<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

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

                                    FORM 10-Q


   [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

                For the Quarterly Period Ended September 30, 1998

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934
                     For the transition period from     to

                         Commission file number 0-27848

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

            Delaware                                    13-3703450
(State or other jurisdiction of             (IRS Employer Identification No.)
 incorporation or organization)

         1225 Northmeadow Pkwy.
         Suite 120 Roswell, GA                            30076
(Address of principal executive offices)               (zip code)

       Registrant's telephone number, including area code: (770) 740-8180

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.

                                                                Yes  X  No 
                                                                    ---    ---

The number of shares of Issuer's Common Stock, $.001 par value, outstanding as
of September 30, 1998 was 10,029,609 shares.

<PAGE>   2

                                 BIOFIELD CORP.
           FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
                                      INDEX



<TABLE>
<CAPTION>
Part I FINANCIAL INFORMATION                                                                                 PAGE NO.
----------------------------                                                                                 --------

<S>                                                                                                          <C>  
Item 1.     FINANCIAL STATEMENTS

            Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997.....................       3

            Consolidated Statements of Operations for the three month and
            nine month periods ended September 30, 1998 and 1997 and for
            the period October 16, 1987
            (Date of Inception) through September 30, 1998.................................................       4

            Consolidated Statements of Stockholders' Equity for the period October 16, 1987
            (Date of Inception) through September 30, 1998.................................................     5-7

            Consolidated Statements of Cash Flows for the nine month
            periods ended September 30, 1998 and 1997 and for the period October 16, 1987
            (Date of Inception) through September 30, 1998.................................................     8-9

            Notes to Consolidated Financial Statements.....................................................   10-11

Item 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................................   12-22


Part II OTHER INFORMATION
-------------------------

Item 6.     EXHIBITS AND REPORTS ON FORM 8-K...............................................................      23

Signatures.................................................................................................      24
</TABLE>

<PAGE>   3



Part I       FINANCIAL INFORMATION
Item 1.     FINANCIAL STATEMENTS
                                 BIOFIELD CORP.
                          (A Development Stage Company)
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                       September 30, 1998  December 31, 1997
                                                                       ------------------  -----------------
                                                                          (UNAUDITED)

<S>                                                                    <C>                 <C>         
ASSETS
CURRENT ASSETS:
      Cash and cash equivalents ....................................      $  1,043,757       $  8,768,699
      Short-term investments .......................................         2,527,052          3,829,261
      Inventory ....................................................           555,372                 --
      Other current assets .........................................           152,854            271,324
                                                                          ------------       ------------
         Total current assets ......................................         4,279,035         12,869,284
PROPERTY AND EQUIPMENT - Net .......................................           419,816            503,118
OTHER ASSETS .......................................................            88,021            101,585
PATENT AND PATENT APPLICATION COSTS - Net ..........................           665,193            628,634
                                                                          ------------       ------------
TOTAL ..............................................................      $  5,452,065       $ 14,102,621
                                                                          ============       ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
      Accounts payable .............................................      $    500,344       $    626,750
      Due to affiliates ............................................            51,300            179,815
      Accrued expenses .............................................           896,533            546,288
      Capitalized lease obligations ................................                --              2,658
                                                                          ------------       ------------
         Total current liabilities .................................         1,448,177          1,355,511
                                                                          ------------       ------------
         Total liabilities .........................................         1,448,177          1,355,511
                                                                          ------------       ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
      Preferred Stock, $.001 par value; authorized 2,000,000 shares;
         no shares issued ..........................................                --                 --
      Common Stock, $.001 par value; authorized 25,000,000 shares;
         outstanding 10,029,609 shares .............................            10,030             10,030
      Additional paid-in capital ...................................        58,338,915         58,255,667
      Accumulated deficit during development stage .................       (54,295,392)       (45,519,920)
      Foreign currency translation adjustment ......................           (49,665)             1,333
                                                                          ------------       ------------
      Total stockholders' equity ...................................         4,003,888         12,747,110
                                                                          ------------       ------------
TOTAL ..............................................................      $  5,452,065       $ 14,102,621
                                                                          ============       ============
</TABLE>


                 See notes to consolidated financial statements


                                       3
<PAGE>   4

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



<TABLE>
<CAPTION>
                                                                                                                 Period October 16,
                                          Three-Month      Three-Month         Nine-Month         Nine-Month       1987 (Date of
                                          Period Ended     Period Ended       Period Ended       Period Ended    Inception) through
                                          September 30,    September 30,      September 30,      September 30,     September 30,
                                              1998             1997               1998               1997              1998
                                          -------------    -------------     -------------      -------------    ------------------
<S>                                       <C>              <C>                <C>                <C>               <C>         

OPERATING EXPENSES:
    Research and development ..........   $  1,891,406       $ 1,624,582       $  5,739,462       $ 5,253,491       $ 38,526,208
    Selling, general and administrative      1,142,169           794,604          3,364,909         2,688,697         17,628,487
                                          ------------       -----------       ------------       -----------       ------------
        Total operating expenses ......      3,033,575         2,419,186          9,104,371         7,942,188         56,154,695
                                          ------------       -----------       ------------       -----------       ------------

OTHER INCOME (EXPENSE):
    Interest income ...................         70,594           111,355            342,499           425,653          2,340,217
    Interest expense ..................             --              (731)                --            (3,226)          (447,565)
                                          ------------       -----------       ------------       -----------       ------------
        Net other income ..............         70,594           110,624            342,499           422,427          1,892,652
                                          ------------       -----------       ------------       -----------       ------------
LOSS BEFORE INCOME TAXES ..............     (2,962,981)       (2,308,562)        (8,761,872)       (7,519,761)       (54,262,043)
PROVISION FOR INCOME TAXES ............         (6,800)               --            (13,600)               --            (33,349)
                                          ------------       -----------       ------------       -----------       ------------
NET LOSS ..............................   $ (2,969,781)      $(2,308,562)      $ (8,775,472)      $(7,519,761)      $(54,295,392)
                                          ============       ===========       ============       ===========       ============ 


NET LOSS PER SHARE:
     Basic and diluted ................   $     (0.30)      $      (0.36)      $     (0.87)      $      (1.16)
                                          ============       ===========       ============       ===========


WEIGHTED AVERAGE SHARES
    OUTSTANDING: ......................     10,029,609         6,500,365         10,029,609         6,488,627
                                          ============       ===========       ============       ===========
</TABLE>

                 See notes to consolidated financial statements


                                       4
<PAGE>   5
                                 BIOFIELD CORP.
                          (A Development Stage Company)
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
         OCTOBER 16, 1987 (DATE OF INCEPTION) THROUGH SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
                                                      Series A          Series B          Series C                         
                                                  Preferred Stock    Preferred Stock   Preferred Units    Common Stock     
                                                  ----------------   ---------------   --------------- ------------------   
                                                  Shares    Amount   Shares   Amount   Units   Amount   Shares     Amount  
                                                  ------    ------   ------   ------   -----   ------  ---------   ------  

<S>                                               <C>      <C>       <C>      <C>      <C>     <C>     <C>         <C>
Issuance of stock, October 16, 1987                                                                                       
    (date of inception) ($.16 per share, net) ...    --     $   --      --    $  --      --    $  --     549,020   $    55 
Issuance of stock in connection with
    patent acquisition ($.001 per share) ........    --         --      --       --      --       --     235,294        24 
Net loss, October 16, 1987 to
    March 31, 1988 ..............................    --         --      --       --      --       --          --        -- 
                                                  -----     ------    ----    -----    ----    -----   ---------   ------- 
BALANCE AT MARCH 31, 1988 .......................    --         --      --       --      --       --     784,314        79 
Net loss ........................................    --         --      --       --      --       --          --        -- 
                                                  -----     ------    ----    -----    ----    -----   ---------   ------- 
BALANCE AT MARCH 31, 1989 .......................    --         --      --       --      --       --     784,314        79 
Net loss ........................................    --         --      --       --      --       --          --        -- 
                                                  -----     ------    ----    -----    ----    -----   ---------   ------- 
BALANCE AT MARCH 31, 1990 .......................    --         --      --       --      --       --     784,314        79 
Acquisition of 235,294 shares of
    treasury stock ($.001 per share) ............    --         --      --       --      --       --          --        -- 
Net loss ........................................    --         --      --       --      --       --          --        -- 
                                                  -----     ------    ----    -----    ----    -----   ---------   ------- 
BALANCE AT MARCH 31, 1991 .......................    --         --      --       --      --       --     784,314        79 
Retirement of treasury stock ....................    --         --      --       --      --       --    (235,294)      (24) 
Issuance of stock in exchange for
    stockholder debt ($2.90 per share) ..........    --         --      --       --      --       --     431,372        43 
Sale of stock ($.82 per share, net) .............    --         --      --       --      --       --      24,510         2 
Amortization of deferred compensation ...........    --         --      --       --      --       --          --        -- 
Net loss ........................................    --         --      --       --      --       --          --        -- 
                                                  -----     ------    ----    -----    ----    -----   ---------   ------- 
BALANCE AT MARCH 31, 1992 .......................    --         --      --       --      --       --   1,004,902       100 
Sale of stock in connection with private
    placement ($7.67 per share, net) ............    --         --      --       --      --       --     557,475        55 
Exercise of stock options .......................    --         --      --       --      --       --       2,451         1 
Amortization of deferred compensation ...........    --         --      --       --      --       --          --        -- 
Change in par value of common stock
    from $.0001 to $.001 ........................    --         --      --       --      --       --          --     1,408 
Net loss ........................................    --         --      --       --      --       --          --        -- 
                                                  -----     ------    ----    -----    ----    -----   ---------   ------- 
BALANCE AT MARCH 31, 1993
    (carried forward) ...........................    --     $   --      --    $  --      --    $  --   1,564,828   $ 1,564 
                                                  -----     ------    ----    -----    ----    -----   ---------   ------- 

<CAPTION>
                                                     Additional                     Foreign Currency
                                                      Paid-In         Accumulated      Translation   Treasury
                                                      Capital           Deficit        Adjustment     Stock          Total
                                                    -----------       -----------   ---------------- --------     -----------
<S>                                                 <C>               <C>           <C>              <C>          <C>     
Issuance of stock, October 16, 1987                                                                                           
    (date of inception) ($.16 per share, net) ...   $    91,898       $        --       $     --      $  --       $    91,953
Issuance of stock in connection with
    patent acquisition ($.001 per share) ........           276                --             --         --               300
Net loss, October 16, 1987 to
    March 31, 1988 ..............................            --          (159,359)            --         --          (159,359)
                                                    -----------       -----------       --------      -----       -----------
BALANCE AT MARCH 31, 1988 .......................        92,174          (159,359)            --         --           (67,106)
Net loss ........................................            --          (495,520)            --         --          (495,520)
                                                    -----------       -----------       --------      -----       -----------
BALANCE AT MARCH 31, 1989 .......................        92,174          (654,879)            --         --          (562,626)
Net loss ........................................            --          (233,347)            --         --          (233,347)
                                                    -----------       -----------       --------      -----       -----------
BALANCE AT MARCH 31, 1990 .......................        92,174          (888,226)            --         --          (795,973)
Acquisition of 235,294 shares of
    treasury stock ($.001 per share) ............            --                --             --       (300)             (300)
Net loss ........................................            --          (285,179)            --         --          (285,179)
                                                    -----------       -----------       --------      -----       -----------
BALANCE AT MARCH 31, 1991 .......................        92,174        (1,173,405)            --       (300)       (1,081,452)
Retirement of treasury stock ....................          (276)               --             --        300                --
Issuance of stock in exchange for
    stockholder debt ($2.90 per share) ..........     1,248,638                --             --         --         1,248,681
Sale of stock ($.82 per share, net) .............        19,998                --             --         --            20,000
Amortization of deferred compensation ...........       136,880                --             --         --           136,880
Net loss ........................................            --          (461,061)            --         --          (461,061)
                                                    -----------       -----------       --------      -----       -----------
BALANCE AT MARCH 31, 1992 .......................     1,497,414        (1,634,466)            --         --          (136,952)
Sale of stock in connection with private
    placement ($7.67 per share, net) ............     4,275,223                --             --         --         4,275,278
Exercise of 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)
                                                    -----------       -----------       --------      -----       -----------
BALANCE AT MARCH 31, 1993
    (carried forward) ...........................   $ 6,249,306       $(4,734,103)      $     --      $  --       $ 1,516,767
                                                    -----------       -----------       --------      -----       -----------

                                                                                                                   (continued)
</TABLE>


                                       5
<PAGE>   6


                                 BIOFIELD CORP.
                          (A Development Stage Company)
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
         OCTOBER 16, 1987 (DATE OF INCEPTION) THROUGH SEPTEMBER 30, 1998



<TABLE>
<CAPTION>
                                                 Series A               Series B              Series C                             
                                             Preferred Stock        Preferred Stock       Preferred Units           Common Stock   
                                          ---------------------    ------------------   ---------------------    ------------------
                                            Shares       Amount     Shares     Amount     Units       Amount       Shares    Amount
                                          ----------     ------    --------    ------   ----------    -------    ---------   ------
<S>                                       <C>           <C>        <C>         <C>      <C>           <C>        <C>         <C>   
BALANCE AT MARCH 31, 1993
    (brought forward) ...................         --    $    --          --    $  --            --    $    --    1,564,828   $1,564
Exercise of 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 payable to related
    parties ($4.50 per share) ...........    222,222        222          --       --            --         --           --       --
Issuance of warrants ....................         --         --          --       --            --         --           --       --
Amortization of deferred compensation ...         --         --          --       --            --         --           --       --
Net 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 warrants ....................         --         --          --       --            --         --           --       --
Amortization of deferred compensation ...         --         --          --       --            --         --           --       --
Net loss ................................         --         --          --       --            --         --           --       --
                                          ----------     ------    --------    -----    ----------    -------    ---------   ------
BALANCE AT DECEMBER 31, 1994 ............  2,342,118      2,342     481,644      482            --         --    1,565,563    1,565
 Sale of Series C Preferred Stock ($4.11
    per unit, net) ......................         --         --          --       --     2,914,771      2,915           --       --
Issuance of warrants ....................         --         --          --       --            --         --           --       --
Amortization of deferred compensation ...         --         --          --       --            --         --           --       --
Net 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 stock in connection with public
    offering ($9.91 per share, net) .....         --         --          --       --            --         --    1,819,000    1,819
Conversion of Series A, Series B
    and Series C Preferred Stock to
    Common Stock ........................ (2,342,118)    (2,342)   (481,644)    (482)   (2,914,771)    (2,915)   3,046,474    3,047
Exercise of warrants ....................         --         --          --       --            --         --        2,058        2
Amortization of deferred compensation ...         --         --          --       --            --         --           --       --
Net loss ................................         --         --          --       --            --         --           --       --
                                          ----------     ------    --------    -----    ----------    -------    ---------   ------
BALANCE AT DECEMBER 31, 1996
(carried forward) .......................       --       $   --          --    $  --            --    $    --    6,433,095   $6,433
                                          ----------     ------    --------    -----    ----------    -------    ---------   ------

<CAPTION>
                                           Additional                 Foreign Currency
                                            Paid-In      Accumulated     Translation    Treasury
                                            Capital        Deficit       Adjustment      Stock         Total 
                                          -----------   ------------  ---------------- ----------  ------------
<S>                                       <C>           <C>           <C>              <C>         <C>
BALANCE AT MARCH 31, 1993
    (brought forward) ................... $ 6,249,306   $ (4,734,103)   $       --     $      --   $  1,516,767
Exercise of 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 payable to related
    parties ($4.50 per share) ...........     999,778             --            --            --      1,000,000
Issuance of warrants ....................       2,119             --            --            --          2,119
Amortization of deferred compensation ...   1,580,320             --            --            --      1,580,320
Net loss ................................          --     (6,899,515)           --            --     (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 warrants ....................           6             --            --            --              6
Amortization of deferred compensation ...      14,859             --            --            --         14,859
Net loss ................................          --     (4,959,312)           --            --     (4,959,312)
                                          -----------   ------------    ----------     ---------   ------------
BALANCE AT DECEMBER 31, 1994 ............  19,205,094    (16,592,930)           --            --      2,616,553
 Sale of Series C Preferred Stock ($4.11
    per unit, net) ......................  11,977,856             --            --            --     11,980,771
Issuance of warrants ....................         161             --            --            --            161
Amortization of deferred compensation ...     195,874             --            --            --        195,874
Net loss ................................          --     (8,739,860)           --            --     (8,739,860)
                                          -----------   ------------    ----------     ---------   ------------
BALANCE AT DECEMBER 31, 1995 ............  31,378,985    (25,332,790)           --            --      6,053,499
Sale of stock in connection with public
    offering ($9.91 per share, net) .....  18,026,419             --            --            --     18,028,238
Conversion of Series A, Series B
    and Series C Preferred Stock to
    Common Stock ........................       2,692             --            --            --             --
Exercise of warrants ....................      20,145             --            --            --         20,147
Amortization of deferred compensation ...      26,093             --            --            --         26,093
Net loss ................................          --    (10,036,090)           --            --    (10,036,090)
                                          -----------   ------------    ----------     ---------   ------------
BALANCE AT DECEMBER 31, 1996
(carried forward) ....................... $49,454,334   $(35,368,880)   $       --     $      --   $ 14,091,887
                                          -----------   ------------    ----------     ---------   ------------

                                                                                                    (continued)
</TABLE>


                                       6
<PAGE>   7




                                 BIOFIELD CORP.
                          (A Development Stage Company)
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
         OCTOBER 16, 1987 (DATE OF INCEPTION) THROUGH SEPTEMBER 30, 1998


<TABLE>
<CAPTION>
                                         Series A         Series B        Series C                                        
                                      Preferred Stock Preferred Stock  Preferred Units         Common Stock       Additional   
                                      --------------- ---------------- ----------------    -------------------     Paid-In     
                                      Shares   Amount Shares   Amount  Units    Amount       Shares     Amount     Capital     
                                      ------  ------- ------  -------- -----  ---------    ---------   -------   ------------   
<S>                                   <C>     <C>     <C>     <C>      <C>    <C>          <C>         <C>       <C>

BALANCE AT DECEMBER 31, 1996
    (brought forward) ................   --   $    --    --   $     --   --   $      --    6,433,095   $ 6,433   $ 49,454,334   
Sale of stock in connection with
    private placement
    ($2.92 per share, net) ...........   --        --    --         --   --          --    2,867,670     2,868      8,377,583   
Warrants exchanged for Common Stock ..   --        --    --         --   --          --      643,639       644           (644)  
Exercise of stock options ............   --        --    --         --   --          --       50,674        50        168,541   
Exercise of warrants .................   --        --    --         --   --          --        9,531        10         93,299   
Issuance of stock as consideration for 
    consulting services rendered
    ($4.00 per share, net) ...........   --        --    --         --   --          --       25,000        25         99,975   
Amortization of deferred compensation    --        --    --         --   --          --           --        --         62,579   
Net loss .............................   --        --    --         --   --          --           --        --             --   
Change in foreign currency
    translation adjustment ...........   --        --    --         --   --          --           --        --             --   
                                       ----   -------  ----   -------- ----   ---------   ----------   -------   ------------   
BALANCE AT DECEMBER 31,
    1997 .............................   --        --    --         --   --          --   10,029,609    10,030     58,255,667   
Amortization of deferred
   compensation (unaudited) ..........   --        --    --         --   --          --           --        --         83,248   
Net loss (unaudited) .................   --        --    --         --   --          --           --        --             --   
Change in foreign currency
    translation adjustment (unaudited)   --        --    --         --   --          --           --        --             --   
                                       ----   -------  ----   -------- ----   ---------   ----------   -------   ------------   
BALANCE AT SEPTEMBER 30,
    1998 (unaudited) .................   --   $    --    --   $     --   --   $      --   10,029,609   $10,030   $ 58,338,915   
                                       ====   =======  ====   ======== ====   =========   ==========   =======   ============   

<CAPTION>
                                      
                                                     Foreign Currency
                                        Accumulated     Translation   Treasury
                                          Deficit       Adjustment      Stock         Total 
                                       ------------  ---------------- ---------   ------------
<S>                                    <C>           <C>              <C>         <C>      

BALANCE AT DECEMBER 31, 1996
    (brought forward) ................ $(35,368,880)     $     --     $      --   $ 14,091,887
Sale of stock in connection with
    private placement
    ($2.92 per share, net) ...........           --            --            --      8,380,451
Warrants exchanged for Common Stock ..           --            --            --             --
Exercise of stock options ............           --            --            --        168,591
Exercise of warrants .................           --            --            --         93,309
Issuance of stock as consideration for
    consulting services rendered
    ($4.00 per share, net) ...........           --            --            --        100,000
Amortization of deferred compensation            --            --            --         62,579
Net loss .............................  (10,151,040)           --            --    (10,151,040)
Change in foreign currency
    translation adjustment ...........           --         1,333            --          1,333
                                       ------------      --------     ---------   ------------
BALANCE AT DECEMBER 31,
    1997 .............................  (45,519,920)        1,333            --     12,747,110
Amortization of deferred
   compensation (unaudited) ..........           --            --            --         83,248
Net loss (unaudited) .................   (8,775,472)           --            --     (8,775,472)
Change in foreign currency
    translation adjustment (unaudited)           --       (50,998)           --        (50,998)
                                       ------------      --------     ---------   ------------
BALANCE AT SEPTEMBER 30,
    1998 (unaudited) ................. $(54,295,392)     $(49,665)    $      --   $  4,003,888
                                       ============      ========     =========   ============

                                                                                    (concluded)
</TABLE>

                 See notes to consolidated financial statements



                                       7
<PAGE>   8

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

<TABLE>
<CAPTION>
                                                                                                       Period October 16,
                                                                           Nine-Month     Nine-Month     1987 (Date of
                                                                          Period Ended   Period Ended  Inception) through
                                                                          September 30,  September 30,   September 30,
                                                                               1998          1997             1998     
                                                                          -------------  ------------- ------------------
<S>                                                                       <C>            <C>           <C>          

OPERATING ACTIVITIES:
    Net loss ............................................................  $(8,775,472)   $(7,519,761)   $(54,295,392)
    Adjustments to reconcile net loss to net cash used in
        operating activities:
        Depreciation and amortization ...................................      250,778        315,465       2,341,267
        Amortization of investment premiums / (discounts)
           on short-term investments ....................................       43,799         43,873         152,891
        Loss on disposal of property and equipment ......................           --             --          42,713
        Loss on license and settlement agreement ........................           --             --          49,026
        Noncash compensation ............................................       83,248        127,472       2,677,306
        Interest paid in Common Stock ...................................           --             --         297,148
        Changes in assets and liabilities:
           Inventory ....................................................     (555,372)            --        (555,372)
           Other current assets .........................................      118,746       (313,953)       (152,594)
           Other assets .................................................        3,873          9,856        (113,862)
           Due to affiliate .............................................     (128,515)       245,994          51,300
           Accounts payable and accrued expenses ........................      222,001       (131,989)      1,282,717
                                                                           -----------    -----------    ------------
               Net cash used in operating activities ....................   (8,736,914)    (7,223,043)    (48,222,852)
                                                                           -----------    -----------    ------------

INVESTING ACTIVITIES:
    Acquisition of property and equipment ...............................     (142,300)      (208,692)     (2,557,790)
    Costs incurred for patents and patent applications ..................      (49,334)       (78,099)       (741,200)
    Proceeds from sale of property and equipment ........................           --             --           3,418
    Purchase of short-term investments ..................................   (2,153,939)    (1,488,880)    (26,476,638)
    Proceeds from sales and maturities of short-term investments ........    3,412,349      6,514,559      23,796,695
                                                                           -----------    -----------    ------------
               Net cash provided by / (used in) investing activities ....    1,066,776      4,738,888      (5,975,515)
                                                                           -----------    -----------    ------------

FINANCING ACTIVITIES:
    Repayments of capitalized lease obligations .........................       (2,658)       (22,847)        (82,234)
    Proceeds from issuance of Series A Preferred Stock - net ............           --             --       8,413,490
    Proceeds from issuance of Series B Preferred Stock - net ............           --             --       1,947,631
    Proceeds from issuance of Series C Preferred Stock - net ............           --             --      11,980,771
    Proceeds from issuance of Common Stock and warrants - net ...........           --             --      30,798,206
    Proceeds from exercise of stock options and warrants ................           --        261,900         282,860
    Proceeds from bank borrowings .......................................           --             --         520,000
    Payment on bank borrowings ..........................................           --             --        (520,000)
    Repayment of advances from stockholder ..............................           --             --        (145,000)
    Proceeds from notes payable issued to stockholder and related party .           --             --       2,096,533
                                                                           -----------    -----------    ------------
               Net cash provided by / (used in) financing activities ....       (2,658)       239,053      55,292,257
                                                                           -----------    -----------    ------------
NET INCREASE / (DECREASE) IN CASH
    AND CASH EQUIVALENTS ................................................   (7,672,796)    (2,245,102)      1,093,890
EFFECT OF EXCHANGE RATE CHANGES ON
   CASH AND CASH EQUIVALENTS ............................................      (52,146)        (2,231)        (50,133)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ..........................    8,768,699      7,369,973              -- 
                                                                           -----------    -----------    ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................  $ 1,043,757    $ 5,122,640    $  1,043,757
                                                                           ===========    ===========    ============

                                                                                                          (continued)
</TABLE>

                                       8
<PAGE>   9

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


<TABLE>
<CAPTION>
                                                                                                                 Period October 16,
                                                                                      Nine-Month   Nine-Month      1987 (Date of
                                                                                    Period Ended  Period Ended   Inception) through
                                                                                    September 30, September 30,    September 30,
                                                                                        1998          1997              1998   
                                                                                    ------------- -------------  -----------------
<S>                                                                                 <C>           <C>            <C>         

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
    INFORMATION:
        Cash paid during the period for interest ...................................  $    --       $3,226         $   59,409  
                                                                                      =======       ======         ==========  
                                                                                                                               
SUPPLEMENTAL SCHEDULE FOR NONCASH INVESTING                                                                                    
    AND FINANCING ACTIVITIES:                                                                                                  
        Acquisition of property and equipment under capitalized lease transactions .  $    --       $   --         $   82,234  
                                                                                      =======       ======         ==========  
                                                                                                                               
        During the year ended March 31, 1994, the Company issued 222,222 shares                                                
            of Series A Preferred Stock in exchange for an aggregate of $1                                                     
            million in notes payable to a principal stockholder and a former                                                   
            Director:                                                                                                          
                                                                                                                               
        Notes payable ..............................................................                               $1,000,000  
                                                                                                                   ==========  
                                                                                                                               
        Issuance of Series A Preferred Stock .......................................                               $1,000,000  
                                                                                                                   ==========  
                                                                                                                               
        At  inception, the Company acquired the rights to a patent and                                                         
            assumption of liabilities in exchange for 235,294 shares of Common                                                 
            Stock, as follows:                                                                                                 
                                                                                                                               
        Fair value of patent acquired ..............................................                               $  112,732  
        Liabilities assumed ........................................................                                  112,432  
                                                                                                                   ----------  
        Issuance of Common Stock ...................................................                               $      300  
                                                                                                                   ==========  
                                                                                                                               
        Pursuant to a license and settlement agreement with respect to the                                                     
            patent acquired (above), the Company received its 235,294 shares of                                                
            Common Stock during fiscal 1991, which was retired                                                                 
                                                                                                                               
        Remaining carrying value of patent on date of license and                                                              
            settlement agreement ...................................................                               $   49,326  
        Common Stock returned to the Company .......................................                                      300  
                                                                                                                   ----------  
        Loss on Settlement .........................................................                               $   49,026  
                                                                                                                   ==========  
                                                                                                                               
        During fiscal 1992, the Company exchanged 431,372 shares of Common Stock                                               
            for $96,660 in notes and $1,152,021 in debt and accrued interest,                                                  
            payable to a principal stockholder:                                                                                
                                                                                                                               
        Notes payable ..............................................................                               $   96,660  
        Debt .......................................................................                                  854,873  
        Accrued interest ...........................................................                                  297,148  
                                                                                                                   ----------  
        Issuance of Common Stock ...................................................                               $1,248,681  
                                                                                                                   ==========  

                                                                                                                  (concluded)
</TABLE>


                 See notes to consolidated financial statements


                                       9
<PAGE>   10

                                 BIOFIELD CORP.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       THE COMPANY - The consolidated balance sheet as of September 30, 1998
         and the related consolidated statements of operations, stockholders'
         equity and cash flows for the three and/or nine month periods ended
         September 30, 1998 and 1997 and for the period October 16, 1987 (date
         of inception) through September 30, 1998 have been prepared by Biofield
         Corp. (the "Company") without audit. In the opinion of management, all
         adjustments necessary to present fairly the financial position, results
         of operations and cash flows at September 30, 1998 and 1997 and for the
         period October 16, 1987 (date of inception) through September 30, 1998
         have been made. During the interim periods reported on, the accounting
         policies followed are in conformity with generally accepted accounting
         principles and are consistent with those applied for annual periods as
         described in the Company's annual report for the year ended December
         31, 1997 filed on Form 10-K with the Securities and Exchange Commission
         on March 30, 1998 (the "Annual Report").

         In December 1997, the Company received net proceeds of approximately
         $8.4 million from the sale of 2,867,670 shares of the Company's Common
         Stock in a private placement (the "1997 Private Placement"). Concurrent
         with the Closing of the 1997 Private Placement, the Company issued an
         aggregate of 643,639 shares of Common Stock in exchange for outstanding
         warrants to purchase an aggregate of 1,574,930 shares of Common Stock.
         Such warrants were issued in connection with the Company's 1995 private
         placement of securities units.

         During the first half of 1997, the Company formed a wholly owned
         Delaware corporation named Biofield International, Inc. ("Biofield
         International"). In addition, Biofield International formed a U.S.
         branch located in Switzerland, organized to expand the Company's
         European marketing efforts.

         On March 22, 1996, the Company completed its Initial Public Offering of
         1,819,000 shares of Common Stock at a purchase price of $11.00 per
         share, for aggregate proceeds of $18,028,238 (net of related expenses
         of $1,980,762).

         Certain information and footnote disclosures normally included in
         financial statements prepared in accordance with generally accepted
         accounting principles have been omitted. The unaudited consolidated
         financial statements, which include the financial position, results of
         operations, and cash flows for Biofield Corp. and Biofield
         International, should be read in conjunction with the financial
         statements for the year ended December 31, 1997 included in the
         Company's Annual Report. The results of operations for the three month
         and nine month periods ended September 30, 1998 are not necessarily
         indicative of the operating results for the full year.

2.       RECLASSIFICATIONS - Certain prior period amounts have been reclassified
         to conform with the current period presentation.

3.       CONSOLIDATED FINANCIAL STATEMENTS - The consolidated financial
         statements include the accounts of the Company and Biofield
         International. All intercompany transactions and balances have been
         eliminated in consolidation.

4.       DESCRIPTIVE ANALYSIS - The descriptive analysis contained herein
         compares the financial results of the nine month period ended September
         30 and the three month period ended September 30 for the years 1998 and
         1997. To accommodate the comparison of pertinent financial information,
         the following terms will be used to denote the respective periods:

         First nine months of 1998 - nine month period ended September 30, 1998
         First nine months of 1997 - nine month period ended September 30, 1997

         Third quarter of 1998 - three month period ended September 30, 1998
         Third quarter of 1997 - three month period ended September 30, 1997

5.       NET LOSS PER SHARE - The basic and diluted loss per share is computed
         based on the weighted average number of common shares outstanding.
         Common equivalent shares are not included in the per share calculations
         where the effect of their inclusion would be antidilutive.


                                       10
<PAGE>   11

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


6.       INVENTORY - Inventories consist primarily of finished medical devices,
         sensors, accessories and device and sensor component parts and are
         valued at the lower of cost or market. Cost is based upon the
         first-in-first-out ("FIFO") inventory valuation method.

<TABLE>
            <S>                                        <C>     
            Finished goods.............................$301,466
            Components and subassemblies...............$253,906
                                                       --------
            Total......................................$555,372
                                                       ========
</TABLE>

7.       SUBSEQUENT EVENT - On November 10, 1998, the Stock Option Committee of
         the Company's Board of Directors resolved to re-price options held by
         current employees and consultants of the Company and granted under the
         Company's 1992 and 1996 Stock Option Plans to an exercise price of
         $2.00 per share. As a condition to receiving the benefit of such
         repricing, employees and consultants will be required to enter into
         agreements with the Company prohibiting the sale of common stock
         issuable upon exercise of such re-priced options for a period of 12
         months (or until such prohibition terminates in accordance with its
         terms). All other terms and conditions of such options will remain the
         same.


                                       11
<PAGE>   12

            ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

         The following discussion and analysis should be read in conjunction
with the consolidated financial statements, related notes and other information
included in this Quarterly Report on Form 10-Q. This Quarterly Report on Form
10-Q contains forward-looking statements that involve risks and uncertainties.
The Company's actual results could differ materially from the results discussed
in such forward-looking statements. See "Cautionary Statements Regarding
Forward-Looking Statements."

OVERVIEW

          Biofield Corp. is a medical technology company specializing in the
development of non-invasive methods for diagnosing and screening epithelial
cancers, including breast cancer. The Company has patented and developed an
innovative system for detecting breast cancer in a non-invasive and objective
procedure. The Company's breast cancer diagnostic device, the Biofield
Diagnostic System, employs patented, single-use sensors and a measurement device
to detect and analyze changes associated with the development of epithelial
cancers, such as breast cancer. The Biofield Diagnostic System is designed to
provide physicians and patients with immediate and objective information for use
in the diagnosis of a previously identified lesion. The Biofield Diagnostic
System is intended to serve as an adjunct to physical examination or mammography
to provide a high degree of physician confidence in determining the need for
further diagnostic testing of suspicious breast abnormalities in women less than
or equal to 55 years of age. The Company believes that the Biofield Diagnostic
System, together with other available clinical information, will reduce
diagnostic uncertainty and decrease the number of diagnostic procedures,
including surgical biopsies, performed on suspicious lesions.

          The Biofield Diagnostic System is not available for commercial
distribution in the United States at this time and will not be available until
the U.S. Food and Drug Administration ("FDA") premarket approval is received. On
December 30, 1996, the Company submitted a premarket approval application
("PMA") to the FDA for the Biofield Diagnostic System. On February 27, 1997, the
FDA informed the Company that its PMA had not been accepted for filing and
requested that the Company address deficiencies in the PMA before further
consideration of such PMA. Subsequently, the Company has been in discussions
with the FDA regarding the protocol for a proposed clinical trial in support of
a resubmission of the PMA for the Biofield Diagnostic System. The Company has
voluntarily withdrawn the original submission and intends to resubmit its PMA
upon completion of additional testing and data analysis. The PMA, if and when
accepted for filing by the FDA, is currently designated for review under the
FDA's Expedited Review policy. There can be no assurance, however, that such
Expedited Review status will be maintained or result in a more expeditious
approval, or approval at all. See "Cautionary Statements Regarding
Forward-Looking Statements - Uncertainty of FDA Approval for the Biofield
Diagnostic System" and "-Government Regulation; No Assurance of Regulatory
Approvals."

          The laws of certain European countries permit the Company to begin
marketing the Biofield Diagnostic System in Europe before marketing would be
permitted in the United States. In June 1998 the Company received CE Mark
Certification for the Biofield Diagnostic System which permits the Company to
commence sales of its product in the European Economic Area. Under the
Certification by the Notified Body, KEMA, the Biofield Diagnostic System is
indicated for use as a diagnostic adjunct to mammography or physical examination
in women less than or equal to 55 years of age with a suspicious palpable breast
lesion. In addition, on July 7, 1998, the Company's Quality System, as
implemented at the headquarters site in Roswell, Georgia, was registered as
evidenced by certificates issued by KEMA, stating that the system meets the
requirements of ISO 9001:1994 and EN 46001:1996 for the scope of the
registration which includes design, production management, sales and
distribution of diagnostic systems and accessories. See "Cautionary Statements
Regarding Forward-Looking Statements -- Uncertainty of FDA Approval for the
Biofield Diagnostic System" and "--Government Regulation; No Assurance of
Regulatory Approvals."

          As a development stage company, the Company has incurred net losses
since inception through September 30, 1998 of approximately $54.3 million. The
Company expects operating losses will increase for at least the next several
years as total costs and expenses increase.

          To date, the Company has not marketed, or generated revenues from the
commercialization of, any products. The Company's results may vary significantly
from period to period depending on several factors, such as the timing of
certain expenses and the progress of the premarket approval process for the
Biofield Diagnostic System, and the Company's research and development and
commercialization programs, all of which may be affected by the availability of
funds.


                                       12
<PAGE>   13

            ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


         At the present time, the Company does not have sufficient capital
resources to conduct the additional testing that will be required for
resubmission of a PMA to the FDA. Moreover, the Company does not presently have
sufficient capital resources to scale-up its European marketing efforts as
planned. The Company is currently seeking additional capital to fund its future
operations through private debt or equity financings, or collaborative licensing
or other arrangements with strategic partners. There can be no assurance that
additional capital will be available to the Company, or if available, will be
available on acceptable terms. Insufficient funds may prevent the Company from
implementing its business strategies and will require the Company to further
delay, scale back or eliminate certain of its research, product development, and
marketing programs, or to scale back or eliminate its other operations. See
"Cautionary Statements Regarding Forward-Looking Statements - Uncertain Ability
to Meet Capital Needs."

RESULTS OF OPERATIONS

         Research and development expenses include the costs of engineering,
manufacturing and clinical trials and related activities conducted in connection
with required governmental and regulatory approvals for the Biofield Diagnostic
System, which consists of the Biofield Diagnostic Device and Biofield Diagnostic
Sensors, as well as expenses for the development of the proposed Biofield
screening system and preclinical research related to the enhancement of the
Company's technology and its development for use in the detection of other
cancers. Research and development expenses increased by 9% to $5,739,462 for the
nine month period ended September 30, 1998 compared to $5,253,491 for the nine
month period ended September 30, 1997. This increase is primarily attributable
to an increase in expenses incurred for consulting services related to
regulatory and quality assurance and for product development and clinical
development activities.

         Research and development expenses increased by 16% to $1,891,406 for
the three month period ended September 30, 1998 compared to $1,624,582 for the
three month period ended September 30, 1997. This increase is primarily
attributable to an increase in expenses for product development and clinical
development activities.

         Selling, general and administrative expenses increased by 25% to
$3,364,909 for the nine month period ended September 30, 1998 compared to
$2,688,697 for the nine month period ended September 30, 1997. This increase is
primarily attributable to an increase in expenses incurred in connection with
the Company's international marketing activities and increased costs associated
with public/investor relations.

         Selling, general and administrative expenses increased by 44% to
$1,142,169 for the three month period ended September 30, 1998 compared to
$794,604 for the three month period ended September 30, 1997. This increase is
primarily attributable to an increase in expenses incurred in connection with
the Company's international marketing activities and increased costs associated
with public/investor relations.

         The Company's interest income decreased by 19% to $342,499 for the nine
month period ended September 30, 1998 compared to $425,653 for the nine month
period ended September 30, 1997. Interest income decreased by 37% to $70,594 for
the three month period ended September 30, 1998 compared to $111,355 for the
three month period ended September 30, 1997. The decrease in interest income
during 1998 was primarily due to lower average invested cash, cash equivalent
and short-term investment balances compared to those of the previous periods.

         As a result of the foregoing, net loss increased by 17% to $8,775,472,
or $0.87 per share, for the nine month period ended September 30, 1998 compared
to $7,519,761, or $1.16 per share, for the nine month period ended September 30,
1997. During the three month period ended September 30, 1998, net loss increased
by 29% to $2,969,781, or $0.30 per share, compared to $2,308,562, or $0.36 per
share, for the three month period ended September 30, 1997. As a result of the
issuance of shares in connection with the Company's private placement and
concurrent warrant exchange in December 1997, the Company had an average of
approximately 10.0 million shares outstanding for the three and nine month
periods ended September 30, 1998 compared to approximately 6.5 million shares
outstanding for the three and nine month periods ended September 30, 1997.

LIQUIDITY AND CAPITAL RESOURCES

         As of September 30, 1998, the Company had total cash, cash equivalents
and short-term investments of $3,570,809 of which $3,222,629 was invested in
investment grade corporate obligations, money market funds, shares of liquid
(auction-market) preferred stock and bonds, and certificates of deposit. As of
September 30, 1998, the Company had working capital of $2,830,858 compared to
$11,513,773 at December 31, 1997. The decrease in working capital was the result
of


                                       13
<PAGE>   14

            ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


approximately $8.9 million of cash used primarily to finance the Company's
operations and capital requirements during the first nine months of 1998. The
Company does not expect to generate a positive internal cash flow for at least
several years due to the expected increase in spending related to the premarket
approval process for the Biofield Diagnostic System, research and development
and the expected costs of commercializing the Biofield Diagnostic System in
Europe and, pending FDA approval, in the United States.

         Capital expenditures during the first nine months of 1998 were
approximately $142,000, compared to $209,000 for the first nine months of 1997.
Capital expenditures consist primarily of furniture and fixtures, manufacturing
equipment and computer equipment.

         During the first nine months of 1998, there were no changes in the
Company's existing debt agreements, and the Company had no outstanding bank
loans as of September 30, 1998. The Company's fixed commitments, including
salaries and fees for current employees and consultants, rent, payments under
license agreements and other contractual commitments are substantial and are
likely to increase as additional agreements are entered into and additional
personnel are retained. The Company will require substantial additional funds
for its research and development programs, preclinical and clinical testing,
operating expenses, regulatory processes, and manufacturing and marketing
programs. The Company's future capital requirements will depend on many factors,
including the following: the progress of its research and development projects;
the progress of preclinical and clinical testing; the time and cost involved in
obtaining regulatory approvals; the cost of filing, prosecuting, defending and
enforcing any patent claims and other intellectual property rights; competing
technological and market developments; changes and developments in the Company's
existing collaborative, licensing and other relationships and the terms of any
new collaborative, licensing and other arrangements that the Company may
establish; and the development of commercialization activities and arrangements.
The Company does not expect to generate a positive internal cash flow for at
least several years due to expected increases in capital expenditures, working
capital and ongoing losses, including the expected cost of commercializing the
Biofield Diagnostic System. The Company believes that its available cash, cash
equivalents and investment securities and investment income should be sufficient
to fund the Company's operations until the end of calendar year 1998.

         The Company currently anticipates that it will be required to implement
measures to reduce its operating expenses and expects to implement such cost
reduction measures during the fourth quarter. Introduction of such measures may
prevent the Company from implementing its business strategy and will require the
Company to further delay, scale back or eliminate certain of its research,
product development and marketing programs, or to scale back or eliminate its
other operations. The Company is currently seeking additional capital to fund
its future operations through private debt or equity financings, or
collaborative licensing or other arrangements with strategic partners. There can
be no assurance that such financing can be obtained or, if it is obtained, that
the terms thereof will be acceptable. The Company plans to continue its policy
of investing excess funds in short-term, investment grade corporate obligations,
money market funds, shares of liquid (auction-market) preferred stock and bonds,
and certificates of deposit. See "Cautionary Statements Regarding
Forward-Looking Statements--Uncertainties as to Future Profitability."

YEAR 2000

         The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.

         Upon review of the Company's information systems, the Company has
determined based upon currently available information that the Year 2000 Issue
should not pose significant operational problems for its existing computer
systems. The Company has initiated formal communications with all of its
significant suppliers to determine the extent to which the Company's interface
systems are vulnerable to those third parties' failure to remedy their own Year
2000 Issue. There can be no guarantee that the systems of other companies on
which the Company's systems rely will be converted in a timely manner. Such
failure of suppliers to remedy potential Year 2000 issues would have an adverse
effect on the Company's systems.


                                       14
<PAGE>   15

            ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

         Statements in this Quarterly Report on Form 10-Q under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as in the Company's press releases or oral statements that
may be made by the Company or by officers, directors or employees of the Company
acting on the Company's behalf, that are not historical fact constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that could cause the actual
results of the Company to be materially different from the historical results or
from any results expressed or implied by such forward-looking statements.
Factors that might cause such a difference include, without limitation, the
information set forth below. In addition to statements which explicitly describe
such risks and uncertainties, statements labeled with the terms "believes",
"belief", "expects", "plans" or "anticipates" should be considered uncertain and
forward-looking. All cautionary statements made in this Report should be read as
being applicable to all related forward-looking statements wherever they
appear.

         Uncertain Ability to Meet Capital Needs. The Company will require
substantial additional funds for clinical testing of the Biofield Diagnostic
System, research and development programs, preclinical and clinical testing of
other proposed products, regulatory processes, manufacturing and marketing
programs and operating expenses (including general and administrative expenses).
The Company's future capital requirements will depend on many factors, including
the following: the progress of its research and development projects; the
progress of preclinical and clinical testing; the time and cost involved in
obtaining regulatory approvals; the cost of filing, prosecuting, defending and
enforcing any patent claims and other intellectual property rights; competing
technological and market developments; changes and developments in the Company's
existing collaborative, licensing and other relationships and the terms of any
new collaborative, licensing and other arrangements that the Company may
establish; and the development of commercialization activities and arrangements.
Moreover, the Company's fixed commitments, including salaries and fees for
current employees and consultants, rent, payments under license agreements and
other contractual commitments, are substantial and would increase if additional
agreements are entered into and additional personnel are retained. The Company
does not expect to generate a positive internal cash flow for at least several
years due to expected increases in capital expenditures, working capital needs
and ongoing losses, including the expected cost of commercializing the Biofield
Diagnostic System. However, the Company's cash requirements may vary materially
from those now planned due to the progress of research and development programs,
results of clinical testing, relationships with strategic partners, if any,
changes in the focus and direction of the Company's research and development
programs, competitive and technological advances, the FDA and foreign regulatory
processes and other factors.

         The Company needs additional capital to fund its operations, and is
seeking to obtain additional capital through debt or equity financings, or
collaborative licensing or other arrangements with strategic partners. If
additional funds are raised by issuing equity securities, further dilution to
existing stockholders will result and future investors may be granted rights
superior to those of existing stockholders. There can be no assurance, however,
that additional financing will be available when needed, or if available, will
be available on acceptable terms. Insufficient funds may prevent the Company
from implementing its business strategy and will require the Company to further
delay, scale back or eliminate certain of its research, product development and
marketing programs and may require the Company to license to third parties
rights to commercialize products or technologies that the Company would
otherwise seek to develop itself, or to scale back or eliminate its other
operations.


         Uncertainty of FDA Approval for the Biofield Diagnostic System. On
December 30, 1996, the Company submitted its PMA to the FDA for the Biofield
Diagnostic System. The initial PMA for the Biofield Diagnostic System was based
principally upon the results of the Company's U.S. Multi-center Study. The PMA
as submitted to the FDA included data from clinical trials of over 1,200 women
tested at six medical institutions under the direction of physicians involved in
breast cancer diagnosis and treatment. On February 27, 1997, the FDA informed
the Company that its PMA had not been accepted for filing and requested that the
Company address deficiencies in the PMA before further consideration of such
PMA. Specifically, the FDA has not accepted the findings from the Company's U.S.
Multi-center Study as submitted in the PMA. The FDA stated that it had concerns
about the study design and, in particular, the selection of the algorithm used
on the supporting data set. The FDA advised the Company that it must first
select a final algorithm and then test it with an independent data set. Further,
the FDA stated that the design of the clinical trial must provide data that
supports the indications for use of the Biofield Diagnostic System which should
include the impact on patient management.


                                       15
<PAGE>   16


            ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


         Subsequent to the FDA's initial review, the Company has been in
discussions with the FDA regarding the design and protocol for a clinical trial
in support of a resubmission of the PMA. The Company has voluntarily withdrawn
the original submission and intends to resubmit its PMA upon completion of
additional testing and data analysis. The PMA, if and when accepted for filing
by the FDA, is currently designated for review under the FDA's Expedited Review
policy. There can be no assurance, however, that such Expedited Review status
will be maintained or result in a more expeditious approval, or approval at all.
See "Government Regulation; No Assurance of Regulatory Approval."

         Conducting clinical trials will require the expenditure of substantial
additional funds which the Company does not currently have available.
Furthermore, there can be no assurance (i) that results obtained in any
additional trials will be consistent with the results obtained in trials
conducted by the Company to date, (ii) that results obtained in any clinical
trial or series of clinical trials will be consistent among all study sites,
(iii) that results obtained in clinical trials conducted with U.S. study
populations will be consistent with results obtained in studies conducted in
Europe or other locations outside of the U.S., or (iv) that any such results, or
the resubmitted PMA, will be accepted by the FDA. There can be no assurance that
the FDA or other regulatory approvals for the Biofield Diagnostic System will be
granted on a timely basis, or at all. Failure to obtain FDA approval to market
the Biofield Diagnostic System would have a material adverse effect on the
Company's business, financial condition, cash flows and results of operations.

         Limited Operating History; Continuing Operating Losses. The Company has
a limited history of operations. Since its inception in October 1987, the
Company has engaged principally in the development of the Biofield Diagnostic
System, which has not been approved for sale in the United States. Consequently,
the Company has little experience in manufacturing, marketing and selling its
products. The Company currently has no source of operating revenue and has
incurred net operating losses since its inception. At September 30, 1998, the
Company had an accumulated deficit of $54,295,392 million. Such losses have
resulted principally from costs incurred in research and development and
clinical trials and from general and administrative costs associated with the
Company's operations. The Company expects operating losses to increase for at
least the next several years due principally to the anticipated expenses
associated with the premarket approval process for the Biofield Diagnostic
System, the proposed commercialization of the Biofield Diagnostic System,
development of, and clinical trials for, the proposed Biofield screening system
and other research and development activities.

         Uncertainties as to Future Profitability. The Company's ability to
achieve profitability will depend in part on its ability to obtain regulatory
approvals for the Biofield Diagnostic System and any other proposed products,
and to develop the capacity to manufacture and market any approved products
either by itself or in collaboration with others. There can be no assurance if
or when the Company will receive required regulatory approvals for the
development and commercial manufacturing and marketing of the Biofield
Diagnostic System or any other proposed products, or achieve profitability.
Accordingly, the extent of future losses and the time required to achieve
profitability are highly uncertain.

         Early Stage of Product Development. The Company's proposed products,
other than the Biofield Diagnostic System, are at an early stage of development
and the Biofield Diagnostic System must be approved by the FDA before it can be
commercially marketed in the United States. There can be no assurance that any
of the Company's proposed products will be found to be safe and effective, meet
applicable regulatory standards or receive necessary regulatory clearance, or if
safe and effective, can be developed into commercial products, manufactured on a
large scale or be economical to market. Nor can there be any assurance that the
Company's proposed products will achieve or sustain market acceptance. In the
event necessary regulatory approvals are obtained for the Biofield Diagnostic
System, there can be no assurance that the Company will be successful in
establishing commercial operations, including gaining market acceptance of the
Biofield Diagnostic System and implementing commercial-scale manufacturing and
sales and marketing programs. There is, therefore, substantial risk that the
Company's product development and commercialization efforts will not prove to be
successful.

         Dependence on a Single Product. Although the Company is in the process
of developing additional products based on its core technology, including an
enhancement of the Biofield Diagnostic System for use on asymptomatic women,
none of such applications is expected to result in a commercial product for at
least several years, if at all. Consequently, pending its approval for
commercial distribution in the United States, the Biofield Diagnostic System
would account for substantially all of the Company's revenues for the
foreseeable future. Failure to gain regulatory approvals or market acceptance
for the Biofield Diagnostic System would have a material adverse effect on the
Company's business, financial condition, cash flows and results of operations.


                                       16
<PAGE>   17


            ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


         Dependence on Market Acceptance. There can be no assurance that
physicians or the medical community in general will accept and utilize the
Biofield Diagnostic System or any other products developed by the Company. The
extent that, and the rate at which, the Biofield Diagnostic System achieves
market acceptance and penetration will depend on many variables including, but
not limited to, the establishment and demonstration in the medical community of
the clinical safety, efficacy and cost-effectiveness of the Biofield Diagnostic
System, the advantages of the Biofield Diagnostic System over existing
technology and cancer detection methods (including x-ray mammography, ultrasound
or high frequency ultrasound, MRI, stereotactic needle biopsy and thermography,
diaphonography, electrical impedance and transillumational devices), third-party
reimbursement practices and the Company's manufacturing, quality control,
marketing and sales efforts. There can be no assurance that the medical
community and third-party payors will accept the Company's unique technology.
Similar risks will confront the proposed Biofield screening system and any other
products developed by the Company in the future. Failure of the Company's
products to gain market acceptance would have a material adverse effect on the
Company's business, financial condition, cash flows and results of operations.

         Limited Marketing and Sales Experience. The Company has limited
internal marketing and sales resources and personnel. In order to market the
Biofield Diagnostic System or any other products it may develop, the Company
will have to develop a marketing and sales force with technical expertise and
distribution capabilities. There can be no assurance that the Company will be
able to establish sales and distribution capabilities or that the Company will
be successful in gaining market acceptance for any products it may develop.
There can be no assurance that the Company will be able to recruit and retain
skilled sales, marketing, service or support personnel, that agreements with
distributors will be available on terms commercially reasonable to the Company,
or at all, or that the Company's marketing and sales efforts will be successful.
Failure to successfully establish a marketing and sales organization, whether
directly or through third parties, would have a material adverse effect on the
Company's business, financial condition, cash flows and results of operations.
The Company intends to pursue one or more distribution arrangements in the
United States, Europe and Asia with strategic marketing partners who have
established marketing capabilities. There can be no assurance that the Company,
either on its own or through arrangements with others, will be able to enter
into such arrangements on acceptable terms, if at all. To the extent that the
Company arranges with third parties to market its products, the success of such
products may depend on the efforts of such third parties. There can be no
assurance that any of the Company's proposed marketing schedules or plans can or
will be met.

         Limited Manufacturing History. The Company does not have any
manufacturing or production facilities or experience in manufacturing or
contracting for the manufacturing of its proposed products in the volumes that
will be necessary for the Company to achieve significant commercial sales in the
event it obtains regulatory approval to market its products. While the Company
does not currently manufacture any of its products, it may do so in the future.
The Company has no experience in the manufacture of medical products for
clinical trials or commercial purposes. Should the Company manufacture its
products, the Company's manufacturing facilities would be subject to the full
range of the current Quality System Regulation ("QSR") (formerly the Good
Manufacturing Practices (GMP) regulation) and similar risks of delay or
difficulty in manufacturing, and the Company would require substantial
additional capital to establish such manufacturing facilities. In addition,
there can be no assurance that the Company would be able to manufacture any such
products successfully or cost-effectively.

         Dependence on Third Parties. The Company has used certain third parties
to manufacture and deliver the components of the Biofield Diagnostic System and
the proposed Biofield screening system used in clinical studies, and intends to
continue to use third parties to manufacture and deliver such products and any
other products which the Company may seek to develop. Such third parties must
adhere to the QSR enforced by the FDA through its facilities inspection program
and such third-parties' facilities must pass a plant inspection before the FDA
will grant premarket approval of the Company's products. There can be no
assurance that the third-party manufacturers on which the Company depends for
the manufacture of the Biofield Diagnostic System will be in compliance with the
QSR at the time of the pre-approval inspection or will maintain such compliance.
Such failure could significantly delay FDA approval of the PMA application for
the Biofield Diagnostic System, and such delay would have a material adverse
effect on the Company's business, financial condition, cash flows and results of
operations.

         The qualification of additional or replacement suppliers for certain
components of the Biofield Diagnostic System or services is a lengthy process.
For certain services and components the Company currently relies on single
suppliers. If the Company encounters delays or difficulties with its third-party
suppliers in producing, packaging or distributing components of the Biofield
Diagnostic System, market introduction and subsequent sales would be adversely
affected. The Company also may have to rely on alternative sources of supply. In
such case, there can be no assurance that the Company will be


                                       17
<PAGE>   18

            ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


able to enter into alternative supply arrangements at commercially acceptable
rates, if at all. If the Company is unable to obtain or retain qualified
third-party manufacturers on commercially acceptable terms, it may not be able
to commercialize its products as planned. The Company's dependence upon third
parties for the manufacture of its products may adversely affect the Company's
profit margins and its ability to develop and deliver its products on a timely
and competitive basis.

         Competition. The medical device industry generally, and the cancer
diagnostic and screening segments in particular, are characterized by rapidly
evolving technology and intense competition. Other companies in the medical
device industry are marketing products that compete with the Biofield Diagnostic
System and may be developing, or could in the future attempt to develop,
additional products that are competitive with the Biofield Diagnostic System.
Many of the Company's competitors have substantially greater capital resources
and name recognition than the Company. Many of these companies also have
substantially greater expertise than the Company in research and development,
manufacturing and marketing and obtaining regulatory approvals. There can be no
assurance that the Company's competitors will not succeed in developing or
marketing technologies and products that are more effective than those developed
or marketed by the Company or that would render the Company's technology and
products obsolete or noncompetitive. Additionally, there can be no assurance
that the Company will be able to compete against such competitors and potential
competitors in terms of manufacturing, marketing and sales. Although the Company
believes that its products may offer certain technological advantages over its
competitors' currently-marketed products, earlier entrants in the market for a
diagnostic application often obtain and maintain significant market share
relative to later entrants. Physicians using imaging equipment such as x-ray
mammography equipment, ultrasound or high frequency ultrasound systems, MRI
systems, stereotactic needle biopsy and thermography, diaphonography, electrical
impedance and transilluminational devices may not use the Biofield Diagnostic
System or any other products that the Company may develop. Currently,
mammography is employed widely and the Company's ability to sell the Biofield
Diagnostic System to medical facilities will, in part, be dependent on the
Company's ability to demonstrate the clinical utility of the Biofield Diagnostic
System as an adjunct to mammography or physical examination and its advantages
over other available diagnostic tests.

         Risk of Technological Obsolescence. Methods for the detection of cancer
are subject to rapid technological innovation and there can be no assurance that
technological changes will not render the Company's proposed products obsolete.
There can be no assurance that the development of new types of diagnostic
medical equipment or technology will not have a material adverse effect on the
marketability of the Biofield Diagnostic System or any other products developed
by the Company. Commercial availability of such products could render the
Company's products obsolete, which would have a material adverse effect on the
Company's business, financial condition, cash flows and results of operations.

         Potential Reliance on International Sales. The Company intends to
commence commercial sales of the Biofield Diagnostic System in Europe prior to
commencing commercial sales in the United States, where sales cannot occur
unless and until the Company receives premarket approval from the FDA. Thus,
until the Company receives approval from the FDA to market the Biofield
Diagnostic System, as to which there can be no assurance, the Company's
revenues, if any, will be derived from international sales. A significant
portion of the Company's revenues, therefore, may be subject to the risks
associated with international sales, including economic or political
instability, shipping delays, fluctuations in foreign currency exchange rates,
foreign regulatory requirements and various trade restrictions, all of which
could have a significant impact on the Company's ability to deliver products on
a competitive and timely basis. Future imposition of, or significant increases
in the level of, customs duties, export quotas or other trade restrictions could
have a material adverse effect on the Company's business, financial condition,
cash flows and results of operations. The regulation of medical devices,
particularly in Europe, continues to develop and there can be no assurance that
new laws or regulations will not have an adverse effect on the Company.

         Government Regulation; No Assurance of Regulatory Approvals. The
manufacture and sale of medical devices, including the Biofield Diagnostic
System, the proposed Biofield screening system, and any other products that may
be developed by the Company are subject to extensive regulation by numerous
governmental authorities in the United States, principally the FDA and
corresponding state agencies, and in other countries. In the United States, the
Company's products are regulated as medical devices and are subject to the FDA's
premarket clearance or approval requirements. Securing FDA clearances and
approvals may require the submission of extensive clinical data and supporting
information to the FDA. To obtain FDA approval of an application for premarket
approval, the premarket approval application must demonstrate that the subject
device has clinical utility, meaning that the device has a beneficial
therapeutic effect, or that as a diagnostic tool, it provides information that
measurably contributes to a diagnosis of a disease or condition.


                                       18
<PAGE>   19

            ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


         The results of the Company's U.S. Multi-center Study have not been
accepted by the FDA based upon its initial review of the PMA. The Company has
voluntarily withdrawn the original submission and intends to resubmit its PMA
upon completion of additional testing and data analysis. The timing of patient
enrollment in an additional clinical trial will be dependent on a variety of
factors discussed elsewhere herein (see "Uncertainty of FDA Approval of the
Biofield Diagnostic System"), as well as the Company's receipt of approval to
conduct the clinical trial from the Institutional Review Boards of the proposed
study sites. As a result of the Company's need to conduct additional testing,
the Company anticipates further delays, which may be significant, in the
approval process for the Biofield Diagnostic System.

         The process of obtaining FDA and other required regulatory approvals is
lengthy, expensive and uncertain and frequently requires from one to several
years from the date of the FDA submission, if premarket approval is obtained at
all. Following the filing of a resubmission of the PMA for the Biofield
Diagnostic System, the FDA may require more information or clarification of
information already provided as part of the PMA. During the review period, an
advisory panel will likely be convened by the FDA to review and evaluate the PMA
and provide recommendations to the FDA as to whether the PMA should be approved.
Although the FDA has granted Expedited Review status to the Biofield Diagnostic
System, there can be no assurance that such status will be maintained or result
in timely approval of the Biofield Diagnostic System, if approval is obtained at
all. Failure to obtain FDA approval to market the Biofield Diagnostic System
would have a material adverse effect on the Company's business, financial
condition, cash flows and results of operations. See "Uncertainty of FDA
Approval for the Biofield Diagnostic System."

         Sales of medical devices outside of the United States are subject to
international regulatory requirements that vary from country to country. The
time required to obtain approval for sale internationally may be longer or
shorter than that required for FDA approval and the requirements may differ. In
addition, in order to sell its products within the European Economic Area,
companies are required to achieve compliance with the requirements of the
Medical Devices Directive and affix a "CE" marking on their products to attest
such compliance. In June 1998, the Company received its CE Mark Certification
for the Biofield Diagnostic System. Under the Certification by the Notified
Body, KEMA, the Biofield Diagnostic System is indicated for use as a diagnostic
adjunct to mammography or physical examination in women less than or equal to 55
years of age with a suspicious palpable breast lesion. In addition, on July 7,
1998, the Company's Quality System, as implemented at the headquarters site in
Roswell, Georgia, was registered as evidenced by certificates issued by KEMA,
stating that the system meets the requirements of ISO 9001:1994 and EN
46001:1996 for the scope of the registration which includes design, production
management, sales and distribution of diagnostic systems and accessories.

         In addition, unapproved products subject to the PMA requirements must
receive prior FDA export approval in order to be marketed outside of the United
States unless they are approved for use by any member country of the European
Union or certain other countries, including Australia, Canada, Israel, Japan,
New Zealand, Switzerland and South Africa, in which case they can be exported to
any country provided that certain limited notification requirements are met.
There can be no assurance that the Company will meet the FDA's export
requirements or receive FDA export approval when such approval is necessary, or
that countries to which the devices are to be exported will approve the devices
for import. Failure of the Company to meet the FDA's export requirements or
obtain FDA export approval when required to do so, or to obtain approval for
import, could have a material adverse effect on the Company's business,
financial condition, cash flows and results of operations.

         Regulatory approvals, if granted, may include significant limitations
on the indicated uses for which the product may be marketed. In addition, to
obtain such approvals, the FDA and certain foreign regulatory authorities may
impose numerous other requirements with which medical device manufacturers must
comply. FDA enforcement policy strictly prohibits the marketing of approved
medical devices for unapproved uses. Product approvals could be withdrawn for
failure to comply with regulatory standards or the occurrence of unforeseen
problems following initial marketing. The third-party manufacturers upon which
the Company depends to manufacture its products are required to adhere to
applicable FDA regulations regarding the QSR and similar regulations in other
countries, which include testing, control and documentation requirements.
Ongoing compliance with the QSR and other applicable regulatory requirements
will be monitored by periodic inspection by the FDA and by comparable agencies
in other countries. Failure to comply with applicable regulatory requirements,
including marketing or promoting products for unapproved use, could result in,
among other things, warning letters, fines, injunctions, civil penalties, recall
or seizure of products, total or partial suspension of production, refusal of
the government to grant premarket clearance or approval for devices, withdrawal
of approvals and criminal prosecution. Changes in existing regulations or
adoption of new governmental regulations or policies could prevent or delay
regulatory approval of the Company's products. Certain material changes to
medical devices also are subject to FDA review and clearance or approval.


                                       19
<PAGE>   20

            ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


         There can be no assurance that the Company will be able to obtain, on a
timely basis, or at all, FDA approval of the PMA for the Biofield Diagnostic
System, foreign marketing clearances for the Biofield Diagnostic System or
regulatory approvals or clearances for other products that the Company may
develop, and delays in receipt of or failure to obtain such approvals or
clearances, the loss of previously obtained approvals, or failure to comply with
existing or future regulatory requirements would have a material adverse effect
on the Company's business, financial condition, cash flows and results of
operations.

         Limitations on Third-Party Reimbursement. In the United States,
suppliers of health care products and services are greatly affected by Medicare,
Medicaid and other government insurance programs, as well as by private
insurance reimbursement programs. Third-party payors (Medicare, Medicaid,
private health insurance companies and other organizations) may affect the
pricing or relative attractiveness of the Company's products by regulating the
level of reimbursement provided by such payors to the physicians and clinics
utilizing the Biofield Diagnostic System or any other products that the Company
may develop or by refusing reimbursement. If examinations utilizing the
Company's products are not reimbursed under these programs, the Company's
ability to sell its products may be materially adversely affected.

         There can be no assurance that third-party payors will provide
reimbursement for use of the Biofield Diagnostic System or any other products
that the Company may develop. Morever, the level of reimbursement, if any, may
impact the market acceptance and pricing of the Company's products, including
the Biofield Diagnostic Device and Biofield Diagnostic Sensors. Failure to
obtain favorable rates of third party reimbursement could have a material
adverse effect on the Company's business, financial condition, cash flows and
results of operations.

         In international markets, reimbursement by third-party medical
insurance providers, including governmental insurers and independent providers,
varies from country to country. In addition, such third-party medical insurance
providers may require additional information or clinical data prior to providing
reimbursement for a product. In certain countries, the Company's ability to
achieve significant market penetration may depend upon the availability of
third-party and governmental reimbursement. Revenues and profitability of
medical device companies may be affected by the continuing efforts of
governmental and third-party payors to contain or reduce the costs of health
care through various means.

         Uncertainties Regarding Health Care Reform. Several states and the U.S.
government are investigating a variety of alternatives to reform the health care
delivery system and further reduce and control health care spending. These
reform efforts include proposals to limit spending on health care items and
services, limit coverage for new technology and limit or control the prices
health care providers and drug and device manufacturers may charge for their
services and products, respectively. If adopted and implemented, such reforms
could have a material adverse effect on the Company's business, financial
condition, cash flows and results of operations.

         Uncertain Ability to Protect Patents and Proprietary Technology and
Information. The Company's ability to compete effectively in the medical
products industry will depend on its success in protecting its proprietary
technology, both in the United States and abroad. The patent positions of
medical products companies generally involve complex legal and factual
questions. The Company's proprietary products and technology are the subject of
twelve U.S. patents owned by the Company, and additional applications pending
with the United States Patent and Trademark Office ("PTO") and certain foreign
patents. The Company has filed, and intends to continue to file, patent
applications in certain foreign jurisdictions covering the patent claims that
are the subject of U.S. patents and patent applications. There can be no
assurance that the PTO or foreign jurisdictions will grant the Company's pending
patent applications or that the Company will obtain any patents or other
protection for which it has applied. There can be no assurance that patents
issued to or licensed by or to the Company will not be challenged, invalidated
or circumvented, or that the rights granted thereunder will provide any
competitive advantage. The Company could incur substantial costs in defending
any patent infringement suits or in asserting any patent rights, including those
granted by third parties.

         Although the Company has entered into confidentiality and invention
agreements with its employees and consultants, there can be no assurance that
such agreements will be honored or that the Company will be able to protect its
rights to its unpatented trade secrets and know-how effectively. Moreover, there
can be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets and know-how. In addition, the Company may be
required to obtain licenses to patents or other proprietary rights from third
parties. There can be no assurance that any licenses required under any patents
or proprietary rights would be made available on acceptable terms, if at all. If
the Company does not obtain required licenses, it could encounter delays in
product development or find that the development, manufacture or sale of
products requiring such licenses could be


                                       20
<PAGE>   21

            ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


foreclosed. Additionally, the Company may, from time to time, support and
collaborate in research conducted by universities and governmental research
organizations. There can be no assurance that the Company will have or be able
to acquire exclusive rights to the inventions or technical information derived
from such collaborations or that disputes will not arise with respect to rights
in derivative or related research programs conducted by the Company or such
collaborators.

         Dependence on Qualified Personnel. Due to the specialized scientific
nature of the Company's business, the Company is highly dependent upon its
ability to attract and retain qualified scientific, technical and managerial
personnel. The loss of the services of existing personnel as well as the failure
to recruit key scientific, technical and managerial personnel in a timely manner
would be detrimental to the Company's research and development programs and to
its business. The Company's anticipated growth and expansion into areas and
activities requiring additional expertise, such as marketing, will require the
addition of new management personnel. Competition for qualified personnel is
intense and there can be no assurance that the Company will be able to continue
to attract and retain qualified personnel necessary for the development of its
business.

         Potential Product Liability. The Company's business exposes it to
potential product liability risks which are inherent in the testing,
manufacturing and marketing of cancer detection products. Significant
litigation, not involving the Company, has occurred in the past based on
allegations of false negative diagnoses of cancer. While the Biofield Diagnostic
System does not purport to diagnose any patient, there can be no assurance that
the Company will not be subjected to future claims and potential liability.
While the Company maintains insurance against product liability and defense
costs, there can be no assurance that claims against the Company arising with
respect to its products will be successfully defended or that the insurance
carried by the Company will be sufficient to cover liabilities arising from such
claims. A successful claim against the Company in excess of the Company's
insurance coverage could have a material adverse effect on the Company.
Furthermore, there can be no assurance that the Company will be able to continue
to obtain or maintain product liability insurance on acceptable terms.

         Potential for Environmental Liability. A portion of the Company's
manufacturing processes involves the controlled use of potentially hazardous
materials. The Company may in the future become subject to stringent federal,
state and local laws, rules, regulations and policies governing the use,
generation, manufacture, storage, air emission, effluent discharge, handling and
disposal of such materials. There can be no assurance that the Company will not
incur significant future costs to comply with environmental laws, rules,
regulations and policies, or that the business, financial position, cash flows
or results of operations of the Company will not be materially and adversely
affected by current or future environmental laws, rules, regulations and
policies or by any releases or discharges of hazardous materials.

         Availability of Preferred Stock for Issuance. In addition to its
authorized shares of Common Stock, the Company's Fourth Amended and Restated
Certificate of Incorporation, as amended, authorizes the issuance of up to
2,000,000 shares of preferred stock. The Board of Directors of the Company may
at any time determine to issue shares of preferred stock with the rights and
preferences to be set by the Board of Directors in its sole discretion. The
rights and preferences of any such preferred stock may be superior to those of
the Common Stock and thus may adversely affect the rights of the holders of
Common Stock.

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


                                       21
<PAGE>   22

            ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


         No Dividends. The Company has never declared or paid any cash dividends
on its capital stock and does not intend to pay any cash dividends in the
foreseeable future. The Company currently anticipates that it will retain all
its earnings for use in the operation and expansion of its business and,
therefore, does not anticipate that it will pay any cash dividends in the
foreseeable future.

         Possible Volatility of Stock Price. The price of the Company's Common
Stock has fluctuated substantially since its initial public offering on March
19, 1996. The market price of the shares of the Common Stock, like that of the
common stock of many other medical device companies, is likely to continue to be
highly volatile. Factors such as the timing and results of clinical trials by
the Company or its competitors, governmental regulation, healthcare legislation,
developments in patent or other proprietary rights of the Company or its
competitors, including litigation, fluctuations in the Company's operating
results, and market conditions for medical device company stocks and life
science stocks in general, could have a significant impact on the future price
of the Common Stock.

         Compliance With Nasdaq National Market Listing Requirements. The
trading of the Company's Common Stock on the Nasdaq National Market is
conditioned upon the Company's meeting certain quantitative criteria related to
the market price of the Company's Common Stock, net tangible assets, market
capitalization and certain other quantitative and non-quantitative requirements
established by such stock market. To maintain eligibility for trading on the
Nasdaq National Market, among other requirements, the Company is required to
have net tangible assets in excess of $4,000,000 and maintain a bid price of $1
per share, or to have a market capitalization of $50,000,000 and a minimum bid
price of $5 per share. The Company's failure to meet such requirements could
result in the delisting of the Common Stock from trading on the Nasdaq National
Market. Trading, if any, in the Common Stock, would thereafter likely be
conducted on the Nasdaq SmallCap Market. If, however, the Company did not meet
the requirements of the Nasdaq SmallCap Market, trading of the Common Stock
would be conducted on an electronic bulletin board established for securities
that do not meet the Nasdaq listing requirements or in what is commonly referred
to as the "pink sheets." Delisting may restrict investors' interest in the
Common Stock and materially adversely affect the trading market and prices for
the Common Stock and the Company's ability to issue additional securities or to
secure additional financing.


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<PAGE>   23


PART II        OTHER INFORMATION


  Item 6.      Exhibits and Reports on Form 8-K

               a.  Exhibits               Exhibit 27.  Financial Data Schedule 
                                          (for SEC use only).

               b.  Reports on Form 8-K    The Company did not file any reports 
                                          on Form 8-K during the quarter for 
                                          which this report is filed.


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<PAGE>   24


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                         BIOFIELD CORP.



          November 13, 1998              /s/ D. CARL LONG                      
                                         ---------------------------------------
                                         By: D. Carl Long
                                         President, Chief Executive Officer
                                         and Vice Chairman of the Board
                                         (Principal Executive Officer)




          November 13, 1998              /s/ TIMOTHY G. ROCHE            
                                         ---------------------------------------
                                         By: Timothy G. Roche
                                         Vice President, Finance
                                         (Principal Financial Officer)



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