-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T2CLn6clJgQI5kHn76RKucMMW2zGXRnuETb8P/hf/54QxFNT3v8O+hYxnVlJvDPW ty1pyvPlqsyt2OMeyRF13A== 0000891020-98-001310.txt : 19980817 0000891020-98-001310.hdr.sgml : 19980817 ACCESSION NUMBER: 0000891020-98-001310 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AFEM MEDICAL CORP CENTRAL INDEX KEY: 0000820608 STANDARD INDUSTRIAL CLASSIFICATION: CONVERTED PAPER & PAPERBOARD PRODS (NO CONTAINERS/BOXES) [2670] IRS NUMBER: 330202574 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-17119 FILM NUMBER: 98687853 BUSINESS ADDRESS: STREET 1: 10180 SW NIMBUS AVE STE J 5 CITY: PORTLAND STATE: OR ZIP: 97223-4340 BUSINESS PHONE: 5039688800 MAIL ADDRESS: STREET 1: 10180 SW NIMBUS AVE STREET 2: SUITE J-5 CITY: PORTLAND STATE: OR ZIP: 97223 FORMER COMPANY: FORMER CONFORMED NAME: XTRAMEDICS INC /NV/ DATE OF NAME CHANGE: 19920703 10QSB 1 QUARTERLY REPORT FOR A-FEM MEDICAL CORPORATION 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 ------------ A-Fem Medical Corporation ------------------------------------------------------------------------------- (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 ---------------------------------------------- (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 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] 2 PART I - FINANCIAL INFORMATION See "Basis of Presentation." ITEM 1. FINANCIAL STATEMENTS A-Fem Medical Corporation BALANCE SHEETS
As of --------------------------------- June 30, December 31, 1998 1997 ------------ ------------ ASSETS (unaudited) 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) ------------ ------------ 778,870 823,048 PATENTS and LICENSES, net 60,660 60,971 LOANS RECEIVABLE - officers and directors 60,451 58,710 ------------ ------------ 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 ------------ ------------ Total current liabilities 1,096,761 1,013,902 Long-term portion of capital lease 119,928 221,357 ------------ ------------ 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) ------------ ------------ Total stockholders' equity 482,150 730,610 ------------ ------------ Total liabilities and stockholders' equity $ 1,698,839 $ 1,965,869 ============ ============
The accompanying notes are an integral part of these balance sheets. PAGE 2 3 A-Fem Medical Corporation STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED MARCH 31, ENDED JUNE 30, --------------------------------- --------------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ 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 ============ ============ ============ ============
The accompanying notes are an integral part of these statements. PAGE 3 4 A-Fem Medical Corporation STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash (unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, ------------------------------- 1998 1997 ----------- ----------- 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 =========== ===========
The accompanying notes are an integral part of these statements. PAGE 4 5 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 PAGE 5 6 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 PAGE 6 7 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. PAGE 7 8 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 PAGE 8 9 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. PAGE 9 10 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. PAGE 10 11 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. PAGE 11 12 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) EX-10.1 2 EMPLOYMENT AGREEMENT, STEVEN T. FRANKEL 1 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 PAGE 1 2 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. PAGE 2 3 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. PAGE 3 4 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 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 6 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 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 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 EX-11.1 3 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11.1 A-FEM MEDICAL CORPORATION CALCULATIONS OF NET INCOME (LOSS) PER SHARE
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED MARCH 31 ENDED JUNE 30, --------------------------------- --------------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ 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 ============ ============ ============ ============
(1) Warrants and options outstanding are not included where the effect would be anti-dilutive. EX-27.1 4 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 297,290 0 119,257 0 176,654 798,858 1,230,329 (451,459) 1,698,839 1,096,761 0 0 0 137,882 344,268 1,698,839 267,933 267,933 228,847 228,847 2,115,667 0 42,899 (2,119,492) 0 (2,119,492) 0 0 0 (2,119,492) (0.16) (0.16)
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