<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)
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of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For the transition period from To
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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
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As of May 11, 1999, the issuer had outstanding 9,471,875 shares of its $.01 par
value Common Stock.
Transitional Small Business Disclosure Format: (Check one) Yes No X
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<PAGE> 2
PART I - FINANCIAL INFORMATION
See "Basis of Presentation."
ITEM 1. FINANCIAL STATEMENTS
A-Fem Medical Corporation
BALANCE SHEETS
<TABLE>
<CAPTION>
As of
March 31, December 31,
1999 1998
-------------------------------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 154,453 $ 668,369
Accounts receivable 32,956 59,735
Inventory 71,036 70,855
Prepaids and other 192,312 257,603
------------ ------------
Total current assets 450,757 1,056,562
EQUIPMENT, FURNITURE and LEASEHOLDS, at cost 1,257,227 1,235,173
Less: accumulated depreciation (555,966) (524,484)
------------ ------------
701,261 710,689
PATENTS and LICENSES, net 55,883 59,872
LOANS RECEIVABLE -- officers and directors 63,063 62,193
------------ ------------
Total assets $ 1,270,964 $ 1,889,316
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 127,701 $ 299,471
Note payable 425,509 417,345
Current portion of capital lease 142,411 183,339
Accrued expenses 64,807 74,075
Accrued salaries and related liabilities 150,270 138,394
------------ ------------
Total current liabilities 910,698 1,112,624
Long-term portion of capital lease obligation 23,081 41,607
------------ ------------
Total liabilities 933,779 1,154,231
STOCKHOLDERS' EQUITY:
Series A Convertible Preferred Stock, $0.01 par value;
authorized 7,200,000 shares; issued 5,929,655 and
5,773,405 shares at March 31,1999 and
December 31, 1998 59,297 57,734
Common Stock, $0.01 par value; authorized 33,000,000
shares; issued 9,471,875 shares at March 31, 1999
and December 31, 1998 94,719 94,719
Warrants issued for Series A Convertible Preferred Stock 821,569 761,882
Warrants issued for common stock 76,491 76,491
Additional paid-in capital 16,339,509 16,102,544
Accumulated deficit (17,054,400) (16,358,285)
------------ ------------
Total stockholders' equity 337,185 735,085
------------ ------------
Total liabilities and stockholders' equity $ 1,270,964 $ 1,889,316
============ ============
</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
Ended March 31,
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Sales, net $ 25,462 $ 100,051
Cost of sales 69,621 122,905
------------ ------------
Gross margin (44,159) (22,854)
Operating Expenses:
Research and development 248,176 187,248
Marketing and selling 151,279 806,202
General and administrative 243,126 188,357
------------ ------------
Net operating expenses 642,581 1,181,807
------------ ------------
Net operating loss (686,740) (1,204,661)
------------ ------------
Other income (expense) (9,375) (4,544)
------------ ------------
Net loss $ (696,115) $ (1,209,205)
============ ============
Basic and diluted net loss per share $ (0.07) (0.09)
============ ============
Weighted average shares outstanding $ 9,471,875 $ 13,319,528
============ ============
</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 Three Months
Ended March 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (696,115) $(1,209,205)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 34,031 42,674
Loss on disposal of assets 3,595 --
Other non-cash expenses 8,164 --
Other non-cash income (870) (871)
Changes in working capital:
Restricted cash -- 27,541
Accounts receivable 26,779 (21,286)
Inventory (181) 9,929
Prepaid expenses and other 65,291 4,385
Accounts payable (171,770) (146,102)
Accrued expenses (9,268) (34,693)
Accrued salaries and related liabilities 11,876 (54,668)
----------- -----------
Net cash used in operating activities (728,468) (1,382,296)
Cash Flows From Investing Activities:
Purchases of equipment, furniture and leaseholds (24,209) (28,051)
Other assets -- (405)
----------- -----------
Net cash provided by (used in) investing
activities (24,209) (28,456)
Cash Flows From Financing Activities:
Net repayments of lease obligations (59,454) (59,939)
Net proceeds from sale of common and preferred stock,
exercise of options and warrants, net of expenses 298,215 994,751
----------- -----------
Net cash provided by financing activities 238,761 934,812
Net Decrease in Cash and Cash Equivalents (513,916) (475,940)
Cash and Cash Equivalents, beginning of period 668,369 525,767
----------- -----------
Cash and Cash Equivalents, end of period $ 154,453 $ 49,827
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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A-Fem Medical Corporation
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
ORGANIZATION OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
The Company
A-Fem Medical Corporation is a medical technology company with multiple
product platforms targeting women's unmet health needs. A-Fem has developed
three proprietary technology platforms: one based on its inSync(R) miniform
interlabial pad, another based on its PadKit(TM) Sample Collection System and
the third based on its RapidoSense(TM) diagnostic tests. A-Fem markets the
inSync miniform as an alternative to tampons, pads or liners for light flow
protection. The PadKit, currently in clinical trials, utilizes a miniform as a
non-invasive sample collection method for use in testing for certain cancers and
diseases. A-Fem is also developing point-of-care diagnostic products that
provide quantified results using its proprietary RapidoSense technology.
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
A-Fem pursuant to the rules and regulations of 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 A-Fem 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 A-Fem's annual report on Form
10-KSB for the year ended December 31, 1998.
Net Loss Per Share
Basic and diluted loss per share are required to be computed using the
methods prescribed by Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128). Basic loss per share is calculated using the
weighted average number of common shares outstanding for the period and diluted
loss per share is computed using the weighted average number of common shares
and dilutive common equivalent shares outstanding. A net loss was reported in
each of the quarters ended March 31, 1999 and 1998. Stock options for the
purchase of 3,738,611 and 1,356,304 shares at March 31, 1999 and 1998,
respectively, and warrants for the purchase of 2,520,006 and 2,492,926 shares at
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March 31 1999 and 1998, respectively, were not included in loss per share
calculations, because to do so would have been anti-dilutive. In addition,
shares of A-Fem's convertible preferred stock and warrants covering shares of
A-Fem's convertible preferred stock outstanding at March 31, 1999 were not
included in loss per share calculations because to do so would have been
anti-dilutive.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board 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 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 FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
133). This statement establishes accounting and reporting standards requiring
that every derivative instrument be recorded in the balance sheet as either an
asset or liability measured at its fair value. SFAS 133 also requires that
changes in the derivative instrument's fair value be recognized currently in
results of operations unless specific hedge accounting criteria are met. SFAS
133 is effective for fiscal years beginning after June 15, 1999. The Company
expects that adoption of SFAS 133 will not have a material impact on the
Company's financial condition or results of operations.
Reclassifications
Certain amounts have been reclassified in the prior year financial
statement presentation to conform to the current year presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION
A-Fem Medical Corporation is a medical technology company with multiple
product platforms targeting women's unmet health needs. A-Fem has developed
three proprietary technology platforms: one based on its inSync(R) miniform
interlabial pad, another based on its PadKit(TM) Sample Collection System and
the third based on its RapidoSense(TM) diagnostic tests. A-Fem markets the
inSync miniform as an alternative to tampons, pads or liners for light flow
protection. The PadKit, currently in clinical trials, utilizes a miniform as a
non-invasive sample collection method for use in testing for certain cancers and
diseases. A-Fem is also developing point-of-care diagnostic products that
provide quantified results using its proprietary RapidoSense technology.
OVERVIEW
A-Fem experienced significant operating losses during the year ended
December 31, 1998. Further, A-Fem continued to incur losses in the first quarter
of 1999 and has never generated significant revenues from operations. A-Fem
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 A-Fem's ability to continue as
a going concern. Execution of A-Fem's plans and its ability to continue as a
going concern depend upon its acquiring substantial additional financing.
Management's plans include efforts to obtain additional capital and to seek
potential partnering opportunities. A-Fem has raised operating funds in the past
by selling shares of its common and preferred stocks for consideration totaling
approximately $4.7 million during 1998 and $500,000 through April 1999.
A-Fem may not be able to raise additional funding or enter into a strategic
alliance. If A-Fem is unable to obtain adequate additional financing, enter into
such strategic alliance or generate sufficient sales revenues, management may be
required to curtail A-Fem's product development, marketing activities and other
operations, and A-Fem may be forced to cease operations.
RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 1999, were approximately $25,000,
as compared to approximately $100,000 for the quarter ended March 31, 1998. This
decrease was the result of decreased levels of promotional support for the
inSync miniform as compared to the levels maintained during the product roll-out
in the prior year.
Marketing and selling expense for the first quarter of 1999 was
approximately $151,000, as compared to approximately $806,000 for the quarter
ended March 31, 1998. The decrease in marketing and selling expense resulted
from decreased expenditures for
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advertising, marketing and sales consultants in 1999 as compared to the
expenditures required to support the product roll-out in 1998.
Research and development expense for the quarter ended March 31, 1999, was
approximately $248,000, as compared to approximately $187,000 for the same
quarter of the prior year. This increase resulted from the initiation of the
pilot study for the PadKit.
General and administrative expense was approximately $243,000 for the
quarter ended March 31, 1999, as compared to approximately $188,000 for the same
period in the prior year. This increase resulted from increased payroll expense
due to an additional employee.
A-Fem's operating loss for the quarter ended March 31, 1999, was
approximately $687,000, as compared to approximately $1,205,000 for the same
quarter of the prior year. This decrease resulted primarily from lower expenses
in 1999 as compared to the expenses associated with the rollout of the inSync
miniform in 1998.
A-Fem's net loss for the quarter ended March 31, 1999, was approximately
$696,000, as compared to approximately $1,209,000 for the same period in the
prior year. This decrease reflects the higher levels of expenses incurred in
1998 to support the roll-out of A-Fem's inSync miniform.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, A-Fem had cash and cash equivalents of $154,453.
A-Fem's net cash position was reduced by $513,916 between December 31, 1998 and
March 31, 1999, as a result of normal operating expenses.
A-Fem expects to continue to incur losses through 1999 and into 2000,
because the costs of marketing and research and development are expected to
continue to exceed income from product sales. Exclusive of marketing costs,
A-Fem incurs approximately $200,000 per month of operating expenses. In order to
carry out its development plans for RapidoSense and the PadKit, A-Fem estimates
it will need to raise approximately $3.0 million in additional financing by
August 31, 1999. A-Fem 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. A-Fem 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.
FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
The statements contained in this report that are not statements of
historical fact may include forward-looking statements (as defined in Section
27A of the Securities Act of 1933, as amended) that involve a number of risks
and uncertainties. Moreover, from time to time
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A-Fem may issue other forward-looking statements. The following factors are
among those that could cause actual results to differ materially from the
forward-looking statements and should be considered in evaluating any
forward-looking statements: the effect of economic conditions generally and
within the medical technology industry; lack of revenues from products; market
acceptance risks; need for additional financing; manufacturing risks;
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; 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, 1998.
YEAR 2000
A-Fem has conducted a review of its computer systems' devices, applications
and manufacturing equipment to identify those areas that could be affected by
Year 2000 noncompliance. All of the computer hardware and software currently
used by A-Fem is Year 2000 compliant. Although A-Fem has not communicated yet
with many of its suppliers, service providers, distributors, wholesalers and
other entities with which it has a business relationship regarding their
compliance with Year 2000 requirements, A-Fem intends to communicate with the
remainder of its key vendors and customers during the next few months. A-Fem is
not able at this time to predict the impact that a material failure by one or
more of its key vendors or customers to comply with Year 2000 requirements in a
timely fashion may have on A-Fem's operations.
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PART II - OTHER INFORMATION
ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES
1. On April 15, 1999, the Company issued 104,170 shares of Series A
Preferred Stock and warrants to purchase a total of 20,834 shares of Series A
Preferred Stock at an exercise price of $.01 per share to one entity, acting as
an agent for individual investors, for aggregate cash consideration of
$200,006.40. This entity represented that such entity and each individual
represented by such entity was an "accredited investor" within the meaning of
Rule 501(a) of the Securities Act. In issuing these securities, the Company
relied upon an exemption from registration pursuant to Section 4(2) of the
Securities Act.
2. On May 10, 1999, the Company issued 104,170 shares of Series A
Preferred Stock and warrants to purchase a total of 20,834 shares of Series A
Preferred Stock at an exercise price of $.01 per share to one entity, acting as
an agent for individual investors, for aggregate cash consideration of
$200,006.40. This entity represented that such entity and each individual
represented by such entity was an "accredited investor" within the meaning of
Rule 501(a) of the Securities Act. In issuing these securities, the Company
relied upon an exemption from registration pursuant to Section 4(2) 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)
11.1 Statement re: computation of per share earnings
27.1 Financial Data Schedule
- ----------
(1) Incorporated by reference to the exhibits to A-Fem's quarterly report on
Form 10-QSB for the quarter ended September 30, 1998.
(b) Reports on Form 8-K
None
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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: May 14, 1999
/s/ Steven T. Frankel
---------------------------------------
Steven T. Frankel
President and Chief Executive Officer
/s/ Martin Harvey
---------------------------------------
Martin Harvey
Controller
<PAGE> 1
EXHIBIT 11.1
A-FEM MEDICAL CORPORATION
CALCULATIONS OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
For the three months ended
March 31,
---------------------------
1999 1998
---------- -----------
<S> <C> <C>
Actual weighted average shares
outstanding for the period 9,471,875 13,319,528
Dilutive common and preferred stock, options and
warrants using the treasury stock method(1) -- --
---------- -----------
Total shares used in per share calculations 9,471,875 13,319,528
---------- -----------
Net loss $ (696,115) $(1,209,205)
---------- -----------
Basic and diluted net loss per share $ (0.07) $ (0.09)
========== ===========
</TABLE>
- ----------
(1) Preferred stock, warrants and options outstanding are not included, as the
effect would be anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 154,453
<SECURITIES> 0
<RECEIVABLES> 32,956
<ALLOWANCES> 0
<INVENTORY> 71,036
<CURRENT-ASSETS> 450,757
<PP&E> 1,257,227
<DEPRECIATION> (555,966)
<TOTAL-ASSETS> 1,270,964
<CURRENT-LIABILITIES> 910,698
<BONDS> 0
0
59,297
<COMMON> 94,719
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,270,964
<SALES> 24,462
<TOTAL-REVENUES> 24,462
<CGS> 69,621
<TOTAL-COSTS> 69,621
<OTHER-EXPENSES> 642,581
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,969
<INCOME-PRETAX> (696,115)
<INCOME-TAX> 0
<INCOME-CONTINUING> (696,115)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (696,115)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
