10QSB 1 a10qsb.txt FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from __________ to __________ Commission file number 0-21846 AETHLON MEDICAL, INC. --------------------- (Exact name of registrant as specified in its charter) NEVADA 13-3632859 ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7825 FAY AVENUE, SUITE 200, LA JOLLA, CA 92037 ------------------------------------------ -------------- (Address of principal executive offices) (Zip Code) (858) 456-5777 -------------------------- (Registrant's telephone number, including area code) 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 X No . --- --- Number of shares of common stock outstanding on June 30, 2000 2,771,652 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Balance Sheets (unaudited) at June 30, 2000 And March 31, 2000 Consolidated Statements of Operations (unaudited) for the three months ended June 30, 2000 and June 30, 1999 Consolidated Statements of Cash Flows (unaudited) for the three months ended June 30, 2000 and June 30, 1999 Consolidated Statement of Stockholders' Deficiency (unaudited) Notes to Consolidated Financial Statements ITEM 2. Management's Discussion and Analysis or Plan of Operation PART II. OTHER INFORMATION SIGNATURES 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 3 AETHLON MEDICAL, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS
June 30, March 31, 2000 2000 (unaudited) ASSETS CURRENT ASSETS Cash $ 22,878 $ 217,017 Accounts receivable 69,011 61,495 Prepaid expenses 26,948 36,940 Employee advances 12,200 15,800 ----------- ----------- Total current assets 131,037 331,252 PROPERTY AND EQUIPMENT, NET 37,887 41,535 OTHER ASSETS Patents and trademarks, net 353,602 177,065 Deferred debt expense, net 214,909 273,738 Goodwill, net 1,593,575 495,088 Other 1,330 1,330 ----------- ----------- Total other assets 2,163,416 947,221 ----------- ----------- Total assets $ 2,332,340 $ 1,320,008 =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT LIABILITIES Accounts payable: Trade $ 894,603 $ 740,562 Related parties 234,464 234,324 Notes payable, net of discount 750,881 526,708 Accrued liabilities 210,822 201,631 Deferred compensation 329,835 329,835 ----------- ----------- Total current liabilities 2,420,605 2,033,060 STOCKHOLDERS' DEFICIENCY Common stock - $.001 par value 25,000,000 shares authorized, 2,771,652 and 2,672,500 shares issued and outstanding 2,772 2,673 Additional paid in capital - common stock 4,066,809 3,290,865 Additional paid in capital - warrants and options 1,215,013 739,826 Deficit accumulated during development stage (5,372,859) (4,746,416) ----------- ----------- Total stockholders' deficiency (88,265) (713,052) ----------- ----------- Total liabilities and stockholders' deficiency $ 2,332,340 $ 1,320,008 =========== ===========
See accompanying notes. 4 AETHLON MEDICAL, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative During Three months Three months Development Stage ended ended through June 30, June 30, June 30, 2000 1999 2000 REVENUE Grant income $ -- $ -- $ 1,430,799 Subcontract income -- -- 73,746 Sale of research and development -- -- 35,810 Other income 21,321 -- 52,318 Interest income -- -- 17,415 ----------- ----------- ----------- Total revenue 21,321 -- 1,610,088 EXPENSES Interest and debt expense 314,198 615 830,044 Personnel costs 161,052 88,087 3,466,177 Professional fees 53,439 65,729 624,677 Amortization-goodwill 41,186 -- 53,881 Rent and office expense 29,122 15,400 520,836 Insurance 16,712 -- 107,198 Travel and meetings 12,745 3,840 156,900 Laboratory supplies 6,482 -- 108,865 Miscellaneous 4,114 18 109,044 Depreciation 4,045 2,325 138,963 Amortization-patents 2,043 2,043 44,942 Equipment and maintenance 1,967 -- 167,289 R & D consultation -- -- 240,463 Subcontract expense -- -- 195,964 Contractual costs -- -- 192,112 Dues and subscriptions -- -- 13,596 ----------- ----------- ----------- Total expenses 647,105 178,057 6,970,951 LOSS BEFORE INCOME TAXES (625,784) (178,057) (5,360,863) PROVISION FOR INCOME TAXES 659 56 11,996 ----------- ----------- ----------- NET LOSS $ (626,443) $ (178,113) $(5,372,859) =========== =========== =========== PER SHARE: Net loss $ (0.23) $ (0.07) $ (3.86) Weighted average number of common shares outstanding 2,771,652 2,686,500 1,392,510
See accompanying notes. 5 AETHLON MEDICAL, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative During Three months Three months Development Stage ended ended through June 30, June 30, June 30, 2000 1999 2000 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (626,443) $ (178,113) $(5,372,859) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 4,045 2,325 138,963 Amortization-patents & goodwill 43,229 2,043 98,822 Amortization-debt expense & note discount 280,399 -- 551,557 Services paid by issuance of warrants -- -- 5,000 Deferred compensation forgiven -- -- 217,223 (Increase) decrease in assets: Accounts receivable and advances (3,916) -- (18,545) Prepaid expenses 9,992 -- (26,948) Other assets -- -- (1,329) Increase (decrease) in liabilities: Accounts payable (4,374) 29,204 593,610 Accrued liabilities 9,192 77,284 278,061 Deferred compensation -- 7,815 329,834 ----------- ----------- ----------- Net cash used by operating activities (287,876) (59,442) (3,206,611) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (2,500) -- (173,404) Sale of equipment 4,000 -- 4,000 Purchase of patents (11,299) -- (131,863) Cash of acquired company 2,286 -- 10,728 ----------- ----------- ----------- Net cash used by investing activities (7,513) -- (290,539) CASH FLOWS FROM FINANCING ACTIVITIES Increase in notes payable 112,500 60,000 1,165,000 Deferred debt costs (11,250) -- (126,000) Loans from stockholders -- -- 370,384 Advances from affiliate -- -- 122,100 Proceeds from issuance of common stock -- -- 1,988,544 ----------- ----------- ----------- Net cash provided by financing activities 101,250 60,000 3,520,028 NET INCREASE IN CASH (194,139) 558 22,878 CASH, BEGINNING 217,017 3,052 -- ----------- ----------- ----------- CASH, END $ 22,878 $ 3,610 $ 22,878 =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 4,703 $ -- $ 47,010 Income taxes $ 3,570 -- 10,732 SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES Loans converted to common stock of Hemex $ -- $ -- $ 435,094 Net assets of entities acquired in exchange for the issuance of common stock and options $ 1,174,677 $ -- $ 1,813,691 Patent acquired for 12,500 shares of common stock $ -- $ -- $ 100,000 Debt placement fees paid by issuance of warrants $ 22,094 $ -- $ 268,207 Allocation of note proceeds to note discount $ 76,553 $ -- $ 811,379
See accompanying notes. 6 AETHLON MEDICAL, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
PAID IN COMMON STOCK PAID IN CAPITAL- ACCUMULATED SHARES AMOUNT CAPITAL WARRANTS DEFICIT TOTAL AND OPTIONS BALANCE AT MARCH 31, 2000 2,672,500 $ 2,673 $ 3,290,865 $ 739,826 $(4,746,416) $ (713,052) Issuance of common stock and options for acquisition of Cell Activation 99,152 99 775,944 398,634 1,174,677 Warrants to acquire common stock issued with promissory notes 76,553 76,553 Net loss for the three months ended June 30, 2000 (626,443) $ (626,443) ----------- ----------- ----------- ----------- ----------- ----------- BALANCE AT JUNE 30, 2000 2,771,652 $ 2,772 $ 4,066,809 $ 1,215,013 $(5,372,859) $ (88,265) =========== =========== =========== =========== =========== ===========
See accompanying notes. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2000 NOTE 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Aethlon Medical, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. 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) considered necessary for a fair presentation have been included. Operating results for the three month period ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ending March 31, 2001. For further information, refer to the Company's Annual Report on Form 10-KSB for the year ended March 31, 2000, which includes audited financial statements and footnotes as of and for the years ended March 31, 2000 and 1999. The consolidated financial statements include the accounts of Aethlon Medical, Inc. and its wholly owned subsidiaries, Hemex, Inc., Aethlon, Inc., Syngen Research, Inc., and Cell Activation, Inc. Syngen Research and Cell Activation are doing business as Aethlon Laboratories, Inc. All significant intercompany balances and transactions have been eliminated. NOTE 2. CAPITAL TRANSACTION On April 10, 2000, the Company acquired all the outstanding common stock of Cell Activation, Inc. ("Cell") in exchange for 99,152 shares of common stock of the Company. In addition, all the outstanding stock options of Cell were exchanged for options to purchase 50,848 shares of common stock of the Company for $.3933 per share. The options expire in 2007. The acquisition has been accounted for using the purchase method of accounting whereby the results of operations of Cell since the date of acquisition have been included in the accompanying Statement of Operations. The excess of the purchase price over the tangible assets acquired has been allocated $167,281 to patents and trademarks and $1,139,674 to goodwill. Patents will be amortized over their lives from date of issuance, and goodwill will be amortized over ten years. Had the Cell acquisition taken place on April 1, 1999, the impact on the Company's results of operations for the three months ended June 30, 1999 would have been immaterial. NOTE 3. NOTES PAYABLE During the quarter ended June 30, 2000, the Company issued additional one-year promissory notes in the principal amount of $112,500. Detachable warrants to purchase 56,250 shares of the Company's common stock were issued in connection with these notes. Of the note proceeds, $76,553 was allocated to the warrants and recorded as note discount. The note discount is being amortized as additional interest expense over the one-year term of the related notes. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION PLAN OF OPERATION The Company is in the initial stages of its operations and has not yet engaged in significant commercial activities. During the fiscal year ending March 31, 2001, the Company plans to continue its research and development activities relating to the Hemopurifier(TM), and commence clinical trials for the device to remove iron from the blood. The implementation of the Company's business plan is dependent upon its ability to raise equity capital. During the fiscal year ended March 31, 2000 and the quarter ended June 30, 2000, the Company financed its research and development activities through the private placement of approximately $1,100,000 principal amount of 12-month notes bearing interest at 12% per annum. The Company has entered into an agreement with an investment banking firm under which the firm will use its best efforts to sell $10 million of the Company's common stock in a private placement offering. The Private Placement Memorandum was issued in July 2000. The Company believes that the successful completion of the stock offering will satisfy the Company's anticipated capital requirements related to the development of its business for three years; however, additional financing may be required in the case of further acquisitions or to successfully develop other technologies. At the present time, the Company has no plans to purchase significant amounts of equipment or hire significant numbers of additional employees prior to the successful completion of the private placement of its common stock. FORWARD LOOKING STATEMENTS All statements, other than statements of historical fact, included in this Form 10-QSB are, or may be deemed to be, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended ("the Securities Act"), and Section 21E of the Securities Exchange Act of 1934 ("the Exchange Act"). Such forward-looking statements involve assumptions, known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of Aethlon Medical, Inc.("the Company") to be materially different from any future results, performance, or achievements expressed or implied by such forward looking statements contained in this Form 10-QSB. Such potential risks and uncertainties include, without limitation, completion of the Company's capital-raising activities, FDA approval of the Company's products, other regulations, patent protection of the Company's proprietary technology, product liability exposure, uncertainty of market acceptance, competition, technological change, and other risk factors detailed herein and in other of the Company's filings with the Securities and Exchange Commission. The forward-looking statements are made as of the date of this Form 10-QSB, and the Company assumes no obligation to update the forward-looking statements, or to update the reasons actual results could differ from those projected in such forward-looking statements. 9 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - None (b) During the quarter ended June 30, 2000, the Company filed a Form 8-K, dated April 10, 2000, to report the acquisition of all the outstanding common stock of Cell Activation, Inc. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AETHLON MEDICAL, INC Date: August 14, 2000 /s/ Franklyn S. Barry, Jr. --------------------------- Franklyn S. Barry, Jr., President 10 EXHIBIT INDEX 27. Financial Data Schedule. 11