<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1998
[ ] Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ______ To ______
Commission File Number: 0-17119
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A-Fem Medical Corporation
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(exact name of small business issuer as specified in its charter)
Nevada 33-0202574
--------------------------------- --------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10180 SW Nimbus Ave., Suite J5
Portland, OR 97223
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(Address of principal executive offices)
(503)968-8800
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
As of August 10, 1998, the issuer had outstanding 13,788,280 shares of its $.01
par value Common Stock.
Transitional Small Business Disclosure Format: (Check one) Yes [ ] No [X]
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PART I - FINANCIAL INFORMATION
See "Basis of Presentation."
ITEM 1. FINANCIAL STATEMENTS
A-Fem Medical Corporation
BALANCE SHEETS
<TABLE>
<CAPTION>
As of
---------------------------------
June 30, December 31,
1998 1997
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ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 297,290 $ 525,767
Restricted cash -- 52,500
Accounts receivable 119,257 58,508
Inventory 176,654 172,963
Prepaids and other 205,657 213,402
------------ ------------
Total current assets 798,858 1,023,140
EQUIPMENT, FURNITURE and LEASEHOLDS, at cost 1,230,329 1,194,449
Less: accumulated depreciation (451,459) (371,401)
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778,870 823,048
PATENTS and LICENSES, net 60,660 60,971
LOANS RECEIVABLE - officers and directors 60,451 58,710
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Total assets $ 1,698,839 $ 1,965,869
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 291,466 $ 529,588
Note payable 458,333 --
Current portion of capital lease 237,455 262,772
Accrued expenses 12,740 59,368
Accrued salaries and related liabilities 96,767 162,174
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Total current liabilities 1,096,761 1,013,902
Long-term portion of capital lease 119,928 221,357
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Total liabilities 1,216,689 1,235,259
STOCKHOLDERS' EQUITY
Common Stock, $0.01 par value, authorized 33,000,000
shares; 13,788,281 shares issued and outstanding 6/30/98 and
12,798,694 issued and outstanding 12/31/97 137,882 127,987
Additional paid-in capital 14,192,948 12,331,811
Accumulated deficit (13,848,680) (11,729,188)
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Total stockholders' equity 482,150 730,610
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Total liabilities and stockholders' equity $ 1,698,839 $ 1,965,869
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
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A-Fem Medical Corporation
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED MARCH 31, ENDED JUNE 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales, net $ 167,882 $ 19,297 $ 267,933 $ 31,100
Cost of sales 105,942 238,817 228,847 361,128
------------ ------------ ------------ ------------
Gross Margin 61,940 (219,520) 39,086 (330,028)
Operating expenses:
Regulatory affairs 20,736 24,866 36,405 60,949
Research and development 189,641 121,625 361,220 212,876
Marketing and selling 496,006 274,615 1,302,208 427,126
General and administrative 246,659 326,647 435,016 568,766
------------ ------------ ------------ ------------
Total operating expenses 935,042 747,753 2,134,849 1,269,717
------------ ------------ ------------ ------------
Net operating loss (891,102) (967,273) (2,095,763) (1,599,745)
------------ ------------ ------------ ------------
Other income (expense) (19,183) 2,013,706 (23,929) 2,010,778
------------ ------------ ------------ ------------
Net profit (loss) (910,285) 1,046,433 (2,119,492) 411,033
============ ============ ============ ============
Basic and diluted net income
(loss) per share $ (0.07) $ 0.08 $ (0.16) $ 0.03
============ ============ ============ ============
Weighted average shares
outstanding 13,698,454 12,473,982 13,596,713 12,133,708
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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A-Fem Medical Corporation
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
(unaudited)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $(2,119,492) $ 411,034
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 81,853 67,083
(Gain) loss on disposal of assets (134) 7,507
Changes in working capital:
Restricted cash 52,500 52,804
Accounts receivable (60,749) 4,162
Inventory (3,691) 150,087
Prepaid expenses and other 7,340 (163,863)
Accounts payable (238,122) 11,244
Accrued salaries and related liabilities (113,286)
Accrued expenses (46,628) (36,947)
----------- -----------
Net cash used in operating activities (2,392,530) 389,825
Cash Flows From Investing Activities:
Purchases of equipment, furniture and leaseholds (37,175) (143,765)
Net Proceeds from sale of equipment 350 980
----------- -----------
Net cash used in investing activities (36,825) (142,785)
Cash Flows From Financing Activities:
Additions to notes receivable, net of repayments (1,741) 67,124
Proceeds from Note Payable 458,333 --
Net proceeds from Long-Term Obligations,
net of repayments (126,746) 67,281
Proceeds from sale of common stock, exercise of
options and warrants 1,871,032 1,464,951
Net cash provided by financing activities 2,200,878 1,599,356
Net Increase (Decrease) in Cash and Cash Equivalents (228,477) 1,846,396
Cash and Cash Equivalents, beginning of period 525,767 671,495
----------- -----------
Cash and Cash Equivalents, end of period $ 297,290 $ 2,517,981
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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A-Fem Medical Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
ORGANIZATION OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
The Company
A-Fem Medical Corporation ("A-Fem" or the "Company") is a women's
health care company. A-Fem has developed three core product technology
platforms, one based on its inSync(TM) miniform interlabial pad, another based
on the Rapid-Sense(TM) diagnostic products and a third based on the PadKit(TM)
collection device. These three technology platforms are in different stages of
marketing or development. Each of these core technology platforms has a variety
of product applications that the Company is developing for the short- and
long-term.
A-Fem's inSync miniform is the first generation of a technology which
introduces an entirely new segment within the $7 billion global feminine
protection market. The miniform is worn lengthwise between the labia where a
woman's body naturally and comfortably holds it in place. Unlike pads, the
miniform uses no adhesives and, unlike tampons, no insertion is necessary. The
miniform has received Food and Drug Administration ("FDA") clearance and was
launched in a market roll-out beginning in Oregon and Washington in January
1998.
A-Fem's innovative Rapid-Sense point-of-care diagnostic technology will
enable consumers and health care providers to obtain quantifiable test results
quickly, conveniently and inexpensively. Current diagnostic products utilize
either laboratory instrument-based tests, which provide quantifiable results but
are time consuming and costly, or point-of-use tests, such as current pregnancy
tests, which are inexpensive and convenient but give only a qualitative (yes/no)
result. The Company has completed development of this core technology and has
developed a prototype for an osteoporosis therapeutic monitoring test.
The Company's PadKit will contain a miniform used as a sample
collection device during the normal menstrual cycle. The miniform collects blood
along with numerous cells, vaginal mucous and discharge flushed out by the
menstrual flow. The PadKit's initial application will provide an alternative to
the cervical scrape for collecting samples for cervical cancer screening. It may
also be used as an alternative sample collection device to test for other
cancers and diseases.
Basis of Presentation
The interim financial data are unaudited; however, in the opinion of
management, the interim data include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
interim periods. The financial statements included herein have been prepared by
the Company pursuant to the rules and regulations of
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the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures included herein are adequate to make the information presented not
misleading. Operating results for the periods presented are not necessarily
indicative of future results. These financial statements should be read in
conjunction with the financial statements and notes to financial statements
included in the Company's annual report on Form 10-KSB for the year ended
December 31, 1997.
Loss Per Share
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS 128). SFAS 128 changes the standards for computing and presenting earnings
per share (EPS) and supersedes Accounting Principles Board Opinion No. 15,
"Earnings Per Share." This Statement requires restatement of all prior-period
EPS data presented. The Company implemented SFAS 128 for its year ended December
31, 1997.
Basic earnings per share common share is computed using the weighted
average number of shares of common stock outstanding for the period. Diluted
earnings per common share is computed using the weighted average number of
shares of common stock and dilutive common equivalent shares related to stock
options and warrants outstanding during the period.
As it relates to the Company, the principal differences between the
provisions of SFAS 128 and previous authoritative pronouncements are the
exclusion of common stock equivalents in the determination of Basic Earnings Per
Share and the market price at which common stock equivalents are calculated in
the determination of Diluted Earnings Per Share. The adoption of SFAS 128 had no
effect on previously reported loss per share calculations. A net loss was
reported in the first quarter of 1997, and accordingly, the denominator was
equal to the weighted average outstanding shares with no consideration for
outstanding options and warrants to purchase share of the Company's common
stock, because to do so would have been anti-dilutive. Stock options for the
purchase of 3,045,693 and 2,062,988 shares at June 30, 1998 and 1997,
respectively, and warrants for the purchase of 2,570,006 and 2,796,416 shares at
June 30, 1998 and 1997, respectively, were not included in loss per share
calculations, because to do so would have been anti-dilutive.
New Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting
standards No. 130 "Reporting Comprehensive Income" (SFAS 130). This statement
establishes standards for reporting and displaying comprehensive income and its
components in a full set of general purpose financial statements. The objective
of SFAS 130 is to report a measure of all changes in equity of an enterprise
that result from transactions and other economic events of
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the period other than transactions with owners. The Company adopted SFAS 130
during the first quarter of 1998. Comprehensive loss did not differ from
currently reported net loss in the periods presented.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for all derivative instruments.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The
Company currently has no derivative instruments and, therefore, the adoption of
SFAS 133 will have no impact on the Company's financial position or results of
operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION
A-Fem Medical Corporation (the "Company" or "A-Fem") is a women's
health care company. A-Fem has developed three core product technology
platforms, one based on its miniform interlabial pad, another based on the
Rapid-Sense diagnostic technology and a third based on the PadKit collection
device. The miniform is a new type of feminine hygiene product that is worn
interlabially. A-Fem's first miniform application, the inSync miniform, has
received Food and Drug Administration ("FDA") clearance and was launched in a
market roll-out in Oregon and Washington in January 1998. The Company expects to
use its Rapid-Sense diagnostic technology to create rapid-response, low-cost,
point-of-use diagnostic tests that generate quantifiable results. The core
technology development for Rapid-Sense diagnostic products has been completed
and applications are under development. The PadKit contains a miniform to be
used during a woman's menstrual cycle to collect a sample for diagnostic
testing. The Company has initiated clinical trials.
Overview
During the first quarter of 1998, the Company focused its efforts on
conducting the roll-out of the inSync miniform in Oregon and Washington. The
Company has supported the roll-out with an aggressive advertising, consumer
education and promotion plan to increase product awareness and trial and repeat
purchase rates. The product was distributed to the three largest grocery chains
and various drug store chains in Oregon and Washington during December 1997.
Repeat orders from all retailers and orders from additional store chains were
received during the first half of 1998.
The Company monitored closely this initial market during the first half
of 1998 in order to fine-tune its marketing plan and forecasting model before
continuing with its next regional roll-out. The Company plans to complete at
least one additional regional roll-out in 1998 and achieve national distribution
in 1999. The national roll-out may be accelerated or delayed based on various
factors including the availability of additional financing and consumer and
retailer acceptance.
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The Company believes it has manufacturing capacity sufficient to meet
sales projections through market penetration of portions of the western U.S.
The Company has experienced significant operating losses during the
three- and six-month periods ended June 30, 1998 and anticipates that it will
continue to incur losses through the remainder of 1998. The Company expects
that significant ongoing expenditures will be necessary to successfully
implement its business plan and develop, manufacture and market its products.
These circumstances raise substantial doubt about the Company's ability to
continue as a going concern. The Company's ability to continue as a going
concern depends upon its acquiring additional financing of at least $4 million
during 1998. Management plans to seek additional capital and to evaluate
potential partnering opportunities. The Company raised operating funds by
selling shares of its Common Stock for approximately $1.8 million dollars in
1997. Through July 1998, the Company has received an additional $2.35 million
from various investors.
The Company's efforts to raise additional funding or enter into a
strategic alliance may not be successful. If the Company is unable to obtain
adequate additional financing, enter into such strategic alliance or generate
sufficient sales revenues, management may be required to curtail the Company's
product development, marketing activities and other operations, and the Company
may be forced to cease operations.
Results of Operations
For the quarter ended June 30, 1998, the Company generated net sales of
approximately $168,000 compared to approximately $19,000 in the quarter ended
June 30, 1997. For the six-month period ended June 30, 1998, net sales were
approximately $268,000 compared with approximately $31,000 for the same period
in 1997. This increase in net sales was directly related to the roll-out of the
inSync miniform in Oregon and Washington that began in December 1997.
Marketing and selling expense for the second quarter of 1998 was
approximately $496,000, compared to approximately $275,000 for the quarter ended
June 30, 1997. For the six-month period ended June 30, 1998, marketing and
selling expense was approximately $1,302,000, compared to approximately $427,000
for the same period in 1997. The increase in marketing and selling expense
resulted from increased expenditures for advertising, marketing and sales
consultants in support of the roll-out of the inSync miniform in Oregon and
Washington.
Research and development expense was approximately $190,000 for the
quarter ended June 30, 1998, compared to approximately $122,000 for the same
quarter of the prior year. For the six-month period ended June 30, 1998,
research and development expense was approximately $361,000, compared to
approximately $213,000 for the same period in 1997. Research and development
expense increased in comparison to the prior year as a result of costs
associated with the start of clinical trials of the PadKit during the first
quarter of 1998
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and other developmental expenses related to the Company's proprietary
Rapid-Sense diagnostic technology.
General and administrative expense was approximately $247,000 for the
quarter ended June 30, 1998, compared to approximately $327,000 for the same
period in the prior year. For the six-month period ended June 30, 1998, general
and administrative expense was approximately $435,000 compared to $569,000 for
the same period in 1997. The decrease in general and administrative expense
resulted from the Company's efforts to reduce such expense.
The Company's operating loss for the quarter ended June 30, 1998 was
approximately $891,000, compared to a loss of approximately $967,000 for the
same quarter the previous year. For the six-month period ended June 30, 1998,
the operating loss was approximately $2,096,000 compared with an operating loss
of approximately $1,600,000 for the same period in 1997. The increase in
operating loss was primarily the result of marketing and selling expense
associated with the Company's inSync miniform roll-out in Oregon and Washington.
The Company's net loss for the quarter ended June 30, 1998 was
approximately $910,000 compared to a net profit of approximately $1,046,000 for
the same quarter the previous year. For the six-month period ended June 30, 1998
the Company's net loss was approximately $2,119,000 compared to a net profit of
approximately $411,000 for the same period in the prior year. The Company's net
profit in the three- and six-month periods ended June 30, 1997 resulted from the
Company's receipt of $2 million pursuant to an agreement to license certain
technology to The Proctor & Gamble Company.
Liquidity and Capital Resources
As of June 30, 1998, the Company had cash and cash equivalents of
$297,290. The Company's net cash position had been reduced by $280,977 between
December 31, 1997 and June 30, 1998 as a result of expenses related to the
Company's roll-out of its inSync miniform.
The Company expects to continue to incur losses through 1998 and into
1999, as the cost of marketing, research and development will continue to exceed
income from product sales. Exclusive of marketing costs, the Company has
approximately $139,000 per month of operating expenses. In order to carry out
its marketing plan for the inSync miniform and its development plans for
Rapid-Sense and the PadKit, the Company estimates it will need to raise
approximately $4.0 million in financing over the balance of the year. The
Company does not expect significant amounts of debt financing to be available
to it in the near term and that it will have to issue additional equity. The
Company cannot predict on what terms any such financing might be available, but
any such financing could involve issuance of equity below current market prices
and result in significant dilution of existing stockholders. The Company may
not be able to secure investment on terms favorable to the Company, or at all.
Inability of the Company to obtain financing will adversely affect the Company.
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The Company's ability to continue as a going concern depends upon its
acquiring an additional financing of at least $4 million during 1998. If the
Company is unable to obtain adequate additional financing, enter into a
strategic alliance or generate sufficient sales revenues, the Company may be
forced to cease operations.
Certain statements in this Form 10-QSB constitute "forward-looking
statements" (as defined in Section 27A of the Securities Act of 1933, as
amended) and involve risks and uncertainties which could cause actual results to
differ materially from those predicted in the forward looking statements. Such
risks and uncertainties include, but are not limited to: the effect of economic
conditions generally and within the women's health care industry; lack of
revenues from products; need for additional financing; uncertainty associated
with product development; continuing operating losses; results of financing
efforts; availability and cost of raw materials and labor; potential need for
additional capital equipment; market acceptance risks; the impact of competitive
products and pricing; and the additional factors listed from time to time in the
Company's SEC reports, including but not limited to, the Company's report on
Form 10-KSB for the fiscal year ended December 31, 1997.
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PART II - OTHER INFORMATION
ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES
On April 21, 1998, the Company granted to Steven T. Frankel options to purchase
1,700,00 shares of the Company's Common Stock at an exercise price of $2.06 per
share, in consideration of his employment as the Company's Chief Executive
Officer, subject to certain performance-based vesting requirements. The Company
believes that Mr. Frankel was an "accredited investor" within the meaning of
Rule 501 under the Securities Act. In issuing these securities, the Company
relied upon an exemption from registration pursuant to Rule 701 under Section
3(b) of the Securities Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
3.1 Articles of Incorporation, as amended(1)
3.2 Amended and Restated Bylaws(1)
10.1 Employment Agreement between A-Fem Medical
Corporation and Steven T. Frankel dated effective
April 25, 1998
11.1 Statement Re: computation of per share earnings
27.1 Financial Data Schedule
b) Reports on Form 8-K
- ----------
(1) Incorporated by reference to the exhibits to the Company's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 1997.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Company caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
A-Fem Medical Corporation
Date: August 14, 1998 /S/ J. PETER BURKE
------------------
J. Peter Burke
President, Chief Operating Officer and
Chief Financial Officer (authorized
officer and principal financial and chief
accounting officer)
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
BETWEEN: A-FEM MEDICAL CORPORATION, a Nevada corporation (the "Company");
AND: STEVEN T. FRANKEL ("Employee").
DATED: Effective April 25, 1998.
RECITAL:
The Company is engaged in the business of developing and marketing
feminine hygiene products and diagnostics world-wide. The parties desire to set
forth their agreement as to Employee's services as Chief Executive Officer of
the Company.
AGREEMENT:
In consideration of the foregoing Recital and the terms, conditions and
covenants set forth below, the parties agree as follows:
SECTION 1. EMPLOYMENT
The Company agrees to employ Employee as its Chief Executive Officer
for a term commencing April 25, 1998, and continuing until termination in
accordance with Section 5. Employee accepts employment with the Company on the
terms and conditions set forth in this Agreement, and agrees to devote
Employee's full time and attention to the performance of Employee's duties under
this Agreement. On all matters of Company policy, Employee shall consult with
the Chairman of the Company. Employee shall perform such specific duties and
shall exercise such specific authority as may be assigned to Employee by the
Company's Board of Directors.
Employee agrees that in all aspects of his employment, Employee shall
comply with the policies, standards, rules and regulations of the Company from
time to time established, and shall perform Employee's duties faithfully,
intelligently, to the best of Employee's ability and in the best interest of the
Company. The devotion of reasonable periods of time by Employee for personal
purposes, outside non-competitive business activities, including service on the
boards of directors of other companies which are not in competition with the
Company, and charitable, civic
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and other activities shall not be deemed a breach of this Agreement, provided
that such purposes or activities do not materially interfere with the services
required to be rendered to or on behalf of the Company.
SECTION 2. CONFIDENTIALITY
2.1 CONFIDENTIAL INFORMATION
Employee acknowledges and agrees that all research, product and
equipment specifications, manufacturing methods, lists of the Company's
customers and suppliers, marketing and product planning information, and other
Company data related to its business, as well as information of third parties
that the Company is required to keep confidential (collectively, the
"Confidential Information"), are valuable assets of the Company. Except for
disclosures reasonably made to advance the business of the Company and
information which is a matter of public record, Employee shall not, during the
term of this Agreement or after termination of employment with the Company for
any reason, disclose any Confidential Information to any person or use any
Confidential Information (regardless of whether same is considered proprietary
or a trade secret) for the benefit of Employee or any other person, except with
the prior written consent of the Company in each instance.
2.2 RETURN OF DOCUMENTS AND PROPERTY
Employee acknowledges and agrees that all originals and all copies of
records, reports, files, correspondence, lists, plans, drawings, memoranda,
notes, sketches, summaries, schedules, codes, tapes and other documentation and
property related to the business of the Company or containing any Confidential
Information are and shall be the sole and exclusive property of the Company, and
shall be returned to the Company upon termination of Employee's employment with
the Company or upon the written request of an authorized representative of the
Company at any time.
2.3 RELATED COMPANY POLICIES
Employee further agrees to comply with all policies, rules and
regulations adopted by the Company's Board of Directors or shareholders from
time to time with respect to insider trading and other duties applicable to the
employees of a publicly-traded corporation. Employee also agrees, if requested,
to sign a separate confidentiality agreement applicable to all employees. The
terms of such separate agreement will control over any conflicting term in this
Agreement.
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2.4 INJUNCTION
Employee agrees that it would be difficult to measure damage to the
Company from any breach by Employee of Section 2.1, 2.2 or 2.3 and that monetary
damages would be an inadequate remedy for any such breach. Accordingly, Employee
agrees that if Employee shall breach Section 2.1, 2.2 or 2.3, the Company shall
be entitled, in addition to any and all other remedies it may have at law or in
equity, to an injunction or other appropriate order to restrain any such breach,
without showing or proving any actual damage sustained by the Company, and
without posting bond or other undertaking.
2.5 NO RELEASE
Employee agrees that termination of employment with the Company shall
not release Employee from any of Employee's obligations under Section 2.1, 2.2
or 2.3.
SECTION 3. COMPENSATION
3.1 AMOUNT
In consideration of all services to be rendered by Employee to the
Company under this Agreement, the Company shall pay to Employee monthly
compensation of $20,000 (an annualized salary of $240,000.00), payable monthly
in arrears on the same dates as other management personnel are paid, and
prorated for any short calendar month, provided that the Company shall have no
obligation to pay any salary in excess of $10,000 per month unless and until the
Company raises after the date hereof six million dollars ($6,000,000) in equity
or debt acceptable to the Company's Board of Directors, in one transaction or a
series of related transactions, prior to December 31, 1998. Promptly after
closing on such financing, the Company will pay to Employee any accrued but
unpaid salary. Compensation shall be subject to the customary withholding of
income taxes and to other employment taxes required with respect to compensation
paid by an employer to an employee.
3.2 OTHER BENEFITS
Compensation paid to Employee shall be in addition to any contribution
made by the Company for the benefit of Employee to any qualified profit-sharing
or retirement plan maintained by the Company for the exclusive benefit of its
employees. The Company shall provide to Employee and Employee's spouse and
dependents the same coverage and participation that the Company may provide to
other management personnel with respect to accident and health insurance, life
insurance and other employment benefits, upon Employee meeting the respective
eligibility conditions of each such benefit.
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3.3 INCENTIVE AND NON-QUALIFIED STOCK OPTIONS
Subject to approval by the Company's Board of Directors (or a committee
thereof), Employee may be awarded one or more options to purchase shares of the
Company's common stock, exercisable at the approximate publicly-traded price of
such stock on the date of award. The options will be exercisable according to a
vesting schedule and such other terms agreed upon by the parties.
3.4 INCOME FROM EMPLOYEE'S EFFORTS
All income generated by Employee for Employee's services to the
Company, and all activities related to such services, shall belong to the
Company, whether paid directly to the Company or to Employee. Employee agrees
to, upon request by the Company from time to time, render a detailed accounting
of all transactions during the course of Employee's employment.
3.5 WORK MADE FOR HIRE
All techniques, processes, products, manuals, documents, materials,
ideas and Confidential Information developed by Employee while employed by the
Company shall be considered work made for hire and shall, unless specifically
otherwise agreed in writing by the Company prior to such development, become the
sole and exclusive property of the Company.
SECTION 4. EXPENSES
Employee shall be reimbursed expenses incurred in traveling between
Portland and San Diego. In addition, Employee shall be entitled to reimbursement
from the Company for reasonable expenses necessarily incurred by Employee in the
performance of Employee's duties under this Agreement, upon presentation of
vouchers detailing the amount, date and business purpose of each such expense.
All travel and related expenses and reimbursements will be governed by the
travel policies and procedures adopted by the Company.
SECTION 5. TERMINATION
5.1 TERMINATION BY PRIOR NOTICE OR AGREEMENT
The employment of Employee by the Company may be terminated by either
the Company or Employee upon the giving of 30 days' prior written notice to the
other party. This Agreement may be terminated at any earlier time upon the
mutual written agreement of the Company and Employee.
PAGE 4
<PAGE> 5
5.2 IMMEDIATE TERMINATION
The employment of Employee by the Company may be terminated immediately
in the sole discretion of the Board of Directors of the Company upon the
occurrence of any one of the following events:
5.2.1 If Employee shall willfully and continuously fail or
refuse to comply with any of the policies, standards, rules and regulations
established by the Company's Board of Directors or shareholders from time to
time.
5.2.2 If Employee shall be guilty of fraud or dishonesty in
the performance of Employee's duties on behalf of the Company.
5.2.3 If Employee shall fail or refuse to perform any material
provision of this Agreement to be performed by Employee.
5.2.4 If Employee shall suffer a permanent disability. For
purposes of this Agreement, "permanent disability" shall be defined in
accordance with the terms of any disability income policy insuring Employee
which may be purchased by the Company, as determined by the company issuing such
policy. But if such a policy is not in force, "permanent disability" shall be
defined as Employee's inability due to physical or mental illness, or other
cause, to perform the majority of Employee's usual duties for a period of three
months or more, as determined by a physician licensed to practice medicine in
Oregon and chosen by the Company.
5.3 DEATH
In the event Employee dies during the term of this Agreement, this
Agreement shall automatically terminate, and the Company shall pay to Employee's
estate the compensation which would be otherwise payable to Employee through the
last day of the month in which Employee's death occurs.
5.4 COMPENSATION UPON CERTAIN TERMINATION
In the event that the Company terminates Employee's employment without
his consent and not by reason of an event described in Section 5.2 or 5.3 above,
the Company agrees to pay to Employee on the effective date of termination an
amount (net of customary withholdings) equal to 50% of Employee's then
annualized base salary, if notice of termination is given on or prior to 18
months from the effective date of this Agreement, or 100% of Employee's then
annualized base salary if notice of termination is given more than 18 months
from the effective date of this Agreement.
PAGE 5
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5.5 AT-WILL EMPLOYMENT
The employment of Employee by the Company is "at-will". Employee may
terminate employment at any time, for any reason or for no reason.
Correspondingly, the Company may terminate Employee's employment at any time,
for any reason or for no reason.
SECTION 6. VACATION; SICK LEAVE
Subject to the prior coordination of time with other officers and
senior management of the Company, Employee shall be entitled to 30 working days
per calendar year (prorated for a short year) of combined vacation/sick days.
Accrual of same and permitted leaves shall be as provided in the Company's
employee manual.
SECTION 7. MISCELLANEOUS
7.1 REPRESENTATION BY EMPLOYEE
Employee represents and warrants to the Company that there is no
employment contract or any other contractual obligation to which Employee is
subject which prevents Employee from entering into this Agreement or from
performing fully Employee's duties under this Agreement.
7.2 NOTICES
Any notice or consent required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
personally delivered to a party or 24 hours after deposit in the United States
Mail, first class postage prepaid by both first class and certified mail, return
receipt requested, or 24 hours after delivery to a recognized national overnight
carrier, with overnight shipping charges paid, and addressed to such party as
follows:
If to Employee: Steven T. Frankel
9668 Claiborne Square
La Jolla, CA 92037
PAGE 6
<PAGE> 7
If to the Company: A-Fem Medical Corporation
10180 SW Nimbus Avenue, Suite J-5
Portland, OR 97223
Attn: Chairman
or such other address as a party may specify by a notice in writing, given in
the same manner.
7.3 ATTORNEYS' FEES
If any action or other proceeding shall be instituted relating to any
term or condition of this Agreement or relating to any of the rights, duties or
obligations arising under it (including without limitation a proceeding for
injunction as provided by Section 2.4), the prevailing party shall be entitled
to recover from the other party, and the other party agrees to pay to the
prevailing party, whether or not the matter proceeds to final judgment or
decree, in addition to costs and disbursements allowed by law, such sum as the
trial and each appellate court may adjudge reasonable as attorneys' fees in such
action or other proceeding, and in any appeal of it.
7.4 INTERPRETATION
The waiver by either party of a breach of any term or provision of this
Agreement shall not be construed as a waiver of any subsequent breach of the
same or any other term or provision by either party. Time is of the essence of
this Agreement in all particulars. The term "days" means calendar days. This
Agreement may not be amended or modified except by written agreement executed by
the parties. The captions heading the sections and subsections of this Agreement
are inserted for convenience of reference only, and are not to be used to
define, limit, construe or describe the scope or intent of any term, provision
or section of this Agreement. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute one and the same instrument.
7.5 INTEGRATION
THIS AGREEMENT CONTAINS THE FINAL AND CONCLUSIVE AGREEMENT AND
UNDERSTANDING OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER OF IT, AND
SUPERSEDES ALL PRIOR AND CONTEMPORANEOUS AGREEMENTS, ORAL OR WRITTEN, INCLUDING
WITHOUT LIMITATION THE PARTIES' LETTER AGREEMENT OF APRIL 21, 1998 (THE
"LETTER"), EXCEPT THE PROVISIONS OF THE LETTER DEALING WITH THE GRANT OF STOCK
OPTIONS.. EXCEPT AS SET FORTH IN THIS AGREEMENT, THERE ARE NO PROMISES,
REPRESENTATIONS,
PAGE 7
<PAGE> 8
AGREEMENTS OR UNDERSTANDINGS, ORAL OR WRITTEN, BETWEEN THE PARTIES RELATING TO
THE SUBJECT MATTER OF THIS AGREEMENT, EXCEPT THE PROVISIONS OF THE LETTER
DEALING WITH THE GRANT OF STOCK OPTIONS.
EXECUTED as of the date first set forth above.
/s/ Steven T. Frankel
-----------------------------------
Steven T. Frankel
EMPLOYEE
A-Fem MEDICAL CORPORATION
By /s/ James E. Reinmuth
------------------------------
Its Chairman
COMPANY
PAGE 8
<PAGE> 1
EXHIBIT 11.1
A-FEM MEDICAL CORPORATION
CALCULATIONS OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED MARCH 31 ENDED JUNE 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Actual weighted average
shares outstanding 13,698,454 12,473,982 13,596,713 12,133,708
Dilutive common stock, options
and warrants using the
treasury stock method(1) -- 1,317,444 -- 1,315,585
------------ ------------ ------------ ------------
Total shares used in per
share calculations 13,698,454 12,473,982 13,596,713 12,133,708
------------ ------------ ------------ ------------
Net income (loss) $ (910,287) $ 1,046,432 $ (2,119,490) $ 411,033
------------ ------------ ------------ ------------
Net income (loss) per share $ (0.07) $ 0.08 $ (0.16) $ 0.03
============ ============ ============ ============
</TABLE>
(1) Warrants and options outstanding are not included where the effect would be
anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 297,290
<SECURITIES> 0
<RECEIVABLES> 119,257
<ALLOWANCES> 0
<INVENTORY> 176,654
<CURRENT-ASSETS> 798,858
<PP&E> 1,230,329
<DEPRECIATION> (451,459)
<TOTAL-ASSETS> 1,698,839
<CURRENT-LIABILITIES> 1,096,761
<BONDS> 0
0
0
<COMMON> 137,882
<OTHER-SE> 344,268
<TOTAL-LIABILITY-AND-EQUITY> 1,698,839
<SALES> 267,933
<TOTAL-REVENUES> 267,933
<CGS> 228,847
<TOTAL-COSTS> 228,847
<OTHER-EXPENSES> 2,115,667
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,899
<INCOME-PRETAX> (2,119,492)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,119,492)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,119,492)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
