<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, 1997
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 (dba A-FEM Medical Corporation)
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(Each name of small business issuer as specified in its charter)
Nevada 33-0202574
--------------------------------- -----------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10180 SW Nimbus Ave., Suite J5
Portland, OR 97223
--------------------------------------------
(Address of principal executive offices)
(503) 968-8800
--------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
---- ----
As of March 31, 1997, the issuer had outstanding 10,717,414 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 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 three months ended March 31, 1997, are not necessarily
indicative of results to be expected for the entire year.
Page 2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
ATHENA MEDICAL CORPORATION
dba A-FEM Medical Corporation
BALANCE SHEETS
as of March 31
(unaudited)
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,138,561 $ 1,220,043
Restricted Cash 133,127 -
Accounts Receivable, trade 11,966 150,415
Inventory 192,586 327,236
Prepaids and Other 168,012 398,196
-------------- -------------
Total Current Assets 1,644,252 2,095,890
EQUIPMENT, FURNITURE and LEASEHOLDS, at cost 852,690 717,993
Less: Accumulated Depreciation (269,794) (129,377)
-------------- -------------
582,896 588,616
PATENTS and LICENSES, net 32,452 49,440
LOANS RECEIVABLE - Officers and Directors 56,098 118,490
-------------- -------------
Total Assets $ 2,315,698 $ 2,852,436
-------------- -------------
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 227,991 $ 321,025
Current Portion of Capital Lease Obligation 212,700 144,294
Accrued Expenses 14,151 38,000
Accrued Salaries and Related Liabilities 238,861 20,241
Accrued Settlement for Litigation 240,000 -
-------------- -------------
Total Current Liabilities 933,703 523,560
Long-Term Portion of Capital Lease Obligation 165,210 155,137
-------------- -------------
Total Liabilities 1,098,913 678,697
STOCKHOLDERS' EQUITY
Common Stock, $0.01 par value, authorized 33,000,000
shares; issued 10,717,414 and 8,948,243 shares 107,174 89,482
Additional Paid-in Capital 11,480,523 8,499,708
Accumulated Deficit (10,370,912) (6,415,451)
-------------- -------------
Total Stockholders' Equity 1,216,785 2,173,739
-------------- -------------
Total Liabilities and Stockholders' Equity $ 2,315,698 $ 2,852,436
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
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<PAGE>
ATHENA MEDICAL CORPORATION
dba A-FEM Medical Corporation
STATEMENTS OF OPERATIONS
(unaudited)
For the three months ended
March 31
------------------------------------
1997 1996
------------------------------------
------------------ -----------------
Sales, net $ 11,803 $ 149,970
Cost of Sales (9,815) (52,863)
------------------ -----------------
Gross Margin 1,988 97,109
Operating Expenses:
General and Administrative 637,387 1,110,158
------------------ -----------------
Net Loss $635,399 $1,013,051
------------------ -----------------
------------------ -----------------
Net Loss Per Share $ 0.06 $ 0.11
------------------ -----------------
------------------ -----------------
Weighted Average Shares Outstanding 10,453,502 8,948,243
------------------ -----------------
------------------ -----------------
The accompanying notes are an integral part of these statements.
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<PAGE>
ATHENA MEDICAL CORPORATION
dba A-FEM Medical Corporation
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
(unaudited)
<TABLE>
<CAPTION>
For the three months
ended March 31
---------------------------------------
1997 1996
-------------------- -----------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (635,399) $(1,013,051)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 33,963 33,651
Loss on disposal of assets 4,470 -
Changes in working capital:
Restricted cash 26,248 -
Accounts receivable 18,806 (148,350)
Inventory (1,768) (167,616)
Prepaid expenses and other (12,070) (171,349)
Accounts payable (21,481) 124,477
Accrued salaries and related liabilities (53,632) 4,522
Accrued expenses (46,737) (32,000)
-------------------- -----------------
Net cash used in operating activities (713,849) (1,369,716)
Cash Flows From Investing Activities:
Purchases of equipment, furniture and leaseholds - (173,714)
-------------------- -----------------
Net cash used in investing activities - (173,714)
Cash Flows From Financing Activities:
Repayment to notes receivable 67,995 -
Net proceeds from long-term debt, net of repayments 3,865 299,432
Proceeds from sale of Common Stock 1,082,807 -
-------------------- -----------------
Net cash provided by financing activities 1,154,667 299,432
-------------------- -----------------
Net Increase (Decrease) in Cash and Cash Equivalents 467,066 (1,243,998)
Cash and Cash Equivalents, beginning of period 671,495 2,464,041
-------------------- -----------------
Cash and Cash Equivalents, end of period $1,138,561 $ 1,220,043
-------------------- -----------------
-------------------- -----------------
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
ATHENA MEDICAL CORPORATION
dba A-FEM Medical Corporation
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
1. ORGANIZATION OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION OF THE COMPANY
ATHENA Medical Corporation, (dba A-FEM Medical Corporation) (the "Company")
is an emerging growth biotechnology Company focused on the development of
proprietary women's healthcare technologies. The Company's principal
business is the development of medical diagnostic tools for the detection of
conditions affecting women's health. Additionally, the Company manufactures
and/or markets consumer products that support its strategic goals.
The Company's diagnostic development efforts are focused on two principal
technologies: the Rapid-Sense-TM- Semi-Quantitative Measurement Technology
("Rapid-Sense") and the PadKit-TM- Menses Collection Kit ("PadKit"). The
Rapid-Sense core technology will bring semi-quantitative laboratory testing
to the over-the-counter (OTC) marketplace. Applications include timely,
accurate and cost-effective tests to detect pregnancy, monitor osteoporosis
therapy and screen for tumor markers and infectious diseases. The
Rapid-Sense core technology would also be used to develop custom assays for
pharmaceutical company partners to facilitate new drug development. The
PadKit is designed as an alternative to the cervical scrape by providing a
quality pap test sample for the detection of cervical cancer as well as other
female cancers and diseases. Both the Rapid-Sense and PadKit technologies
are in the development phase.
The Company's consumer products include the Fresh 'n Fit-Registered
Trademark-Padette-TM- (the "Padette"), interlabial pads, a unique innovation
in feminine protection, and Affirm, a rapid one-step home pregnancy test.
The Padette establishes an entirely new segment of the $2 billion feminine
protection category by offering women a comfortable and convenient external
protection alternative. In addition to having significant potential in the
consumer market, the Padette will be a core element of the PadKit. Affirm is
a high quality, low cost entrant in the pregnancy test market and establishes
the Company's position in the OTC and professional diagnostic markets. Both
of these products are FDA approved for marketing.
The Company holds an exclusive worldwide license to the initial U.S. and
foreign patents covering the Padette, and has additional patents of its own
on the product. Although the Company marketed the Padette during 1995 and
1996, the Company has not generated any significant sales of the product to
date. The Company introduced a second revenue-generating product in 1996:
Affirm, a rapid one-step pregnancy test. This product is available
domestically and internationally for over-the-counter and professional
markets. During the first quarter of 1997, the Company made an initial sale
of 10,000 Affirm pregnancy tests to a customer in South America. In April of
1997, the Company received its first domestic sales order for the Affirm
test. Irrespective of these sales, the Company has not generated any
significant revenues from its initial sales of the Affirm product to date,
nor are there any assurances that future sales will occur. Concurrently, the
Company is engaged in expanding its diagnostic research and development
activities that are aimed at the commercialization of other healthcare
products for women.
The Company has experienced significant operating losses, and has not
established a history of revenues from product sales, nor is there any
assurance of future 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 its ability to raise operating funds in the past by securing
investments in its Common Stock. During 1996, the Company raised over $1.7
million in equity financing from various groups
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of private investors in exchange for shares of the Company's Common Stock.
During the first quarter of 1997, the Company received from various groups of
private investors approximately $1.1 million in equity financing, in exchange
for shares of the Company's Common Stock. The Company's current financing
should satisfy the Company's anticipated cash requirements through August
1997. The Company anticipates having to raise additional capital in order to
meet costs associated with marketing, research and development and related
administrative activities. If the Company is unable to obtain adequate
additional financing, enter into a successful 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 the
information presented not misleading. It should be noted that operating
results for the periods presented are not necessarily indicative of future
results. These financial statements should be read in conjunction with the
financial statements and notes to financial statements included in the
Company's annual report on Form 10-KSB for the year ended December 31, 1996.
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.
Under terms of a licensing agreement, the Company assumed an obligation to
pay royalties to an investor (who is a non-controlling stockholder) based on
varying percentages of up to five percent of net sales of the Padette through
February 1998.
2. 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
non-employee 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 may only be awarded 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, 1997, options for a total of 2,253,780 shares have been
awarded, 73,500 have been exercised, and 2,180,280 are outstanding. Of the
number awarded and outstanding, 1,967,530 are qualified stock options, and
212,750 are non-qualified stock options. There were no options granted, no
options exercised and 62,750 options surrendered during the quarter ended
March 31, 1997.
The following summarizes outstanding options for shares of the Company's
Common Stock as of the quarter ended March 31, 1997:
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<TABLE>
<CAPTION>
QUALIFIED STOCK OPTIONS
Titles of Securities Weighted Average
Issuable: Common Stock Shares Under Option Exercise Price Per Share
- ---------------------------------------- ---------------------- --------------------------
<S> <C> <C>
Number exercisable at March 31, 1997: 1,721,030 $1.25
Number exercisable thereafter 246,500 $3.75
NON-QUALIFIED STOCK OPTIONS
Titles of Securities Weighted Average
Issuable: Common Stock Shares Under Option Exercise Price Per Share
- ---------------------------------------- ---------------------- --------------------------
Number exercisable at March 31, 1997: 75,250 $2.91
Number exercisable thereafter 137,500 $2.86
</TABLE>
As of March 31, 1997, warrants for an aggregate of 3,293,416 shares have been
awarded. There were 50,000 warrants granted, 59,500 warrants exercised and
48,334 warrants surrendered during the quarter ended March 31, 1997.
The following table summarizes warrants outstanding for the purchase of shares
of the Company's Common Stock as of the quarter ended March 31, 1997:
<TABLE>
<CAPTION>
WARRANTS
Titles of Securities Shares Subject Weighted Average
Issuable: Common Stock to Warrants Exercise Price Per Share
- ---------------------------------------- ---------------------- --------------------------
<S> <C> <C>
Number exercisable at March 31, 1997: 3,293,416 $1.97
</TABLE>
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's strategy is to be a leading innovator in the women's healthcare
arena through the development of broadly enabling proprietary technologies.
Research and development efforts will be funded through the sale of the
Company's consumer products and contract relationships. Developing a strong
consumer business, built primarily on the Padette, is strategic for current
and future products which have both OTC and professional applications. The
Company is currently exploring strategic alliances to bolster its position
in the diagnostic and consumer markets.
The Company introduced the Padette into the United States retail distribution
market during 1996. The Company used a direct market approach to test market
the Padette in Florida, and has achieved distribution in over 350 Walgreen
stores. The Company also sold a bulk shipment of 3.2 million Padettes for
distribution into the Chinese market during the first quarter of 1996. The
Company, however, had no significant sales of the Padette in either 1996 or
1995.
The Company sells the Padette to consumers through its direct marketing
efforts consisting of newspaper and magazine advertisements, presentations at
trade show and toll-free telephone numbers. The Company's direct marketing
efforts are intended to develop awareness of the product rather than provide
a significant source of revenue.
In September 1996, the Company received FDA clearance to market its Affirm
one-step home pregnancy test. The Company is currently negotiating with
domestic private label manufacturers in the over-the-counter and professional
markets with respect to the Affirm one-step pregnancy test. The Company is
also in negotiations with international companies to establish distribution
agreements for the Affirm test. During the first quarter of 1997, the
Company made an initial sale of 10,000 Affirm pregnancy tests to a
distributor in South America. Subsequently (in April of 1997), the company
received its first domestic sales order for Affirm test. Irrespective of
these orders, the Company has not generated any significant revenues from its
initial sales of the Affirm product to date, and there are no assurances that
the Company will be successful in introducing and marketing the product.
In spite of FDA clearance, the Company's ability to commercialize its
products successfully is subject to the risks inherent in new products.
These risks include uncertainties whether the product, once developed, can be
successfully manufactured and marketed or will be commercially successful.
Moreover, the costs of developing and introducing new products cannot be
reliably forecast and may substantially exceed the Company's expectations and
financial resources. Delays in development of the Company's products may
result in a later than anticipated introduction, which could have a material
adverse effect on the Company.
During 1997, the Company intends to develop marketing and sales plans for a
regional roll out of the Padette in a major market in the United States
beginning in early 1998. The Company believes this market launch will be the
first in a broad scale roll-out of the Padette.
The Company's manufacturing line is currently capable of producing
approximately 200 million Padettes per year. The Company anticipates
increasing its current production line from one to two lines during 1997.
With the addition of another production line, and assuming the operation of
three shifts per line, the Company's maximum Padette production capacity is
anticipated to be approximately 400 million per year. The addition of
another production line should enable the Company to meet the anticipated
sales growth of the Padette, if any, for 1997 and into 1998.
During September 1996, the Company also announced the development of Natural
Padettes, a 100 percent biodegradable feminine protection product. Samples of
this product have been supplied to potential strategic partners for marketing
evaluation. A U.S. patent covering this new product was issued in September
1996.
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During 1996, the Company began initial feasibility studies of the PadKit.
Cost for initial diagnostic products and associated developments expenses are
not expected to exceed $500,000 in 1997. Initial prototypes are anticipated
for field testing by year-end. Marketing efforts and revenues are not
expected for the PadKit in 1997.
The Company is investigating several applications of the Rapid-Sense core
technology: pregnancy testing, osteoporosis therapy monitoring, tumor marker
and infectious disease screening. Some Rapid-Sense applications may begin
multi-center clinical studies as early as the fourth quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had cash and cash equivalents of $1,271,688
and working capital of $710,549.
During the quarter ended March 31, 1997, the Company incurred losses of
$635,399. The Company expects losses to continue during 1997 as the costs of
marketing, research and development and related administrative activities are
expected to exceed income from product sales. These losses are expected to
be funded from the Company's revenues, cash reserves and future financing, if
any. The Company expects to raise additional funds through equity and/or debt
financing for the development, manufacturing and marketing of its planned
products. These funds may not be available or available on terms favorable
to the Company or its shareholders. The inability of the Company to obtain
such financing could adversely affect the Company.
Certain statements in this Form 10-QSB contain "forward-looking" information
(as defined in Section 27A of the Securities Act of 1933, as amended) that
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, the impact of competitive
products and pricing and the risk factors listed from time to time in the
Company's SEC reports, including but not limited to, the Company's report on
Form 10-KSB for the fiscal year ended December 31, 1996.
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PART II - OTHER INFORMATION
Item 5. OTHER INFORMATION
In February 1997, John Perry voluntarily and without disagreement
resigned as a member of the Board. His employment with the Company
was terminated effective February 28, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
3.1 Articles of incorporation*
3.2 Bylaws**
11.1 Statement Re: computation of per share earnings
27.1 Financial Data Schedule
*Incorporated by reference from the exhibit filing to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1994.
**Incorporated by refernce from the exhibit filings to the Company's
Annual Report on Forms 10-KSB for the years ended December 31, 1994
and December 31, 1996.
b) Reports on Form 8-K
NONE.
-------------------------
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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, 1997 William H. Fleming
President , Chief Operating
Officer, Secretary and Director
(principal executive officer)
S/KIMBERLY L. MICK
------------------------------
Date: May 14, 1997 Kimberly L. Mick
Acting Chief Financial Officer
(principal financial officer and
principal accounting officer)
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Exhibit 11.1
ATHENA MEDICAL CORPORATION
CALCULATIONS OF NET INCOME PER SHARE
For the three months ended
March 31
------------------------------
1997 1996
-------------- --------------
Actual weighted average shares outstanding
for the period 10,453,502 8,948,243
Dilutive common stock options and warrants
using the treasury stock method(1) - -
-------------- --------------
Total shares used in per share calculations 10,453,502 8,948,243
-------------- --------------
Net loss $635,399 $1,013,051
-------------- --------------
Net loss per share $0.06 $0.11
-------------- --------------
-------------- --------------
(1) Options and warrants outstanding are not included as the effect would
be anti-dilutive.
Page 13
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,271,688
<SECURITIES> 0
<RECEIVABLES> 11,966
<ALLOWANCES> 0
<INVENTORY> 192,586
<CURRENT-ASSETS> 1,644,252
<PP&E> 852,690
<DEPRECIATION> (269,794)
<TOTAL-ASSETS> 2,315,698
<CURRENT-LIABILITIES> 933,703
<BONDS> 0
0
0
<COMMON> 107,174
<OTHER-SE> 11,480,523
<TOTAL-LIABILITY-AND-EQUITY> 2,315,698
<SALES> 11,803
<TOTAL-REVENUES> 11,803
<CGS> 9,815
<TOTAL-COSTS> 9,845
<OTHER-EXPENSES> 637,387
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,464
<INCOME-PRETAX> (635,399)
<INCOME-TAX> (0,06)
<INCOME-CONTINUING> (635,399)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (635,399)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0
</TABLE>
