10QSB 1 a2029477z10qsb.txt 10QSB 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 September 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 September 30, 2000 2,771,652 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Balance Sheets (unaudited) at September 30, 2000 (unaudited) and March 31, 2000 Consolidated Statements of Operations (unaudited) for the three and six months ended September 30, 2000 and September 30, 1999 Consolidated Statements of Cash Flows (unaudited) for the six months ended September 30, 2000 and September 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
September 30, 2000 March 31, (unaudited) 2000 ASSETS CURRENT ASSETS Cash $ 1,677 $ 217,017 Accounts receivable 47,312 61,495 Prepaid expenses 24,764 36,940 Employee advances 12,300 15,800 ---------------------------------- Total current assets 86,053 331,252 PROPERTY AND EQUIPMENT, NET 34,683 41,535 OTHER ASSETS Patents and trademarks, net 401,759 177,065 Deferred debt expense, net 166,567 273,738 Goodwill, net 1,600,544 495,088 Other 1,330 1,330 ---------------------------------- Total other assets 2,170,200 947,221 ---------------------------------- Total assets $ 2,290,936 $ 1,320,008 ================================== LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT LIABILITIES Accounts payable: Trade $ 903,240 $ 740,562 Related parties 236,964 234,324 Notes payable, net of discount 1,043,453 526,708 Accrued liabilities 287,906 201,631 Deferred compensation 329,835 329,835 ---------------------------------- Total current liabilities 2,801,398 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 4,092,132 3,290,865 Additional paid in capital - warrants and options 1,481,237 739,826 Deficit accumulated during development stage (6,086,603) (4,746,416) ---------------------------------- Total stockholders' deficiency (510,462) (713,052) ---------------------------------- Total liabilities and stockholders' deficiency $2,290,936 $ 1,320,008 ==================================
See accompanying notes. 4 AETHLON MEDICAL, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative During Development Stage Three months ended Six months ended through September 30, September 30, September 30, September 30, September 30, 2000 1999 2000 1999 2000 REVENUE Grant income $ - $ - $ - $ - $ 1,430,799 Subcontract income - - - - 73,746 Sale of research and development - - - - 35,810 Other income 1,158 - 22,479 - 53,476 Interest income - - - - 17,415 -------------------------------------------------------------------------------------- Total revenue 1,158 - 22,479 - 1,611,246 EXPENSES Interest and debt expense 352,949 25,190 667,147 25,805 1,182,993 Personnel costs 184,654 116,606 345,706 204,693 3,650,831 Professional fees 46,801 75,060 100,240 140,789 671,478 Amortization-goodwill 43,721 - 84,907 - 97,602 Rent and office expense 32,206 18,758 61,328 34,158 553,042 Insurance 16,751 6,271 33,463 6,271 123,949 Travel and meetings 7,133 5,631 19,878 9,471 164,033 Laboratory supplies 7,249 - 13,731 - 116,114 Miscellaneous 13,288 3,502 17,402 3,520 122,332 Depreciation 3,788 2,439 7,833 4,764 142,751 Amortization-patents 2,043 3,502 4,086 5,545 46,985 Equipment and maintenance 3,513 - 5,480 - 170,802 R & D consultation - - - 240,463 Subcontract expense - - - 195,964 Contractual costs - - - 192,112 Dues and subscriptions - - - 13,596 -------------------------------------------------------------------------------------- Total expenses 714,096 256,959 1,361,201 435,016 7,685,047 LOSS BEFORE INCOME TAXES (712,938) (256,959) (1,338,722) (435,016) (6,073,801) PROVISION FOR INCOME TAXES 806 91 1,465 147 12,802 -------------------------------------------------------------------------------------- NET LOSS $ (713,744) $ (257,050) $ (1,340,187) $ (435,163) $ (6,086,603) ====================================================================================== PER SHARE: Net loss $ (0.26) $ (0.10) $ (0.48) $ (0.17) $ (4.31) Weighted average number of common shares outstanding 2,771,652 2,595,000 2,771,652 2,595,000 1,413,197
See accompanying notes. 5 AETHLON MEDICAL, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative During Six months Six months Development Stage ended ended through September 30, September 30, September 30, 2000 1999 2000 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (1,340,187) $ (435,163) $ (6,086,603) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 7,833 4,764 142,751 Amortization-patents & goodwill 88,993 5,545 144,586 Amortization-debt expense & note discount 591,261 - 862,419 Services paid by issuance of warrants 8,373 - 13,373 Deferred compensation forgiven - - 217,223 (Increase) decrease in assets: Accounts receivable and advances 17,683 - 3,054 Prepaid expenses 18,566 - (18,374) Other assets - - (1,329) Increase (decrease) in liabilities: Accounts payable 23,912 101,021 621,896 Accrued liabilities 86,275 139,789 355,144 Deferred compensation - 15,827 329,834 -------------------------------------------------------- Net cash used by operating activities (497,291) (168,217) (3,416,026) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (3,085) (4,204) (173,989) Sale of equipment 4,000 - 4,000 Purchase of patents - - (120,564) Cash of acquired company 2,286 - 10,728 -------------------------------------------------------- Net cash used by investing activities 3,201 (4,204) (279,825) CASH FLOWS FROM FINANCING ACTIVITIES Increase in notes payable 312,500 212,500 1,365,000 Deferred debt costs (33,750) (13,750) (148,500) 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 278,750 198,750 3,697,528 NET INCREASE IN CASH (215,340) 26,329 1,677 CASH, BEGINNING 217,017 3,052 - -------------------------------------------------------- CASH, END $ 1,677 $ 29,381 $ 1,677 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 58,319 $ - $ 100,626 Income taxes $ 559 - 7,721 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 $ 1,200,000 $ - $ 1,839,014 Patent acquired for 12,500 shares of common stock $ - $ - $ 100,000 Patent costs included in liabilities $ 87,739 $ - $ 87,739 Debt placement fees paid by issuance of warrants $ 52,369 $ - $ 298,482 Allocation of note proceeds to note discount $ 193,726 $ - $ 928,552
See accompanying notes. 6 AETHLON MEDICAL, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
PAID IN CAPITAL- COMMON STOCK PAID IN WARRANTS ACCUMULATED SHARES AMOUNT CAPITAL and OPTIONS DEFICIT TOTAL 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 99 801,267 398,634 1,200,000 Warrants to acquire common stock issued with promissory notes 193,726 193,726 Warrants issued as compensation for sale of prommissory notes 134,888 134,888 Options granted to directors for fees 14,163 14,163 Net loss for the six months ended September 30, 2000 (1,340,187) $ (1,340,187) ---------------------------------------------------------------------------------------- BALANCE AT SEPTEMBER 30, 2000 2,771,652 $ 2,772 $ 4,092,132 $ 1,481,237 $ (6,086,603) $ (510,462) ========================================================================================
See accompanying notes. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 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 and six month periods ended September 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 fair value of the net tangible assets acquired has been allocated $141,041 to patents and trademarks and $1,190,364 to goodwill. Patents will be amortized over their life 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 and six months ended September 30, 1999 would have been immaterial. NOTE 3. NOTES PAYABLE During the quarters ended September 30, 2000 and June 30, 2000, the Company issued additional one-year promissory notes in the principal amount of $200,000 and $112,500, respectively. Detachable warrants to purchase 156,250 shares of the Company's common stock were issued in connection with these notes. Of the note proceeds, $193,726 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. At September 30, 2000 outstanding notes in the aggregate principal amount of $125,000 have reached their one-year maturity, and interest on such notes for periods after maturity is accruing at the annual rate of 15%. NOTE 4. SUBSEQUENT EVENTS In October 2000, the Company entered into an agreement with a financial institution for the issuance of 8% convertible notes. The initial offering is for $750,000, of which $375,000 was issued in November 2000 and the remaining $375,000 is expected to be issued before the end of December. The successful completion of this initial offering will enable the Company to continue its operations into the fourth fiscal quarter. On November 6, 2000, the Company approved the issuance of options for 200,000 shares of its common stock to the Company's general counsel. The options are exercisable at $3.25 per share and expire on December 31, 2005. 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 six months ended September 30, 2000, the Company financed its research and development activities through the private placement of $1,365,000 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 but was withdrawn in September pending revisions in the business plan. The Company expects to re-issue the Memorandum in December, 2000. In October 2000, the Company arranged for the sale of $750,000 in convertible notes to a financial institution. Under this arrangement, notes for $375,000 were issued in November 2000 and the remaining $375,000 is expected to be issued before the end of December. The successful completion of this interim financing will enable the Company to continue its operations into the fourth fiscal quarter. The Company believes that the successful completion of the $10 million 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 The Company held its Annual Meeting of Shareholders on September 25, 2000. The matters voted upon at the Annual Meeting were election of directors, approval of the 2000 Stock Option Plan, and ratification of the selection of Freed Maxick Sachs & Murphy, P.C. as auditors for the Company. As to the election of directors and ratification of auditors, 2,076,683 votes were cast in favor with no votes cast against or withheld. As to the Stock Option Plan, 2,003,031 shares were voted in favor, 12,712 shares voted against, and 13,978 shares abstained. There were 46,962 broker non-votes on this matter. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - None (b) No Reports on Form 8-K were filed during the quarter ended September 30, 2000. On July 17, 2000, a Form 8-K/A was filed which contained audited financial statements of Syngen Research, Inc., an acquired business, and certain related pro forma financial information. 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: November 14, 2000 /s/ Franklyn S. Barry, Jr. --------------------------- Franklyn S. Barry, Jr., President 10 EXHIBIT INDEX 27. Financial Data Schedule. 11