<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 June 30, 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
-----------------------------------------------------------------
(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
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(Address of principal executive offices)
(503) 968-8800
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(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 June 30, 1996, the issuer had outstanding 8,978,243 shares
of its $.01 par value Common Stock.
Transitional Small Business Disclosure Format: (Check one) Yes ; No X
---- ----
Page 1
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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 the 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 six months ended June 30, 1996, are not necessarily
indicative of results to be expected for the entire year.
Page 2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
ATHENA MEDICAL CORPORATION
BALANCE SHEETS
as of June 30
(unaudited)
1996 1995
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 134,095 $4,378,482
Accounts Receivable, trade 8,451 28,000
Inventory 388,316 61,710
Prepaids and Other 282,355 51,393
---------- ----------
Total Current Assets 813,217 4,519,585
EQUIPMENT, FURNITURE and LEASEHOLDS, at cost 787,638 228,884
Less: Accumulated Depreciation (167,859) (45,066)
---------- ----------
619,779 183,818
PATENTS and LICENSES, net 47,602 21,398
LOANS RECEIVABLE - Officers and Directors 120,219 109,247
---------- ----------
Total Assets $1,600,817 $4,834,048
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 140,234 $ 58,837
Current Portion of Notes Payable1 45,698 --
Accrued Expenses 16,200 --
Accrued Salaries and Related Liabilities 17,785 1,139
---------- ----------
Total Current Liabilities 319,917 59,976
Long-Term Notes Payable 161,854 --
---------- ----------
Total Liabilities 481,771 59,976
STOCKHOLDERS' EQUITY
Common Stock, $0.01 par value, authorized
33,000,000 shares; issued 8,978,243 and
8,928,243 shares 89,782 89,282
Additional Paid-in Capital 8,514,308 7,984,238
Accumulated Deficit (7,485,044) (3,299,448)
---------- ----------
Total Stockholders' Equity 1,119,046 4,774,072
---------- ----------
Total Liabilities and Stockholders' Equity $1,600,817 $4,834,048
---------- ----------
---------- ----------
The accompanying notes are an integral part of these balance sheets.
Page 3
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ATHENA MEDICAL CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
For the three months For the six months
ended ended
June 30 June 30
1996 1995 1996 1995
---------- ---------- ---------- ----------
Sales, net $ 5,831 $ 48,000 $ 155,801 $ 48,000
Cost of Sales 1,832 54,818 54,695 54,818
---------- ---------- ---------- ----------
Gross Margin 3,999 (6,818) 101,106 (6,818)
Gain on Sale of Equity
Securities -- 22,692 -- 22,692
Operating Expenses:
General and Administrative (A) 1,073,592 1,167,451 2,183,750 2,109,031
---------- ---------- ---------- ----------
Net Loss $1,069,593 $1,151,577 $2,082,644 $2,093,157
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net Loss Per Share $0.12 $0.16 $0.23 $0.30
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted Average
Shares Outstanding 8,956,484 6,975,077 8,952,363 6,914,743
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The accompanying notes are an integral part of these statements.
(A) Including $393,333 for the six months ended June 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 six months
ended ended
June 30 June 30
----------------------- ------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(1,069,593) $(1,151,577) $(2,082,644) $(2,093,157)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization 40,320 29,593 77,060 36,115
Amortization of deferred financing fee -- 125,000 -- 200,000
Services received for options and warrants
issued -- 360,384 -- 393,333
Loss on valuation of equity securities -- -- -- 50,280
Gain on sale of equity securities -- (22,692) -- (22,692)
Changes in working capital:
Accounts receivable 141,964 (28,000) (6,386) (28,000)
Prepaid expenses and other 115,842 (2,155) (23,865) (26,004)
Inventory (61,080) 7,803 (228,696) (17,621)
Accounts payable (180,791) (86,584) (56,314) (125,609)
Accrued salaries and related liabilities (2,456) (14,159) 2,066 (44,919)
Accrued expenses (21,800) -- (53,800) --
---------- ---------- ---------- ----------
Net cash (used) in operating activities (1,037,594) (782,387) (2,372,579) (1,678,274)
Cash Flows From Investing Activities:
Purchases of equipment, furniture and leaseholds (69,645) (7,858) (243,359) (55,825)
Proceeds from sales of equity securities -- 62,917 -- 62,917
---------- ---------- ---------- ----------
Net cash provided (used) in investing
activities (69,645) 55,059 (243,359) 7,092
Cash Flows From Financing Activities:
Additions to notes receivable, net of repayments (1,729) 10,753 (3,459) 10,753
Net proceeds from sale of Common Stock,
exercise of options, and receipt of payment
on subscription receivable 14,900 23,625 (18,100) 123,625
Proceeds from (repayments of) convertible
debentures and notes payable -- 2,000,000 -- 1,996,700
Net proceeds from long-term debt, net of
repayments 8,120 -- 307,551 --
---------- ---------- ---------- ----------
Net cash provided by financing activities 21,291 2,034,378 285,992 2,131,078
---------- ---------- ---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents (1,085,948) 1,307,050 (2,329,946) 459,896
Cash and Cash Equivalents, beginning of period 1,220,043 3,071,432 2,464,041 3,918,586
---------- ---------- ---------- ----------
Cash and Cash Equivalents, end of period $ 134,095 $4,378,482 $ 134,095 $4,378,482
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Supplemental Schedule of Non-Cash
Financing Activities:
Issuance of Common Stock in exchange
for convertible debentures -- $4,000,000 -- $4,000,000
</TABLE>
The accompanying notes are an integral part of these statements.
Page 5
<PAGE>
ATHENA MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 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 the United States retail distribution
market 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 customer in China.
The Company has experienced significant operating losses, and does not have a
history of significant revenues from product sales, nor is there any
assurance of future significant revenues. The Company contemplates that
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 ability to acquire 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 investments in its Common Stock of approximately $7.4 million
through June 30, 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 interim financial data is unaudited; however, in the opinion of
management, the interim data includes 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 the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, 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 the Company
believes that the disclosures included herein are adequate to make
information presented not misleading. It should be noted that operating
results for the periods presented are not necessarily indicative of the
results to be expected for the year ended December 31, 1996. For further
information, refer to the financial statements and notes to financial
statements included in the Company's annual report on Form 10-KSB for the
year ended December 31, 1995.
PER SHARE DATA
The net loss per share was computed by dividing net loss by
the weighted average number of shares of the Company 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.
Page 6
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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 June 30, 1996, and 1995, due to the Company'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 at June 30:
1996 1995
------------ ------------
Raw Materials $ 86,922 $ 43,334
Work In Process 120,884 --
Finished Goods 180,510 18,376
------------ ------------
$ 388,316 $ 61,710
------------ ------------
------------ ------------
3. INDEBTEDNESS
LONG-TERM DEBT CONSISTS OF THE FOLLOWING AT JUNE 30, 1996:
Unsecured note at 8%, due 1996 $ 25,852
Secured lease at 14.79%, due 1998 90,356
Secured lease at 9.75%, due 1999 10,973
Secured lease at 14.45%, due 1999 129,756
Secured lease at 14.73%, due 1999 50,615
Less current maturities 145,698
------------
Total long-term debt $ 161,854
------------
------------
The Company has entered into a financing arrangement (reflected by the
unsecured note listed above), for the purpose of securing directors and
officers insurance for fiscal year 1996. Certain collateralized equipment is
leased by the Company, which obligations are reflected by the secured leases
as noted above. These leases are used for the research and development of
new products and for the manufacturing and production of the Fresh 'n
Fit-Registered Trademark- Padette.
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4. ROYALTIES
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 the Fresh 'n
Fit-Registered Trademark- Padette through April, 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 June 30, 1996, and since the Plan's inception, options for a total of
2,269,030 shares have been awarded, 53,500 have been exercised, and 2,215,530
are outstanding. Of the number awarded and outstanding, 2,052,780 are
qualified stock options, and 162,750 are non-qualified stock options. There
were 125,000 options granted, 20,000 options exercised and 26,000 options
which were surrendered during the quarter ended June 30, 1996.
The following summarizes outstanding options for shares of the Company's
Common Stock as of the quarter ended June 30, 1996:
QUALIFIED STOCK OPTIONS
Titles of Securities Weighted Average
Issuable: Common Stock Shares Under Option Exercise Price Per Share
- ---------------------- ----------------------- --------------------------
Number exercisable at
June 30, 1996 1,614,530 $0.96
Number exercisable
thereafter 438,250 $3.64
NON-QUALIFIED STOCK OPTIONS
Titles of Securities Weighted Average
Issuable: Common Stock Shares Under Option Exercise Price Per Share
- ---------------------- ----------------------- --------------------------
Number exercisable at
June 30, 1996 62,750 $3.07
Number exercisable
thereafter 100,000 $3.13
As of June 30, 1996, warrants for an aggregate 3,602,900 shares have been
awarded, including warrants for an aggregate 260,000 shares awarded during
the quarter. There were 10,000 warrants exercised and no warrants were
surrendered during the quarter ended June 30, 1996.
The following table summarizes warrants outstanding for the purchase of
shares of the Company's Common Stock as of the quarter ended June 30, 1996:
WARRANTS
Titles of Securities Shares Subject Weighted Average
Issuable: Common Stock to Warrants Exercise Price Per Share
- ---------------------- ----------------------- --------------------------
Number exercisable at
June 30, 1996 3,416,164 $1.90
Number exercisable
thereafter 186,736 $1.94
Page 8
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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 Fresh 'n Fit-Registered
Trademark- interlabial pad (the "Padette") and, to a lesser degree, other
products.
In preparation for the Company's introduction into the domestic retail
market, the Company has increased inventory levels to meet expected demand
from mass merchant customers.
The Company's manufacturing domestic facility is complete and capable of
supplying anticipated demand through the fiscal year ending 1996. The
Company has scheduled the delivery of two state-of-the-art manufacturing
lines and two end-line cartoners during the third quarter of 1996 to meet
expected 1997 demand. The Company is also negotiating with its customer in
China to establish a production facility in China, capable of meeting the
Asian market demand.
For the six months ended June 30, 1996, the Company has installed and
financed production equipment for the purpose of manufacturing and production
of the Padette. In addition, the Company has installed and financed research
and development equipment for the purposes of researching and developing new
products.
RESULTS OF OPERATIONS
Net sales for the six months ended June 30, 1996 increased to $155,801 from
the $48,000 for the same period in 1995. The primary increase was due to a
single sale of $144,000 by the Company of its Fresh 'n Fit-Registered
Trademark- Padettes to its customer in the People's Republic of China and
domestic retail sales by the Company in the southeast region of the United to
mass merchant customers totaling approximately $8,000.
The Company has continuing sales to consumers of its Padette through its
direct marketing efforts consisting of newspaper and magazine advertisements,
presentations at trade shows and toll free telephone numbers. The Company's
direct marketing efforts are intended to develop awareness of the Padette
rather than provide a significant source of revenue.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had cash and cash equivalents of $134,095 and
working capital of $493,300.
The Company has engaged investment bankers in connection with seeking through
a private placement of approximately $7 to $10 million in equity. The
Company has separately arranged for up to approximately $1 million of equity
bridge financing.
Certain statements in the Form 10-QSB contain "forward-looking" information
(as defined in the Private Securities Litigation Reform Act of 1995) that
involve risks and uncertainties, including, but not limited to, the effect of
economic conditions, lack of revenues from products, product development,
operating losses, results of financing efforts, availability and cost of raw
materials and labor, potential need for additional capital equipment, market
acceptance risks, risks of international business and the impact of
competitive products and pricing.
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PART II - OTHER INFORMATION
Item 6.EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
3.1 Articles of incorporation*
3.2 By laws*
27.1 Financial Data Schedule
b) Reports on Form 8-K
NONE.
-----------------
* Incorporated by reference to the Company's Statement on Form 10KSB for the
year ended December 31, 1994.
Page 10
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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
Date: August 7, 1996 /s/ William H. Fleming
------------------------------------
William H. Fleming
President & Chief Operating Officer
(principal executive officer)
Date: August 7, 1996 /s/ Kimberly L. Mick
------------------------------------
Kimberly L. Mick
Acting Chief Financial Officer
Page 11
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Exhibit 11
ATHENA MEDICAL CORPORATION
CALCULATIONS OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
For the three months For the six months
ended ended
June 30 June 30
-------------------- ---------------------
1996 1995 1996 1995
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Actual weighted average shares
outstanding for the period 8,956,484 6,975,077 8,952,363 6,914,743
Dilutive common stock options
and warrants using the treasury
stock method(1) -- -- -- --
--------- --------- ---------- ---------
Total shares used in per share
calculcations 8,956,484 6,975,077 8,952,363 6,914,743
--------- --------- ---------- ---------
Net loss 1,069,593 1,151,577 2,082,644 2,093,157
--------- --------- ---------- ---------
Net loss per share $0.12 $0.16 $0.23 $0.30
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>
(1) Warrants and options outstanding are not included as the effect would
be anti-dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 134,095
<SECURITIES> 0
<RECEIVABLES> 8,451
<ALLOWANCES> 0
<INVENTORY> 388,316
<CURRENT-ASSETS> 813,217
<PP&E> 787,638
<DEPRECIATION> 167,859
<TOTAL-ASSETS> 1,600,817
<CURRENT-LIABILITIES> 319,917
<BONDS> 0
0
0
<COMMON> 89,782
<OTHER-SE> 8,514,308
<TOTAL-LIABILITY-AND-EQUITY> 1,600,817
<SALES> (155,801)
<TOTAL-REVENUES> (155,801)
<CGS> 54,695
<TOTAL-COSTS> 54,695
<OTHER-EXPENSES> 2,183,750
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,082,644)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,082,644)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> 0
</TABLE>
