10KSB 1 af_10k02.txt ANNUAL REPORT ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------------------------ FORM 10-KSB [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the transition period from _______ to ________ Commission File Number: 0-17119 ------------------------------------------------------------------- A-Fem Medical Corporation (Name of small business issuer in its charter) Nevada 33-0202574 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 10180 SW Nimbus Ave., Suite J-5 Portland, OR 97223 (Address of principal executive offices) Issuer's telephone number, including area code: (503) 968-8800 Securities registered under Section 12(b) of the Exchange Act: (Title of each class) (Name of each exchange on which registered) None None Securities registered under Section 12(g) of the Exchange Act: (Title of Class) Common Stock, par value $0.01 per share 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 Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. Issuer's revenues for the fiscal year ended December 31, 2001: $ 14,047 As of March 30, 2002 the aggregate market value of $.01 par value Common Stock held by non-affiliates of the issuer was $590,162. As of March 30, 2002, the issuer had outstanding 10,221,558 shares of its $.01 par value Common Stock. Transitional Small Business Disclosure Format: Yes No X ----- ----- PART I When used in this Annual Report, the words "believes," "anticipates" and "intends" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those protected. See "Factors Affecting Forward-Looking Statements." Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. A-Fem undertakes no obligation to publicly release any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are urged, however, to review the factors set forth in reports A-Fem files from time to time with the Securities and Exchange Commission. Item 1: Business Description of Business A-Fem Medical Corporation is a development stage medical technology company with multiple product platforms targeting women's health needs that has never generated a profit from its operations. See "Management's Discussion and Analysis of Results of Operations." A-Fem has developed three proprietary technology platforms: one based on its inSync(R) miniform interlabial pad, another based on its RapidoSense(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 studies, 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 RapidoSense technology. A-Fem's primary emphasis of its technology development efforts is to focus on the PadKit, and will continue its efforts to license RapidoSense technology. A-Fem is in the process of evaluating alternative product strategies for the PadKit that will affect the magnitude of short-term 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 was incorporated in Nevada on December 9, 1986, as Xtramedics, Inc. In June 1994, it changed its name to ATHENA Medical Corporation, and in July 1997, to A-Fem Medical Corporation. Principal Products A-Fem's inSync miniform is the first generation of a product that introduces an entirely new segment within the feminine protection market. The miniform is a small, convenient absorbent pad worn lengthwise between the labia where a woman's body naturally and comfortably holds it in place. The miniform provides dependable protection on light menstrual flow days and additional protection against leakage on heavy menstrual flow days. In addition, the miniform may be used as protection for slight urine loss (stress incontinence), vaginal discharge, mid-cycle spotting and to provide a general feeling of freshness. A-Fem anticipates that its RapidoSense point-of-use diagnostic technology will be found attractive to one or more large diagnostic producers, while leaving A-Fem's intended laboratory safety device intact. To 2 date, A-Fem has entered into a strategic arrangement that involves a long-term license of A-Fem's RapidoSense technology for use in tests to detect drugs of abuse in a sample of saliva. A-Fem's PadKit Sample Collection System integrates A-Fem's miniform technology with its diagnostic expertise to create a unique sample collection system that provides a novel approach to diagnostic testing. The PadKit allows women to collect a menstrual or cervical-vaginal fluid sample at home, using an interlabial pad, such as the miniform. The sample collected with the interlabial pad is mailed to a laboratory that processes the sample and provides test results to the physician prior to the patient's routine gynecological examination. Thus, one self-collected and laboratory-processed PadKit sample has the potential to be used by a physician to screen for cervical and other cancers, Human Papilloma virus (a precursor to cervical cancer), and sexually transmitted and other infectious diseases, before the patient visit. Clinical and laboratory testing has demonstrated the PadKit's effectiveness as a sample collection system that may be processed in a laboratory to detect cervical and other cancers, the Human Papilloma virus, and sexually transmitted and other diseases. In March 1998, A-Fem was issued its first PadKit patent that covers methods of collection and diagnosis of vaginal fluid, including menses, which form the technological basis for the PadKit. Additional US and International patents were issued in 1999 and 2000 further expanding the PadKit patent portfolio. A-Fem is completing clinical studies for its PadKit to demonstrate the effectiveness of this sample collection system as an alternative sample for STD, tumor markers, and cervical cytology testing. An estimated 50 million cervical scrapes are performed annually in the United States alone to collect samples to use in the Pap smear test for cervical cancer. Although significant improvements have been made in the area of Pap smear test sample reading and sample preparation, no improved sample collection method has been developed. A-Fem believes the PadKit will provide a superior cellular sample as well as a simpler, more comfortable and convenient procedure for collecting the cells. The Company expects to demonstrate the significant market advantages, cost effectiveness, improved disease specificity, and patient preference for the self-collected PadKit sampling system. Marketing and Distribution A-Fem launched a marketing rollout of its inSync miniform in grocery, drug and mass retailers in Oregon and Washington in January 1998. In July 1998, the product's area of distribution was expanded to include Colorado, Arizona, Utah, New Mexico, Nevada, Montana and Idaho. In 1999, the Company added several e-tailing and catalog outlets to its distribution network. During 2000 the total number of retail outlets was significantly reduced as A-Fem reduced its marketing programs, although the inSync miniform remained available for purchase in selected retail grocery chains, drugstores and mass merchandisers. In addition, the inSync miniform is available on-line directly from insyncminiform.com. The inSync miniform competes within the $1.8 billion United States feminine protection market. The miniform represents a new category of products that both competes with and complements existing feminine protection products, including tampons, pads, and pantiliners. A-Fem is seeking a strategic partner to assist in the continued national rollout of the miniform. In order to focus on research and product development opportunities and increase the speed to market for our products, A-Fem is seeking alliances with strategic marketing partners. For the miniform and RapidoSense products, A-Fem will seek strategic partners with proven experience in consumer and diagnostics marketing. A-Fem has one such alliance at present. In April 1997, A-Fem and the Proctor & Gamble Company entered into a license agreement that granted to the Proctor & Gamble Company certain non-exclusive rights to use A-Fem's miniform technology and certain trademarks. That agreement expired October 28, 1999 and the product technology has reverted to A-Fem. The 3 Proctor & Gamble Company retained certain rights to trademarks not used by A-Fem. In 2000, the Proctor & Gamble Company launched its first interlabial pad product, the Envive(R) miniform, in a single test market in Eau Claire, Wisconsin Competition The inSync miniform represents a new segment of the feminine protection market and provides benefits not offered by competitive products. Four major consumer products companies currently dominate the United States feminine protection market: the Procter & Gamble Company, Johnson & Johnson, Kimberly-Clark and Playtex. Features of the inSync miniform that distinguish it competitively are its versatility, convenience, comfort and safety. The Company believes these competitors are evaluating the interlabial pad and market, and will eventually enter it. This entry is expected to rapidly expand market acceptance for the interlabial pad and enhance the value of the inSync miniform. A-Fem believes that point-of-use tests that incorporate A-Fem's RapidoSense technology will address market needs that prior technology could not meet, provide significant end-user cost savings over older technology and move various laboratory tests to the point-of-use markets. These factors will increase early patient intervention to improve healthcare in general. Competition for A-Fem's RapidoSense technology is likely to come primarily from larger, well-established diagnostics companies, and/or smaller innovative companies. The first application of the PadKit will be an alternative to the cervical scrape as a sample collection process for the Pap smear test, the standard diagnostic procedure for cervical cancer detection. While improvements have been made in the area of Pap test sample preparation and interpretation by such companies as Cytyc, and TriPath Imaging, the PadKit represents the first improvement in the method of sample collection by introducing a non-invasive, user-friendly sample collection method. A-Fem's current products and products under development will compete with products from other companies that have an established market, more employees and substantially greater research, financial and marketing resources than A-Fem. Materials and Manufacturing A-Fem's manufacturing facility provides miniforms for both the inSync product and the PadKit. The present operation requires minimal overhead and direct labor. Raw materials used for production of the inSync miniform and A-Fem's diagnostic products are produced in the United States. A-Fem has located a satisfactory source of the raw materials needed to manufacture the miniform, but has not entered into an agreement with such supplier. A-Fem's suppliers are meeting A-Fem's current manufacturing needs, and A-Fem believes that it will be able to obtain raw materials in sufficient quantity when needed, although an uninterrupted flow of raw materials cannot be guaranteed. Patents and Trademarks A-Fem owns United States patents and additional foreign patents covering all of its technology. In 1998, 1999, 2000, 2001 and 2002 A-Fem was granted broad patents for the technology that is the basis for the PadKit collection system, and RapidoSense point of use tests. A-Fem has additional patents pending. 4 The issued United States patents currently owned, assigned or licensed to A-Fem and the pending patent applications are as follows: ----------------- ---------------- --------------------------------------------- US Patent or Date of Issue Serial Number or Filing Title ----------------- ---------------- --------------------------------------------- Miniform 4,995,150 02/26/91 Method and Apparatus for Making Feminine Protection Pads 6,183,455 06/25/96 Biodegradable Absorbent Pads 5,575,0471 11/19/96 Method for Making Biodegradable Absorbent Pads 09/548,219 03/10/00 Anal Hygienic Pad and Method for Use 09/644,472 02/16/01 Administration of therapeutic or diagnostic agents using an Interlabial Pad ----------------- ---------------- --------------------------------------------- PadKit 5,725,4811 03/10/98 Method and Apparatus for Collecting Vaginal Fluid and Exfoliated Vaginal Cells for Diagnostic Purposes 6,007,4981 12/28/99 Method and Apparatus for Collecting Vaginal Fluid and Exfoliated Vaginal Cells for Diagnostic Purposes 09/699,061 10/26/00 Method and Apparatus for Collecting Vaginal Fluid and Exfoliated Vaginal Cells for Diagnostic Purposes 6,174,293 01/16/01 GB2,329,843 10/18/00 Method and Apparatus for Collecting Vaginal Fluid and Exfoliated Vaginal Cells for Diagnostic Purposes GB2,349,573 12/27/00 ----------------- ---------------- --------------------------------------------- RapidoSense 6,258,548 06/05/97 Single or Multiple Analyte Semi-Quantitative, Quantitative Rapid Diagnostic Lateral Flow Test System for Large Molecules 6,306,665 10/13/99 Covalent bonding of Molecules to an Activated Solid Phase Material, and Devices Made Using the Material 6,365,417 04/2/02 Collection Device for Lateral-Flow Chromatography 09/417,9572 05/11/00 Positive Detection Lateral-Flow Apparatus and Method for Small and Large Analytes ----------------- ---------------- --------------------------------------------- ----------- 1Also applied for in Germany, Japan, England, France, Italy, Sweden, and Canada. 2Patent pending. The term for patents issued on applications filed on or after June 8, 1995, is 20 years from the date of the application or, if the application contains a specific reference to an earlier filed application under 35 USC ss.ss. 120, 121 or 365(c), 20 years from the date on which the earliest such application was filed. The term for patents issued on applications filed before June 8, 1995, is the greater of the 20-year term described above or 17 years from grant, depending on the amount of time between application and issuance. A-Fem holds United States trademarks for all its current products, including for the PadKit, RapidoSense and its related design, and for inSync and its related design. In addition to these applications, A-Fem has also applied for international trademarks on RapidoSense and inSync and its related design. A-Fem also relies on trade secrets and other unpatented proprietary information. 5 Regulatory Requirements The production and marketing of A-Fem's products are subject to regulation by the United States Food and Drug Administration. Before a medical product may be marketed for use by humans, laboratory and clinical trials must be performed to validate the safety and effectiveness of the product. A-Fem's miniform product required FDA approval before being marketed to the public, and such clearance was reaffirmed in 1997. A-Fem's RapidoSense products sold to the industrial and environmental testing markets do not require FDA clearance. However, when A-Fem's RapidoSense technology is applied to the human diagnostic market, such products may require FDA clearance. A-Fem is in the process of conducting additional studies for the PadKit.. A-Fem has assembled a team to obtain marketing clearance from the FDA for its planned products. This team includes senior management, personnel with regulatory expertise, and consultants with scientific skills for clinical field trials. Medical Advisory Board, consisting of scientific Ph.D.s and M.D.s, to contribute to the scientific and medical validity of its clinical trials will be assembled when appropriate. Research and Development A-Fem invested approximately $226,000 on research and development in the year ended December 31, 2001, primarily with respect to ongoing PadKit development and continued patent applications. A-Fem spent approximately $788,000 on research and development in the year ended December 31, 2000, primarily with respect to development of the PadKit diagnostic technology. Employees As of December 31, 2001, A-Fem had 4 full-time employees. A-Fem has reduced its full time staff pending receipt of additional financing. A-Fem believes that its relations with its employees are good. Item 2. Description of Property A-Fem's corporate office and product development facilities are located in 7,100 square feet of leased space in Portland, Oregon. The term for the lease for this space expired in February 2001 according to the terms and A-Fem continues to occupy these spaces on a month-to-month basis. Item 3. Legal Proceedings None. Item 4. Submission of Matters to a Vote of Security Holders None PART II Item 5. Market for Common Equity and Related Stockholder Matters (a) A-Fem's common stock low and high bid prices are reported on the OTC Bulletin Board. The following table sets forth the range of high and low bids for A-Fem's common stock as reported on the OTC Bulletin Board for the periods indicated. 6 High Low ---- --- 1st Quarter 2000 $ 2.38 $ .75 2nd Quarter 2000 2.09 .88 3rd Quarter 2000 2.06 1.13 4th Quarter 2000 1.38 .59 1st Quarter 2001 1.13 .38 2nd Quarter 2001 .83 .30 3rd Quarter 2001 .40 .18 4th Quarter 2001 .20 .08 The foregoing prices reflect inter-dealer prices, without retail markup, markdown or commission, and may not represent actual transactions. (b) On December 31, 2001, there were approximately 266 holders of record of A-Fem's common stock. (c) A-Fem has paid no dividends and does not expect to pay any dividends in the foreseeable future because A-Fem intends to retain earnings, if any, to finance growth of its operations. A-Fem is under contractual restriction as to its present or future ability to pay dividends. The holders of A-Fem's preferred stock have the right to receive dividends in preference to the holders of A-Fem's common stock. Item 6. Management's Discussion and Analysis of Results of Operations Overview A-Fem continued to experience operating losses during the years ended December 31, 2001 and 2000. Further, A-Fem has continued to incur losses into the first quarter of 2002 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. 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 RapidoSense 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 $175,000 during 2001 and $1.1 million during 2000. 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 For the year ended December 31, 2001, A-Fem generated net sales of approximately $14,000 as compared to net sales of approximately $30,000 for the year ended December 31, 2000. This decrease in net sales was the result of limited distribution for the inSync miniform as compared to the levels 7 maintained during the previous year. The cost of goods sold for the year ended December 31, 2001, was approximately $131,000, as compared to approximately $227,000 in the year ended December 31, 2000. This decrease was the result of a reduced quantity of goods sold in 2001 as compared to 2000. A-Fem's operating loss for the year ended December 31, 2001 was approximately $880,000, compared to an operating loss of approximately $1,887,880 for the previous year. The decrease in operating loss was caused by the decrease in operating expenses. Gross margin for the year ended December 31, 2001 was approximately $(117,000) (-835.0% of net sales) as compared to $(197,000) (-665.1% of net sales) for the year ended December 31, 2000. The change in the gross margin resulted primarily from the decrease in fixed manufacturing costs. Marketing and selling expenses were approximately $15,000 for the year ended December 31, 2001, as compared to approximately $37,000 for the prior year. This decrease resulted from reductions in promotional support for inSync miniform. Research and development expenses for the year ended December 31, 2001, totaled approximately $226,000, as compared to approximately $788,000 for the year ended December 31, 2000. This decrease is attributable to a decrease in development costs, and head count. General and administrative expenses for the year ended December 31, 2001, totaled approximately $522,000, compared to approximately $865,000 for the year ended December 31, 2000. The decrease in these expenses is attributable primarily to decreased expenses is all categories of G&A expense. A-Fem's other income (expense) is composed primarily of income from development contracts and licenses, interest income and interest expense. For the year ended December 31, 2001, other income was approximately $9,000, as compared to other income of approximately $71,000 for the prior year. This decrease was primarily the result of a decrease in license income. A-Fem's net loss for the year ended December 31, 2001, decreased to approximately $871,000 from $1,816,000 for the year ended December 31, 2000. The decrease in the net loss reflects the reduction in all categories of operating expenses, primarily as a result of the lack of operating funds. Liquidity and Capital Resources At December 31, 2001, A-Fem had cash and cash equivalents of approximately $6,300 as compared to approximately $5,600 at December 31, 2000. A-Fem continued to experience operating losses during the year ended December 31, 2001, and has never generated sufficient revenues from operations to offset expenses. A-Fem expects to continue to incur losses through 2003 because the costs of development are expected to continue to exceed income from product sales. A-Fem, under normal operations, incurs approximately $150,000 per month of operating expenses and expects that significant ongoing expenditures will be necessary to successfully implement its business plan and develop, manufacture and market its products. Since January 1, 2001, A-Fem has deferred payment of compensation accrued for its remaining 4 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, and A-Fem is in default on this obligation. 8 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 RapidoSense 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 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 $1.1 million during 2000 and $175,000 during 2001. 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. Factors Affecting Forward-Looking Statements You should carefully consider the following factors regarding forward-looking statements and other information included in this Annual Report. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business, financial condition and operating results could be materially adversely affected. If A-Fem Is Not Able to Obtain Additional Financing, A-Fem Will Likely Cease Operations During the fiscal year ended December 31, 2001, A-Fem incurred net losses of approximately $871,000. Further, A-Fem has not generated significant revenues from operations. A-Fem expects to continue to incur losses as the costs of developing, manufacturing and marketing our products continue to exceed income from product sales. In order to carry out our development and marketing plans for the PadKit product, we will need to raise significant additional capital. If we are unable to obtain sufficient financing, it would have a material adverse effect on our financial condition. 9 A-Fem expects that significant, ongoing expenditures will be necessary to successfully implement our business plan and develop, manufacture and market our products. These circumstances raise substantial doubt about A-Fem's ability to continue as a going concern. If A-Fem is unable to obtain adequate additional financing, enter into a strategic partnership, or generate sufficient profitable sales revenues, we may be required to curtail our product development, marketing activities and other operations, and we may be forced to cease operations. If A-Fem Is Not Able to Attract a Strategic Partner, A-Fem May Be Unable to Execute Our Marketing and Distribution Plans for Our Products In order to carry out our marketing plans, we will need to find one or more partners to assist in marketing and distributing our miniform and RapidoSense products. To date we have been unable to attract such a partner. If we are not able to attract one or more partners, we may be unable to carry out our marketing plans for these products, which could have a material adverse effect on our financial condition and results of operations. A-Fem Is Unlikely to Earn Significant Revenues From Our Products in the Near Term Because Most of A-Fem's Products Are in the Early Stages of Product Development or Marketing A-Fem's products, the inSync miniform, PadKit, and RapidoSense diagnostic products, are in the early stages of development or marketing. There have been no significant revenues from the inSync miniform, and there have been no sales revenues at all from the PadKit or RapidoSense diagnostic products. A-Fem has concluded that we cannot raise sufficient funds to market the inSync miniform nationally through retail outlets. A-Fem cannot estimate the potential market for our products. You should be aware that A-Fem may encounter problems because our products are in an early stage of development or marketing, including the following risks: o A-Fem may encounter unanticipated developmental, testing, regulatory compliance and marketing costs; o The new products that A-Fem is developing may not be successfully developed; o A-Fem's new products, once developed, may not be successfully manufactured, advertised and marketed; o Any of A-Fem's products may become obsolete within a short time after its development; and o Costs of research and development and clinical trials for A-Fem's new products may substantially exceed A-Fem's expectations and financial resources. A-Fem's Products May Not Achieve Market Acceptance A-Fem's only product in commercial production, the inSync miniform, is a new product form that addresses women's concerns with current feminine protection products. Because the inSync miniform is worn interlabially, unlike any other existing feminine protection products, women may not purchase this product or our other products in commercially viable quantities. If our products do not 10 achieve adequate market acceptance, such failure may have a material adverse effect on our financial condition and results of operations. A-Fem's Products May Not Be Able to Compete Successfully With Existing or Future Products Produced by A-Fem's Competitors A-Fem's current product and products in development will compete with products from other companies that have an established market, more employees and substantially greater research, financial and marketing resources than A-Fem. With respect to our miniform products, these competitors include the Procter & Gamble Company, Johnson & Johnson, Kimberly-Clark and Playtex. A-Fem's research, financial and marketing resources may not be adequate to create and market products that will compete successfully with existing or future products created and marketed by such competitors. Holders of A-Fem's Common Stock May Experience Dilution If We Fulfill Our Financing Needs by Issuing Additional Shares of Stock In order to carry out our development, marketing and distribution plans for our products, we will need to raise significant funds through equity and/or debt financing. We do not expect significant amounts of debt financing to be available in the near term, and expect that we will have to issue additional equity to meet our financing needs. Such equity financing may not be available or may not be available on terms favorable to A-Fem or our shareholders. If we issue additional equity in the future to raise funds, this could have a dilutive effect on holders or purchasers of shares of our common stock. A-Fem's Patent and Other Intellectual Property Protection May Not Be Adequate A-Fem has received patents with respect to the PadKit that cover the method and apparatus for collection and use of vaginal fluid for diagnostic purposes. A-Fem has received a patent with respect to the inSync miniform that covers the manufacturing methods and manufacturing materials. A-Fem has filed patent applications for our first generation RapidoSense technology. The term for these patents is or will be 20 years from the date of the application. The issuance of patents to A-Fem is not conclusive as to validity or as to the enforceable scope of claims. The validity and enforceability of a patent can be challenged by litigation after its issuance, and, if the outcome of litigation is adverse to the owner of the patent, the owner's rights could be diminished or eliminated. The issuance of patents covering any of A-Fem's products may be insufficient to prevent competitors from essentially duplicating the product by designing around the patented aspects. The patent laws of other countries may differ from those of the United States as to the patentability of A-Fem's products and processes, and the degree of protection afforded by foreign patents may be different from that in the United States. The technologies used by A-Fem may infringe patents or proprietary technology of others. The cost of enforcing A-Fem's patent rights in lawsuits that A-Fem may bring against infringers or defending itself against infringement charges by other patent holders may be high and could adversely affect A-Fem. Trade secrets and confidential know-how are important to A-Fem's scientific and commercial success. Although A-Fem seeks to protect our proprietary information through confidentiality 11 agreements and appropriate contractual provisions, others may develop independently the same or similar information or gain access to proprietary information of A-Fem. A-Fem May Be Adversely Affected by Certain Government Regulations Many of A-Fem's activities are subject to regulation by various local, state and federal regulatory authorities in the United States. Before a medical product may be marketed for use by humans, laboratory and clinical trials must be performed to validate the safety and effectiveness of the product. The PadKit is still in the development stage and will require FDA approval before being marketed to the public. Obtaining such approval may be a lengthy and expensive proceeding and may involve extensive testing and clinical trials to demonstrate safety, reliability and efficacy. In addition, regulations may change, resulting in unexpected costs and uncertainty. A-Fem may not be able to comply with the applicable requirements, and necessary approvals may not be granted. We cannot predict the extent and impact of future governmental regulations. If we fail to comply with the applicable regulatory requirements, we may be subject to fines, injunctions, civil penalties, recall or product seizure, among other penalties. A-Fem Depends on Our Management and Consultants to Successfully Implement Our Business Plan A-Fem depends to a large extent upon the abilities and continued participation of its executive officers, consultants and current directors. The loss of any of these people could have a serious adverse effect upon our business. We may not be able to attract and retain key personnel with the skills and expertise necessary to manage our business. We do not have key-man life insurance on the lives of any of our personnel. Because competition for management and scientific staff in the biotechnology, biomedical and healthcare fields is intense, we may not be able to continue to employ personnel and consultants with sufficient expertise to satisfy our needs. We do not have employment contracts with any personnel other than Steven T. Frankel and James R. Wilson. A-Fem has no Product Liability Insurance Coverage A-Fem could be subject to claims for personal injuries or other damages resulting from its products. We have ceased carrying general liability insurance, including products liability insurance. If any claims were successful, it would have a material adverse effect on A-Fem. A-Fem May Issue Additional Shares of Preferred Stock, Which Could Dilute the Interests of Holders of Our Common Stock A-Fem is authorized to issue up to 10,000,000 shares of preferred stock and A-Fem's Board of Directors has the authority to fix the rights, preferences, privileges and restrictions of such shares without any further vote or action by A-Fem's shareholders. Through December 2001, A-Fem issued shares of Series A Convertible Preferred Stock and warrants to purchase additional shares of Series A Convertible Preferred Stock to Capital Consultants, LLC (formerly Capital Consultants, Inc.) as follows: 12 o 4,316,405 shares of Series A Convertible Preferred Stock issued in exchange for 4,316,405 shares of A-Fem's common stock; o 3,175,730 shares of Series A Convertible Preferred Stock and warrants to purchase an additional 1,204,012 shares of Series A Convertible Preferred Stock (at a weighted average exercise price of $0.39 per share) in exchange for aggregate consideration consisting of approximately $6.1 million and warrants to purchase 50,000 shares of A-Fem's common stock. These issuances of Series A Preferred Stock and any future issuance of preferred stock may: o have the effect of delaying, deferring or preventing a change in control of A-Fem; o discourage bids for the common stock at a premium over the market price of the common stock; or o adversely affect the market price and the voting and other rights of the holders of common stock. Holders of A-Fem's Series A Preferred Stock Could Delay or Prevent A-Fem >From Taking Certain Actions A-Fem's Series A Preferred Stock has protective provisions that require A-Fem to get the vote or consent of the holders of a majority of the outstanding shares of Series A Preferred Stock before taking certain actions, which could delay or prevent A-Fem from taking such actions. Such actions include: authorizing or issuing securities with rights equal to or superior to the Series A Preferred Stock, incurring debt, or issuing derivative securities. Certain Mergers or Takeover Attempts Could Be Delayed or Prevented by the Anti-Takeover Effect of Nevada Law Nevada law contains "business combination" provisions that could make it more difficult to consummate a merger or tender offer involving A-Fem, even if such event could be beneficial to the interests of the stockholders. The Nevada business combination law prohibits certain transactions between a corporation and any interested stockholder for three years after the interested stockholder first becomes an interested stockholder, unless the corporation's Board of Directors approves in advance. An interested stockholder is one who owns 10% or more of a corporation's voting shares, or who is an affiliate of a corporation. The types of transactions prohibited include: o a merger; o a sale, lease or other disposition of a material amount of a corporation's assets; o a transaction that results in the issuance of 5% or more of a corporation's equity stock to the interested stockholder; or o the liquidation or dissolution of a corporation. 13 However, these prohibitions do not apply if the Board of Directors of a corporation approves the share acquisition or business combination transaction before the stockholder acquired 10% or more of such corporation's outstanding voting stock. The provisions of Nevada law described above give A-Fem's Board of Directors the ability to determine whether or not to allow any of the transactions of the type described above by limiting the ability of an interested stockholder to act without first obtaining the approval of the Board of Directors. If A-Fem's Board of Directors chose not to approve a share acquisition, this would discourage such acquisition and any subsequent business combination transactions with the interested stockholder. The fact that A-Fem's Board of Directors has the power to do this would also discourage tender offers not conducted in cooperation with such Board of Directors. These consequences could result even if the business combination transaction or tender offer would be beneficial to the interests of A-Fem's stockholders. The Thin Public Market for A-Fem's Common Stock May Cause Volatility in Our Stock Price A-Fem's common stock is quoted on the OTC Bulletin Board and is thinly traded. The market price of our common stock has experienced significant volatility. During 2001, the price of our common stock ranged from $.08 per share to $1.13 per share. The market price of the common stock could be subject to significant variation due to: o the degree of success A-Fem achieves in implementing its business strategy, changes in business or economic conditions affecting A-Fem, its customers or its competitors; o fluctuations in A-Fem's operating results, changes in or actual results varying from earnings or other estimates made by securities analysts; o announcements by A-Fem or our competitors concerning product developments, patents or proprietary rights; and o other factors both within and outside our control. In addition, the stock market may experience volatility that affects the market prices of companies in ways unrelated to the operating performance of such companies, and such volatility may adversely affect the market price of our common stock. There has been significant volatility in the market price of securities of other early stage companies, technology companies in general and biotechnology companies in particular. A-Fem's Common Stock is Quoted on The OTC Bulletin Board Our stock is quoted on the OTC Bulletin Board. As a result, our shareholders may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, our common stock, and the market price for our common stock may decline. Trading in our common stock is subject to the requirements of Rule 15g-9 promulgated under the Securities Exchange Act of 1934. Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales 14 practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser's written consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional disclosure in connection with any trades involving a stock defined as a penny stock (generally any equity security not traded on an exchange or quoted on Nasdaq that has a market price of less than $5.00 per share, subject to certain exceptions), including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated with the penny stock market. These requirements could severely limit the market liquidity of our common stock and the ability of our shareholders to dispose of their shares, particularly in a declining market. A-Fem May Not Be Able to Successfully Manufacture Our Products A-Fem manufactures the inSync miniform. As a manufacturer, A-Fem faces the following risks: o A-Fem may not be able to obtain sufficient numbers of employees o A-Fem may not be able to obtain sufficient raw materials, including the fiber used to manufacture the miniform, when needed or at reasonable prices. o A-Fem may have to expend additional funds to purchase additional capital equipment to be able to increase the quantity of miniforms we manufacture or to remedy plant or equipment obsolescence. o If the demand for miniforms is significantly greater or lower than we predict, we may experience excess or inadequate manufacturing capacity. Any of the risks listed above, or any other disruption in A-Fem's production, could have a material adverse effect on A-Fem's results of operations and financial condition. A-Fem May Experience an Adverse Impact From Future Sales of Our Stock As of December 31, 2001, 3,443,789 shares of common stock were subject to outstanding stock options under A-Fem's stock option plans at a weighted average exercise price of approximately $2.35 per share. As of December 31, 2001, 1,594,439 shares were issuable upon exercise of outstanding warrants at a weighted average exercise price of $2.74 per share. We have filed a registration statement on Form S-8 under the Securities Act to register for resale a total of 5 million shares of common stock reserved for issuance under A-Fem's stock option plans. Sales of substantial amounts of A-Fem's common stock in the public market by existing shareholders or holders of options or warrants could cause the price of the common stock to go down. A-Fem has approximately 10.2 million shares of common stock outstanding as of December 31, 2001. Approximately 1.9 million of these shares of common stock are registered under the Securities Act (including approximately 0.9 million shares of common stock issuable upon exercise of warrants), approximately 1.2 million shares are freely tradable under the federal securities laws subject to volume limitations under Rule 144, and approximately 7.4 million additional shares are freely tradable under the federal securities laws to the extent they are not held by our affiliates or are not subject to certain contractual volume restrictions. 15 In general, under Rule 144 as currently in effect, any person (or persons whose shares are aggregated) who has beneficially owned restricted securities for at least one year is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of: o 1% of the then outstanding shares of the issuer's common stock, and o the average weekly trading volume during the four calendar weeks preceding such sale provided that certain public information about the issuer as required by Rule 144 is then available and the seller complies with certain other requirements. A person who: o is not an affiliate, o has not been an affiliate within three months prior to sale, and o has beneficially owned the restricted securities for at least two years is entitled to sell such shares under Rule 144(k) without regard to any of the limitations described above. Item 7. Financial Statements Financial Statements begin on page F-1. Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure On March 1, 2002, Arthur Andersen LLP resigned as A-Fem Medical's independent public accountants due to concerns that A-Fem no longer fit Arthur Andersen's client profile. There was no disagreement with Arthur Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. A-Fem is seeking to retain alternative independent public accountants; however it has been unable as of this filing. As a former Andersen client whose audit was not completed by March 14, 2002, A-Fem has filed this report with unaudited financial statements and will file within 60 days of the original filing date, amended filing containing audited financial statements. 16 PART III Item 9. Directors, Executive Officers and Key Employees A-Fem's executive officers, directors and key employees are: Directors and Executive Officers Age Position -------------------------------- --- -------- James E. Reinmuth, Ph.D. 61 Chairman and Director Steven T. Frankel 59 Chief Executive Officer, President and Director William H. Fleming, Ph.D. 54 Vice Chairman-Diagnostics Secretary and Director Carol A. Scott, Ph.D. 52 Director RoseAnna Sevcik 38 Director James Wilson 52 Treasurer, Director of Business Development and Director Merry L. Disney 55 Director Key Employee ------------ Martin Harvey 60 Controller Directors and Executive Officers James E. Reinmuth, Ph.D. has served as Chairman of A-Fem since September 1996, and has been a Director of A-Fem since May 1995. From September 1996 to April 1998, Dr. Reinmuth served as Chief Executive Officer of A-Fem. >From May 1995 to September 1996, Dr. Reinmuth served as Treasurer of A-Fem. Since July 1994, Dr. Reinmuth has served as the Charles H. Lundquist Distinguished Professor of Business at the University of Oregon. From June 1976 until July 1994, Dr. Reinmuth served as Dean of the College of Business at the University of Oregon. Since 1988, Dr. Reinmuth has also served in several administrative positions within the University of Oregon. Steven T. Frankel has served as Chief Executive Officer and a Director of A-Fem since April 1998, and as President of A-Fem since November 1998. From May 1992 to March 1998, Mr. Frankel was president and chief executive officer of Quidel Corporation, a manufacturer of physicians' office diagnostic test kits. >From January 1983 to May 1992, Mr. Frankel was president of various international and domestic divisions of Becton, Dickinson and Company, a diagnostic and medical device manufacturer. From 1979 to 1983, Mr. Frankel was vice president and general manager of the Becton Dickinson Home Health Care unit. William H. Fleming, Ph.D., has served as Vice Chairman-Diagnostics of A-Fem since August of 1997, and as a Director and Secretary of A-Fem since February 1994. From February 1994 through August 1997, Dr. Fleming served as President and Chief Operating Officer of A-Fem. He was president, chief operating officer and a director of ProFem from July 1993 until its merger with A-Fem in June 1994. From April 1992 until July 1993, Dr. Fleming served as an associate with Sovereign Ventures, a 17 healthcare consulting firm; concurrently he served as director of corporate development of Antivirals, Inc., a biotechnology company involved in antisense technology. Dr. Fleming is a director of ERC, a non-profit company. Carol A. Scott, Ph.D., has served as a Director of A-Fem since February 1995. Dr. Scott is a professor of marketing and the chairman of the marketing faculty at The John E. Anderson Graduate School of Management at the University of California, Los Angeles. Dr. Scott has been on the faculty at UCLA since 1977, and served the school in a variety of administrative positions from 1986 through 1994, including as chairman of the faculty and associate dean for academic affairs. She was also a visiting associate professor at the Harvard Business School in 1985, and was on the faculty at Ohio State University for three years prior to joining UCLA in 1977. Dr. Scott is a frequent author and lecturer and has served on the Editorial Board of the Journal of Consumer Research since 1980. Dr. Scott also serves on the board of directors of Sizzler International. RoseAnna Sevcik has served as a Director of A-Fem since May 1995. Ms. Sevcik has been serving as director of mortgage backed securities for SunAmerica Investments since July of 1999. From March 1996 to May 1999, Ms. Sevcik served as vice president/senior portfolio manager of Penn Mutual. From February 1993 to March 1996, Ms. Sevcik was vice president/senior portfolio manager and served as a director on the pension plans board of the Life Insurance Company of the Southwest. From February 1990 to February 1993, Ms. Sevcik was senior portfolio manager/securities analyst at Securities Management and Research, an investment management services company. James R. Wilson has served as Treasurer and a Director of A-Fem since September 1996 and as Director of Business Development since July 1997. In addition, since August 1995 Mr. Wilson has been a private financial consultant to firms in both manufacturing and service industries. From August 1992 to August 1995, Mr. Wilson was a sales manager for Advanced Equipment Systems, Inc. >From January 1985 to August 1992, Mr. Wilson was treasurer and director of marketing in various divisions of Production Technologies, Inc. Mr. Wilson also serves as a director of Design Pacific/Oregon Dome, Inc. Merry L. Disney has been president and chief executive officer of Disney West operations since 1985. From 1986 to 1988, she was president of Bridaldale Development Corporation and served as a director from 1979 to 1986. Ms. Disney worked as an Academic Instructor of Children with Reading Disabilities from 1982 until 1991 and currently is active in major real estate developments and acquisitions. Key Employee Martin Harvey has served as the Company's Controller since June 1998. >From 1993 to 1998, Mr. Harvey held several other controller positions with a variety of manufacturing companies. From August 1987 to June 1993, Mr. Harvey was division controller for Spacelabs Medical, Inc., a manufacturer of critical care medical monitors. From January 1980 to August 1987, Mr. Harvey was division controller for the Medical Systems Division of Control Data, Inc. A-Fem's directors hold office until the next annual meeting of stockholders or until their successors are duly elected and qualified; officers hold office at the discretion of the Board. Directors are reimbursed for expenses incurred in attending meetings of the Board of Directors. Non-employee directors receive options or warrants to purchase shares of A-Fem's common stock in consideration for their services. 18 Item 10. Executive Compensation Compensation Summary The following table sets forth certain information regarding the compensation paid to the Chief Executive Officer and any other corporate officers who received in excess of $100,000 in compensation (the "Named Executive Officers") for each of the fiscal years ended December 31, 1999, 1998 and 1997.
Summary Compensation Table Long-Term Compensation Annual Compensation ----------------------------------- -------------------------- Other Annual Securities Underlying Name and Principal Salary Compensation Options/Warrants Position Year ($) ($) (#) ----------------------------------------- ------------ --------------- ------------------- -------------------------- James E. Reinmuth (1) 2001 2,500 - - Chairman and Director 2000 30,000 - - Chief Executive Officer, 1999 30,000 - - Steven T. Frankel (2) 2001 10,617 - - Chief Executive Officer, 2000 240,000 - 50,000 President and Director 1999 300,769 - - William H. Fleming 2001 5,807 - - Vice Chairman-Diagnostics, 2000 115,000 - 50,000 Secretary and Director 1999 115,000 - -
(1) James E. Reinmuth served as Chief Executive Officer of A-Fem until April 1998. (2) Steven T. Frankel became Chief Executive Officer of A-Fem in April 1998 and President of A-Fem in November 1998. Mr. Frankel's 1999 salary reflects $60,769 in deferred salary from 1998. Option Grants The following table sets forth certain information regarding options granted to Named Executive Officers during the fiscal year ended December 31, 2001. Individual Grants ----------------------------------------------------------- Percent of Total Options Number of Granted to Securities Employees in Underlying Exercise Options Price Expiration Name Granted Fiscal Year ($/Share) Date -------------------------------------------------------------------------------- Steven T. Frankel - - - - William H. Fleming - - - - ------------------ 19 Exercise of Stock Options and Year-End Option/Warrant Values No Named Executive Officers exercised options or warrants during the year ended December 31, 2001. The following table sets forth certain information regarding options and warrants of the Named Executive Officers as of December 31, 2001.
2001 Year-End Options/Warrant Values Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options/Warrants at Options/Warrants at December 31, 2001 December 31, 2001 (2) --------------------------------- ------------------------------------ Name Exercisable Unexercisable Exercisable Unexercisable -------------------------- -------------- ----------------- ---------------- ----------------- James E. Reinmuth 476,667 150,000(1) -0- -0- Steven T. Frankel 550,000 1,200,000(1) -0- -0- William H. Fleming 376,667 150,000(1) -0- -0-
(1) These options are subject to performance-based conditions. (2) Based on a fair market value of $.09 per share, the price per share of A-Fem's common stock on December 31, 2001. Compensation of Directors Directors of A-Fem who are also employed by A-Fem do not receive additional compensation for their services as directors. Non-employee directors of A-Fem receive compensation in the form of options to purchase A-Fem's common stock. Directors who serve on the committee that administers A-Fem's 1994 Incentive and Non-Qualified Stock Option Plan receive options pursuant to paragraph 13 of the Plan. Employment Agreements A-Fem entered into a consulting agreement with James E. Reinmuth dated effective December 1, 1998 (the "Reinmuth Consulting Agreement"), with respect to Mr. Reinmuth's services as Chairman of the Board. The Reinmuth Consulting Agreement provides for a fee of $2,500 per month. Either party may terminate the Reinmuth Consulting Agreement on 30 days' prior notice. A-Fem entered into an employment agreement with James R. Wilson dated effective May 1, 1997 (the "Wilson Employment Agreement"), with respect to Mr. Wilson's services as A-Fem's Treasurer. The Wilson Employment Agreement provides for a salary of $5,000 per month. Either party may terminate the Wilson Employment Agreement on 30 days' prior notice. A-Fem entered into an employment agreement with Steven T. Frankel dated effective April 25, 1998 (the "Frankel Employment Agreement"), with respect to Mr. Frankel's services as A-Fem's Chief Executive Officer. The Frankel Employment Agreement provides for a salary of $20,000 per month. Either party may terminate the Frankel Employment Agreement on 30 days' prior notice. 20 Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that A-Fem's officers, directors and persons who own more than 10% of A-Fem's common stock file with the Securities and Exchange Commission initial reports of beneficial ownership on Form 3 and reports of changes in beneficial ownership of common stock and other equity securities of A-Fem on Form 4. Officers, directors and greater than 10% stockholders of A-Fem are required by SEC regulations to furnish to A-Fem copies of all Section 16(a) reports that they file. To A-Fem's knowledge, based solely on reviews of such reports furnished to A-Fem and written representations that no other reports are required, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with during the fiscal year ended December 31, 2001. Item 11. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information regarding the beneficial ownership as of December 31, 2000, of A-Fem's common stock $0.01 par value of (i) each beneficial owner of more than 5% of the common stock, (ii) the Named Executive Officers, (iii) each director of A-Fem and (iv) all directors and executive officers as a group. Each person named in the table has sole investment and voting power with respect to the shares set forth opposite his name or her name, except as otherwise noted. Name and Address of Amount and Nature of Percent of Class Beneficial Owner Beneficial Ownership (1) Outstanding -------------------------------------------------------------------------------- Capital Consultants, LLC 8,693,751(2) 46.0% 2300 SW First Avenue, Suite 200 Portland, OR 97201 Merry Disney 20,000 (3) * c/o Pacific Group 100 Atlantic Avenue, Suite 409 Long Beach, CA 90802 Director William H. Fleming 841,367 (4) 8.1% 10180 SW Nimbus Ave., Suite J-5 Portland, OR 97223 Vice-Chairman, Secretary and Director Steven T. Frankel 550,000 (5) 5.1% Suite J-5 10180 SW Nimbus Avenue Portland, OR 97223-4341 Chief Executive Officer, President and Director 21 Name and Address of Amount and Nature of Percent of Class Beneficial Owner Beneficial Ownership (1) Outstanding -------------------------------------------------------------------------------- James E. Reinmuth 540,667 (6) 5.5% 5171 Solar Heights Drive Eugene, OR 97405 Chairman and Director Richard T. Schroeder 539,000 (7) 5.5% 3840 SW 75th Ave. Portland, OR 97225 Carol A. Scott 60,000 (8) * 1834 Park Blvd. Palo Alto, CA 94306 Director RoseAnna Sevcik 60,000 (9) * 3843 Cottonwood Grove Terrace Calabasas, CA 91301 Director James R. Wilson 460,095 (10) 4.4% 2968 Matt Drive Eugene, OR 97408 Treasurer and Director All directors and officers 2,542,129 (11) 21.9% as a group (7 persons) ----------------------- * Less than 1%. (1) "Beneficial Ownership" is defined pursuant to Rule 13d-3 of the Exchange Act, and generally means any person who directly or indirectly has or shares voting or investment power with respect to a security. A person shall be deemed to be the beneficial owner of a security if that person has the right to acquire beneficial ownership of such security within 60 days, including, but not limited to, any right to acquire such security through the exercise of any option or warrant or through the conversion of a security. Any securities not outstanding that are subject to such options or warrants shall be deemed to be outstanding for the purpose of computing the percentage of outstanding securities of the class owned by such person, but shall not be deemed to be outstanding for the purpose of computing the percentage of the class owned by any other person. (2) Includes 7,492,155 shares issuable upon conversion of shares of Series A Stock, and an additional 1,201,616 shares issuable upon conversion of shares issuable upon exercise of warrants to purchase Series A Stock. Capital Consultants, Inc. acts as an agent for individual investors with respect to all shares beneficially owned by it. Capital Consultants, Inc. is an investment advisor registered under Section 203 of the Investment Advisors Act of 1940 and has, on behalf of certain of its clients, sole voting power and sole investment power with respect to certain of these shares. In September 2000 Mr. Thomas F. Lennon was appointed receiver of Capital Consultants and its related entities by the U.S. District Court for the District of Oregon. (3) Consists of 20,000 shares issuable upon exercise of options to purchase Common Stock. (4) Includes 226,667 shares issuable upon the exercise of options to purchase Common Stock. (5) Consists of 550,000 shares issuable upon the exercise of options to purchase Common Stock. 22 (6) Includes 23,000 shares of common stock held by the Reinmuth Family Trust, 23,000 shares held by Terry A. Reinmuth, 4,000 shares held by Hilary J. Reinmuth, 4,000 shares held by Jennifer C. Reinmuth, 250,000 shares issuable upon exercise of a warrant to purchase Common Stock and 76,667 shares issuable upon exercise of options to purchase Common Stock. (7) Includes 200,000 shares issuable upon the exercise of warrants to purchase Common Stock, 30,000 shares held by Mr. Schroeder's spouse, and 29,000 shares held by their children. Mr. Schroeder disclaims beneficial ownership of the 29,000 shares held by his children. (8) Includes 60,000 shares issuable upon the exercise of options to purchase Common Stock. (9) Includes 60,000 shares issuable upon the exercise of options to purchase Common Stock. (10) Includes 160,000 shares of Common Stock held jointly with Mr. Wilson's spouse, with whom Mr. Wilson shares voting power with respect to an additional 153,428 shares, and 146,667 shares issuable upon the exercise of options to purchase Common Stock. (11) Includes 1,150,001 shares issuable upon the exercise of options to purchase Common Stock and 250,000 shares issuable upon exercises of warrants to purchase Common Stock. Item 12. Certain Relationships and Related Transactions As of December 31, 2001, William H. Fleming, A-Fem's Vice-Chairman of the Board and Secretary, had an outstanding balance of approximately $73,000 on a loan from A-Fem. This loan was made on November 18, 1994, and the original principal balance was $52,000. Interest accrues at a rate of 6.24% and is capitalized. Mr. Fleming used the proceeds from this loan to purchase shares of A-Fem's common stock upon exercise of a stock option. Mr. Fleming and A-Fem have agreed that the outstanding balance on this loan shall become due and payable on July 1, 2001, and that Mr. Fleming may make such repayment by tendering shares of A-Fem's common stock that he owns with a value equal to such outstanding balance on the date of repayment. Item 13. Exhibits and Reports on Form 8-K (a) Exhibits -------- See Exhibit Index. (b) Reports on Form 8-K filed during Last Quarter of Fiscal Year. ------------------------------------------------------------- None. 23 In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. A-FEM MEDICAL CORPORATION By: /s/ Steven T. Frankel ------------------------------------------------- Steven T. Frankel Chief Executive Officer and President Date: April 15, 2002 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date /s/ Steven T. Frankel Chief Executive Officer, April 15, 2002 ------------------------------- Steven T. Frankel President and Director (principal executive officer) /s/ James E. Reinmuth Chairman and Director April 15, 2002 ------------------------------- James E. Reinmuth /s/ William H. Fleming Vice Chair-Diagnostics, April 15, 2002 ------------------------------- William H. Fleming Secretary and Director /s/ James R. Wilson Treasurer and Director April 15, 2002 ------------------------------- James R. Wilson /s/ Martin Harvey Controller April 15, 2002 ------------------------------- Martin Harvey (principal financial and accounting officer) /s/ Carol A. Scott Director April 15, 2002 ------------------------------- Carol A. Scott /s/ RoseAnna Sevcik Director April 15, 2002 ------------------------------- RoseAnna Sevcik /s/ Merry Disney Director April 15, 2002 ------------------------------- Merry Disney A-Fem Medical Corporation Financial Statements As of December 31, 2001 and 2000 A-Fem Medical Corporation Balance Sheets (Unaudited) As of December 31, 2001 and 2000
ASSETS 2001 2000 ---- ---- CURRENT ASSETS: Cash and cash equivalents $ 6,291 $ 5,644 Accounts receivable 1,265 10,990 Other receivables 20,640 17,158 Inventories - 41,496 Prepaid expenses 8,567 65,162 ------- --------- Total current assets 36,763 140,450 PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS 986,967 1,044,932 Less-Accumulated depreciation and amortization (715,227) (681,392) -------- --------- Total property, equipment and leasehold improvements 271,740 363,540 PATENTS, net 82,028 83,605 -------- --------- Total assets $ 390,531 $ 587,595 ==================================
(Continued) A-Fem Medical Corporation Balance Sheets (Continued) (Unaudited) As of December 31, 2001 and 2000
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 2001 2000 ---- ---- CURRENT LIABILITIES: Accounts payable $ 388,463 $ 146,763 Current portion - capital lease obligations 1,497 4,590 Accrued expenses 45,332 98,084 Accrued salaries and benefits 439,348 96,584 Deferred income - 30,000 Note payable - related party 400,000 400,000 --------- --------- Total current liabilities 1,274,640 776,021 LONG-TERM LIABILITIES: Long-term portion - capital lease obligations - - Long-term note payable - related party - - --------- --------- Total long-term liabilities - - --------- --------- Total liabilities 1,274,640 776,021 STOCKHOLDERS' EQUITY (DEFICIT): Series A Convertible Preferred Stock, $.01 par value; authorized 9,750,000 shares; issued 7,492,135 shares and 7,492,135 shares at December 31, 2001 and 2000, respectively 74,921 74,921 Common stock, $.01 par value; authorized 75,000,000 shares; issued 10,221,558 shares and 9,596,558 shares at December 31, 2001 and 2000, respectively 102,215 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 18,559,833 18,391,083 Note receivable (52,000) (52,000) Accumulated deficit (21,538,885) (20,668,202) ----------- ------------ Total stockholders' equity (deficit) (884,109) (188,426) ----------- ------------ Total liabilities and stockholders' equity (deficit) $ 390,531 $ 587,595 =========== ============
A-Fem Medical Corporation Statements of Operations (Unaudited) For the Years Ended December 31, 2001 and 2000 2001 2000 ---- ---- REVENUES: Sales, net of discounts $ 14,047 $ 29,611 ------------ ------------ Net sales 14,047 29,611 COST OF SALES: Cost of goods sold 131,338 226,536 ------------ ------------ Gross margin (117,291) (196,925) OPERATING EXPENSES: Selling and marketing 14,770 36,825 General and administrative 521,553 865,235 Research and development 226,074 788,074 ------------ ------------ Operating loss (879,688) (1,887,059) ------------ ------------ OTHER INCOME (EXPENSE): Interest income 3,691 22,271 Interest expense (40,092) (42,182) Licensing income - 80,000 Other income 45,406 11,220 ------------ ------------ 9,005 71,309 ------------ ------------ Net loss $ (870,683) $ (1,815,750) ============ ============ NET LOSS PER SHARE, basic and diluted $ (.09) $ (.19) ============ ============= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,911,216 9,584,138 ============= ============ Statements of Cash Flows (Unaudited) For the Years Ended December 31, 2001 and 2000
2001 2000 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (870,683) $ (1,815,750) Adjustments to reconcile net loss to net cash flows used in operating activities- Depreciation and amortization 73,951 96,716 Loss (gain) on disposal of assets (30,575) (8,060) Other noncash income (3,482) (3,483) Other noncash expense - 4,388 Changes in operating assets and liabilities: Accounts receivable 9,725 (4,368) Inventories 41,496 24,085 Prepaid expenses 56,854 6,126 Accounts payable 193,200 82,662 Accrued expenses (53,010) 14,288 Accrued salaries and benefits 342,764 11,727 Deferred income - 30,000 ----------- ---------- Net cash used in operating activities (239,760) (1,561,669) ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, equipment and leasehold improvements (9,393) Net proceeds from sale of equipment 20,000 199,546 Other assets (30,482) ----------- ---------- Net cash provided by (used in) investing activities 20,000 159,671 ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from sale of common stock 175,000 50,000 Net proceeds from sale of preferred stock, net of offering costs 994,649 Repayments on capital lease obligations (3,093) (15,852) Payments on note payable (50,000) (50,000) ----------- ---------- Proceeds from short-term notes payable 48,500 - ----------- ---------- Net cash provided by financing activities 220,407 978,797 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 647 (423,201) CASH AND CASH EQUIVALENTS, beginning of period 5,644 428,845 ----------- ---------- CASH AND CASH EQUIVALENTS, end of period $ 6,291 $ 5,644 ============ ============
EXHIBIT INDEX Exhibit No. Description ------- ----------- 3.1 Articles of Incorporation, as amended 3.2(1) Bylaws, as amended 4.1(2) Form of Stock Purchase Warrant 4.2(2) Form of Series A Preferred Stock Certificate *10.1(3) Employment Agreement between A-Fem Medical Corporation and Steven T. Frankel, dated effective April 25, 1998 10.2(4) Business Park Lease between A-Fem Medical Corporation, Petula Associates, Ltd. and Koll Portland Associates, dated March 1, 1996 10.3(5) Scholls Business Center First Amendment to Lease between A-Fem Medical Corporation, Petula Associates, Ltd. and Equity FC, Ltd. 10.4(6) Form of Registration Rights Agreement used for Mr. Waller, Esler, Stephens & Buckley and Lane, Powell, Spears and Lubersky 10.5(7) Form of Registration Rights Agreement 10.6(7) ATHENA Medical Corporation's 1994 Incentive and Non-Qualified Stock Option Plan, dated as of June 7, 1994 *10.7(7) Form of Incentive Stock Option Agreement *10.8(7) Form of Non-Statutory Stock Option Agreement 10.9(7) Form of Purchase Warrant Certificate 10.12(8) Agreement dated effective as of April 28, 1997, between The Proctor & Gamble Company and A-Fem Medical Corporation *10.13(9) Employment Agreement between A-Fem Medical Corporation and James R. Wilson, dated as of May 1, 1997 10.14(10) Form of Capital Lease between A-Fem Medical Corporation and First Portland Leasing Corp. Exhibit No. Description ------- ----------- 23.1 Consent of Arthur Andersen LLP, Independent Public Accountants --------------------------------------------------- (1) Incorporated by reference to the exhibits to A-Fem's annual report on Form 10-KSB/A to the year ended December 31, 1998. (2) Incorporated by reference to the exhibits to A-Fem's quarterly report on Form 10-QSB for the quarter ended September 30, 1998. (3) Incorporated by reference to the exhibits to A-Fem's quarterly report on Form 10-QSB for the quarter ended June 30, 1998. (4) Incorporated by reference to the exhibits to A-Fem's Registration Statement on Form S-2 (file no. 333-2053), filed with the SEC on March 29, 1996. (5) Incorporated by reference to the exhibits to A-Fem's Registration Statement on Form S-2 (file no. 333-2053), filed with the SEC on January 21, 1999. (6) Incorporated by reference to the exhibits to A-Fem's Registration Statement on Form S-2 (file no. 33-88230), filed with the SEC on January 5, 1995. (7) Incorporated by reference to the exhibits to A-Fem's Annual Report on Form 10-KSB for the year ended December 31, 1996. (8) Incorporated by reference to exhibit number 10.1 to A-Fem's Current Report on Form 8-K (file no. 0-17119) filed with the SEC on May 16, 1997. (9) Incorporated by reference to the exhibits to A-Fem's quarterly report on Form 10-QSB for the quarter ended June 30, 1997. (10) Incorporated by reference to the exhibits to A-Fem's Annual Report on Form 10-KSB for the year ended December 31, 1997. * Indicates management contract or compensation plan.