<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 March 31, 1996
__ 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
ATHENA Medical Corporation
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(Name of small business issuer in its charter)
Nevada 33-0202574
------------------------------ ------------------------------
(State or otherjurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10180 SW Nimbus Ave., Suite J5
Portland, OR 97223
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(Address of principal executive offices)
(503) 968-8800
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(Issuer's telephone number)
10170 SW Nimbus Ave., Suite H1
Portland, OR 97223
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(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 March 31, 1996, the issuer had outstanding 8,948,243 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
The information included herein is unaudited. However, such information
reflects all adjustments (consisting solely of normal, recurring
adjustments) which are, in the opinion of Company's management, necessary
for a fair presentation of the results of operations for the interim
periods. The interim financial information and notes thereto should be
read in conjunction with the Company's latest annual report on Form 10-KSB.
The results of operations for the three months ended March 31, 1996, are
not necessarily indicative of results to be expected for the entire year.
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ITEM 1. FINANCIAL STATEMENTS
ATHENA MEDICAL CORPORATION
BALANCE SHEETS
as of March 31
(unaudited)
1996 1995
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $1,220,043 $3,071,432
Accounts Receivable, trade 150,415 -
Inventory 327,236 69,513
Deferred Financing Fee, net - 125,000
Prepaids and Other 398,116 49,237
---------- ----------
Total Current Assets 2,095,810 3,315,182
EQUITY SECURITIES 80 40,225
EQUIPMENT, FURNITURE and LEASEHOLDS, at cost 717,993 221,026
Less: Accumulated Depreciation (129,377) (17,343)
---------- ----------
588,616 203,683
PATENTS and LICENSES, net 49,440 23,268
LOANS RECEIVABLE - Officers and Directors 118,490 120,000
---------- ----------
Total Assets $2,852,436 $3,702,358
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $321,025 $145,420
Current Portion of Notes Payable 144,294 -
Accrued Expenses 38,000 -
Accrued Salaries and Related Liabilities 20,241 15,298
Convertible Secured Notes Payable - 2,000,000
---------- ----------
Total Current Liabilities 523,560 2,160,718
Long-Term Notes Payable 155,137 -
---------- ----------
Total Liabilities 678,697 2,160,718
STOCKHOLDERS' EQUITY
Common Stock, $0.01 par value, authorized
33,000,000 shares; issued 8,948,243 and
6,914,743 shares 89,482 69,147
Additional Paid-in Capital 8,499,708 3,620,364
Accumulated Deficit (6,415,451) (2,147,871)
---------- ----------
Total Stockholders' Equity 2,173,739 1,541,640
---------- ----------
Total Liabilities and Stockholders' Equity $2,852,436 $3,702,358
---------- ----------
---------- ----------
The accompanying notes are an integral part of these balance sheets.
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ATHENA MEDICAL CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
For the three months ended
March 31
------------------------
1996 1995
----------- -----------
Sales, net $ 149,970 $
Cost of Sales (52,863)
----------- -----------
Gross Margin 97,107
Operating Expenses:
General and Administrative 1,110,158 941,580
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Net Loss $ 1,013,051 $941,580
----------- -----------
----------- -----------
Net Loss Per Share $0.11 $0.14
----------- -----------
----------- -----------
Weighted Ave. Shares Outstanding 8,948,243 6,914,743
----------- -----------
----------- -----------
The accompanying notes are an integral part of these statements.
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ATHENA MEDICAL CORPORATION
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
(unaudited)
For the three months
ended March 31
-----------------------
1996 1995
-----------------------
Cash Flows From Operating Activities:
Net Loss $(1,013,051) $(941,580)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation 33,651 6,522
Amortization of deferred financing fee - 75,000
Services received for options and warrants issued - 32,949
Loss on valuation of equity securities - 50,280
Changes in working capital:
Accounts receivable (148,350) -
Prepaid expenses and other (171,349) (23,849)
Inventory (167,616) (25,424)
Accounts payable 124,477 (39,025)
Accrued salaries and related liabilities 4,522 (30,760)
Accrued expenses (32,000) -
-----------------------
Net cash used in operating activities (1,369,716) (895,887)
Cash Flows From Investing Activities:
Purchases of equipment, furniture and leaseholds (173,714) (47,967)
-----------------------
Net cash used in investing activities (173,714) (47,967)
Cash Flows From Financing Activities:
Net proceeds from sale of Common Stock, exercise of
options, and receipt of payment on subscription
receivable - 100,000
Proceeds from (repayments of)convertible debentures
and notes payable - (3,300)
Net proceeds from long-term debt, net of repayments 299,432 -
-----------------------
Net cash provided by financing activities 299,432 96,700
-----------------------
Net Decrease in Cash and Cash Equivalents (1,243,998) (847,154)
Cash and Cash Equivalents, beginning of period 2,464,041 3,918,586
-----------------------
Cash and Cash Equivalents, end of period $1,220,043 $3,071,432
-----------------------
-----------------------
The accompanying notes are an integral part of these statements.
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ATHENA MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
1. ORGANIZATION OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION OF THE COMPANY
ATHENA Medical Corporation (the Company) manufactures the Fresh n'
Fit-Registered Trademark- Padette (the "Padette"), a female health care
product. The Company entered into United States retail distribution during
the first quarter of 1996. Management has utilized a direct marketing
approach in its initial roll-out of the Padette in the S.E. region of the
United States. The Company also began bulk sales distribution into China,
with an initial shipment of 3.2 million Padettes in the first quarter. The
Company has received additional orders from its customers in China of 26.9
million Padettes through fiscal year 1996, to be paid by confirmed letters
of credit, in U.S. dollars. The next shipment is scheduled for the second
quarter of 1996, and quarterly thereafter.
The Company has experienced significant operating losses. Further, the
Company does not have a history of significant revenues from product sales,
nor is there any assurance of future significant revenues. The Company
contemplates significant ongoing expenditures will be necessary to
successfully implement its business plan, including developing, manufacturing
and marketing its proprietary products. 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 in its Common Stock of approximately $7.4 million
through March 31, 1996; however, there can be no assurance that the Company's
efforts to raise additional funding or enter into a business alliance will be
successful. If the Company is unable to obtain adequate additional
financing, enter into such business alliance or generate sufficient
profitable sales revenues, management may be required to curtail the
Company's product development, marketing activities and other operations.
BASIS OF PRESENTATION
The balance sheets as of March 31, 1996, and 1995, and the statements of
operations and of cash flows for the three months ended March 31, 1996, and
1995, 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 March 31, 1996, and
1995, 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.
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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, TRADEMARK AND LICENSES
Patents, trademark 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 seventeen years.
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 March 31, 1996, and 1995, 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:
1996 1995
---- ----
Raw Materials $140,632 $69,513
Work In Process 39,028 -
Finished Goods 147,576 -
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$327,236 $69,513
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3. INDEBTEDNESS
Long-term debt as follows:
At March 31, 1996
-----------------
Unsecured note at 8%, due 1996 $ 44,794
Secured note at 14.76%, due 1998 102,797
Secured note at 9.75%, due 1999 11,896
Secured note at 14.45%, due 1999 139,944
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$299,431
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Less current maturities (144,294)
--------
Total long-term debt $155,137
--------
--------
The first note above represents a financing agreement with the Company's
insurance agent, for the purpose of securing directors and officers insurance
for fiscal year 1996.
During the quarter ending March 31, 1996, the Company entered into three
lease agreements, as reflected by the last three notes above,
collateralized by equipment, with a leasing company for the purpose of
purchasing production equipment to be utilized in the manufacturing and
production of the Fresh n' Fit-Registered Trademark- Padette.
4. 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.
5. 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 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 March 31, 1996, and since the Plan's inception, options for a total of
2,149,030 shares have been awarded, 33,500 have been exercised, and 2,115,530
are outstanding. Of the number awarded and outstanding, 1,952,780 are
qualified stock options, and 162,750 are non-qualified stock options. There
were no options granted, exercised or surrendered during the quarter ended
March 31, 1996.
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The following summarizes outstanding options for shares of the
Company's Common Stock as of the quarter ended March 31, 1996:
QUALIFIED STOCK OPTIONS
<TABLE>
Titles of Securities Weighted Average
Issuable: Common Stock Shares Under Option Exercise Price Per Share
- ------------------------------------ ------------------- ------------------------
<S> <C> <C>
Number exercisable at March 31, 1996 1,550,780 $ 0.89
Number exercisable thereafter 402,000 $ 3.54
NON-QUALIFIED STOCK OPTIONS
Titles of Securities Weighted Average
Issuable: Common Stock Shares Under Option Exercise Price Per Share
- ------------------------------------ ------------------- ------------------------
Number exercisable at March 31, 1996 27,750 $ 2.99
Number exercisable thereafter 135,000 $ 3.13
</TABLE>
As of March 31, 1996, warrants for an aggregate 3,352,900 shares have been
awarded, including warrants for an aggregate 55,000 shares awarded during the
quarter. There were no warrants exercised or surrendered during the quarter
ended March 31, 1996.
The following table summarizes warrants outstanding for the purchase of
shares of the Company's Common Stock as of the quarter ended March 31, 1996:
WARRANTS
<TABLE>
Titles of Securities Shares Subject Weighted Average
Issuable: Common Stock to Warrants Exercise Price Per Share
- ------------------------------------ ------------------- ------------------------
<S> <C> <C>
Number exercisable at March 31, 1996 3,091,165 $1.62
Number exercisable thereafter 261,735 $2.17
</TABLE>
6. INCOME TAXES
As of March 31, 1996, the Company has federal net operating loss
carryforwards of approximately $1.3 million. If not applied against future
taxable income, the federal net operating loss carryforwards will expire in
the years 2002 through 2011. Changes in the Company's ownership have caused
an annual limitation in the amount of carryforwards that can be utilized. As
of March 31, 1996, the Company has net deferred tax assets of approximately
$3.5 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.
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 Fresh n' Fit-Registered
Trademark- Interlabial Pad (the "Padette") and, to a lesser
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degree, other products. The Company recorded Padette sales of approximately
$150,000 for the quarter ending March 31, 1996, principally from one customer
in the People's Republic of China. Management can not presently predict
revenues from the Padette or other products of the Company.
The Company's manufacturing domestic facility is complete and capable of
supplying anticipated demand through the fiscal year ending 1996. During the
fourth quarter of fiscal year 1995, the Company acquired a second horizontal
cutting and wrapping machine and a high speed cartoner. In addition, the
Company has scheduled for the delivery of two state-of-the-art manufacturing
lines and two end-line cartoners during the third quarter of 1996. The
Company is negotiating with its customer in China to establish a production
facility in China, capable of meeting the Asian market demand.
At March 31, 1996, the Company had cash and cash equivalents of $1,220,043
and working capital of $1,572,251.
PLANS FOR THE PADETTE--TWELVE MONTHS
During the quarter ended March 31, 1996, the Company began its initial United
States roll-out of the Padette in the southeast region of the United States.
Management is also considering a roll-out in the northwest region during
1996. In addition, the Company has entered into a contract with a Chinese
Company to market and sell the Fresh 'n Fit Padette in China. The Company's
Chinese marketing partner has contracted to buy Padettes beginning March,
1996, and quarterly thereafter.
The Company continues to explore domestic and international marketing
opportunities. There can be no assurances, however, that the Company's
marketing efforts will be successful.
PLANS FOR OTHER PRODUCTS - TWELVE MONTHS
The Company continues to develop the Tampette-TM- collection device, the
Affirm pregnancy test, and the AWARE-TM- diagnostics. Marketing efforts and
revenues are not expected for the Tampette-TM- and AWARE-TM- product line in
fiscal year 1996. The Company expects its Affirm pregnancy test to enter
international markets before year end.
STAFFING PLAN - TWELVE MONTHS
The Company has fourteen full-time and two part-time employees as of March
31, 1996, and is pursuing employment of a small number of additional
employees and consultants as necessary to support its marketing and sales
efforts. The Company intends to contract with or hire appropriate personnel
as business demands require.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments in the litigation filed by Kassia
International Incorporated (reported in the Company's Form 10-KSB for the
year ended December 31, 1995).
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 March 31, 1996.
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 filed by the Company during the quarter
ended March 31, 1996.
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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
-----------------------------------
Date: May 14, 1996 William H. Fleming
President & Chief Operating Officer
(principal executive officer)
S/ DAVID S. PORTER
-----------------------------------
Date: May 14, 1996 David S. Porter
Vice President & Chief Financial Officer
(principal financial officer)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,220,043
<SECURITIES> 80
<RECEIVABLES> 150,415
<ALLOWANCES> 0
<INVENTORY> 327,236
<CURRENT-ASSETS> 2,095,810
<PP&E> 717,993
<DEPRECIATION> 129,377
<TOTAL-ASSETS> 2,852,436
<CURRENT-LIABILITIES> 523,560
<BONDS> 0
0
0
<COMMON> 89,482
<OTHER-SE> 8,499,708
<TOTAL-LIABILITY-AND-EQUITY> 2,852,436
<SALES> (149,970)
<TOTAL-REVENUES> (149,970)
<CGS> 52,863
<TOTAL-COSTS> 52,863
<OTHER-EXPENSES> 1,110,158
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,013,051)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,013,051)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> 0
</TABLE>
