<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X Quarterly Report pursuant to Section 13 or 15(d)
--- of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1995
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
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ATHENA Medical Corporation
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(Name of small business issuer in its charter)
Nevada 33-0202574
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10170 SW Nimbus Ave., Suite H1
Portland, OR 97223
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(Address of principal executive offices)
(503) 968-8800
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(Issuer's telephone number)
Not applicable
--------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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
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As of September 30, 1995, the issuer had outstanding 8,928,243
shares of its $.01 par value Common Stock.
Transitional Small Business Disclosure Format: (Check one) Yes ; No X
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATHENA MEDICAL CORPORATION
BALANCE SHEETS
as of September 30
(unaudited)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $3,425,588 $58,350
Accounts Receivable, Trade 28,046
Inventory 91,700 10,500
Prepaids and Other 69,666 7,887
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Total Current Assets 3,615,000 76,737
EQUITY SECURITIES 90,505
EQUIPMENT, FURNITURE and LEASEHOLDS, at cost 472,576 167,196
Less: Accumulated Depreciation (68,748) (9,127)
----------- ---------
403,828 158,069
PATENTS and LICENSES, NET 19,529 29,500
LOANS RECEIVABLE - Officers and Directors 115,031
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Total Assets $4,153,388 $354,811
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $126,822 $124,333
Accrued Salaries and Related 60 40,498
Liabilities
Convertible Secured Notes Payable 153,992
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Total Current Liabilities 126,882 318,823
STOCKHOLDERS' EQUITY
Common Stock, $0.01 par value,
authorized 33,000,000 shares;
issued 8,928,243 and 5,430,800 shares 89,282 54,308
Additional Paid-in Capital 8,233,538 671,943
Accumulated Deficit (4,296,314) (690,263)
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Total Stockholders' Equity 4,026,506 35,988
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Total Liabilities and
Stockholders' Equity $4,153,388 $354,811
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</TABLE>
The accompanying notes are an integral part of these balance sheets.
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ATHENA MEDICAL CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30 September 30
------------------------------- -------------------------------
1995 1994 1995 1994
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Sales $467 $48,467
Cost of Sales 8,356 63,174
----------- ----------- ----------- ----------
Gross Margin (7,889) (14,707)
Gain on Sale of Equity Securities 24,527 22,717 33,27
Operating Expenses:
General and Admin. 988,977 160,012 3,098,033 562,520
----------- ----------- ----------- ----------
Net Loss $996,866 $135,485 $3,090,023 $529,243
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Net Loss Per Share $0.11 $0.33 $0.40 $0.13
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Weighted Ave. Shares Outstanding 8,928,243 4,097,810 7,698,509 4,083,432
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
(A) Including $642,633 for the nine months ended September 30, 1995
of non cash expenses incurred for services rendered in exchange
for options and warrants.
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ATHENA MEDICAL CORPORATION
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
(unaudited)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30 ended September 30
------------------------- --------------------------
1995 1994 1995 1994
----------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(996,866) $(135,485) $(3,090,023) $(529,243)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation 25,551 6,360 61,666 7,966
Equity investment in results of operations of Xtramedics, Inc. 54,751
Amortization of deferred financing fee 200,000
Services received for options and warrants issued 249,300 642,633
Loss on valuation of equity securities 50,280
Gain on sale of equity securities (24,527) (22,717) (33,277)
Changes in working capital:
Accounts receivable (46) (28,046)
Net decrease in stock subscriptions receivable 56,000
Prepaid expenses (18,274) (1,214) (44,253) (4,519)
Inventory (29,990) (47,611)
Accounts payable 67,986 4,985 (57,623) 96,213
Accrued salaries and related liabilities (1,079) 1,181 (45,998) 4,893
----------- ----------- ------------ ---------
Net cash used in operating activities (703,418) (148,700) (2,381,692) (347,219)
Cash Flows From Investing Activities:
Purchases of equipment, furniture and leaseholds (243,692) (2,294) (299,517) (25,032)
Acquisition of Xtramedics, Inc., net of cash acquired (130,540)
Proceeds from sales of equity securities 200,272 62,917 287,772
----------- ----------- ------------ ---------
Net cash provided by (used in) investing activities (243,692) 197,978 (236,600) 132,200
Cash Flows From Financing Activities:
(Advances) Collections on notes receivable (5,784) 4,969
Net proceeds from sale of Common Stock, exercise of options,
and receipt of payment on subscription receivable 123,625 106,000
Proceeds from convertible debentures and notes payable 992 1,996,700 141,492
----------- ----------- ------------ ---------
Net cash provided by (used in) financing activities (5,784) 992 2,125,294 247,492
----------- ----------- ------------ ---------
Net Increase (Decrease) in Cash and Cash Equivalents (952,894) 50,270 (492,998) 32,476
Cash and Cash Equivalents, beginning of period 4,378,482 8,080 3,918,586 25,874
----------- ----------- ------------ ---------
Cash and Cash Equivalents, end of period $3,425,588 $58,350 $3,425,588 $58,350
----------- ----------- ------------ ---------
----------- ----------- ------------ ---------
SUPPLEMENTAL SCHEDULE OF NON CASH FINANCING ACTIVITIES:
Issuance of Common Stock in exchange for convertible debentures $4,000,000
</TABLE>
The accompanying notes are an integral part of these statements.
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ATHENA MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
1. ORGANIZATION OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION OF THE COMPANY
ATHENA Medical Corporation (the Company) is engaged in research, development
and commercialization of female health care products. The Company reported
initial sales of its Fresh 'n Fit-trademark- interlabial pad (the Padette)
during the second quarter of 1995. The Company did not report sales for
fiscal 1994.
BASIS OF PRESENTATION
The balance sheets as of September 30, 1995 and 1994, and the statements of
operations and of cash flows for the nine months ended September 30, 1995 and
1994, have been prepared by ATHENA and are unaudited. In the opinion of
management, all adjustments necessary for a fair statement of the financial
position, results of operations and cash flows as of September 30, 1995 and
1994, and for the periods then ended, have been made.
PER SHARE DATA
The net loss per share was computed by dividing net loss by the weighted
average number of shares of ATHENA outstanding during the periods. Warrants
and options outstanding are not included as the effect would be anti-dilutive.
INVENTORY
Inventory consists of materials and is valued at the lower of cost or market.
Cost is on a first-in, first-out basis.
EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS
Equipment, furniture and leasehold improvements are recorded at cost, except
for assets acquired in the 1994 acquisition of Xtramedics, Inc. which were
recorded at fair market value. For financial reporting purposes,
depreciation, including amortization of capitalized leases, is calculated
using the straight-line method over the estimated useful lives ranging from
three to ten years. Maintenance and repair costs are expensed as incurred.
PATENTS AND LICENSES
Patents and licenses are recorded at cost, except for patents and licenses
acquired in the acquisition noted above which were recorded at estimated fair
market value, net of amortization. Costs are amortized over the remaining
useful lives ranging from one to twelve years.
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INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Under SFAS 109, deferred tax assets and liabilities are recorded based
on the tax effected differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes,
using enacted marginal income tax rates. There are no deferred tax balances
at September 30, 1995 and 1994, due to ATHENA's cumulative net operating
losses.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers all
instruments with a maturity of three months or less, when purchased, to be
cash equivalents.
2. INVENTORY
Inventory consists of the following:
1995 1994
Raw Materials $42,786 $10,500
Work In Process 4,862 --
Finished Goods 44,052 --
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$91,700 $10,500
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3. RELATED PARTY TRANSACTIONS
Under terms of a licensing agreement, the Company assumed an obligation to
pay royalties to an investor (who is a noncontrolling stockholder) based on
varying percentages of up to five percent of net sales of certain products
through 1997. The Company has rights under the licensing agreement for
another three years from January 1, 1995.
4. COMMON STOCK OPTIONS AND WARRANTS
Under the provisions of its 1994 Incentive and Non-Qualified Stock Option
Plan (the Plan), the Company has reserved 3,300,000 shares of its common
stock for issuance under qualified options, non-qualified options, stock
appreciation rights, and other awards as set forth in the Plan. The Incentive
Plan provides for administration by a committee comprised of not less than
two members of the Company's Board of Directors. Such committee (or the Board
of Directors in its absence) determines the number of shares, option price,
duration and other terms of the options granted under the Plan. Qualified
options are available for award to employees of the Company. Non-qualified
options are available for issuance to consultants, advisors and others having
a relationship with the Company, on terms determined by the committee.
As of September 30, 1995 and since the Plan's inception, options for a total
of 2,164,030 shares have been awarded, 13,500 have been exercised, and
2,150,530 are outstanding. Of the number awarded
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and outstanding, 1,927,780 are qualified stock options, and 222,750
are non-qualified stock options. There were no options granted,
exercised or surrendered during the quarter ended September 30,
1995.
The following summarizes outstanding options for shares of the
Company's Common Stock as of the quarter ended September 30, 1995:
QUALIFIED STOCK OPTIONS
<TABLE>
<CAPTION>
Titles of Securities Weighted Average
Issuable: Common Stock Shares Under Option Exercise Price Per Share
- ------------------------------------------ ----------------------- ----------------------------
<S> <C> <C>
Number exercisable at September 30, 1995 1,466,780 $0.60
Number exercisable thereafter 461,000 $3.85
</TABLE>
NON-QUALIFIED STOCK OPTIONS
<TABLE>
<CAPTION>
Titles of Securities Weighted Average
Issuable: Common Stock Shares Under Option Exercise Price Per Share
- ------------------------------------------ ----------------------- ----------------------------
<S> <C> <C>
Number exercisable at September 30, 1995 27,750 $2.99
Number exercisable thereafter 195,000 $3.13
</TABLE>
As of September 30, 1995 warrants for an aggregate 2,723,300 shares
have been awarded, including warrants for an aggregate 200,000
shares awarded during the quarter. There were no warrants exercised
or surrendered during the quarter ended September 30, 1995.
The following table summarizes warrants outstanding for the
purchase of shares of the Company's Common Stock as of the quarter
ended September 30, 1995:
WARRANTS
<TABLE>
<CAPTION>
Titles of Securities Shares Subject Weighted Average
Issuable: Common Stock to Warrants Exercise Price Per Share
- ------------------------------------------ ----------------------- ----------------------------
<S> <C> <C>
Number exercisable at September 30, 1995 2,501,633 $1.36
Number exercisable thereafter 271,667 $1.54
</TABLE>
5. INCOME TAXES
As of September 30, 1995, the Company has federal net operating loss
carryforwards of approximately $1.2 million. If not applied against future
taxable income, the federal net operating loss carryforwards will expire in
the years 2001 through 2010. Changes in the Company's ownership have caused
an annual limitation in the amount of carryforwards that can be utilized. As
of September 30, 1995, the Company has net deferred tax assets of
approximately $3.0 million primarily resulting from deferred start-up costs
and net operating loss carryforwards. In accordance with SFAS 109, a
valuation allowance was recorded to reduce net deferred tax assets to zero.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Since its inception, the Company has been primarily engaged in the
research, development, testing and commercialization of the Padette
Interlabial Pad (the Padette-trademark-) and, to a lesser degree, other
products. During the second quarter of fiscal year 1995, the Company
resumed manufacturing of the Padette. The Company had no significant sales
of the Padette or other revenue from operations through the third
quarter of fiscal year 1995. The Company had no sales of products or
other revenues from operations in fiscal year 1994. Management can
not presently predict revenues from the Padette or products of the Company.
The Company's manufacturing facility is complete and capable of supplying
anticipated demand through first quarter 1996. In addition, the Company
is in the process of increasing capacity to meet the anticipated increases
in future quarters. The increased capacity will result from the planned
addition of two state-of-the-art manufacturing lines, a second horizontal
cutting and wrapping machine and a high speed cartoner during the
fourth quarter of fiscal year 1995. These manufacturing lines are
presently being designed and built by an independent engineering firm.
During third quarter of fiscal year 1995, the Company enhanced its
manufacturing capabilities with the addition of a modern, high speed,
horizontal cutting and wrapping machine.
At September 30, 1995, the Company had cash and cash equivalents of
$3,425,588 and working capital of $3,488,093. During December 1994, the
Company entered into a $6,000,000 debt and equity financing agreement
with a group of private investors (the December 1994 Financing). As of
June 30, 1995, all of the stock and convertible debentures had been issued
in exchange for $6 million. Under the terms of the December 1994
Financing agreement, as amended, the debentures were converted, at the rate
of one share for each $2.00 of debentures, into shares of the Company's
Common Stock on June 28, 1995. Management intends to allocate
approximately $4 million of the funds provided by the December 1994
Financing to production and marketing of the Padette.
The December 1994 Financing provided the Company with sufficient funds to
introduce the Padette to one regional market in early 1996 and pursue its
other plans for fiscal year 1995. The Company will need to pursue additional
sources of debt and equity funding in order to introduce the Padette to
other markets. The Company's ability to raise additional funds may be
dependent on the first quarter of fiscal year 1996 product rollout.
PLANS FOR THE PADETTE--TWELVE MONTHS
In February 1995 the Company completed the construction of its
manufacturing facility, including installation of equipment, in proximity
to the Company's headquarters in Portland, Oregon. Production during
third quarter of fiscal year 1995 was used to meet the sample and direct
marketing sales needs for the Company through 1995, preparation of the
first quarter of fiscal year 1996 retail rollout and anticipated sales
orders resulting from the Company's marketing efforts.
As of June 30, 1995, the Company had shipped 1.2 million Padettes to a
Chinese distributor and has received partial payment. Additional
anticipated orders have not yet materialized. The Company continues
to explore international marketing opportunities. There can be no
assurances, however, that the Company's international marketing efforts
will be successful.
The Company's sales and marketing strategy includes a regional United
States rollout of the Padette beginning in the first quarter of fiscal
year 1996. The southeast region of the United States
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has been identified for the initial rollout. Management intends to
utilize a direct marketing approach in its regional rollout of the Padette.
PLANS FOR OTHER PRODUCTS - TWELVE MONTHS
The Company continues to develop the Tampette-trademark- collection device
and the AWARE-trademark- pregnancy test (the Pregnancy Test). The
remaining development costs are not expected to exceed $135,000. Marketing
efforts and revenues are not expected for either product line in
fiscal year 1995. The Company believes the December 1994 Financing has
provided sufficient funds to fulfill its research and development goals for
1995.
STAFFING PLAN - TWELVE MONTHS
The Company has fifteen full-time and four part-time employees as of
September 30, 1995 and is pursuing employment of a small number of additional
employees and consultants as necessary. The Company intends to contract with
or hire appropriate personnel as business demands require.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The settlement and release with Mark T. Waller referenced in the Company's
Form 10-QSB for second quarter 1995 occurred in third quarter 1995. The
warrants issued to Mr. Waller and his attorney as part of that settlement
are referenced in note 3 to the Company's financial statements, above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the quarter ended September 30, 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
A Financial Data Schedule is being submitted as an exhibit to the
electronic filing of this report, but not as an exhibit to this
document.
b) Reports on Form 8-K
No report on Form 8-K was to be filed by the Company during the
quarter ended September 30, 1995.
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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.
ATHENA Medical Corporation
S/WILLIAM H. FLEMING
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Date: November 14, 1995 William H. Fleming
President & Chief Operating Officer
S/DAVID S. PORTER
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Date: November 14, 1995 David S. Porter
Acting Chief Financial Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Part 1-
Financial Information and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 3425588
<SECURITIES> 0
<RECEIVABLES> 28046
<ALLOWANCES> 0
<INVENTORY> 91700
<CURRENT-ASSETS> 3615000
<PP&E> 472576
<DEPRECIATION> 68748
<TOTAL-ASSETS> 4153388
<CURRENT-LIABILITIES> 126882
<BONDS> 0
<COMMON> 89282
0
0
<OTHER-SE> 3937224
<TOTAL-LIABILITY-AND-EQUITY> 4153388
<SALES> 48467
<TOTAL-REVENUES> 48467
<CGS> 63174
<TOTAL-COSTS> 63174
<OTHER-EXPENSES> 3098033
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3090023)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3090023)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3093323)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> 0
</TABLE>
