<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
or
[ ]TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____ .
Commission File Number: 0-28078
FemRx, Inc.
(Exact name of registrant as specified in its charter)
Delaware 77-0389440
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1221 Innsbruck Drive
Sunnyvale, CA 94089
(Address of principal executive office)
(408) 752-8580
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required 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
reguired to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ X ] Yes [ ] No
The number of outstanding shares of the registrant's Common Stock, $.001
par value, was 8,707,248 as of April 23, 1997.
1
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FemRx, Inc.
Index
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part I: Financial Information
Item 1: Financial Statements (Unaudited)
Condensed Balance Sheets - March 31, 1997 and December 31, 1996 3
Condensed Statements of Operations - Three months ended March
31, 1997 and 1996 4
Condensed Statements of Cash Flows - Three months ended March
31, 1997 and 1996 5
Notes to Condensed Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Part II:Other Information 10
Signature 11
Index to Exhibits 12
</TABLE>
2
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Part I: Financial Information
Item 1: Financial Statements
FemRx, Inc.
Condensed Balance Sheets
(In thousands)
Assets
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------------- ----------------
(unaudited) (see note below)
<S> <C> <C>
Current assets:
Cash and short term investments $ 16,940 $ 19,918
Accounts receivable, net 83 60
Inventories 316 340
Prepaid and other current assets 298 256
--------------- ----------------
Total current assets 17,637 20,574
Property and equipment, net 1,575 1,429
Deposits and other assets 190 37
--------------- ----------------
Total assets $ 19,402 $ 22,040
=============== ================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 1,229 $ 1,344
Current portion of capital lease
obligations 145 141
--------------- ----------------
Total current liabilities 1,374 1,485
Noncurrent portion of capital lease obligations 243 272
Stockholders' equity:
Common stock 33,162 33,247
Deferred compensation (596) (696)
Accumulated deficit (14,781) (12,268)
--------------- ----------------
Total stockholders' equity 17,785 20,283
--------------- ----------------
Total liabilities and stockholders'
equity $ 19,402 22,040
=============== ================
</TABLE>
Note:The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to condensed financial statements
3
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FemRx, Inc.
Condensed Statements of Operations
(In thousands, except net loss per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ 80 $ ---
Costs and expenses:
Cost of goods sold 574 ---
Research and development 706 993
Selling, general and administrative 1,554 572
------------ ------------
Total costs and expenses 2,834 1,565
Loss from operations (2,754) (1,565)
Interest income 254 33
Interest expense (13) (15)
============= ============
Net loss $ (2,513) $ (1,547)
============= ============
Net loss per share $ (0.29) $ (0.71)
============ ============
Shares used in computing net loss per share 8,729 2,183
============ ============
</TABLE>
See accompanying notes to condensed financial statements
4
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FemRx, Inc.
Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997 1996
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,513) $ (1,547)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 244 157
Changes in assets and liabilities:
Accounts receivable (23) ---
Inventory 24 ---
Prepaids and other assets (195) (125)
Accounts payable and accrued liabilities (115) 925
----------- ----------
Net cash used in operating activities (2,578) (590)
Cash flows from investing activities:
Capital expenditures (328) (134)
----------- ----------
Net cash used in investing activities (328) (134)
Cash flows from financing activities:
Capital lease transactions (25) 227
Net proceeds from issuance of stock (47) 21,666
----------- ----------
Net cash (used in) provided by financing activities (72) 21,893
Net increase (decrease) in cash and short
term investments (2,978) 21,169
Cash and short term investments at beginning
of period 19,918 3,457
=========== ==========
Cash and short term investments at end of period $ 16,940 $ 24,626
=========== ==========
</TABLE>
See accompanying notes to condensed financial statements
5
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FemRx, Inc.
Notes to Condensed Financial Statements
March 31, 1997
(Unaudited)
1. Basis of presentation
The accompanying unaudited financial statements of FemRx, Inc. (the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions for Form
10-Q and Article 10 of Regulation S-X. In the opinion of management all
adjustments necessary to present fairly the financial position, results of
operations, and cash flows at March 31, 1997, and 1996, have been made. Although
the Company believes that the disclosures in these financial statements are
adequate to make the information presented not misleading, certain information
normally included in financial statements and related footnotes prepared have
been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The accompanying financial data
should be reviewed in conjunction with the audited financial statements and
notes thereto included in the Company's Annual Report to Stockholders, and Form
10-K filed with the SEC (File No 000-28078) on March 26, 1997.
The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1997.
2. Net loss per share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earning per Share, which is required to be adopted on December 31,
1997. At that time, the company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of Statement 128 is expected to
result in no change to the Company's net loss per share for the quarters ended
March 31, 1997 and 1996, as stock options have been excluded from the current
computation as they are anti-dilutive.
3. Inventories
Inventories are stated at lower of cost (first-in, first-out) or market and
consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Raw materials $ 71 $ 46
Work-in-process 175 226
Finished goods 70 68
---- ----
Total $ 316 $ 340
</TABLE>
6
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Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto included in Part I Item 1 of this
quarterly report and the audited financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the year ended December 31, 1996 contained in the Company's
Annual Report to Stockholders and Form 10-K filed with the SEC (File No
000-28078) on March 26, 1997.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section, as well as in
the sections entitled Overview, Results of Operations, Liquidity and Capital
Resources, and Additional Factors That May Effect Future Results, and those
discussed in the Company's Annual Report to Stockholders, and Form 10-K filed
with the SEC (File No 000-28078) on March 26, 1997.
Overview
Since its inception, the Company has been engaged in the development of its
OPERA STAR System and related products, establishment of its administrative
offices, development of its sales and marketing organization and establishment
its manufacturing capabilities. The OPERA STAR System is an innovative surgical
system for the diagnosis and treatment of gynecologic disorders. OPERA stands
for Out-Patient Endometrial Resection/Ablation. OPERA is a less invasive
alternative to hysterectomy for patients suffering from abnormal uterine
bleeding. OPERA consists of diagnosis by a gynecologic surgeon and the use of
the Company's OPERA STAR resectoscope under visual guidance to collect a
pathology sample, resect the endometrial lining together with any submucosal
fibroids and coagulate the entire uterine cavity. The Company has also developed
a proprietary fluid management system, called the Flo-Stat System, for use in
gynecologic procedures.
The Company has experienced significant operating losses since inception
and, as of March 31, 1997, had an accumulated deficit of approximately $14.8
million. The Company expects to continue to generate substantial losses due to
increased operating expenditures primarily attributed to research and
development activities, including clinical trials, and establishing commercial
manufacturing, marketing and sales capabilities. The Company anticipates that
its research and development expenses will increase in the future to support
increased product development activities, including clinical trials, and that
its selling, general and administrative expenses will increase due to increased
marketing and sales activities. The Company expects that its results of
operations will fluctuate significantly from quarter to quarter due to a variety
of factors including the timing of such expenditures, timing in the receipt of
orders, the rate of acceptance of the Company's products in the marketplace,
introduction of new products by competitors of the Company, pricing of
competitive products and the cost and effect of promotional discounts and
marketing programs. The Company's gross margins, if any, will be depressed for
several quarters due to manufacturing start-up and overhead costs allocated over
low production volumes. There can be no assurance that the Company will ever
achieve significant revenue or profitability.
Results of Operations
Three months ended March 31, 1997 and March 31, 1996
Net Sales were $80,000 for the three months ended March 31, 1997. No net
sales were recorded in the three months ended March 31, 1996.
7
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Cost of goods sold was $574,000 for the three months ended March 31, 1997,
primarily consisting of costs related to initial manufacturing. There was no
cost of goods sold in the three months ended March 31, 1996.
Research and development expenses for the three months ended March 31, 1997
decreased to $706,000 from $993,000 for the three months ended March 31, 1996,
due primarily to costs associated with start-up manufacturing incurred during
the three months ended March 31, 1996.
Selling, general and administrative expenses for the three months ended
March 31, 1997 increased to $1,554,000 from $572,000 for the three months ended
March 31, 1996, due primarily to the establishment of the Company's marketing
and sales organization, including the hiring of additional personnel.
Interest income for the three months ended March 31, 1997 increased to
$254,000 from $33,000 for the three months ended March 31, 1996, due to interest
received on higher cash balances from the proceeds of the Company's public
offering on March 27, 1996.
Liquidity and Capital Resources
Net cash used by operations in the three months ended March 31, 1997 was
$2,578,000 primarily due to the Company's funding of increased sales and
marketing activity and on-going research and development expenses. During the
first three months of 1997 the Company used approximately $328,000 to purchase
equipment for operations.
The Company believes that its existing cash and short term investments will
be sufficient to finance its capital requirements through at least fiscal 1997.
The Company's future liquidity and capital requirements will depend on numerous
factors, including the resources necessary to develop, manufacture and market
products and the cost of obtaining and enforcing patents important to the
Company's business. The Company may be required to raise additional funds
through public or private financing, collaborative relationships or other
arrangements. There can be no assurance that such additional funding, if needed,
will be available on attractive terms to the Company, or at all.
Additional Factors That May Affect Future Results
Dependence on OPERA STAR System and Flo-Stat System
The OPERA STAR System and Flo-Stat System are currently the Company's only
products. The Company expects that the OPERA STAR System, and to a lesser
extent, the Flo-Stat System, will account for substantially all of the Company's
revenues for the foreseeable future. Even though the OPERA STAR System and
Flo-Stat System have received FDA clearance, there can be no assurance that the
Company can successfully manufacture, market, or realize any significant
revenues from these products on a timely basis. The Company's products will
require further development and regulatory clearances or approvals before they
can be marketed internationally. There can be no assurance that the Company's
development and marketing efforts will be successful or that the OPERA STAR
System, Flo-Stat System or other potential products developed by the Company
will be capable of being manufactured in commercial quantities at acceptable
costs. Failure to manufacture in commercial quantities at acceptable cost the
OPERA STAR System and Flo-Stat System would have a material adverse effect on
the Company's business, financial condition and results of operations.
Uncertainty of Market Acceptance
The Company believes that market acceptance of the Company's products will
depend, in part, on the Company's ability to provide evidence to the medical
community of the safety, efficacy and cost-effectiveness of its products and the
procedures in which these products are intended to be used. To date, the OPERA
STAR System has only been used to treat a limited number of patients and no
published reports regarding the use of the OPERA STAR System exist to support
the Company's marketing effort. Furthermore, there is little long-term follow-up
data on patients who underwent OPERA using the OPERA STAR System. If the Company
is not able to demonstrate long-term success with the OPERA STAR System, market
acceptance would be materially adversely affected.
8
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The Company's OPERA STAR System is designed for use by a gynecologic
surgeon trained in the OPERA procedure. Market acceptance of the Company's
products will require a willingness on the part of gynecologic surgeons to be
trained to perform OPERA using the Company's products. Furthermore, market
acceptance may be limited because some physicians and payors, recognizing that
the removal of the uterus in a hysterectomy precludes the potential reoccurrence
of uterine disorders, will be reluctant to substitute the OPERA procedure (which
allows the patient to retain her uterus) for hysterectomy. The Company believes
that most gynecologists view hysterectomy as an appropriate therapy to treat a
variety of uterine disorders. As a result, the Company believes that
recommendations and endorsements of its products by influential physicians will
be essential for market acceptance of its products. No assurances can be made
that the Company will receive such recommendations or endorsements.
The Company further believes that the ability of health care providers to
obtain adequate reimbursement for OPERA procedures using the OPERA STAR System
will be critical to market acceptance of the Company's products. There can be no
assurance that the cost of procedures in which the OPERA STAR System is used
will be adequately reimbursed by third-party payors under existing reimbursement
policies and codes. The Company has no experience in gaining reimbursement in
the U.S. or any foreign market. The Company expects to price its disposable
resectoscope at a premium over the prices currently charged for the disposable
components of competitive resectoscopes. Therefore, the Company anticipates that
it may have to offer substantial discounts on its OPERA STAR System motor drive
unit in order to stimulate demand for its products. The failure of the Company
to place sufficient quantities of its motor drive unit would have a material
adverse effect on its ability to sell the disposable STAR. Another factor that
may limit the market acceptance of the Company's OPERA STAR System is that it is
not currently compatible with all telescopes utilized in gynecologic surgery and
therefore might require surgeons using incompatible telescopes to acquire a
different telescope in order to use the OPERA STAR System. Failure of the
Company's products to achieve market acceptance would have a material adverse
effect on the Company's business, financial condition and results of operations.
Limited Operating Experience
The Company has a limited history of operations. Since its incorporation in
November 1994, the Company has focused primarily on research and product
development efforts, clinical trials and seeking regulatory clearance or
approval for the OPERA STAR System and Flo-Stat System. The Company has never
generated significant revenues, and has limited experience manufacturing in
commercial quantities, marketing or selling products. The Company has
experienced significant operating losses since inception and expects these
losses to continue for the next several years. There can be no assurance that
the Company will be successful in commercializing the OPERA STAR System and
Flo-Stat System. Whether the Company can successfully manage the transition to a
large-scale commercial enterprise will depend upon a number of factors,
including obtaining selected international regulatory and reimbursement
approvals for its existing or potential products, establishing its commercial
manufacturing capability, developing its U.S. marketing and selling
capabilities, and establishing a distribution network in international markets.
Failure to make such a transition successfully would have a material adverse
effect on the Company's business, financial condition and results of operations.
History of Losses
The Company has experienced significant operating losses since its
inception and, as of March 31, 1997 had an accumulated deficit of approximately
$14.8 million. The Company expects to generate substantial additional losses for
the next several years due to increased operating expenditures primarily
attributable to research and development activities, including clinical trials,
seeking regulatory and reimbursement approvals and establishing manufacturing,
marketing and sales activities. There can be no assurance that the Company will
achieve significant revenues. Failure to achieve significant revenues would have
a material adverse effect on the Company's business, financial condition and
results of operations.
9
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Part II: Other Information
Item 1. Legal Proceedings
None
Item 2. Change in Securities
None
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
10
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Signatures
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.
FemRx, Inc.
By: /s/ EDWARD W. UNKART .
Edward W. Unkart
Vice President, Finance and Administration,
Chief Financial Officer and Assistant Secretary
(Duly Authorized and Principal Financial and
Accounting Officer)
Date: April 23, 1997
11
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FemRx, Inc.
Index to Exhibits
Exhibit
Number Exhibit Page
None
12
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEETS
AND STATEMENTS OF OPERATIONS FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 16,940
<SECURITIES> 0
<RECEIVABLES> 83<F1>
<ALLOWANCES> 0
<INVENTORY> 316<F1>
<CURRENT-ASSETS> 17,637
<PP&E> 1,575<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,402
<CURRENT-LIABILITIES> 1,374
<BONDS> 0
0
0
<COMMON> 33,162
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 19,402
<SALES> 80
<TOTAL-REVENUES> 80
<CGS> 574
<TOTAL-COSTS> 574
<OTHER-EXPENSES> 706<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> (2,513)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,513)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,513)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> 0
<FN>
<F1>ITEM SHOWN NET OF ALLOWANCES, CONSISTENT WITH THE BALANCE
SHEET PRESENTATION.
<F2>ITEM SHOWN NET OF DEPRECIATION, CONSISTENT WITH THE BALANCE
SHEET PRESENTATION.
<F3>ITEM CONSISTS OF RESEARCH AND DEVELOPMENT.
</FN>
</TABLE>
