10QSB 1 af_q109.txt QUARTERLY REPORT, 9-30-2001 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 September 30, 2001 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 November 8, 2001, the issuer had outstanding 10,221,558 shares of its $.01 par value Common Stock. Transitional Small Business Disclosure Format: (Check one) Yes No X ----- ----- PART I - FINANCIAL INFORMATION See "Basis of Presentation." Item 1. Financial Statements
A-Fem Medical Corporation BALANCE SHEETS As of September 30, December 31, 2001 2000 ------------- ------------- ASSETS (unaudited) CURRENT ASSETS: Cash and cash equivalents $ 12,677 $ $ 5,644 Accounts receivable 543 10,990 Other receivables 19,770 17,158 Inventory 37,366 41,496 Prepaids and other 13,129 65,162 ------------- ------------- Total current assets 83,485 140,450 EQUIPMENT, FURNITURE and LEASEHOLDS, at cost 986,967 1,044,932 Less: accumulated depreciation (698,639) (681,392) ------------- ------------- 288,328 363,540 PATENTS and LICENSES, net 82,423 83,605 ------------- ------------- Total assets $ 454,236 $ $587,595 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Short-term notes payable $ 48,500 $ 0 Accounts payable 296,687 146,763 Capital lease obligation 2,028 4,590 Accrued expenses 54,535 98,084 Accrued salaries and related liabilities 439,264 96,584 Deferred Income 0 30,000 Note payable - related party 400,000 400,000 ------------- ------------- Total current liabilities 1,241,014 776,021 ------------- ------------- STOCKHOLDERS' EQUITY (DEFICIT): Series A Convertible Preferred Stock, $0.01 par value; authorized 9,750,000 shares; issued 7,492,135 and 7,492,135 shares at September 30, 2001 and December 31, 2000, respectively 74,921 74,921 Common Stock, $0.01 par value; authorized 75,000,000 shares; issued 10,196,558 and 9,596,558 shares at September 30, 2001 and December 31, 2000, respectively 101,965 95,965 Warrants issued for Series A Convertible Preferred Stock 1,893,316 1,893,316 Warrants issued for common stock 76,491 76,491 Additional paid-in capital 18,555,083 18,391,083 Loan receivable-officers and directors (52,000) (52,000) Accumulated deficit (21,436,554) (20,668,202) ------------- ------------- Total stockholders' equity (deficit) (786,778) (188,426) ------------- ------------- Total liabilities and stockholders' equity (deficit) $ 454,236 $ 587,595 ============= =============
The accompanying notes are an integral part of these balance sheets. 2
A-Fem Medical Corporation STATEMENTS OF OPERATIONS (unaudited) For The Three Months For The Nine Months Ended September 30, Ended September 30, ----------- ----------- ----------- ----------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Sales, net $ 1,986 $ 6,309 $ 9,866 $ 24,706 Cost of sales 10,488 49,301 80,946 167,222 ----------- ----------- ----------- ----------- Gross Margin (8,502) (42,992) (71,080) (142,516) Operating expenses: Research and development 46,498 222,250 209,005 630,942 Marketing and selling 718 7,999 14,267 30,206 General and administrative 128,116 209,674 477,393 628,575 ----------- ----------- ----------- ----------- Total operating expenses 175,332 439,923 700,665 1,289,723 ----------- ----------- ----------- ----------- Net operating loss (183,834) (482,915) (771,745) (1,432,239) Other income (expense) (9,122) (3,502) 3,393 77,104 ----------- ----------- ----------- ----------- Net loss (192,956) (486,417) (768,352) (1,355,135) =========== =========== =========== =========== Basic and diluted net loss per share $ (0.02) $ (0.05) $ (0.08) $ (0.14) =========== =========== =========== =========== Weighted average common shares outstanding 10,127,839 9,596,558 9,808,096 9,579,892 =========== =========== =========== ===========
The accompanying notes are an integral part of these statements. 3
A-Fem Medical Corporation STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash (unaudited) For The Nine Months Ended September 30, --------------------------------- 2001 2000 ------------- ------------- Cash Flows From Operating Activities: Net loss $ (768,352) $ (1,355,135) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 56,969 73,074 Gain on disposal of assets (30,575) (8,060) Other non-cash expenses - 11,264 Other non-cash income (2,612) (2,612) Changes in working capital: Accounts receivable 10,447 1,600 Inventory 4,130 15,699 Prepaid expenses and other 52,033 6,069 Accounts payable 149,924 (4,148) Accrued expenses (43,549) (9,138) Accrued salaries and related liabilities 342,680 4,041 ------------- ------------- Net cash used in operating activities (228,905) (1,267,346) Cash Flows From Investing Activities: Purchase of equipment, furniture and leaseholds - (9,394) Net proceeds from sale of equipment 20,000 204,456 Other assets ( 30,482) ------------- ------------- Net cash provided by investing activities 20,000 164,580 Cash Flows From Financing Activities: Net repayments of lease obligations (2,562) (29,814) Net repayments of note payable - (50,000) Net proceeds from sale of common and preferred stock, exercise of options and warrants, net of expenses 170,000 1,044,649 Proceeds from short-term notes payable 48,500 - ------------- ------------- Net cash provided by financing activities 215,938 964,835 Net Increase (Decrease) in Cash and Cash Equivalents 7,033 (137,931) Cash and Cash Equivalents, beginning of period 5,644 428,845 ------------- ------------- Cash and Cash Equivalents, end of period $ 12,677 $ 290,914 ============= =============
The accompanying notes are an integral part of these statements. 4 A-Fem Medical Corporation NOTES TO FINANCIAL STATEMENTS September 30, 2001 Organization of the Company and Significant Accounting Policies Organization ------------ A-Fem Medical Corporation (the Company or A-Fem) is a medical technology company with multiple product platforms targeting women's 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(R) diagnostic tests and the third based on its PadKit(R) Sample Collection System. A-Fem currently markets the inSync miniform as an alternative to tampons, pads and liners for light flow, or in combination for heavier flow protection. The PadKit, currently in clinical trials, utilizes a miniform as a noninvasive sample collection method for use in testing for certain cancers and sexually transmitted and infectious diseases. A-Fem has also entered into several joint relationships to develop point-of-care diagnostic products that use its proprietary Rapid-Sense technology. Going Concern Uncertainty ------------------------- The Company experienced significant operating losses during the year ended December 31, 2000 and has continued to incur losses in the first nine months of 2001. Further, the Company has not generated significant revenues. 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. Execution of the Company'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 evaluate potential partnering opportunities. The Company has raised operating funds in the past by securing investment commitments in its preferred and common stock of approximately $1.1 million during 2000, net of issuance expenses. However, there can be no assurance that the Company's efforts to raise additional funding or enter into a strategic alliance will be successful. If the Company is unable to obtain adequate additional financing, enter into such strategic alliance or generate sufficient profitable sales revenues, management will likely be required to curtail the Company's product development, marketing activities and other operations and the Company will likely be forced to cease operations. 5 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 do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. 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, 2000. Net Loss Per Share ------------------ Basic and diluted net 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). Loss per share is calculated using the weighted average number of common shares outstanding for the period. A net loss was reported in each of the quarters and nine-month periods ended September 30, 2001 and 2000. Stock options for the purchase of 3,456,289 and 3,409,484 shares at September 30, 2001 and 2000, respectively, and warrants for the purchase of 1,575,339 and 1,592,939 shares at September 30, 2001 and 2000, 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 September 30, 2001 were not included in loss per share calculations because to do so would have been anti-dilutive. Recent Accounting Pronouncements -------------------------------- In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), which established accounting and reporting standards for all derivative instruments. SFAS 133 requires derivative financial instruments to be recorded at fair value and reflected in income unless they are effective hedges. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," and in June 2000, the FASB issued Statement of Financial Accounting Standards No. 138, which amended certain guidance within SFAS 133. The Company does not have any derivative instruments and does not engage in hedging activities. Therefore, the adoption of SFAS 133 in 2001 did not have any effect on the Company's financial position or results of operations. 6 In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited on a prospective basis. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Thus, amortization of goodwill and other intangible assets, including goodwill recorded in past business combinations, will cease upon adoption of that Statement, which for the Company will be fiscal year 2002. The Company does not expect that the adoption of either SFAS 141 or SFAS 142 to have a significant impact on the financial condition or results of operations of the Company. Reclassifications ----------------- Certain amounts have been reclassified in the prior year financial statement presentation to conform to the current year presentation. Item 2. Management's Discussion and Analysis of Financial Condition or Plan of Operation Overview A-Fem Medical Corporation is a medical technology company with multiple product platforms targeting women's 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(R) diagnostic tests, and the third based on its PadKit(R) Sample Collection System. A-Fem currently markets the inSync miniform as an alternative to tampons, pads and liners for light flow, or in combination for heavier 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 sexually transmitted and infectious diseases. A-Fem has also entered into several joint relationships to develop point-of-care diagnostic products that use its proprietary Rapid-Sense technology. During the first half of 2000, A-Fem shifted the emphasis of its technology development efforts to focus on the PadKit, and will continue Rapid-Sense technology development solely for third-party development contracts. A-Fem has been evaluating alternative product strategies for the PadKit that will affect the magnitude of PadKit clinical studies to be undertaken. Results from initial clinical trials revealed additional product claims were possible for the PadKit, and larger and more complex clinical studies would be required to support such claims. In addition to seeking funding to support additional clinical studies, A-Fem will seek strategic partnerships for the PadKit. A-Fem continued to experience operating losses during the year ended December 31, 2000 and the first nine months of 2001, and has never generated significant revenues from operations. A-Fem expects that significant ongoing expenditures will be necessary to 7 successfully implement its business plan and develop, manufacture and market its products. 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 through the sale of equity securities and by licensing its Rapid-Sense technology, and to seek partnering opportunities for the inSync miniform. A-Fem has raised operating funds in the past by selling shares of its common and preferred stock for consideration totaling approximately $1.1 million during 2000. During the nine months ended September 30, 2001, A-Fem has significantly curtailed its product development, marketing activities and other operations to reduce expenses pending the receipt of significant additional funding. 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 will likely be required to further curtail A-Fem's product development, marketing activities and other operations, and A-Fem will likely cease operations. Results of Operations Net sales for the quarter ended September 30, 2001, were approximately $2,000, as compared to approximately $6,000 for the quarter ended September 30, 2000. For the nine-month period ended September 30, 2001, net sales were approximately $10,000, as compared to approximately $25,000 for the same period in 2000. These decreases were the result of decreased levels of promotional support for the inSync miniform as compared to the levels maintained during the prior year. Marketing and selling expense for the third quarter of 2001 was approximately $1,000, as compared to approximately $8,000 for the quarter ended September 30, 2000. For the nine-month period ended September 30, 2001, marketing and selling expense was approximately $14,000, as compared to approximately $30,000 for the same period in 2000. This decrease resulted from reductions in consumer advertising and promotional support for the inSync miniform. Research and development expense for the quarter ended September 30, 2001, was approximately $46,000, as compared to approximately $222,000 for the same quarter of the prior year. For the nine-month period ended September 30, 2001, research and development expense was approximately $209,000, as compared to approximately $631,000 for the same period in 2000. These decreases are primarily attributable to a decrease in development costs related to Rapid-Sense, and the postponement of expenses associated with the PadKit clinical studies. General and administrative expense was approximately $128,000 for the quarter ended September 30, 2001, as compared to approximately $210,000 for the same period in the prior year. For the nine-month period ended September 30, 2001, general and administrative expense was approximately $477,000, as compared to approximately $629,000 for the same period in 8 2000. These decreases resulted from a reduction in professional fees and a decrease in travel expense. A-Fem's operating loss for the quarter ended September 30, 2001, was approximately $184,000 as compared to approximately $483,000 for the same quarter of the prior year. For the nine-month period ended September 30, 2001, the operating loss was approximately $772,000, as compared to approximately $1,432,000 for the same period in 2000. This decrease resulted from lower expenses in all operating departments in 2001 as compared to the expenses in 2000 due to the continued lack of funding. A-Fem's other income (expense) is composed primarily of income from development contracts, interest income and interest expense. For the quarter ended September 30, 2001 other expense was approximately $9,000, as compared to other expense of approximately $4,000 for the same period in the prior year. For the nine-month period ended September 30, 2001, other income was approximately $3,000, as compared to other income of approximately $77,000 for the same period in 2000. The period-to-period fluctuations reflect a reduction in funds received related to development contracts for Rapid-Sense diagnostic tests in the current year periods as compared to the same periods in the prior year. A-Fem's net loss for the quarter ended September 30, 2001, was approximately $193,000, as compared to approximately $486,000 for the same period in the prior year. For the nine-month period ended September 30, 2001, the net loss was approximately $768,000, as compared to approximately $1,355,000 for the same period in 2000. This decrease resulted from lower expenses in all operating departments in 2001 as compared to the expenses in 2000 due to the continued lack of funding. Liquidity and Capital Resources As of June 30, 2001, A-Fem had cash and cash equivalents of $12,677. A-Fem's net cash position increased by $7,033 between December 31, 2000 and September 30, 2001, as a result of the receipt of proceeds from the sale of equity securities, partially offset by funding certain operating expenses. A-Fem continued to experience operating losses during the year ended December 31, 2000, and in the first nine months of 2001, and has never generated sufficient revenues from operations to offset expenses. A-Fem expects to continue to incur losses through 2001, because the costs of development are expected to continue to exceed income from product sales. A-Fem incurs approximately $100,000 per month of operating expenses and expects that significant additional expenditures will be necessary to successfully implement its business plan and develop, manufacture and market its products. Since January 1, 2001, A-Fem has significantly curtailed its operations and deferred payment of compensation accrued for its remaining full-time employees pending receipt of additional financing. In addition, A-Fem's outstanding note payable obligation of $400,000 was due in April 2001. A-Fem plans to 9 renegotiate the obligation. If A-Fem is not able to timely repay or renegotiate this obligation, A-Fem will be in default on this obligation. 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 through the sale of equity securities and by licensing its Rapid-Sense technology, and to seek partnering opportunities for the inSync miniform. A-Fem does not expect significant amounts of debt financing to be available to it in the near term, and therefore expects 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. Since December 31, 2000 A-Fem has financed its operations through bridge loans and small equity investments while it seeks significant additional equity financing. A-Fem has raised operating funds in the past by selling shares of its common and preferred stock for consideration totaling approximately $2.4 million during 1999 and $1.1 million during 2000. Since the third quarter of 1998, substantially all such sales had been made to clients of a single investment advisor. A-Fem anticipates that no further funds will be available from this source and that A-Fem will have to find alternative sources for its additional financing. A-Fem has engaged an investment banker to pursue alternative sources of additional funding. 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. In order to carry out its development plans for the PadKit, A-Fem estimates it will need to raise approximately $8 million in addition to the funds needed for its monthly operating expenses. This estimate has been increased due to the probability that larger and more complex clinical studies may be needed to support additional product claims for the PadKit that were revealed by earlier clinical trials. The funds required to carry out such development plans will vary based on the size or number of clinical studies undertaken, which will be determined by the potential number of applications of, or claims that can be made for, the PadKit. If A-Fem were able to raise the entire $8 million at once, it would take approximately 18 to 24 months to complete A-Fem's development plans and receive US approval to market the PadKit for the initial set of claims. Forward-Looking Statements Certain statements in this Form 10-QSB contain "forward-looking" information (as defined in Section 27A of the Securities Act of 1933, as amended) that involves risks and uncertainties that may cause actual results to differ materially from those predicted in the forward-looking statements. Forward-looking statements can be identified by their use of such verbs as expects, anticipates, believes or similar verbs or conjugations of such verbs. If any of the 10 Company's assumptions on which the forward-looking statements are based prove incorrect or should unanticipated circumstances arise, the Company's actual results could differ materially from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors including, but not limited to, the risks detailed in the Company's Securities and Exchange Commission filings, including the Company's Form 10-KSB for the fiscal year ended December 31, 2000. Forward-looking statements contained in this Form 10-QSB relate to the Company's plans and expectations as to: need for additional financing; need to find new sources of financing; results of financing efforts; need for regulatory approvals; continuing operating losses; lack of revenues from products; market acceptance risks; results of product development; the impact of competitive products and pricing; and the effect of economic conditions generally and within the medical technology industry. Forward-looking statements contained in this Form 10-QSB relate to the Company's plans and expectations as to: the possibility that the Company may not obtain needed additional financing; the possibility that the Company's products may not receive needed regulatory approvals; the risk that the Company's products may not receive market acceptance; the possibility that the Company's products development efforts may not produce desired results; the risk that competitive products may have an adverse impact on the Company's products; and the risk that economic conditions generally or in the medical technology industry could have an adverse effect on the Company. 11 PART II - OTHER INFORMATION Item 2. Recent Sales of Unregistered Securities On August 20, 2001, the Company issued 25,000 shares of Common Stock and agreed to issue warrants to purchase an additional 2,500 shares of Common Stock at an exercise price of $.20 per share to one investor, Paul Temple, for aggregate consideration of $5,000. The warrants will be immediately exercisable and expire five years from the date issued. Mr. Temple has represented that he is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act of 1933, as amended. In issuing these securities, the Company relied on an exemption from the registration requirement pursuant to Section 4(2) of the Securities Act. On August 28, 2001, the Company issued 50,000 shares of Common Stock and agreed to issue warrants to purchase an additional 5,000 shares of Common Stock at an exercise price of $.20 per share to one investor, Ken Clark, for aggregate consideration of $10,000. The warrants will be immediately exercisable and expire five years from the date issued. Mr. Clark has represented that he is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act of 1933, as amended. In issuing these securities, the Company relied on an exemption from the registration requirement pursuant to Section 4(2) of the Securities Act. On August 28, 2001, the Company issued 25,000 shares of Common Stock and agreed to issue warrants to purchase an additional 2,500 shares of Common Stock at an exercise price of $.20 per share to one investor, Simla Holdings Ltd, for aggregate consideration of $5,000. The warrants will be immediately exercisable and expire five years from the date issued. Simla Holdings has represented that it is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act of 1933, as amended. In issuing these securities, the Company relied on an exemption from the registration requirement pursuant to Section 4(2) of the Securities Act. On October 25, 2001, the Company issued 25,000 shares of Common Stock and agreed to issue warrants to purchase an additional 2,500 shares of Common Stock at an exercise price of $.20 per share to one investor, Charles Goldberg, for aggregate consideration of $5,000. The warrants will be immediately exercisable and expire five years from the date issued. Mr. Goldberg has represented that he is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act of 1933, as amended. In issuing these securities, the Company relied on an exemption from the registration requirement pursuant to Section 4(2) of the Securities Act. Item 6. Exhibits and Reports on Form 8-K a) Exhibits See Exhibit Index. b) Reports on Form 8-K None 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: November 16, 2001 /s/ Steven T. Frankel Steven T. Frankel President and Chief Executive Officer /s/ Martin Harvey Martin Harvey Controller EXHIBIT INDEX Exhibit No. Description 3.1 Amended and Restated Articles of Incorporation(1) 3.2 Amended and Restated Bylaws(2) 11.1 Statement re: computation of per share earnings ---------- (1) Incorporated by reference to the exhibits to A-Fem's annual report on Form 10-KSB for the year ended December 31, 2000. (2) Incorporated by reference to the exhibits to A-Fem's annual report on Form 10-KSB/A for the year ended December 31, 1998.