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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission file number: 0-26487

WOMEN FIRST HEALTHCARE, INC.

(858) 509-1171

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 o No þ

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þ No o

     As of May 1, 2003, 22,971,417 shares of common stock, par value $.001 per share, were outstanding.

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FORWARD-LOOKING STATEMENTS

     This Quarterly Report on Form 10-Q contains certain “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 which provides a “safe harbor” for these types of statements. To the extent statements in this Quarterly Report involve, without limitation, our expectations for growth, estimates of future revenue, expenses, profit, cash flow, balance sheet items or any other guidance on future periods, these statements are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan” and “would.” The forward-looking statements contained in this Quarterly Report are subject to various risks and uncertainties, including those identified in Part II-Item 5 below under the heading “Factors that May Affect Future Performance” and other risks identified from time to time in our filings with the Securities and Exchange Commission, press releases and other communications. We undertake no obligation to release publicly the results of any revisions to these forward-looking statements or to reflect events or circumstances arising after the date hereof.

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WOMEN FIRST HEALTHCARE, INC.

INDEX TO FORM 10-Q

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PART I — FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (Unaudited)

WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)

See accompanying notes.

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WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)

See accompanying notes.

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WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
(In thousands)

See accompanying notes.

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Women First HealthCare, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Unaudited
March 31, 2003

1. Summary of Significant Accounting Policies

Basis of Presentation

     The financial statements have been prepared on a going concern basis. The Company has incurred losses and negative cash flows from operations since its inception. As of March 31, 2003, the Company had cash of $10.9 million and working capital of $0.8 million, and an accumulated deficit of $96.0 million. For the year ended December 31, 2002 and the quarter ended March 31, 2003, the Company was not in compliance with covenants related to the senior secured notes. The Company’s ability to fund its operations and debt service during the next twelve-month period is dependent on its ability to establish profitable operations and restructure the senior secured notes, the latter of which was accomplished following the quarter ended March 31, 2003 (see note 8). The Company also intends to reduce expenditures and manage cash more prudently until it has sufficient funding. The Company believes it will be successful in funding its 2003 operations. Based upon the Company’s cash and working capital position at March 31, 2003, its planned changes in operating expenditures and its equity financing completed following the quarter ended March 31, 2003 (see note 8), management believes it will have sufficient cash to fund operations through at least March 31, 2004.

     The accompanying unaudited financial statements of Women First HealthCare, Inc. (the “Company” or “Women First”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals, recognition of product rights impairment in note 4 and the restructuring costs described in note 6) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003. These financial statements should be read in conjunction with the financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

     As used herein, the Company collectively refers to the consolidated entity of Women First HealthCare, Inc. and As We Change, L.L.C.

Reclassifications

     Certain reclassifications were made to the prior period to conform to the current period presentation.

Use of Estimates

     The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition and Deferral

     The Company recognizes revenue when all four of the following criteria are met: (1) persuasive evidence that an arrangement exists; (2) delivery of the products or services has occurred; (3) the selling price is fixed or determinable; and (4) collectibility is reasonably assured. In addition, the Company follows provisions of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 101, Revenue Recognition (SAB 101), which sets forth guidelines in the timing of revenue recognition based on factors such as passage of title, installation, payments and customer acceptance.

     The Company defers recognition of revenue if it determines there is excess channel inventory for its products. Excess channel inventory exists if its wholesale customers’ inventory of its products exceeds

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Women First HealthCare, Inc.
Notes to Consolidated Financial Statements — Unaudited
March 31, 2003
(Continued)

the Company’s estimates of demand for its products at the retail level, after considering factors such as product shelf-life. The Company determines whether excess channel inventory exists based on an analysis of the amount of each product in the channel inventory and prescription activity and trends. The Company obtains information for this analysis by purchasing data from nationally recognized providers of this information. In addition, the Company obtains inventory information from certain key customers in order to provide more detailed information regarding the channel inventory at specific customer locations. The Company defers sales, net of the related product cost it pays to its suppliers, associated with the estimated excess channel inventory. Judgment is required in estimating the amounts of excess channel inventory. As of March 31, 2003, the Company had deferred revenue of $4.3 million which is included in the accompanying Consolidated Balance Sheets. The deferral of revenue arose from slower than anticipated prescription growth for the Company’s products. The actual amounts could be different from the estimates and differences are accounted for in the period in which they become known.

Comprehensive Income

     For the periods presented in the accompanying financial statements, the Company has no items for which comprehensive income (loss) would materially differ from the reported net income (loss).

Net Income (Loss) Per Share

     Basic net income (loss) per share is calculated by dividing the net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net income per share includes common stock equivalent shares, comprised of shares of common stock issuable upon the exercise of stock options, warrants and conversion of preferred stock and a note payable, if dilutive. There were 6.9 million potentially dilutive common shares at March 31, 2003 (none of which were dilutive at March 31, 2003). Common stock equivalents are not included in the calculation of diluted net loss per share, as their impact would be anti-dilutive.

     Shares used in calculating basic and diluted earnings per share were as follows (in thousands):

Stock-Based Compensation

     The Company accounts for stock option plans in accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), and related interpretations which requires the Company to recognize compensation expense on the grant date if the current market price of the stock exceeds the exercise price.

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Women First HealthCare, Inc.
Notes to Consolidated Financial Statements — Unaudited
March 31, 2003
(Continued)

     Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation (SFAS 123), as amended in December 2002 by SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure (SFAS 148), together establish the use of the fair value based method of accounting for stock-based compensation arrangements, under which compensation cost is determined using the fair value of stock-based compensation determined as of the grant date, and is recognized over the periods in which the related services are rendered. SFAS 123 and SFAS 148 permit companies to elect to continue using the intrinsic value accounting method specified in APB No. 25 to account for stock-based compensation related to option grants to employees. The Company has elected to retain the intrinsic value based method for such grants. Options or stock awards issued to non-employees have been determined in accordance with SFAS 123, SFAS 148 and Emerging Issues Task Force Abstract No. 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services (EITF 96-18). Deferred charges for options granted to non-employees are periodically remeasured as the options vest.

     The following table discloses the pro-forma net loss if the fair value method of accounting for stock-based employee compensation cost been applied to all awards. The fair value for these options was estimated at the date of grant using the Black-Scholes method for options pricing.

     The Black-Scholes option-pricing model was used in the fair value method with the following assumptions:

     For purposes of the adjusted pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period. The weighted-average fair value of options granted during the three months ended March 31, 2003 and 2002 were $1.05 and $10.10, respectively.

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Women First HealthCare, Inc.
Notes to Consolidated Financial Statements — Unaudited
March 31, 2003
(Continued)

2. Accounts Receivable

     Accounts receivable consist of the following:

3. Inventory

     Inventory, which is primarily finished goods, consists of the following:

4. Product Rights

     The Company amortizes acquired rights for pharmaceutical products over the estimated economic useful life of 15 years. The useful life is based on the estimated marketability and future sales volume, which are dependent on a variety of factors, including the introduction of new products by competitors and continued use of existing product.

     In accordance with Financial Accounting Standards Board 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), the Company reviews the long-lived assets, including product rights, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss would be measured and recognized if the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset. If the carrying amount of the asset were determined to be impaired, an impairment loss would be recorded to write-down the carrying value of the asset to fair value by using quoted market prices when available. When a quoted market price is not available, an estimated fair value would be determined through other valuation techniques. The Company has used projected cash flows discounted to reflect the expected technical, commercial, competitive and other factors related to acquired technologies or products, and comparisons to similar asset sales and valuations by others, to estimate the fair value of the intangible assets.

     The Company has previously announced plans to consider divesting the product rights to pharmaceutical products that are non-strategic and do not relate to the core mission of improving the health and well-being of midlife women. The Company recorded an impairment charge of $5.9 million during the quarter ended March 31, 2003 related to these product rights. This amount is subject to change based on the final sale, if any, of the products.

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Women First HealthCare, Inc.
Notes to Consolidated Financial Statements — Unaudited
March 31, 2003
(Continued)

5. Reserves for Product Returns, Exchanges, Rebates and Chargebacks

     The Company continuously monitors the quantity of its products in the distribution channel and the demand for its pharmaceutical products through the number of prescriptions written. The Company purchases data regarding quantities in the distribution channel and prescription activity from nationally recognized providers of this information. In addition, the Company obtains inventory information from certain key customers in order to gather more detailed information regarding the channel inventory at specific customer locations. The Company will generally accept for credit or exchange pharmaceutical products that have become unusable due to passage of the expiration date, drug recall or discontinuance. The Company establishes reserves for these credits and exchanges at the time of sale. Reserves were recorded that reduced reported net revenue by $2.4 million and $1.1 million in the three months ended March 31, 2003 and 2002, respectively. Actual returns, exchanges, chargebacks and rebates incurred during these periods were $1.0 million and $0.5 million, respectively.

6. Restructuring Charges

     In March 2003, the Company announced restructuring plans in order to improve its operating results and terminated 56 employees (35% of its work force), consisting primarily of sales and marketing personnel in the pharmaceutical division. Under the provisions of SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities, the Company accrued approximately $0.7 million in costs relating to this restructuring in the first quarter of 2003. The costs consist of severance pay and related benefits of $0.3 million (paid in April 2003) and an estimated $0.4 million in equipment and early termination fees on leases for vehicles used by terminated employees. The Company expects that restructuring activities will be completed by the end of the second quarter of 2003. The following table reflects the Company’s provision for restructuring costs at March 31, 2003:

7. Segment and Significant Customer Disclosures

     As of March 31, 2003, the Company operated in two segments: (i) pharmaceutical, which markets and sells pharmaceutical products and (ii) consumer, which markets and sells self-care products. The Company’s reportable segments are strategic business units that offer different products and services. They are each managed separately because they perform different services utilizing different and distinct operations.

     Information as to the segment operations is set forth below based on the nature of the products and services offered. The Company evaluates performance based on several factors, of which the primary financial measure is business segment operating income or loss, defined as income or loss before other income/expense. Operating income or loss by segment does not include corporate overhead allocations. Transactions between segments are not significant. Each segment generates revenues primarily in the

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Women First HealthCare, Inc.
Notes to Consolidated Financial Statements — Unaudited
March 31, 2003
(Continued)

United States, and revenue from foreign sources is not significant. The accounting policies of the business segments are the same as those described in the summary of accounting policies (Note 1). All significant non-cash items in the three months ended March 31, 2003 and March 31, 2002 relate to the pharmaceutical division and are shown in the accompanying Statement of Cash Flows.

     During the three-month period ended March 31, 2003, no one customer accounted for sales in excess of 10% of total net revenues. Sales to one customer represented 34% of net product revenue in the pharmaceutical division during the three-month period ended March 31, 2002.

8.  Subsequent Events

     The Company’s operating results caused it to fall out of compliance with the financial covenants in its senior secured notes, which required the Company to maintain a minimum level of earnings before interest, taxes, depreciation and amortization, a minimum fixed charge coverage ratio, a minimum net worth measured as of December 31, 2002 and March 31, 2003 and to limit its capital expenditures during 2002. In May 2003, the Company completed agreements to obtain waivers of these past defaults under its senior secured notes and restructured the terms of both its senior secured notes and its convertible redeemable preferred stock. The restructured agreements entered into with the holders of the senior secured notes and convertible redeemable preferred stock provide for the following:

	•		the financial covenants governing the senior secured notes include only requirements for minimum cash revenue, maximum cash expenditures and minimum cash balances through December 31, 2004. Beginning in 2005, the Company will be subject to financial covenants setting a maximum ratio of net debt (defined as total indebtedness minus cash and cash equivalents) to earnings before interest, taxes, depreciation and amortization (EBITDA) and minimum ratio of EBITDA to cash interest expense;
	•		in addition to the Vaniqa® Cream assets that the Company has already pledged to secure its performance under the senior secured notes, the Company has granted the note holders an additional security interest in all of its other unencumbered assets, other than its rights to EsclimTM;
	•		the Company granted warrants to purchase 2.0 million shares of common stock at $0.63 per share to the holders of the senior secured notes. Warrants to purchase 1.7 million shares of the Company’s common stock at $5.50 per share previously issued to the note holders have been cancelled;
	•		net proceeds from future asset sales and the license and sale of international rights to Vaniqa® Cream, if any, will be apportioned among the holders of the convertible redeemable preferred stock and the holders of the senior secured notes and the Company according to a pre-determined formula; and
	•		the Company exchanged shares of a new series of convertible redeemable preferred stock for the same number of shares of series of convertible redeemable preferred stock previously issued. The new series of convertible redeemable preferred stock has the same terms as the prior series, except that it requires proceeds of specified asset sales to be used to redeem the shares of convertible redeemable preferred stock and grants to the Company the right to redeem the convertible redeemable preferred stock at the Company’s option at a premium equal to 108% of accreted stated value of the convertible redeemable preferred stock through November 30 2003, at which time the redemption premium will increase based on a formula that takes into account the number of shares redeemed before November 30, 2003. Under the terms of the prior series of convertible redeemable preferred stock, the Company would have had the option to redeem the preferred stock only if the trading price of the Company’s common stock exceeded three times the $6.35 conversion price for 30 consecutive trading days.

     Any future default by the Company under the senior secured notes will allow the note holders to accelerate the Company’s indebtedness under the senior secured notes.

     Also in May 2003 and concurrent with the restructuring of the Company’s senior secured notes and convertible redeemable stock, the Company received $2.5 million of new capital through a private placement of its common stock. Under a common stock purchase agreement, the private placement investors, led by Edward F. Calesa, the Company’s Chairman of the Board, President and Chief Executive Officer, purchased $2.5 million of the Company’s common stock at a price of $0.71 per share, the average price from March 20, 2003 through April 24, 2003. April 24, 2003 was the trading day prior to the date initially targeted for closing the restructuring and the private placement. Under the agreement, Mr. Calesa invested $1.0 million and Richard L. Rubin, one of the Company’s directors, invested $50,000. The Company has agreed to register the shares of common stock issued in the private placement with the Securities and Exchange Commission to permit the resale of the shares by the private placement investors.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this report. This discussion may contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed below in “Part II — Item 5: Other Information — Factors That May Affect Future Performance.” We undertake no obligation to release publicly the results of any revisions to these forward-looking statements or to reflect events or circumstances arising after the date hereof.

Overview

     Women First is a specialty pharmaceutical company dedicated to improving the health and well-being of midlife women. Our mission is to help midlife women make informed choices about their physical and emotional health and to provide pharmaceutical products and self-care products to help these women improve the quality of their lives. We market these products in the United States through a number of channels, including our dedicated sales force, our contract sales dermatology force, our direct-to-consumer marketing programs through our Internet sites, womenfirst.com, aswechange.com and vaniqa.com, and through our As We Change® national mail order catalog.

     As of March 31, 2003, we offered the following products for sale:

     Pharmaceutical Products — Women’s Health Division

	•		Ortho-Est® Tablets, an oral estrogen product that we acquired from Ortho-McNeil Pharmaceutical in January 2001, and
	•		EsclimTM, an estrogen patch system for which we have the exclusive right (subject to exceptions) to market, use, distribute and sell in various dosages in the United States and Puerto Rico pursuant to a distribution and license agreement with Laboratoires Fournier S.A., effective July 1999.

     Pharmaceutical Products — Skin Care Division

•

Vaniqa® Cream (eflornithine hydrochloride), 13.9%, a topical cream clinically proven to slow the growth of unwanted facial hair in women for which we acquired exclusive worldwide rights in June 2002 from a joint venture formed by Bristol-Myers Squibb Company and The Gillette Company.

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     Pharmaceutical Products — Non-Strategic

     In March 2003, we announced plans to consider the sale of product rights to those pharmaceutical products that are non-strategic and do not relate to our core mission of improving the health and well-being of midlife women. As of March 31, 2003, we considered the following pharmaceutical products to be non-strategic:

	•		Midrin®, a prescription headache management product for which we acquired exclusive U.S. rights and title from Élan Pharma International Ltd. and Élan Corporation plc in June 2001,
	•		BactrimTM, an antibacterial product line used primarily in the treatment of certain urinary tract infections for which we acquired exclusive U.S. rights from Hoffman-LaRoche in October 2001,
	•		Equagesic® Tablets, a pain management product for which we acquired all rights in the U.S. and Puerto Rico from American Home Products Corporation (now known as Wyeth) in November 2001, and
	•		Synalgos®-DC Capsules and “painpak,” a pain management product for which we acquired all rights in the U.S. and Puerto Rico from Wyeth in November 2001.

     Self-Care Products

•

Our self-care products include a broad array of nutritional, skin, beauty, herbal, exercise, libido, wellness and other products that we sell through our national mail-order catalog, As We Change® and our Internet retailers, womenfirst.com and aswechange.com.

Results of Operations

     We have incurred significant losses since we were founded in November 1996, accumulating a deficit of $96.0 million through March 31, 2003. We have not achieved profitability in any complete fiscal year since our inception. Small, relatively new companies such as ours frequently encounter problems, delays and expenses that may be beyond our control. These include, but are not limited to, unanticipated problems and additional costs related to marketing, competition, manufacturing and product acquisitions and development.

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Three Months Ended March 31, 2003 and 2002

     Revenues, net of allowances. Revenues, net of allowances are derived from our two segments, pharmaceutical and consumer. As shown in the following table, net revenues in the first three months of 2003 were $1.4 million, an 85.3% decrease compared to the $9.5 million of net revenues in the first quarter of 2002.

     Gross pharmaceutical revenues for the first quarter of 2003 decreased 86.4% from the first quarter of 2002. Because of slower than anticipated prescription growth for our products during the fourth quarter of 2002 and the first quarter of 2003, the quantities of our products in the distribution channels were sufficient to meet prescription demands during the first quarter of 2003 without our major wholesale customers purchasing additional inventory from us. We anticipate that there will be sufficient supply of our products in the distribution channels through at least the second quarter. We expect gross pharmaceutical revenues to be less in the second quarter of 2003 than they were in the same quarter of 2002.

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     As described below under the heading “Critical Accounting Policies,” in arriving at net revenues, we deduct reserves for product returns, exchanges, rebates and chargebacks. During the first quarter of 2003, such reserves were greater than gross revenues because the continuing slower than anticipated prescription growth caused us to increase our estimate of product that may be returned to us due to expired dating. In addition, although we establish reserves for estimated rebates at the time we recognize the product sales, actual prescription activity, which is the basis for paying many of these rebates, can vary considerably and require adjustments to rebate charges against revenues. This can have a significant impact on revenues reported in a subsequent period. We also increased our estimated provision for rebates due to modifications in certain rebate agreements effective January 1, 2003. We made $0.9 million of provisions and adjustments to rebates in the first quarter of 2003, which reduced net revenue.

     Consumer revenues from self-care products were 30.0% higher during the first quarter of 2003 than in the first quarter of 2002 due to increased circulation of our catalog, an increase in the number of products we offer for sale in our catalog and higher Internet sales.

     Cost of Sales. Cost of sales consists primarily of amounts we pay to suppliers for products, distribution costs, royalties, amortization of product rights and reserves for excess, dated and obsolete inventory. As shown in the table below, cost of sales for the first quarter of 2003 was $3.7 million, or 96.8% of gross revenues compared to $2.7 million, or 26.0% of gross revenues in the first quarter of 2002.