10QSB 1 af_nq203.txt QUARTERLY REPORT, 3-31-2002 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 March 31, 2002 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 May 15, 2002, 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 ------------------------------------------------------------------------------------------------------------------------- March 31, December 31, 2002 2001 ASSETS (unaudited) CURRENT ASSETS: Cash and cash equivalents $ 3,662 $ 6,291 Accounts receivable 1,744 1,265 Other receivables 20,640 20,640 Inventory 0 0 Prepaid expenses 8,567 8,567 ----------- ----------- Total current assets 34,613 36,763 EQUIPMENT, FURNITURE and LEASEHOLDS, at cost 986,967 986,967 Less: accumulated depreciation (731,375) (715,227) ----------- ----------- 255,592 271,740 PATENTS and LICENSES, net 81,634 82,028 ----------- ----------- Total assets $ 371,839 $390,531 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term notes payable $ 48,500 $ 48,500 Accounts payable 363,293 339,963 Current portion of capital lease obligation 1,497 1,497 Accrued expenses 45,332 45,332 Accrued salaries and related liabilities 439,348 439,348 Note payable - related party 400,000 400,000 ----------- ----------- Total current liabilities 1,297,970 1,274,640 STOCKHOLDERS' EQUITY: Series A Convertible Preferred Stock, $0.01 par value; authorized 9,750,000 shares; issued 7,492,135 and 7,492,135 shares at March 31, 2002 and December 31, 2001, respectively 74,921 74,921 Common Stock, $0.01 par value; authorized 75,000,000 shares; issued 10,221,558 and 10,221,558 shares at March 31, 2002 and December 31, 2001, respectively 102,215 102,215 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 18,559,833 Loan receivable-officers and directors (52,000) (52,000) Accumulated deficit (21,580,907) (21,538,885) ----------- ----------- Total stockholders' equity (926,131) (884,109) ----------- ----------- Total liabilities and stockholders' equity $ 371,839 $ 390,531 =========== ===========
The accompanying notes are an integral part of these balance sheets. 2 A-Fem Medical Corporation STATEMENTS OF OPERATIONS (unaudited) For The Three Months Ended March 31, ----------------------------------- 2002 2001 ---------------- --------------- Sales, net $ 2,040 $ 4,289 Cost of sales 12,699 49,422 ----------- ----------- Gross margin (10,659) (45,133) Operating Expenses: Research and development 13,015 106,004 Marketing and selling 0 11,814 General and administrative 18,348 166,153 ----------- ----------- Total operating expenses 31,363 283,971 ----------- ----------- Net operating loss (42,022) (329,104) ----------- ----------- Other income 0 21,529 ----------- ----------- Net loss $ (42,022) $ (307,575) =========== =========== Basic and diluted net loss per share $ (0.01) $ (0.03) =========== =========== Weighted average common shares outstanding 10,221,558 9,596,558 =========== =========== 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 Three Months Ended March 31, --------------------------------- 2002 2001 ------------ ------------ Cash Flows From Operating Activities: Net loss $ (42,022) $ (307,575) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 16,542 22,526 (Gain) loss on disposal of assets - (30,575) Other non-cash expenses - - Other non-cash income - (870) Changes in working capital: Accounts receivable (479) (1,383) Inventory - 2,922 Prepaid expenses and other - 12,614 Accounts payable 23,330 124,827 Accrued expenses - (26,122) Accrued salaries and related liabilities - 133,402 ------------ ------------ Net cash used in operating activities (2,629) (70,234) Cash Flows From Investing Activities: Net proceeds from sale of equipment - 20,000 Other assets - - ------------ ------------ Net cash provided by (used in) investing activities - 20,000 Cash Flows From Financing Activities: Net repayments of lease obligations - (1,530) Net proceeds from sale of common and preferred stock, exercise of options and warrants, net of expenses - - Proceeds from short-term notes payable - 48,500 ------------ ------------ Net cash provided by financing activities - 46,970 Net Increase (Decrease) in Cash and Cash Equivalents (2,629) (3,264) Cash and Cash Equivalents, beginning of period 6,291 5,644 ------------ ------------ Cash and Cash Equivalents, end of period $ 3,662 $ 2,380 ============ ============
The accompanying notes are an integral part of these statements. 4 A-Fem Medical Corporation NOTES TO FINANCIAL STATEMENTS March 31, 2002 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, 2001 and has continued to incur losses for first quarter of 2002. 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 demonstrated the ability to raise operating funds in the past by securing investment commitments in its preferred and common stock of approximately $175,000 during 2001, and $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 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, 2001. Net Loss Per Share ------------------ Basic and diluted loss per share are required to be computed using the methods prescribed by Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). 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 ended March 31, 2002 and 2001. Stock options for the purchase of 3,443,789 and 3,725,923 shares at March 31, 2002 and 2001, respectively, and warrants for the purchase of 1,594,439 and 1,592,939 shares at March 31, 2002 and 2001, respectively, were not included in loss per share calculations, because to do so would have been anti-dilutive. In addition, shares of A-Fem's convertible preferred stock and warrants covering shares of A-Fem's convertible preferred stock outstanding at March 31, 2002 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 will require the Company's derivative financial instruments to be recorded at fair value and reflected in income unless they are effective as 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," which delays the Company's adoption of SFAS 133 until 2001. 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. 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 6 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 is in the process of 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, 2001 and the quarter ended March 31, 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 7 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, and $175,000 in 2001. 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 --------------------- The first quarter of 2002 reflects the results of a decreased level of activity with no active headcount, and minimal expenses, while the effort to raise funds in the equity market continues. Net sales for the quarter ended March 31, 2002, were approximately $2,000, as compared to approximately $4,000 for the quarter ended March 31, 2001. This decrease was the result of decreased distribution for the inSync miniform, which is primarily now only sold through the internet, as compared to a wider distribution during the prior year. Marketing and selling expense for the first quarter of 2002 was zero, as compared to approximately $12,000 for the quarter ended March 31, 2001. This decrease resulted from elimination of support for the inSync miniform. Research and development expense for the quarter ended March 31, 2002, was approximately $13,000, as compared to approximately $106,000 for the same quarter of the prior year. The current year expense reflects only the fixed expense of operations, with no personnel or other outside expenses. General and administrative expense was approximately $18,000 for the quarter ended March 31, 2002, as compared to approximately $166,000 for the same period in the prior year. This decrease resulted from the elimination of all expenses except fixed expenses. A-Fem's operating loss for the quarter ended March 31, 2002, was approximately $42,000 as compared to approximately $329,000 for the same quarter of the prior year. This decrease resulted from the elimination of expenses in all operating departments. A-Fem's other income (expense) is composed primarily of income from development contracts, interest income and interest expense. For the quarter ended March 31, 2002 there was no other income or expense, as compared to other income of approximately $22,000 for the same period in the prior year. A-Fem's net loss for the quarter ended March 31, 2002, was approximately $42,000, as compared to approximately $308,000 for the same period in the prior year. This decrease resulted 8 from elimination of operating expenses in all operating departments in 2002 due to a continued lack of funding. Liquidity and Capital Resources ------------------------------- As of March 31, 2001, A-Fem had cash and cash equivalents of $3,662. A-Fem's net cash position decreased by $2,629 between December 31, 2001 and March 31, 2002, as a result of funding certain operating expenses. A-Fem continued to experience operating losses during the year ended December 31, 2001, and in the first three months of 2002, 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 incurs approximately $150,000 per month of operating expenses at full operation 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. A-Fem is 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, $1.1 million during 2000, and $175,000 in 2001. Since the third quarter of 1998, substantially all such sales have 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. 9 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 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, 2001. 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. 10 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibits See Exhibit Index. b) Reports on Form 8-K Form 8-K filed March 8, 2002 11 SIGNATURES In accordance with the requirements of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. A-FEM MEDICAL CORPORATION Date: May 20, 2002 /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, 1999.