<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, 1999
Transition Report Under Section 13 or 15(d)
----- Securities Exchange Act of 1934
For the transition period from To
----- ------
Commission File Number: 0-17119
------------
A-Fem Medical Corporation
-------------------------------------------------------------------------------
(exact name of small business issuer as specified in its charter)
Nevada 33-0202574
-------------------------------- ----------------------
(State or other jurisdiction (IRS Employer
incorporation or organization) Identification No.)
10180 SW Nimbus Ave., Suite J5
Portland, OR 97223
----------------------------------------------
(Address of principal executive offices)
(503) 968-8800
----------------------------------------------
(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 June 30, 1999, the issuer had outstanding 9,530,208 shares of its $.01 par
value Common Stock.
Transitional Small Business Disclosure Format: (Check one) Yes No X
---- ----
<PAGE> 2
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,
1999 1998
----------------------------
<S> <C> <C>
ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 129,632 $ 668,369
Accounts receivable 36,268 59,735
Inventory 80,621 70,855
Prepaids and other 173,905 257,603
------------ ------------
Total current assets 420,426 1,056,562
EQUIPMENT, FURNITURE and LEASEHOLDS, at cost 1,259,423 1,235,173
Less: accumulated depreciation (585,119) (524,484)
------------ ------------
674,304 710,689
PATENTS and LICENSES, net 55,488 59,872
LOANS RECEIVABLE - officers and directors 63,934 62,193
------------ ------------
Total assets $ 1,214,152 $ 1,889,316
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 63,104 $ 299,471
Note payable 433,673 417,345
Current portion of capital lease 114,502 183,339
Accrued expenses 81,612 74,075
Accrued salaries and related liabilities 150,958 138,394
------------ ------------
Total current liabilities 843,849 1,112,624
Long-term portion of capital lease obligation 7,994 41,607
------------ ------------
Total liabilities 851,843 1,154,231
STOCKHOLDERS' EQUITY:
Series A Convertible Preferred Stock, $0.01
par value; authorized 7,200,000 shares;
issued 6,242,165 and 5,773,405 shares at
June 30,1999 and December 31, 1998 62,422 57,734
Common Stock, $0.01 par value; authorized
33,000,000 shares; issued 9,530,208 and
9,471,875 shares at June 30, 1999 and
December 31, 1998 95,302 94,719
Warrants issued for Series A Convertible
Preferred Stock 940,948 761,882
Warrants issued for common stock 76,491 76,491
Additional paid-in capital 16,894,791 16,102,543
Accumulated deficit (17,707,645) (16,358,284)
------------ ------------
Total stockholders' equity 362,309 735,085
------------ ------------
Total liabilities and stockholders' equity $ 1,214,152 $ 1,889,316
============ ============
</TABLE>
The accompanying notes are an integral part
of these balance sheets.
PAGE 2
<PAGE> 3
A-Fem Medical Corporation
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- --------------------------
1999 1998 1999 1998
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales, net $ 18,076 $ 167,882 $ 43,538 $ 267,933
Cost of sales 58,644 105,942 128,265 228,847
---------- ----------- ----------- -----------
Gross Margin (40,568) 61,940 (84,727) 39,086
Operating expenses:
Research and development 261,721 210,377 509,897 397,625
Marketing and selling 89,591 496,006 240,870 1,302,208
General and administrative 248,945 246,659 492,071 435,016
---------- ----------- ----------- -----------
Total operating expenses 600,257 953,042 1,242,838 2,134,849
---------- ----------- ----------- -----------
Net operating loss (640,825) (891,102) (1,327,565) (2,095,763)
---------- ----------- ----------- -----------
Other expense (12,421) (19,183) (21,796) (23,729)
---------- ----------- ----------- -----------
Net loss (653,246) (910,285) (1,349,361) (2,119,492)
========== =========== =========== ===========
Basic and diluted net loss per share $ (0.07) $ (0.07) $ (0.14) $ (0.16)
========== =========== =========== ===========
Weighted average shares outstanding 9,498,249 13,698,454 9,485,135 13,596,713
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
PAGE 3
<PAGE> 4
A-Fem Medical Corporation
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
(unaudited)
<TABLE>
<CAPTION>
For The Six Months
Ended June 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(1,349,361) $(2,119,492)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 64,962 81,853
Loss on disposal of assets 3,595 (134)
Other non-cash expenses 16,328 458,333
Other non-cash income (1,741) (1,741)
Changes in working capital:
Restricted cash -- 52,500
Accounts receivable 23,467 (60,749)
Inventory (9,766) (3,691)
Prepaid expenses and other 83,698 7,340
Accounts payable (236,367) (238,122)
Accrued expenses 7,537 (46,628)
Accrued salaries and related liabilities 12,564 (65,407)
----------- -----------
Net cash used in operating activities (1,385,084) (1,935,938)
Cash Flows From Investing Activities:
Purchases of equipment, furniture and leaseholds (27,788) (37,175)
Other assets -- 350
----------- -----------
Net cash used in investing activities (27,788) (36,825)
Cash Flows From Financing Activities:
Net repayments of lease obligations (102,450) (126,746)
Net proceeds from sale of common and preferred stock, exercise of
options and warrants, net of expenses 976,585 1,871,032
----------- -----------
Net cash provided by financing activities 874,135 1,744,286
Net Decrease in Cash and Cash Equivalents (538,737) (228,477)
Cash and Cash Equivalents, beginning of period 668,369 525,767
----------- -----------
Cash and Cash Equivalents, end of period $ 129,632 $ 297,290
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
PAGE 4
<PAGE> 5
A-Fem Medical Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 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 Rapid-Sense(TM) diagnostic tests and the
third based on its PadKit(TM) Sample Collection System. A-Fem markets the inSync
miniform as an alternative to tampons, pads or liners for light flow protection.
A-Fem is also developing point-of-care diagnostic products that provide
quantified results using its proprietary Rapid-Sense technology. The PadKit,
currently in clinical trials, utilizes a miniform as a non-invasive sample
collection method for use in testing for certain cancers and other 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
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 three and six-month periods ended June 30, 1999 and 1998. Stock
options for the purchase of 3,583,560 and 3,045,693 shares at June 30, 1999 and
1998, respectively, and warrants for the purchase of 2,461,673 and
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2,570,006 shares at June 30 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 June 30, 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 1999, the FASB issued Statement of Financial Accounting Standards
No. 137, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
137). SFAS 137 is an amendment to SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities" 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 137 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 137 is effective for fiscal years beginning after June
15, 2000. The Company expects that adoption of SFAS 137 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 Rapid-Sense(TM) diagnostic tests and the
third based on its PadKit(TM) Sample Collection System. A-Fem markets the inSync
miniform as an alternative to tampons, pads or liners for light flow protection.
A-Fem is also developing point-of-care diagnostic products that provide
quantified results using its proprietary Rapid-Sense technology. The PadKit,
currently in clinical trials, utilizes a miniform as a non-invasive sample
collection method for use in testing for certain cancers and other diseases
In the last year our corporate strategy for the inSync miniform has been
modified from aggressive introductory support of a regional roll-out, followed
by on-going advertising and promotion, to one requiring modest upfront and
on-going promotion utilizing retailers, catalog and on-line, web-based
(internet) retailers such as Transitions for Health and SOMA.
InSyncminiform.com, launched in July, will enable women nationally to purchase
our product. Additionally we are exploring partnering opportunities to assist in
the marketing and distribution of the product in retail outlets.
A Rapid-Sense test for the detection of Cotinine (a metabolite of nicotine)
is currently being evaluated for sales into the insurance testing market. A-Fem
plans to manufacture the product and plans that sales and distribution would be
handled through third parties. In addition, A-Fem continues development of a
proprietary test using A-Fem's Rapid-Sense technology for Konica, a large
Japanese industrial chemical firm. A-Fem plans to continue to seek strategic
partners to fund the research and development for, and assist in the marketing
and distribution of, specific applications of its Rapid-Sense technology.
The company is conducting clinical studies to submit to the FDA for
clearance of the PadKit as an alternative to the cervical scrape as a
sample-collection system for tests that screen for cervical cancer.
OVERVIEW
A-Fem experienced significant operating losses during the year ended
December 31, 1998. Further, A-Fem has continued to incur losses in the first
half 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.
PAGE 7
<PAGE> 8
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 stock for consideration totaling
approximately $4.7 million during 1998 and $1.2 million through July 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, manufacturing and marketing
activities, and A-Fem may be forced to cease operations.
RESULTS OF OPERATIONS
Net sales for the quarter ended June 30, 1999, were approximately $18,000,
as compared to approximately $168,000 for the quarter ended June 30, 1998. For
the six-month period ended June 30, 1999, net sales were $44,000, as compared to
$268,000 for the same period in 1998. This decrease for the quarter and
six-month period was the result of decreased levels of promotional support for
the inSync miniform as compared to the levels maintained during the product
introduction and roll-out in the prior year.
Cost of sales for the quarter ended June 30, 1999 was approximately $59,000
as compared to approximately $106,000 for the quarter ended June 30, 1998. For
the six-month period ended June 30, 1999, cost of sales was approximately
$128,000 as compared to approximately $229,000 for the same period in 1998. This
decrease for the quarter and six-month period primarily resulted from decreases
in the volume of products sold in 1999 as compared to 1998.
Gross margin for the quarter ended June 30, 1999 was -224.4% as compared to
36.9% for the quarter ended June 30, 1998. For the six-month period ended June
30, 1999, gross margin was -194.6% as compared to 14.6% for the same period in
1998. Because certain of A-Fem's manufacturing costs are fixed, the decrease in
manufacturing volume in 1999 as compared to 1998 created a situation of
worsening gross margin in 1999 as compared to the prior year.
Marketing and selling expense for the second quarter of 1999 was
approximately $90,000, as compared to approximately $496,000 for the quarter
ended June 30, 1999. For the six-month period ended June 30, 1999, marketing and
selling expense was approximately $241,000, as compared to approximately
$1,302,000 for the same period in 1998. The decrease in marketing and selling
expense for the quarter and six-month period resulted from decreased
expenditures for 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 June 30, 1999, was
approximately $262,000, as compared to approximately $210,000 for the same
quarter of the
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prior year. For the six-month period ended June 30, 1999, research and
development expense was approximately $510,000, as compared to approximately
$398,000 for the same period in 1998. This increase resulted from the initiation
of additional clinical studies in support of the PadKit.
General and administrative expense was approximately $249,000 for the
quarter ended June 30, 1999, as compared to approximately $247,000 for the same
period in the prior year. For the six-month period ended June 30, 1999, general
and administrative expense was approximately $492,000, as compared to $435,000
for the same period in 1998. This increase resulted from increased payroll
expense due to an additional employee not included in the prior year periods.
A-Fem's operating loss for the quarter ended June 30, 1999, was
approximately $641,000, as compared to approximately $891,000 for the same
quarter of the prior year. For the six-month period ended June 30, 1999, the
operating loss was approximately $1,328,000, as compared to an operating loss of
approximately $2,096,000 for the same period in 1998. This decrease resulted
primarily from lower marketing 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 June 30, 1999, was approximately
$653,000, as compared to approximately $910,000 for the same period in the prior
year. For the six-month period ended June 30, 1999, the Company's net loss was
approximately $1,349,000, as compared to a net loss of $2,119,000 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 June 30, 1999, A-Fem had cash and cash equivalents of $129,632.
A-Fem's net cash position was reduced by $538,737 between December 31, 1998 and
June 30, 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 research and development are expected to continue to exceed
income from product sales. A-Fem incurs approximately $200,000 per month of
operating expenses. In order to carry out its development plans for Rapid-Sense
products and the PadKit, A-Fem will need to raise approximately $3 million in
addition to the funds needed for its monthly operating expenses 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.
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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 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: need for
additional financing; uncertainty associated with need for regulatory approvals;
continuing operating losses; results of financing efforts; lack of revenues from
products; market acceptance risks; uncertainty associated with product
development; the impact of competitive products and pricing; the effect of
economic conditions generally and within the medical technology industry; 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, including embedded technology that we use in our manufacturing
processes, is Year 2000 compliant. A-Fem believes that a material failure by one
or more of its vendors or customers to comply with Year 2000 requirements in a
timely fashion will not have a material effect on A-Fem's operations.
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PART II - OTHER INFORMATION
ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES
On each of April 15, 1999, May 10, 1999, June 17, 1999, and July 21, 1999,
the Company issued 104,170 shares of Series A Preferred Stock and warrants to
purchase an additional 20,834 shares of Series A Preferred Stock at an exercise
price of $.01 per share to one entity, Capital Consultants, LLC (formerly
Capital Consultants, Inc.), acting as an agent for individual investors, for
cash consideration of $200,006.40. The warrants expire 10 years from their
respective dates of issue. Shares of Series A Preferred Stock are convertible
into shares of the Company's Common Stock on a one-for-one basis, subject to
adjustment under certain circumstances to prevent dilution. Capital Consultants,
LLC, 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(2)
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.
(2) Incorporated by reference to the exhibits to A-Fem's annual report on Form
10-KSB for the year ended December 31, 1998, as amended.
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: August 13, 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 FOR THE SIX MONTHS
ENDED JUNE 30 JUNE 30,
----------------------------- ----------------------------------
1999 1998 1999 1998
------------ ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Actual weighted average
shares outstanding 9,498,249 13,698,454 9,485,135 13,596,713
Dilutive common stock, options
and warrants using the
treasury stock method(1) -- -- -- --
------------ ------------- --------------- ---------------
Total shares used in per
share calculations 9,498,249 13,698,454 9,485,135 13,596,713
Net loss $ (653,246) $ (910,285) $ (1,349,361) $ (2,119,492)
Net loss per share $ (0.07) $ (0.07) $ (0.14) $ (0.16)
</TABLE>
(1) Preferred stock, warrants and options outstanding are not included, as the
effect would be anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM A-FEM
MEDICAL CORPORATION'S FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 130
<SECURITIES> 0
<RECEIVABLES> 36
<ALLOWANCES> 0
<INVENTORY> 81
<CURRENT-ASSETS> 420
<PP&E> 1,259
<DEPRECIATION> (585)
<TOTAL-ASSETS> 1,214
<CURRENT-LIABILITIES> 844
<BONDS> 0
0
62
<COMMON> 95
<OTHER-SE> 205
<TOTAL-LIABILITY-AND-EQUITY> 1,214
<SALES> 44
<TOTAL-REVENUES> 44
<CGS> 128
<TOTAL-COSTS> 128
<OTHER-EXPENSES> 1,243
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41
<INCOME-PRETAX> (1,349)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,349)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,349)
<EPS-BASIC> (0.14)<F1>
<EPS-DILUTED> (0.14)<F1>
<FN>
<F1>*This information has been prepared in accordance with SFAS No. 128. Basic and
diluted EPS have been entered in place of primary and fully diluted EPS,
respectively.
</FN>
</TABLE>
