stock, $.001 par value;  authorized 12,300,000
    shares; issued 12,300,000 and 0 shares at
    December 31, 2006 and 2005, respectively                       12,300            --
  Common stock, $.001 par value; authorized 60,000,000
    shares; issued 53,137,486 and 43,142,936 shares at
    December 31, 2006 and 2005, respectively                       53,138          43,143
  Treasury stock - 2,306,131 shares                                (3,100)         (3,100)
  Stock subscriptions                                               3,849           3,007
  Additional paid-in capital                                   66,263,340      64,458,994
  Accumulated deficit during development stage                (72,824,519)    (72,015,428)
                                                             ------------    ------------
       Total stockholders' deficit                             (6,494,992)     (7,513,384)
                                                             ------------    ------------
       TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT           $     11,064    $      4,761
                                                             ============    ============

</TABLE>





                See notes to consolidated financial statements.




                                       38
<PAGE>

<TABLE>

<CAPTION>


BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------------------------

                                                                                Period October 16,
                                                       Year Ended                 1987 (Date of
                                                       December 31,             Inception) Through
                                                     2006            2005       December 31, 2006
                                                ------------    ------------    -----------------
<S>                                                                             <C>

REVENUE                                         $       --      $       --      $         135,132
COST OF SALES
  Cost of goods sold                                    --              --                 75,447
  Loss on write down of inventory                       --              --                693,500
                                                ------------    ------------    -----------------
GROSS PROFIT                                            --              --               (633,815)
                                                ------------    ------------    -----------------

OPERATING EXPENSES:
  Research and development                              --              --             40,481,889
  Selling, general and administrative                226,880         847,985           31,290,324
  Impairment of intangible assets                       --           194,268              194,268
  Gain on disposition of fixed assets                   --              --                 (8,084)
                                                ------------    ------------    -----------------
      Total operating expenses                       226,880       1,042,253           71,958,397
                                                ------------    ------------    -----------------


OTHER INCOME (EXPENSE):
  Interest income                                       --              --              2,476,723
  Interest expense and other finance costs:
     Interest expense                               (582,233)       (563,516)          (2,498,625)
     Amortization of shares issued to lenders
        and other finance costs                         --          (405,523)            (405,523)
  Royalty income and other                                22          85,000              214,867
                                                ------------    ------------    -----------------
      Net other expense                             (582,211)       (884,039)            (212,558)
                                                ------------    ------------    -----------------
LOSS BEFORE INCOME TAXES                            (809,091)     (1,926,292)         (72,804,770)
PROVISION FOR INCOME TAXES                              --              --                (19,749)
                                                ------------    ------------    -----------------
NET LOSS                                        $   (809,091)   $ (1,926,292)   $     (72,824,519)
                                                ============    ============    =================

NET LOSS PER SHARE:
     Basic and Diluted                          $      (0.02)   $      (0.05)
                                                ============    ============
WEIGHTED-AVERAGE SHARES
     Basic and Diluted                            48,140,211      39,824,020
                                                ============    ============
</TABLE>


          See notes to consolidated financial statements.



                                       39
<PAGE>

<TABLE>

<CAPTION>


BIOFIELD CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
------------------------------------------------------------------------------------------------------------------------

                                            SERIES A          SERIES B           SERIES C
                                            PREF.STK  AMOUNT  PREF. STK  AMOUNT  PREF. STK  AMOUNT  COMMON STK  AMOUNT
<S>                                                                             <C>         <C>     <C>        <C>

Sale of Common Stock, October 16, 1987
  (date of inception) (.16 per share, net)      -      $ -       -       $ -       -        $ -       549,020   $ 55
Issuance of Common Stock in connection with
  patent acquisition (.001 per share)           -        -       -         -       -          -       235,294     24
Net loss, October 16, 1987 to March 31,1988     -        -       -         -       -          -           -        -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT MARCH 31, 1988                       -      $ -       -       $ -       -        $ -       784,314   $ 79
Net loss                                        -        -       -         -       -          -           -       -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT MARCH 31, 1989                       -      $ -       -       $ -       -        $ -       784,314   $ 79
Net loss                                        -        -       -         -       -          -           -       -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT MARCH 31, 1990                       -      $ -       -       $ -       -        $ -       784,314   $ 79
Acquisition of 235,294 shares of
 Common Stock (.001 per share)                  -        -       -         -       -          -           -       -
Net loss                                        -        -       -         -       -          -           -       -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT MARCH 31, 1991                       -      $ -       -       $ -       -       $ -        784,314   $ 79
Retirement of Common Stock held in treasury     -        -       -         -       -         -       (235,294)   (24)
Issuance of Common Stock in exchange for notes
  and debt with accrued interest (2.90 per
  share, net)                                   -        -       -         -       -         -        431,372     43
Sale of Common Stock (.82 per share, net)       -        -       -         -       -         -         24,510      2
Amortization of deferred compensation           -        -       -         -       -         -            -        -
Net loss                                        -        -       -         -       -         -            -        -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT MARCH 31, 1992                       -      $ -       -       $ -       -       $ -      1,004,902   $ 100
Sale of Common Stock (7.67 per share, net)      -        -       -         -       -         -        557,475      55
Exercise of Common Stock options                -        -       -         -       -         -          2,451       1
Amortization of deferred compensation           -        -       -         -       -         -            -         -
Change in par value of common stock
  from .0001 to .001                            -        -       -         -       -         -            -     1,408
Net loss                                        -        -       -         -       -         -            -         -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT MARCH 31, 1993                       -      $ -       -       $ -       -       $ -      1,564,828 $ 1,564
  (brought forward)
Exercise of Common Stock options                -        -       -         -       -         -            735       1
Sale of Series A Preferred Stock
  (3.97 per share, net)                 2,119,896       2,120    -         -       -         -              -       -
Issuance of Series A Preferred Stock in
  exchange for notes (4.50 per share)     222,222         222    -         -       -         -              -       -
Issuance of Common Stock warrants               -           -    -         -       -         -              -       -
Amortization of deferred compensation           -           -    -         -       -         -              -       -
Net loss                                        -           -    -         -       -         -              -       -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT MARCH 31, 1994               2,342,118     $ 2,342    -       $ -       -       $ -      1,565,563  $ 1,565
Sale of Series B Preferred Stock
  (4.04 per share, net)                         -           - 481,644     482      -         -              -        -
Issuance of Common Stock warrants               -           -    -         -       -         -              -        -
Amortization of deferred compensation           -           -    -         -       -         -              -        -
Net loss                                        -           -    -         -       -         -              -        -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 1994            2,342,118     $ 2,342 481,644    $482      -       $ -      1,565,563   $ 1,565





                                              --------------------------------------------------------------------------------------
                                                                            DEF ACCUM DURING  FOREIGN CUR                TOTAL
                                              TREASURY     STOCK               DEVELOPMENT     TRANSLATION            COMPREHENSIVE
                                               STOCK   SUBSCRIPTIONS   APIC      STAGE        ADJUSTMENT    TOTAL         LOSS

Sale of Common Stock, October 16, 1987
  (date of inception) (.16 per share, net)     $ -      $ -           $ 91,898   $    -        $    -       $   91,953
Issuance of Common Stock in connection with
  patent acquisition (.001 per share)            -        -                276        -             -              300
Net loss, October 16, 1987 to March 31,1988      -        -                  -     (159,359)        -         (159,359)
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                       $  (159,359)
------------------------------------------------------------------------------------------------------------------------------------

BALANCE AT MARCH 31, 1988                      $ -      $ -           $ 92,174   $ (159,359)   $    -      $   (67,106)
Net loss                                         -        -                -       (495,520)        -         (495,520)
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                       $  (495,520)
------------------------------------------------------------------------------------------------------------------------------------

BALANCE AT MARCH 31, 1989                     $ -       $ -           $ 92,174   $ (654,879)   $    -      $  (562,626)
Net loss                                        -         -                -       (233,347)        -         (233,347)
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                       $  (233,347)
------------------------------------------------------------------------------------------------------------------------------------

BALANCE AT MARCH 31, 1990                     $ -       $ -           $ 92,174   $ (888,226)   $    -      $  (795,973)
Acquisition of 235,294 shares of
 Common Stock (.001 per share)                  (300)     -                -           -            -             (300)
Net loss                                        -         -                -       (285,179)        -         (285,179)
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                       $  (285,179)
------------------------------------------------------------------------------------------------------------------------------------

BALANCE AT MARCH 31, 1991                     $ (300)   $ -           $ 92,174   $(1,173,405)  $    -      $(1,081,452)
Retirement of Common Stock held in treasury      300      -               (276)          -          -              -
Issuance of Common Stock in exchange for notes
  and debt with accrued interest (2.90 per
  share, net)                                    -        -          1,248,638           -          -        1,248,681
Sale of Common Stock (.82 per share, net)        -        -             19,998           -          -           20,000
Amortization of deferred compensation            -        -            136,880           -          -          136,880
Net loss                                         -        -                -        (461,061)       -         (461,061)
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                       $  (461,061)
------------------------------------------------------------------------------------------------------------------------------------

BALANCE AT MARCH 31, 1992                      $ -      $ -        $ 1,497,414    $(1,634,466) $    -      $  (136,952)
Sale of Common Stock (7.67 per share, net)       -        -          4,275,223            -         -        4,275,278
Exercise of Common Stock options                 -        -                624            -         -              625
Amortization of deferred compensation            -        -            477,453            -         -          477,453
Change in par value of common stock
  from .0001 to .001                             -        -             (1,408)           -         -              -
Net loss                                         -        -                -       (3,099,637)      -       (3,099,637)
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                       $(3,099,637)
------------------------------------------------------------------------------------------------------------------------------------

BALANCE AT MARCH 31, 1993                      $ -      $ -        $ 6,249,306    $(4,734,103) $    -      $ 1,516,767
  (brought forward)
Exercise of Common Stock options                 -        -                187            -         -              188
Sale of Series A Preferred Stock
  (3.97 per share, net)                          -        -          8,411,370            -         -        8,413,490
Issuance of Series A Preferred Stock in
  exchange for notes (4.50 per share)            -        -            999,778            -         -        1,000,000
Issuance of Common Stock warrants                -        -              2,119            -         -            2,119
Amortization of deferred compensation            -        -          1,580,320            -         -        1,580,320
Net loss                                         -        -                  -     (6,899,515)      -       (6,899,515)
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                       $(6,899,515)
------------------------------------------------------------------------------------------------------------------------------------

BALANCE AT MARCH 31, 1994                      $ -      $ -        $ 17,243,080   (11,633,618) $    -      $ 5,613,369
Sale of Series B Preferred Stock
  (4.04 per share, net)                          -        -           1,947,149           -         -        1,947,631
Issuance of Common Stock warrants                -        -                   6           -         -                6
Amortization of deferred compensation            -        -              14,859           -         -           14,859
Net loss                                         -        -                 -      (4,959,312)      -       (4,959,312)
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                       $(4,959,312)
------------------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 1994                   $ -      $ -        $ 19,205,094   $(16,592,930)   $ -      $ 2,616,553




              See notes to the consolidated financial statements.

                                       40
<PAGE>

                                            SERIES A          SERIES B           SERIES C
                                            PREF.STK  AMOUNT  PREF. STK  AMOUNT  PREF. STK  AMOUNT  COMMON STK  AMOUNT

Sale of Series C Preferred Stock
  (4.11 per share, net)                         -           -    -         -  2,914,771     2,915         -         -
Issuance of Common Stock warrants               -           -    -         -        -        -            -         -
Amortization of deferred compensation           -           -    -         -        -        -            -         -
Net loss                                        -           -    -         -        -        -            -         -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 1995            2,342,118     $ 2,342 481,644    $482 2,914,771    $2,915   1,565,563   $ 1,565
Sale of Common Stock                            -           -    -          -       -        -      1,819,000     1,819
Conversion of Series A, B, and C
  Preferred Stock to Common Stock      (2,342,118)     (2,342)(481,644)  (482)(2,914,771)  (2,915)  3,046,474     3,047
Exercise of Common Stock warrants             -             -    -          -        -        -         2,058         2
Amortization of deferred compensation         -             -    -          -        -        -           -           -
Net loss                                      -             -    -          -        -        -           -           -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 1996                              $ -    -        $ -        -      $ -     6,433,095   $ 6,433
Sale of Common Stock (2.92 per share, net)    -             -    -          -        -        -     2,867,670     2,868
Warrants exchanged for Common Stock           -             -    -          -        -        -       643,639       644
Exercise of Common Stock options              -             -    -          -        -        -        50,674        50
Exercise of Common Stock warrants             -             -    -          -        -        -         9,531        10
Issuance of Common Stock for consulting       -             -    -          -        -        -        25,000        25
  services (4.00 per share, net)
Amortization of deferred compensation
Net loss                                      -             -    -          -        -        -           -           -
Foreign currency translation adjustment       -             -    -          -        -        -           -           -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 1997                  -           $ -    -        $ -               $ -    10,029,609  $ 10,030
Repurchase of Common Stock
 for treasury (2,246,131 shares)              -             -    -          -        -        -           -         -
Net loss                                      -             -    -          -        -        -           -         -
Foreign currency translation adjustment       -             -    -          -        -        -           -         -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 1998                  -           $ -    -        $ -      $ -        -    10,029,609  $ 10,030
Sale of Common Stock (.05 per share, net)     -             -    -          -        -        -    14,000,000    14,000
Net loss                                      -             -    -          -        -        -           -         -
Foreign currency translation adjustment       -             -    -          -        -        -           -         -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 1999                  -           $ -    -        $ -      $ -        -    24,029,609  $ 24,030
Issuance of right to purchase Common Stock
  in lieu of compensation (0.45 per share)    -             -    -          -        -        -           -         -
Sale of common stock (0.05 per share)         -             -    -          -        -        -       500,000       500
Sale of common stock (0.50 per share)         -             -    -          -        -        -     3,000,000     3,000
Memorandum entry to record as expense for
 honorary services rendered by a shareholder  -             -    -          -        -        -           -         -
Repurchase of Common Stock
 for treasury (60,000 shares)                 -             -    -          -        -        -           -         -
Net loss                                      -             -    -          -        -        -           -         -
Foreign currency translation adjustment       -             -    -          -        -        -           -         -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 2000                  -           $ -    -        $ -      $ -        -     27,529,609 $ 27,530
Memorandum entry to record as expense for
  honorary services rendered by a
  shareholder                                 -             -    -          -        -        -            -        -
Net loss                                      -             -    -          -        -        -            -        -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 2001                  -           $ -    -        $ -        -      $ -     27,529,609 $ 27,530
Exercise of Common Stock options              -             -    -          -        -        -         62,745       63
Memorandum entry to record as expense for
  honorary services rendered by a
  shareholder                                 -             -    -          -        -        -            -         -
Net loss                                      -             -    -          -        -        -            -         -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 2002                  -           $ -    -        $ -        -      $ -     27,592,354 $ 27,593



                                          --------------------------------------------------------------------------------------
                                                                             DEF ACCUM DURING  FOREIGN CUR               TOTAL
                                           TREASURY     STOCK                   DEVELOPMENT     TRANSLATION           COMPREHENSIVE
                                            STOCK   SUBSCRIPTIONS   APIC           STAGE        ADJUSTMENT   TOTAL       LOSS

Sale of Series C Preferred Stock
  (4.11 per share, net)                        -        -          11,977,856            -        -       11,980,771
Issuance of Common Stock warrants              -        -                 161            -        -              161
Amortization of deferred compensation          -        -             195,874            -        -          195,874
Net loss                                       -        -                 -       (8,739,858)     -       (8,739,858)
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                      $ (8,739,858)
------------------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 1995                 $ -      $ -        $ 31,378,985   $(25,332,788)   $ -      $ 6,053,501
Sale of Common Stock                           -        -          18,026,419            -        -       18,028,238
Conversion of Series A, B, and C
  Preferred Stock to Common Stock              -        -               2,692            -        -              -
Exercise of Common Stock warrants              -        -              20,145            -        -           20,147
Amortization of deferred compensation          -        -              26,093            -        -           26,093
Net loss                                       -        -                 -      (10,036,090)     -      (10,036,090)
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                      $(10,036,090)
------------------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 1996                 $ -      $ -        $ 49,454,334   $(35,368,878)   $ -     $ 14,091,889
Sale of Common Stock (2.92 per share, net)     -        -           8,377,583            -        -        8,380,451
Warrants exchanged for Common Stock            -        -                (644)           -        -              -
Exercise of Common Stock options               -        -             168,541            -        -          168,591
Exercise of Common Stock warrants              -        -              93,299            -        -           93,309
Issuance of Common Stock for consulting        -        -              99,975            -        -          100,000
  services (4.00 per share, net)                                       62,579            -        -           62,579
Amortization of deferred compensation
Net loss                                       -        -                 -      (10,151,041)     -      (10,151,041)
Foreign currency translation adjustment        -        -                 -              -      1,333          1,333
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                      $(10,149,708)
------------------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 1997                 $ -      $ -        $ 58,255,667   $ 45,519,911)   $1,333  $ 12,747,111
Repurchase of Common Stock
 for treasury (2,246,131 shares)              (100)     -                 -              -         -            (100)
Net loss                                       -        -                 -      (10,654,597)      -     (10,654,597)
Foreign currency translation adjustment        -        -                 -              -      55,891        55,891
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                      $(10,598,706)
------------------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 1998                 $(100)   $ -        $ 58,255,667   $(56,174,516)  $57,224  $  2,148,305
Sale of Common Stock (.05 per share, net)       -       -             686,000            -         -         700,000
Net loss                                        -       -                 -       (1,253,696)      -      (1,253,696)
Foreign currency translation adjustment         -       -                 -              -     (43,020)      (43,020)
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                      $ (1,296,716)
------------------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 1999                 $(100)   $ -        $ 58,941,667   $(57,428,212)  $14,204  $  1,551,589
Issuance of right to purchase Common Stock
  in lieu of compensation (0.45 per share)     -        -             198,000            -         -         198,000
Sale of common stock (0.05 per share)          -        -              24,500            -                    25,000
Sale of common stock (0.50 per share)          -        -           1,497,000            -         -       1,500,000
Memorandum entry to record as expense for
 honorary services rendered by a shareholder   -        -             100,000            -         -         100,000
Repurchase of Common Stock
 for 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                 $(3,100) $ -        $ 60,761,167   $(58,950,445)           $  1,835,152
Memorandum entry to record as expense for
  honorary services rendered by a
  shareholder                                    -      -             100,000            -                   100,000
Net loss                                         -      -                 -       (2,238,687)      -      (2,238,687)
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                      $ (2,238,687)
------------------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 2001                 $(3,100) $ -        $ 60,861,167   $(61,189,132)  $   -    $   (303,535)
Exercise of Common Stock options                 -      -              15,623            -                    15,686
Memorandum entry to record as expense for
  honorary services rendered by a
  shareholder                                    -      -             100,000            -         -         100,000
Net loss                                         -      -                 -       (2,888,789)      -      (2,888,789)
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                      $ (2,888,789)
------------------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 2002                 $(3,100) $ -       $ 60,976,790   $ (64,077,921)  $   -    $ (3,076,638)




              See notes to the consolidated financial statements.

                                       41
<PAGE>


                                            SERIES A           SERIES B           SERIES C
                                            PREF.STK   AMOUNT  PREF. STK  AMOUNT  PREF. STK  AMOUNT  COMMON STK  AMOUNT



Issuance of Common Stock for consulting
  services (0.30 per share, net)              -             -    -          -        -        -         50,000       50
Issuance of Common Stock for consulting
  services (0.32 per share, net)              -             -    -          -        -        -        468,749      468
Issuance of Common Stock for consulting
  services (0.11 per share, net)              -             -    -          -        -        -        275,000      275
Issuance of Common Stock as incentive for
  funding by issue of notes (0.25 per
  share net)                                  -             -    -          -        -        -      3,187,500    3,188
Common Stock (410,358 shares) to be issued
  for interest accrued on stockholder's
  advances                                    -             -    -          -        -        -            -        -
Memorandum entry to record as expense for
  honorary services rendered by a
  shareholder                                 -             -    -          -        -        -            -        -
Net loss                                      -             -    -          -        -        -            -        -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 2003                  -           $ -    -        $ -        -      $ -     31,573,603 $ 31,574
Issuance of Common Stock as incentive for
 funding by issue of notes (0.25 per share
 net)                                         -             -    -          -        -        -      1,812,500    1,813
Issuance of Common Stock as incentive for
 funding by issue of notes (0.31 per share
 net)                                         -             -    -          -        -        -      1,895,000    1,895
Sale of Common Stock (0.10 per share)         -             -    -          -        -        -      1,224,000    1,224
Common Stock (286,421 shares) to be issued
  for interest accrued on stockholder's
  advances                                    -             -    -          -        -        -            -        -
Common Stock (2,500,000 shares) to be
  issued for payment penalty on notes
  payable                                     -             -    -          -        -        -            -        -
Memorandum entry to record as expense for
   honorary services rendered by a
   shareholder                                -             -    -          -        -        -            -        -
Net loss                                      -             -    -          -        -        -            -        -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 2004                  -           $ -    -        $ -        -      $ -     36,505,103 $ 36,506
Sale of Common Stock ( for not less than
  $0.10 per share)                            -             -    -          -        -        -      3,240,333    3,240
Common Stock (2,310,300 shares) to be
  issued for interest accrued on
  stockholder's advances                      -             -    -          -        -        -            -        -
Issue of shares of Common Stock for
  payment penalty on notes payable            -             -    -          -        -        -        897,500      897
Issue of shares of Common Stock for
  payment penalty on notes payable            -             -    -          -        -        -      2,500,000    2,500
Memorandum entry to record as expense for
   honorary services rendered by a
   shareholder                                -             -    -          -        -        -            -        -
Net loss                                      -             -    -          -        -        -            -        -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 2005                  -           $ -    -        $ -        -      $ -     43,142,936 $ 43,143
Common Stock (841,438 shares) to be
  issued for interest accrued on
  stockholder's advances                      -             -    -          -        -        -            -        -
Options issued for consulting services        -             -    -          -        -        -            -        -
Memorandum entry to record as expense for
   honorary services rendered by a
   shareholder                                -             -    -          -        -        -            -        -
Debt converted to stock                12,300,000        12,300  -          -        -        -      9,994,550    9,995
Net loss                                      -             -    -          -        -        -            -        -
TOTAL COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 2006           12,300,000       $12,300  -        $ -        -      $ -     53,137,486 $ 53,138
------------------------------------------------------------------------------------------------------------------------

                                          --------------------------------------------------------------------------------------
                                                                           DEF ACCUM DURING  FOREIGN CUR               TOTAL
                                          TREASURY     STOCK                  DEVELOPMENT    TRANSLATION           COMPREHENSIVE
                                           STOCK   SUBSCRIPTIONS   APIC         STAGE        ADJUSTMENT    TOTAL       LOSS


Issuance of Common Stock for consulting
  services (0.30 per share, net)               -                    14,950             -         -          15,000
Issuance of Common Stock for consulting
  services (0.32 per share, net)               -      -            149,532             -         -         150,000
Issuance of Common Stock for consulting
  services (0.11 per share, net)               -      -             29,975             -         -          30,250
Issuance of Common Stock as incentive for
  funding by issue of notes (0.25 per
  share net)                                   -      -            793,687             -         -         796,875
Common Stock (410,358 shares) to be issued
  for interest accrued on stockholder's
  advances                                     -     410           101,976             -         -         102,386
Memorandum entry to record as expense for
  honorary services rendered by a
  shareholder                                  -       -           100,000             -         -         100,000
Net loss                                       -       -               -        (2,164,698)      -      (2,164,698)
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                    $ (2,164,698)
---------------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 2003               $(3,100) $410      $ 62,166,910   $ (66,242,619)  $   -    $ (4,046,825)
Issuance of Common Stock as incentive for
 funding by issue of notes (0.25 per share
 net)                                          -       -           451,312             -         -         453,125
Issuance of Common Stock as incentive for
 funding by issue of notes (0.31 per share
 net)                                          -       -           585,555             -         -         587,450
Sale of Common Stock (0.10 per share)          -       -           160,601             -         -         161,825
Common Stock (286,421 shares) to be issued
  for interest accrued on stockholder's
  advances                                     -     287            64,456             -         -          64,743
Common Stock (2,500,000 shares) to be
  issued for payment penalty on notes
  payable                                      -    2,500          347,500             -         -         350,000
Memorandum entry to record as expense for
   honorary services rendered by a
   shareholder                                 -      -            100,000             -         -         100,000
Net loss                                       -      -                -        (3,846,517)      -      (3,846,517)
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                    $ (3,846,517)
----------------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 2004               $(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)                             -       -           382,178             -         -         385,418
Common Stock (2,310,300 shares) to be
  issued for interest accrued on
  stockholder's advances                       -     2,310          83,430             -         -          85,740
Issue of shares of Common Stock for
  payment penalty on notes payable             -       -            17,052             -         -          17,949
Issue of shares of Common Stock for
  payment penalty on notes payable             -    (2,500)            -               -         -             -
Memorandum entry to record as expense for
   honorary services rendered by a
   shareholder                                 -       -           100,000             -         -         100,000
Net loss                                       -       -               -        (1,926,292)      -      (1,926,292)
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                    $ (1,926,292)
----------------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 2005               $(3,100) $ 3,007    $ 64,458,994   $ (72,015,428)  $  -     $(7,513,384)
Common Stock (841,438 shares) to be
  issued for interest accrued on
  stockholder's advances                       -       842          24,401             -         -          25,243
Options issued for consulting services         -         -          47,512             -         -          47,512
Memorandum entry to record as expense for
   honorary services rendered by a
   shareholder                                 -         -          25,000             -         -          25,000
Debt converted to stock                        -         -       1,707,433             -         -       1,729,728
Net loss                                       -         -             -          (809,091)      -        (809,091)
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                    $ (809,091)
----------------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 2006               $(3,100) $ 3,849    $ 66,263,340  $ (72,824,519)  $   -     $(6,494,992)
                                 ---------------------------------------------------------------------------------
</TABLE>



              See notes to the consolidated financial statements.

                                       42
<PAGE>


<TABLE>

<CAPTION>


BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                              Period October 16,
                                                                                     Twelve months ended        1987 (DATE OF
                                                                                        December 31,          Inception) Through
OPERATING ACTIVITIES                                                                 2006            2005      DECEMBER 31, 2006
                                                                                ------------    ------------    ------------
<S>                                                                             <C>             <C>             <C>

  Net loss                                                                      $   (809,091)   $ (1,926,292)   $(72,824,519)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization                                                      1,498          41,302       2,761,206
    Amortization of premiums on short-term investments                                  --              --           156,692
    Amortization of deferred financing costs                                            --           405,523       2,129,643
    Loss on disposal of property and equipment                                          --              --           194,102
    Loss on license and settlement agreements                                           --              --            49,026
    Loss on abandonment of patent applications                                          --              --           303,234
    Loss on inventory write-down                                                        --              --           693,500
    Impairment of intangible assets                                                     --           194,268         194,268
    Vendor settlements                                                                  --              --           (77,257)
    Noncash compensation                                                              25,000         100,000       3,533,451
    Gain from disposition of fixed assets                                               --              --          (159,473)
    Interest paid in Common Stock                                                     25,243          85,740         575,260
    Commisions and discounts on sale of Common Stock                                    --              --            96,919
    Loan repayment default payable in shares of Common Stock                            --              --           350,000
    Consultancy fees paid in Common Stock                                             47,512            --           242,762
    Changes in assets and liabilities:
     Other assets                                                                       --              --
      Inventories                                                                       --              --          (693,500)
      Prepaids                                                                        (8,234)          2,000        (140,816)
      Due to affiliate                                                                 8,234          57,188         337,921
      Accounts payable, accrued interest and expenses                                331,664         145,643       2,102,039
                                                                                ------------    ------------    ------------
          Net cash used in operating activities                                     (378,174)       (894,628)    (60,175,542)
                                                                                ------------    ------------    ------------
INVESTING ACTIVITIES
  Acquisitions of property and equipment                                                --              --        (2,610,691)
  Costs incurred for patents and patent applications                                    --              --          (782,527)
  Proceeds from sale of property and equipment                                          --              --           294,748
  Purchases of short-term investments                                                   --              --       (26,476,638)
  Proceeds from sale and maturity of short-term investments                             --              --        26,406,378
                                                                                ------------    ------------    ------------
          Net cash used in investing activities                                         --              --        (3,168,730)
                                                                                ------------    ------------    ------------
FINANCING ACTIVITIES
  Repayments of capitalized lease obligations                                           --              --           (82,234)
  Proceeds from issuance of Preferred Stock - net                                       --              --        22,341,892
  Proceeds from issuance of Common Stock and Common Stock warrants - net           1,729,728         385,418      35,203,258
  Proceeds from exercise of Common Stock options and Common Stock warrants              --              --           298,546
  Proceeds from issuance of notes payable                                            110,000            --         1,489,000
  Notes financing costs                                                              267,741         211,080         262,077
  Advances from stockholder                                                             --           267,782       3,276,886
  Repayments of advances from stockholder                                         (1,729,728)           --        (1,874,728)
  Repurchases of Common Stock held in treasury                                          --              --            (3,100)
  Proceeds from notes payable issued to stockholder and related party                   --              --         2,546,533
                                                                                ------------    ------------    ------------
          Net cash provided by financing activities                                  377,741         864,280      63,458,130
                                                                                ------------    ------------    ------------
    NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                (433)        (30,348)        113,858
    EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                        --              --          (111,497)

  CASH AND CASH EQUIVALENTS:
    BEGINNING OF PERIOD                                                                2,794          33,142            --
                                                                                ------------    ------------    ------------
    END OF PERIOD                                                               $      2,361    $      2,794    $      2,361
                                                                                ============    ============    ============




                See notes to consolidated financial statements.

                                       43
<PAGE>

BIOFIELD CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
--------------------------------------------------------------------------------------------------------------------------------

                                                                                                              Period October 16,
                                                                                     Twelve months ended        1987 (Date of
                                                                                        December 31,          Inception) Through
                                                                                     2006            2005      December 31, 2006
                                                                                ------------    ------------    ------------
SUPPLEMENTAL DISCLOSURES OF CASH
  FLOW INFORMATION:
  Cash paid for interest                                                        $       --      $     92,507    $    857,003
                                                                                ============    ============    ============
  Cash paid for taxes                                                           $       --      $       --      $       --
                                                                                ============    ============    ============

SUPPLEMENTAL SCHEDULE FOR NONCASH
  INVESTING AND FINANCING ACTIVITIES:
  During the fiscal year ended December 31, 2005, 897,500 shares of Common Stock
   due as penalty for non-payment of notes payable on maturity issued:          $       --      $     17,949    $     17,949
                                                                                ============    ============    ============

  During the fiscal year ended  December 31, 2005, a principal  shareholder  and
   his associates  repaid the Company's line of credit and the debt is reflected
   in the financial statements as
    advances from stockholder:                                                  $       --      $  1,200,000    $  1,200,000
                                                                                ============    ============    ============

</TABLE>








                See notes to consolidated financial statements.

                                       44
<PAGE>


BIOFIELD CORP.
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION

Organization

Biofield Corp. (the "Company") is a development stage company that 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 taking the steps  needed to
receive  a CE mark  certification  for its new  facilities  in King of  Prussia,
Pennsylvania.  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.

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  and is in the process of undertaking
the  audits,  certifications  and the CE  Mark  reissuance  process  for the new
facility.  Now that the transfer of vital  financial and  regulatory  records is
complete,  the Company is diligently proceeding to bring all of its Security and


                                       45
<PAGE>

Exchange  Commission  ("SEC") filings  current as soon as practically  possible.
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.

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:

o    Move from a development stage entity to an operating entity;
o    Settling legacy outstanding obligations;
o    Continued review of all expenditures in order to minimize costs;
o    Raise additional working capital as necessary; and
o    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 our 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.


                                       46
<PAGE>


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.

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.  In  December  2005,  during  the
Company's  annual  review of the  carrying  values of  patents  and  trademarks,
management  determined that, due to increased  uncertainty about 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  doubtful.  Due to the
uncertainties management was unable to determine and project future undiscounted
cash flows for these assets with reasonable accuracy.  Consequently, the Company
recorded an  impairment  charge of $194,268 to provide in full for these assets,
and this amount is recorded as a component of  operating  expenses in the Income
Statement as a separate line item.

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.


                                       47
<PAGE>


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.

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

                                       48
<PAGE>

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  2006 and 2005 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,  2006 and 2005,  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, 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.



                                       49
<PAGE>


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,  2005  were  $40,481,889.   In  2006  and  2005  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.

NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

In February  2007,  the FASB issued  SFAS No.  159,  "The Fair Value  Option for
Financial  Assets and  Financial  Liabilities  - Including  an amendment of FASB
Statement No. 115" ("SFAS  No.159").  SFAS No. 159 allows companies to choose to
measure many financial  instruments and certain other items at fair value.  SFAS
No. 159 will become  effective  for the Company  beginning in fiscal  2009.  The
Company is currently  evaluating  what effects the adoption of SFAS No. 159 will
have on the Company's future results of operations and financial condition.

In September 2006, the SEC issued SAB No. 108,  Considering the Effects of Prior
Year  Misstatements  when  Quantifying  Misstatements  in Current Year Financial
Statements ("SAB No. 108"). SAB No. 108 provides  guidance on the  consideration
of  the  effects  of  prior  year  misstatements  in  quantifying  current  year
misstatements  for  the  purpose  of  determining  whether  the  current  year's
financial statements are materially misstated.  SAB No. 108 is effective for the
Company  beginning  October 1, 2007. The adoption of SAB No. 108 is not expected
to have a material impact on the Company's consolidated financial statements.

In  September  2006,  the FASB issued SFAS No. 158,  Employer's  Accounting  for
Defined Benefit  Pension and Other  Postretirement  Plans--an  amendment of FASB
Statements  No. 87, 88, 106, and 132(R) ("SFAS No. 158").  SFAS No. 158 requires
an employer to recognize the funded  status of a benefit  plan,  measured as the
difference  between  plan  assets  at  fair  value  and  the  projected  benefit
obligation,  in its statement of financial position.  SFAS No. 158 also requires
an employer to measure  defined  benefit plan assets and  obligations  as of the
date of the  employer's  fiscal  year-end.  SFAS No.  158 is  effective  for the
Company for its fiscal year ended  September 30, 2007.  The Company is currently
evaluating the impact of SFAS No. 158 on its consolidated financial statements.

In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No.  157,  Fair Value  Measurements  ("SFAS  No.  157").  SFAS No. 157  provides
guidance  for using fair value to measure  assets and  liabilities  and requires
additional disclosure about the use of fair value measures, the information used
to measure fair value, and the effect fair-value  measurements have on earnings.


                                       50
<PAGE>

The primary areas in which the Company  utilizes fair value measures are valuing
pension plan assets and liabilities,  valuing hedge-related derivative financial
instruments, allocating purchase price to the assets and liabilities of acquired
companies,  and evaluating long-term assets for potential  impairment.  SFAS No.
157 does not require any new fair value measurements.  SFAS No. 157 is effective
for the Company beginning  October 1, 2008. The Company is currently  evaluating
the impact of SFAS No. 157 on its consolidated financial statements.

In July 2006, the FASB issued  Interpretation No. 48, Accounting for Uncertainty
in Income  Taxes--an  Interpretation  of FASB  Statement  109 ("FIN 48"),  which
prescribes a comprehensive  model for how a company should  recognize,  measure,
present and disclose in its financial  statements  uncertain tax positions  that
the company  has taken or expects to take on a tax return,  including a decision
whether  or not to file a return in a  particular  jurisdiction.  Under this new
guidance, the financial statements will reflect expected future tax consequences
of such  positions  presuming  the taxing  authorities'  full  knowledge  of the
position and all  relevant  facts,  but without  considering  time values.  This
guidance also revises  disclosure  requirements  and introduces a  prescriptive,
annual,  tabular roll-forward of unrecognized tax benefits.  FIN 48 is effective
for annual  periods  beginning  after  December 15, 2006.  The Company is in the
process of  evaluating  the  impact of  adoption  of FIN 48 on its  consolidated
financial statements.

In June 2006,  the FASB ratified the consensus  reached by the EITF in Issue No.
06-3,  How  Taxes   Collected  from  Customers  and  Remitted  to   Governmental
Authorities  Should Be Presented in the Income  Statement (That Is, Gross versus
Net  Presentation)  ("EITF  06-3").  The scope of this  issue  includes  any tax
assessed  by  a   governmental   authority   that  is  directly   imposed  on  a
revenue-producing  activity between a seller and a customer and may include, but
is not limited to, sales,  use,  value-added,  and some excise taxes.  EITF 06-3
requires the disclosure of the method of accounting for the applicable  assessed
taxes and the amount of assessed taxes that are included in revenues if they are
accounted for under the gross method and are significant. EITF 06-3 is effective
for interim and annual reporting  periods beginning after December 15, 2006. The
Company  does not expect the  adoption of EITF 06-3 in 2007 to have an impact on
its consolidated financial statements.

In May  2005,  the FASB  issued  SFAS No.  154,  Accounting  Changes  and  Error
Corrections  ("SFAS No.  154"),  which  replaces APB Opinion No. 20,  Accounting
Changes  and SFAS No. 3,  Reporting  Accounting  Changes  in  Interim  Financial
Statements.  SFAS No. 154  retained  accounting  guidance  related to changes in
estimates, changes in a reporting entity and error corrections. However, changes
in accounting  principles must be accounted for retrospectively by modifying the
financial  statements of prior periods unless it is impracticable to do so. SFAS
No. 154 is effective for accounting changes made in fiscal years beginning after
December  15,  2005.  The  Company  does not  believe  SFAS No.  154 will have a
material impact the consolidated  financial  position,  results of operations or
cash flows.

In December 2004, FASB issued SFAS No. 123 (revised 2004),  Share-Based Payment,
(SFAS  No.  123(R))  which  is a  revision  of  SFAS  No.  123,  Accounting  for
Stock-Based  Compensation (SFAS No. 123). SFAS No. 123(R) supersedes  Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,
(APB No. 25). SFAS No. 123(R)  requires all  share-based  payments to employees,
including  grants of employee  stock  options,  to be  recognized  in the income
statement  based on their  fair  values.  Pro forma  disclosure  is no longer an
alternative.  Additionally,  SFAS No.  123(R)  amends  the  presentation  of the
statement of cash flows and requires  additional  annual  disclosures.  SFAS No.
123(R) is effective for public companies beginning with the first interim period
that begins  after June 15, 2005.  In April 2005,  the  Securities  and Exchange

                                       51
<PAGE>

Commission  adopted a new rule that  postponed the  effective  date for SFAS No.
123(R) to the fiscal year  beginning  after June 15, 2005.  The Company  adopted
SFAS No.  123(R) on January 1, 2006,  but as the Company does not have an option
plan, there was no effect upon implementation.

NOTE 4 - 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  detailed in and attached to the Company's
April 6, 2006 Form 8-K. 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.  All of the agreements were reviewed and approved by the Company's then
board (Dr. David Long, Dr. Raymond Long, and John Stephens) and by the Company's
then securities counsel.  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
between MKG and Dr. David Long,  Mrs.  Donna Long,  Dr.  Raymond Long,  the Long
Family Trust,  and the Long Family Partners II, LP (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.

In accordance  with the stock  acquisition  agreements  and the Company's  prior
board's  approval  thereof,  board members,  John Stephens and Dr. Raymond Long,
resigned  and were  replaced by James  MacKay and  Michael  Yom.  MacKay  became
chairman and Yom became president.  Dr. David Long remained a board member until
his death in April  2006.  His board  seat was  subsequently  filled by  Michael
Antonoplos, the Company's current chief executive officer.

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.

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/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.  The  assignment and debt  conversion  (including  conversion  rate) were

                                       52
<PAGE>

reviewed and approved by the Company's prior  management,  board, and securities
counsel.

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 was to be transferred to LFCG, provided
that LFCG agrees 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,  the Company's current board ratified the prior board's
approval of the debt conversion and authorized the conversion as of MKG's demand
of $499,728 of the assigned debt into 9,994,550  common shares and $1,230,000 of
the assigned debt into 12,300,000  shares of the Preferred Series A stock of the
Company.  Each of the Series A Preferred Share shall have one vote per share and
each Preferred Share shall be convertible  into two shares of the  Corporation's
common stock,  provided  however that the  Conversion  Date may not be less than
twelve months after the date of issuance of the preferred shares.  All remaining
portions of the assigned debt not converted  (e.g.,  $270,273)  were retained by
MKG and are entitled to be converted at a later time.

As of December 31, 2006,  subsequent  to the above stock  acquisitions  and debt
conversion,   MKG  holds  35,835,530   shares  (common  and  preferred),   which
constitutes a majority of the shares issued and outstanding that are eligible to
vote (65,437,486 shares).

NOTE 5 - INVENTORIES

Inventories at December 31, 2006 and 2005 consisted of the following:

                                       2006       2005
                                     --------   --------

Components and supplies              $ 37,749   $ 37,749
Finished goods                        481,669    481,669
                                     --------   --------
                                      519,418    519,418
Less: Reserve for potential losses    519,418    519,418
                                     --------   --------
                                     $   --     $   --
                                     ========   ========

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

Property,  plant and  equipment at December  31, 2006 and 2005  consisted of the
following:


                                       53
<PAGE>


                                           2006       2005
                                        --------   --------

Furniture and office equipment          $ 54,738   $ 54,738
Plant and production equipment           144,308    144,308
                                        --------   --------
                                         199,046    199,046
Less accumulated depreciation            198,577    197,079
                                        --------   --------
                                        $    469   $  1,967
                                        ========   ========


Depreciation  expense in 2006,  2005 and for the period from  inception  through
December 31, 2006, were $1,498, $3,710, and $2,295,100, respectively.

NOTE 7 - PATENT AND PATENT APPLICATION COSTS

In December  2005,  during the Company's  annual  review the carrying  values of
patents  and  trademarks,  the  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.

Accumulated  amortization  for patents was  $466,106 at December  31,  2005.  In
addition the 2005 impairment charge of $194,268,  the amortization  expenses for
2005 and for the period from inception  through  December 31, 2006, were $37,592
and $466,106, respectively.

NOTE 8 - ACCRUED INTEREST AND EXPENSES

Accrued  interest and  expenses at December  31, 2006 and 2005  consisted of the
following:





Professional Fees                   $  35,750    $  45,357
Due to ex-employees                   217,245      217,245
Interest accrued on note payable      438,529      187,459
Other                                     791          791
                                    ---------    ---------
                                    $ 629,315    $ 450,852
                                    =========    =========


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. As of December 31, 2006 and 2005, the
unpaid  salary and  interest  thereon,  together  with unpaid  remuneration  for
subsequent periods, amounting to $217,245 and is recorded as accrued expenses in
the financial statements.

                                       54
<PAGE>

<TABLE>


NOTE 9 - DUE TO AFFILIATE

As of December 31, 2006 and 2005 the Company had recorded $337,921 and $329,687,
respectively, for amounts due to affiliates.

The Company, over time, has 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, 2006 and 2005  remained  constant at
$329,687.  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.

During 2006 the Company  recorded  amounts due to MKG totaling $8,234 related to
outside  consulting fees and travel expenses  associated with  demonstrating the
BDS in Mexico. MKG is currently the Company's principal shareholder and controls
the Company's management, board and operations.  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 10 - ADVANCES FROM STOCKHOLDER

As of  December  31,  2006 and 2005 the  Company  had  recorded  $1,966,094  and
$3,488,816, 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.  The Conversion Rate was established and
approved by the Company's then board,  management,  and securities  counsel upon
review of the Company's  share price during the preceding  months.  On March 30,
2006, the closing price was $0.03 per share.  During the preceding 3 months, the
closing  price  fluctuated  primarily  between $0.02 and $0.04.  Under  MKG-LFCG
Agreement,  MKG had the right to  designate  which  portions of the overall debt
owed by the Company to LFCG for assignment and conversion.

On  April  3,  2006 MKG made a demand  on the  Company  to  effectuate  the debt
conversion.  In  accordance  with the  Long  Agreement  and  MKG's  demand,  the
Company's  current  board  ratified  the  prior  board's  approval  of the  debt
conversion and authorized the conversion as follows:

----------------------------------- --------------------------------------------- ---------------------------
  PORTION OF ASSIGNED DEBT TO BE        SHARES TO BE ISSUED UPON CONVERSION            CONVERSION RATE
            CONVERTED
<S>                                 <C>                                           <C>
----------------------------------- --------------------------------------------- ---------------------------
   $499,728                         9,994,550 common shares                       $0.05 per common share

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


                                       55
<PAGE>

----------------------------------- --------------------------------------------- ---------------------------
$1,230,000                          12,300,000 shares of the Preferred Series A   $0.10 per preferred
                                    stock of the Company                          series A share

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

</TABLE>

The  advances  bear  interest  at 10% per annum.  In 2006 and 2005,  the Company
accrued  $207,006 and $155,866,  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. 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 11 - 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.
During 2006,  $3,700 of interest was recorded in accrued  interest.  These notes
were due at various  dates during 2006 and 2007 and are in default.  The Company
is currently working with the holders of these notes to resolve the defaults.

Notes Payable to Stockholder

As of December 31, 2006 and 2005 the Company had recorded $668,085 and $607,350,
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 2006 and  2005,  totaled  $60,735  and
$55,214, respectively, and have been added to the note amount.

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, 2006 and 2005  totaled  $1,379,000.  Interest  accrues at either 12% or 18%,
depending  upon the date of  placement  of note,  and for 2006 and 2005  totaled
$247,370 and $187,459,  respectively, 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 12 - STOCKHOLDERS' EQUITY

Debt Conversion to Preferred and Common Stock

In April 2006,  the Company  elected to convert  $1,729,728  of the Long debt to
preferred and common stock (see debt conversion note).

                                       56
<PAGE>


Voluntary Services Rendered by Dr. David Long

During 2006 and 2005 Dr.  Long has  provided  services  to the  Company  without
compensation.  The value of his  services  has been  estimated  at  $25,000  and
$100,000  for the years ended  December 31, 2006 and 2005,  respectively,  which
amounts were recorded as a non-cash expense with a corresponding increase in the
additional paid-in capital.

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.

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 and 2005,  stock  subscriptions  of common
stock have been  reserved for issuance in payment of the then accrued  interest.
At December 31, 2006 and 2005, the total accrued interest of $25,243 and $85,740
had been added to additional  paid-in capital and stock  subscriptions,  pending
the issuance of 841,438 and 2,310,300 shares of common stock, respectively.

Issuance of Stock Due on Default of Notes

At  December  31,  2004 the  Company  recorded  a charge  of  $350,000  to stock
subscriptions  and  additional  paid in  capital,  calculated  using the closing
market price of $0.14 per share on December  31,  2004,  the date the notes were
due.  During 2005,  the Company issued 2.5 million shares in fulfillment of this
obligation.

In 2005,  the  Company  issued  897,500  shares,  recording a charge of $17,949,
calculated  using the closing  market  price of $0.02 per share on May 31, 2005,
the date the notes were due.



Sale of Shares Under Regulation S

In 2005, the Company  received net proceeds of $385,418 in the sale of 3,240,333
shares of Common Stock for not less than $0.10 per share.


NOTE 13 - INCOME TAXES

The  benefit  for income  taxes from  continued  operations  for the years ended
December 31, 2006 and 2005 consist of the following:


                                       57
<PAGE>


<TABLE>

                                                                      December 31,
                                                              ------------------------------
                                                                 2006              2005
                                                              ------------     -------------
<S>                                                          <C>              <C>

         Current:
               Federal                                       $     --         $     --
         Deferred:
               Federal net                                      370,332         (576,417)
                                                              ------------     -------------
                                                                370,332          (576,417)
         Increase decrease in valuation allowance              (370,332)         576,417
                                                              ------------     -------------
         Benefit for income taxes, net                       $     --         $      --
                                                              ============     =============


     The above  benefit was  calculated  using a federal tax  estimated  rate as
noted below:

             Statutory federal income tax rate                      34.00%
             Valuation allowance                                   (34.00%)
                                                                 -------------

             Effective tax rate                                     0.00%
                                                                 =============

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

                                                        2006                      2005
                                                 --------------------     ----------------------
Deferred tax assets:
      Current                                  $            --           $            --
      Net operating loss carry forward                22,458,273                22,828,605
Research  and development credits
                                                       510,609                   510,609
                                                 --------------------     ----------------------
Total deferred tax assets                            22,968,882                23,339,214

Less valuation allowance                            (22,968,882)              (23,339,214)
                                                 --------------------     ----------------------

Net deferred income tax asset                  $            --            $          --
                                                 ====================     ======================

</TABLE>

At December 31, 2006 the Company had federal net operating  loss  carry-forwards
totaling  approximately  $66  million  which will begin  expiring in year's 2007
through  2026.  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 AND CONTINGENCIES

As of  April  1,  2006,  the  Company  moved  its  corporate  headquarters  from
Alpharetta,  Georgia to 1615 Walnut  Street,  3rd and 4th Floors,  Philadelphia,
Pennsylvania.  For 2006, the rent was approximately $4,000. 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 is approximately $4,000 including utilities.


                                       58
<PAGE>


                                                        RENT
                                                   ---------------
                                         2007             $23,865
                                         2008              41,523
                                         2009              42,572
                                         2010              17,920
                                                   ---------------
                                        Total            $125,880
                                                   ===============

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 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.

As a result of the MKG Acquisition, all of the Company's employment, consulting,
royalty,  and  distribution  agreements  existing  as of  March  30,  2006  were
terminated.

There are no pending material legal  proceedings and the Company is not aware of
any  threatened  or  contemplated   material   proceeding  by  any  governmental
authority.

The Company had a revolving line of credit arrangement with a commercial bank to
borrow up to $1.2 million with  interest at the greater of the bank's prime rate
plus 0.5%.  The line of credit  expired on May 2, 2005,  and as of December  31,
2005,  the amount paid off by Dr. Long and his  affiliates  is shown as Advances
from Stockholder in the accompanying Balance Sheet.

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 3-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.


                                       59
<PAGE>


NOTE 16 - RELATED PARTY TRANSACTIONS

On March 30, 2006 the Company's then largest  shareholder  (over 5%),  chairman,
and chief executive  officer,  Dr. David Long, his family and affiliates entered
into a Stock Acquisition and Voting Rights Agreement with MKG. On the same date,
the David and Donna Long Family Foundation (the "Long Foundation")  entered into
a  similar  Stock  Acquisition  Agreement  with  MKG (the  "Long  Foundation-MKG
Agreement").   The  Long   Foundation  is  a  Delaware   non-stock,   non-profit
corporation,  of which Dr. David Long is the founder,  and with respect to which
Dr.  David Long does not have the ability to sell its assets and vote any of its
securities  and  of  which  securities  Dr.  David  Long  disclaims   beneficial
ownership.

o    MKG  acquired  all of the  Company's  shares  held  by LFCG  and  the  Long
     Foundation,  which represented approximately 17.49% of all shares of common
     stock of the Issuer on a fully diluted basis or approximately  20.6% of all
     shares of common shares of the Issuer issued as of December 31, 2005;
o    LFCG assigned $2 million of the total debt owed to LFCG by the Company (the
     "Assigned Debt");
o    The Assigned  Debt was to be converted  into Company  stock at a conversion
     rate of $0.05 per  common  share,  with a portion of the  converted  shares
     going to MKG in a manner  which would  result in MKG's  ownership of 51% of
     all  of  the  Company's   common  shares  issued  and   outstanding   on  a
     fully-diluted basis, and with remainder going to LFCG;
o    MKG agreed to take control of the Company and its  management,  operations,
     and board as of March 30,  2006 and to use its  relationships  overseas  to
     generate sales of the Company's technology and products; and
o    LFCG  was  given a  royalty  in the  amount  of 1% of the net  sales of the
     Company's products worldwide for a 3-year period commencing as of March 30,
     2006.

On March 30, 2006, MKG entered into a 3-year consulting agreement with Dr. David
Long,  commencing as of March 30, 2006, in which he or his nominee would be paid
an annual consulting fee of $60,000.

NOTE 17 - SUBSEQUENT EVENTS

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.

China

On August 1,  2007,  MKG  signed a  memorandum  of  understanding  (MOU) to form
BIOFIELD  ASIA,  a joint  venture  with United  Premier  Medical  Group  Limited


                                       60
<PAGE>

("UPMG"), a premier healthcare provider,  which in partnership with world renown
Western healthcare providers,  delivers healthcare services to China,  including
through UPMG's VIP OB/GYN centers in China.

Under the terms of the MOU,  BIOFIELD ASIA will, on an exclusive basis,  market,
distribute,  manufacture,  and further  develop and conduct R&D on the BDS in or
for, among other markets,  mainland China, Hong Kong,  Macau, and Taiwan.  Under
the MOU,  UPMG at its own cost will seek  approval  from the State Food and Drug
Administration  of the People's  Republic of China, and will pay certain sums to
purchase  BDS  devices  and  sensors  and will pay  certain  sums  upon  certain
milestones related to, among others, regulatory approval, manufacture, and sales
in China and certain countries.

The Philippines

In 2007 MKG has 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.  MKG is also in discussions  with a
prominent  Filipino  entity about a joint venture to  distribute  the BDS in the
Philippines  and about a possible  purchase  order for devices and sensors.  MKG
believes that the joint venture arrangements will be finalized before the end of
2007.

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.

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. MKG believes that sublicense arrangements will
be finalized before the end of 2007.

The Singapore Sale

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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.

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, 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 and R&D.  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.

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.

Developments in the U.S.

In  2007  the  Company  continued  to  transition  its  operations,  facilities,
inventory,  and  clinical,  technical,  and  financial  records  from its former
offices in  Alpharetta,  Georgia and  California  to the Company's new office in
King of  Prussia.  In July 19, 2007 the Company  moved its  principal  executive
office  from 1615  Walnut  Street,  3rd  Floor,  Philadelphia,  PA 19103 and the
contents of its former Alpharetta,  Georgia facility to King of Prussia Business
Center, Suite C, 1019 West Ninth Avenue, King of Prussia, PA 19406. Now that the
move is  complete,  the  Company  is  undergoing  the steps  needed to audit and
certify  the  King  of  Prussia  office  and  the  reissuance  of  the  CE  Mark
precipitated by the change in facilities.

Michael  Antonoplos  was  appointed as a Company  director and as the  Company's
interim chief executive officer. Kenny Lau, who helped spearhead the initiatives
with UPMG, was also appointed Company  director.  Michael Yom's position changed


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from president to chief  operating  officer.  The Company  continues to meet and
have discussions  with  representatives  with significant  financial and medical
expertise to bolster the Company's management and boards.

In 2007 the Company has continuing efforts associated with (1) manufacturing the
new prototype of the BDS device and (2) reinitiating  additional clinical trials
in the U.S. which may be needed to secure U.S. FDA approval. The Company has had
repeated  discussions with former  representatives of the Company and physicians
involved in developing the BDS, clinical trials and development,  and the use of
the BDS for screening  purposes.  Several of the  representatives and physicians
have successfully  secured U.S. FDA approval for other technology.  Further, the
Company has had discussions and meetings with  healthcare  organizations  in the
U.S.  about  additional  clinical  trials,  the use of the BDS in women's health
centers, and possible joint clinical trials with leading medical institutions in
Asia and Europe  introduced  by MKG.  Given the  availability  of  patients  for
clinical  trials in Asia and  MKG's  relationship  with  leading  Asian  medical
institutions,  one of MKG's  goals is to  conduct  clinical  trials in Asia with
leading Asian and Western medical  institutions,  which would facilitate efforts
to secure U.S. FDA approval.  Finally,  the Company has met with engineering and
design experts in the U.S. and China to manufacture the new prototype of the BDS
device and  further  develop  the  devise  and  sensors  for  screening.  Device
schematics  are now being  reviewed by experts in China to  manufacture  the new
prototype in China.

On March 22, 2007,  the Company  engaged  Jewett  Schwartz  Wolfe and Associates
("JSWA"),  Ft. Lauderdale,  Florida, to audit the company's financial statements
and to perform reviews of interim financial statements.

After previously reducing its debt by $2 million,  the Company continues to make
efforts to reduce its debt with several major creditors.










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