-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U8xKdphmcOBsx5PGk+vx4P4HphI2GgDHHx6AJ2l5V/1yrM1pBhwLqnT3PqpJ9w4K watcaFHt9SGpYBaxKawvjQ== 0001019687-03-002358.txt : 20031119 0001019687-03-002358.hdr.sgml : 20031119 20031119151113 ACCESSION NUMBER: 0001019687-03-002358 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AETHLON MEDICAL INC CENTRAL INDEX KEY: 0000882291 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY ANALYTICAL INSTRUMENTS [3826] IRS NUMBER: 133632859 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-21846 FILM NUMBER: 031012692 BUSINESS ADDRESS: STREET 1: 7825 FAY AVENUE SUITE 200 CITY: LAJOLLA STATE: CA ZIP: 92037 BUSINESS PHONE: 2129120930 MAIL ADDRESS: STREET 1: 7825 FAY AVENUE SUITE 200 CITY: LAJOLLA STATE: CA ZIP: 92037 FORMER COMPANY: FORMER CONFORMED NAME: BISHOP EQUITIES INC DATE OF NAME CHANGE: 19930602 10QSB 1 aethlon_10q-093003.txt 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, 2003 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 [ ]. The number of shares of common stock of the registrant outstanding as of November 14, 2003 was 8,174,960. PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 2003 (UNAUDITED) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 AND FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH SEPTEMBER 30, 2003 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 AND FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH SEPTEMBER 30, 2003 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ITEM 3. CONTROLS AND PROCEDURES PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ITEM 2. CHANGES IN SECURITIES ITEM 3. DEFAULTS UPON SENIOR SECURITIES ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ITEM 5. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 2 PART I. FINANCIAL INFORMATION All references to "us", "we", "Aethlon", "Aethlon Medical", or "the Company" refer to Aethlon Medical, Inc., its predecessors and its subsidiaries. ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AETHLON MEDICAL, INC. AND SUBSIDIARIES (A Development Stage Company) CONDENSED CONSOLIDATED BALANCE SHEET September 30, 2003 (Unaudited) ------------- ASSETS Current assets Cash $ 937 Prepaid expenses 12,219 ------------- 13,156 Property and equipment, net 19,195 Patents and patents pending, net 249,010 Employment contract 31,734 Other assets 5,605 ------------- $ 318,700 ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Accounts payable and accrued liabilities $ 1,575,711 Due to related parties 1,533,908 Notes payable 392,500 Convertible notes payable 660,000 ------------- 4,162,119 Commitments and Contingencies Stockholders' Deficit Common stock,par value $0.001 per share; 25,000,000 shares authorized; 7,994,960 shares issued and outstanding 7,995 Additional paid-in capital 12,480,423 Deficit accumulated during development stage (16,331,837) ------------- (3,843,419) ------------- $ 318,700 ============= The accompanying notes are an integral part of these condensed consolidated financial statements. 3 AETHLON MEDICAL, INC. AND SUBSIDIARIES (A Development Stage Company) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Three and Six Months Ended September 30, 2003 and 2002 and For the Period January 31, 1984 (Inception) Through September 30, 2003 (Unaudited)
January 31, 1984 Three Months Three Months Six Months Six Months (Inception) Ended Ended Ended Ended through September 30, September 30, September 30, September 30, September 30, 2003 2002 2003 2002 2003 ------------- ------------- ------------- ------------- ------------- REVENUES Grant income $ -- $ -- $ -- $ -- $ 1,424,012 Subcontract income -- -- -- -- 73,746 Sale of research and development -- -- -- -- 35,810 ------------- ------------- ------------- ------------- ------------- -- -- -- -- 1,533,568 EXPENSES Personnel 107,478 164,941 210,131 298,383 5,363,155 Professional fees 80,932 223,823 136,164 334,169 3,563,003 Impairment -- -- -- -- 1,231,531 Other expenses 76,726 87,534 155,532 161,270 3,399,697 ------------- ------------- ------------- ------------- ------------- 265,136 476,298 501,827 793,822 13,557,386 OPERATING LOSS (265,136) (476,298) (501,827) (793,822) (12,023,818) OTHER EXPENSE (INCOME) Interest and other debt expenses 21,994 170,385 203,495 253,654 4,187,827 Interest income -- -- -- -- (17,415) Other -- -- -- (1,616) 137,607 ------------- ------------- ------------- ------------- ------------- 21,994 170,385 203,495 252,028 4,308,019 ------------- ------------- ------------- ------------- ------------- NET LOSS (287,130) (646,683) (705,322) (1,045,850) (16,331,837) ============= ============= ============= ============= ============= BASIC AND DILUTED LOSS PER COMMON SHARE ($ 0.04) ($ 0.12) ($ 0.09) ($ 0.20) ============= ============= ============= ============= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,753,547 5,448,408 7,536,108 5,342,505 ============= ============= ============= ============= The accompanying notes are an integral part of these condensed consolidated financial statements. 4
AETHLON MEDICAL, INC. AND SUBSIDIARIES (A Development Stage Company) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended September 30, 2003 and 2002 and For the Period January 31, 1984 (Inception) Through September 30, 2003 (Unaudited)
January 31, 1984 Six Months Six Months (Inception) Ended Ended Through September 30, September 30, September 30, 2003 2002 2003 ------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (705,322) $ (1,045,850) $(16,331,837) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 78,993 81,808 861,908 Gain on sale of property and equipment -- -- (13,065) Fair market value of warrants issued in connection with accounts payable and debt -- (24,714) 2,715,736 Fair market value of common stock, warrants and options issued for services 22,500 57,000 2,152,934 Beneficial conversion feature of convertible notes payable 150,000 230,000 635,000 Impairment of patents pending -- -- 334,304 Impairment of goodwill -- -- 897,227 Deferred compensation forgiven -- -- 217,223 Changes in operating assets and liabilities: Prepaid expenses (1,909) 76,224 149,318 Other assets -- -- (5,605) Accounts payable and accrued liabilities 29,093 99,670 1,663,366 Due to related parties 118,909 233,612 1,533,908 ------------- ------------- ------------- Net cash used in operating activities (307,736) (292,250) (5,189,583) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment (2,659) 1,197) (212,043) Acquisition of patents and patents pending -- (19,995) (352,833) Proceeds from sale of property and equipment -- -- 17,065 Cash of acquired company -- -- 10,728 ------------- ------------- ------------- Net cash used in investing activities (2,659) (21,192) (537,083) (continued) 5 The accompanying notes are an integral part of these condensed consolidated financial statements.
AETHLON MEDICAL, INC. AND SUBSIDIARIES (A Development Stage Company) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended September 30, 2003 and 2002 and For the Period January 31, 1984 (Inception) Through September 30, 2003 (Unaudited)
January 31,1984 Six Months Six Months (Inception) Ended Ended Through September 30, September 30, September 30, 2003 2002 2003 ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of notes payable $ -- $ 255,000 $ 1,480,000 Principal payments on notes payable (160,000) (25,000) (170,000) Net proceeds from issuance of convertible notes payable 150,000 -- 948,000 Net proceeds from issuance of common stock 315,000 74,000 3,469,603 ------------ ------------ ------------ Net cash provided by financing activities 305,000 304,000 5,727,603 ------------ ------------ ------------ NET (DECREASE) INCREASE IN CASH (5,395) (9,442) 937 CASH - beginning of period 6,332 10,667 -- ------------ ------------ ------------ CASH - end of period $ 937 $ 1,225 $ 937 ============ ============ ============ The accompanying notes are an integral part of these condensed consolidated financial statements. 6
AETHLON MEDICAL, INC. AND SUBSIDIARIES (A Development Stage Company) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2003 NOTE 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION Aethlon Medical, Inc. (the "Company") is a development stage therapeutic device company focused on expanding the applications of its Hemopurifier (TM) platform technology, which is designed to rapidly reduce the presence of infectious viruses and toxic viral proteins from human blood. In this regard, Aethlon Medical's core focus is the development of therapeutic devices that treat HIV/AIDS, Hepatitis-C, and other infectious diseases. In pre-clinical testing, the Company's lead product, AEMD-45 removed 55% of HIV from human blood in three hours and in excess of 85% in twelve hours. This same treatment cartridge was able to remove 90% of toxic proteins that deplete immune cells in one hour. In January of 2003, the Company completed early stage blood studies of its HCV-Hemopurifier, which documented a consistent ability to remove 58 percent of the Hepatitis-C virus from infected blood in two hours. The Company is in the development stage on the Hemopurifier and significant research and testing are still needed to reach commercial viability. Any resulting medical device or process will require approval by the U.S. Food and Drug Administration ("FDA"), and the Company has not yet begun efforts to obtain FDA approval on its current lead product candidate, which may take several years. Since many of the Company's patents were issued in the 1980's, they are scheduled to expire in the near future. Thus, such patents may expire before FDA approval, if any, is obtained. The Company is classified as a development stage enterprise under accounting principles generally accepted in the United States ("GAAP"), and has not generated revenues from its principal operations. The Company's common stock is quoted on the Over-the-Counter Bulletin Board of the National Association of Securities Dealers under the symbol "AEMD". The accompanying unaudited condensed consolidated financial statements of Aethlon Medical, Inc. (the "Company") have been prepared in accordance with GAAP 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 GAAP 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 period ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending March 31, 2004. For further information, refer to the Company's Annual Report on Form 10-KSB for the year ended March 31, 2003, which includes audited financial statements and footnotes as of and for the years ended March 31, 2003 and 2002. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The summary of significant accounting policies of the Company presented below is designed to assist the reader in understanding the Company's consolidated financial statements. Such financial statements and related notes are the representations of Company management, who is responsible for their integrity and objectivity. These accounting policies conform to GAAP in all material respects, and have been consistently applied in preparing the accompanying condensed consolidated financial statements. PRINCIPLES OF CONSOLIDATION - --------------------------- The accompanying condensed consolidated financial statements include the accounts of Aethlon Medical, Inc. and its legal wholly-owned subsidiaries Aethlon, Inc., Hemex, Inc. and Cell Activation, Inc. ("Cell") (collectively hereinafter referred to as the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. 7 AETHLON MEDICAL, INC. AND SUBSIDIARIES (A Development Stage Company) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2003 STOCK BASED COMPENSATION - ------------------------ At September 30, 2003, the Company has two stock-based employee compensation plans. The Company accounts for those plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related Interpretations. No stock-based employee compensation cost is reflected in net loss, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," as amended to stock-based employee compensation. 2003 2002 ------------ ------------ Net loss: As reported $ (705,322) $(1,045,850) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards (26,000) (120,000) ------------ ------------ Pro forma $ (731,322) $(1,165,850) ============ ============ Basic and diluted net loss per share: As reported $ (0.09) $ (0.20) ============ ============ Pro forma $ (0.10) $ (0.22) ============ ============ LOSS PER COMMON SHARE - --------------------- Loss per common share is based on the weighted average number of shares of common stock and common stock equivalents outstanding during the year in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share." Securities that could potentially dilute basic loss per share (prior to their conversion, exercise or redemption) were not included in the diluted-loss-per-share computation because their effect is anti-dilutive. The total potential common shares that have not been included in such computation are approximately 1,140,000 (using the treasury stock method) at September 30, 2003. RECENT ACCOUNTING PRONOUNCEMENTS - -------------------------------- Recent accounting pronouncements discussed in the notes to the March 31, 2003 audited consolidated financial statements, filed previously with the U.S. Securities and Exchange Commission in Form 10-KSB, that were required to be adopted during the period ended September 30, 2003 did not have a significant impact on the Company's financial statements. RECLASSIFICATIONS - ----------------- Certain reclassifications have been made to the September 30, 2002 financial statement presentation to correspond to the September 30, 2003 format. NOTE 3. CONVERTIBLE PROMISSORY NOTES CONVERTIBLE PROMISSORY NOTES - ----------------------------- In April 2003, the Company issued a convertible note in the amount of $150,000, bearing interest at 9% per annum, with principal and interest due in June 2003, which is in default. The convertible note requires no payment of principal or interest during the term and may be converted to common stock of the Company at the conversion price of $0.25 per share at any time at the option of the noteholder. The Company has recorded a beneficial conversion feature ("BCF") of $150,000 in connection with the issuance of the note and amortized such amount to interest expense during the six month period ended September 30, 2003. The Company is currently in default on approximately $1,052,500 of amounts owed under various notes payable and accrued liabilities and is currently seeking other financing arrangements to retire all past due notes. NOTE 4. GOING CONCERN AND LIQUIDITY CONSIDERATIONS The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the ordinary course of business. The Company has experienced a loss of approximately $16.3 million for the period from January 31, 1984 (Inception) through September 30, 2003. The Company has not generated significant revenue or any profit from operations since inception. A substantial amount of additional capital will be necessary to advance the development of the Company's products to the point at which they may become commercially viable. Such factors indicate that the Company may be unable to continue as a going concern for a reasonable period of time. Management is in discussions with potential investors to pursue additional capital infusions into the Company, which management believes are necessary at least until such time that the Company generates sufficient revenues and achieves profitability and positive cash flow. The condensed consolidated financial statements do not include any adjustments relating to the recoverability of assets that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is dependent upon its ability to obtain additional financing as may be required, and generate sufficient revenue and operating cash flow to meet its obligations on a timely basis. 9 AETHLON MEDICAL, INC. AND SUBSIDIARIES (A Development Stage Company) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2003 NOTE 5. COMMITMENTS AND CONTINGENCIES REGISTRATION RIGHTS AGREEMENTS - ------------------------------ The Company is obligated under various agreements to register its common stock, including the common stock underlying certain warrants and options. The Company is subject to penalties for failure to register such securities, the amount of which could be material to the Company's financial position, results of operations and cash flows. The Company filed a registration statement on Form SB-2 with the Securities and Exchange Commission in December 2000 to register the necessary securities. However, such registration statement was never declared effective. Management is currently unaware of any potential claims related to the lack of registration and plans to file a revised registration statement as funds to cover registration expenses become available. The Company may incur additional charges in exchange for further waivers through the date of an effective registration statement. DELINQUENT SEC FILING - --------------------- The Company's March 31, 2002 Form 10-KSB did not contain certain disclosure items in its Executive Compensation, Security Ownership of Certain Beneficial Owners and Management and Certain Relationships and Related Transactions. Such sections were intended to be incorporated by reference in the Company's proxy statement, which was not filed. The failure to file the proxy statement with the disclosures required in Form 10-KSB constitutes non-compliance with the periodic reporting requirements of the Securities and Exchange Act of 1934 (the "Exchange Act") and, among other things, could result in de-listing of the Company's common stock from the Over-the-Counter Bulletin Board ("OTCBB"). In addition, any owners of the Company's restricted securities who are otherwise eligible to sell such securities under Rule 144 may be temporarily unable to do so until such filing delinquency is cured. The Company intends to file an amendment to its Annual Report on Form 10-KSB for the year ended March 31, 2002 to cure such delinquency. NOTE 6. STOCK TRANSACTIONS In July 2003, the Company issued 380,000 shares of restricted common stock at prices ranging from $0.25 to $0.30 per share for cash totaling $100,000. In connection with the issuance of such shares, the Company granted the stockholders 380,000 warrants to purchase common stock of the Company at prices ranging from $0.25 to $0.30 per share. The warrants vest immediately and expire through July 2004. In July 2003, the Company issued 50,000 shares of restricted common stock in conjunction with consulting activities rendered. The stock was valued at $20,000 based on the market price at issuance and such amount is included in the accompanying statement of operations. In September 2003, the Company issued 160,000 shares of restricted common stock at $0.25 per share for cash totaling $40,000. In connection with the issuance of such shares, the Company granted the stockholder 160,000 warrants to purchase common stock of the Company at $0.25 per share. The warrants vest immediately and expire through September 2004. In September 2003, the Company issued 60,000 shares of restricted common stock at $0.25 per share for cash totaling $15,000 in connection with the exercise of warrants. NOTE 7. SUBSEQUENT EVENTS In October 2003, the Company issued 80,000 shares of restricted common stock at $0.25 per share for cash totaling $20,000 in connection with the exercise of warrants. In November 2003, the Company issued 40,000 shares of restricted common stock at $0.25 per share for cash totaling $10,000 in connection with the exercise of warrants. In November 2003, the Company issued 60,000 shares of restricted common stock at $0.25 per share for cash totaling $15,000. In connection with the issuance of such shares, the Company granted the stockholder 60,000 warrants to purchase common stock of the Company at $0.25 per share. The warrants vest immediately and expire through November 2004. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion of Aethlon Medical's financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by the condensed consolidated financial statements and notes thereto, included in Item 1 in this Quarterly Report on Form 10-QSB. This item contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements. 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 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. THE COMPANY - ----------- Aethlon Medical is a development stage therapeutic device company that has not yet engaged in significant commercial activities. The primary focus of our resources is the advancement of our proprietary Hemopurifier(TM) platform treatment technology, which is designed to remove viruses and toxic viral proteins from human blood. Our main focus during fiscal 2004 is to prepare our HIV-Hemopurifier to treat HIV/AIDS for human clinical trials, and to initiate the pre-clinical human blood studies of our HCV-Hemopurifier for treating Hepatitis-C. See Item 1, "NATURE OF BUSINESS". Our principal executive office is located at 7825 Fay Avenue, Suite 200, La Jolla, California 92037. Our telephone number is 858/456-5777, and our website is www.aethlonmedical.com. We file annual, quarterly, special reports, proxy statements and other information with the Securities Exchange Commission (SEC). Reports, proxy statements and other information filed with the SEC can be inspected and copied at the public reference facilities of the SEC at 450 Fifth Street NW, Washington, DC 20549. Such material may also be accessed electronically by means of the SEC's website at www.sec.gov. Our common stock, par value $0.001 per share, is traded on the OTCBB under the symbol "AEMD". CRITICAL ACCOUNTING POLICIES - ---------------------------- The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of expenses during the reporting period. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions. We believe that the estimates and assumptions that are most important to the portrayal of our financial condition and results of operations, in that they require our most difficult, subjective or complex judgments, form the basis for the accounting policies deemed to be most critical to us. These critical accounting policies relate to stock purchase warrants issued with notes payable, beneficial conversion feature of convertible notes payable, impairment of intangible assets and long lived assets, contingencies and litigation. We believe estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial conditions or results of operations. 11 RESULTS OF OPERATIONS - --------------------- THE THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2002. OPERATING EXPENSES - ------------------ Consolidated operating expenses were $265,136 for the three months ended September 30, 2003, versus $476,298 for the comparable period ended September 30, 2002. This decrease of 44.3% in operating expenses is principally attributable to decreased professional fees and personnel expenses due to reduced professionals associated with strategic and financial planning activities and reduced staff. NET LOSS - -------- We recorded a consolidated net loss of $287,130 and $646,683 for the quarters ended September 30, 2003 and 2002, respectively. The decrease in net loss of 55.6% was primarily attributable to reduced operating expenses and lower interest expense. Basic and diluted loss per common share were ($0.04) for the three month period ended September 30, 2003 compared to ($0.12) for the same period ended September 30, 2002. This reduction in loss per share was primarily attributable to the decrease in net loss, as well as greater number of common shares outstanding during the three month period ended September 30, 2003, as compared to the three month period ended September 30, 2002. THE SIX MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THE SIX MONTHS ENDED SEPTEMBER 30, 2002. OPERATING EXPENSES - ------------------ Consolidated operating expenses were $501,827 for the six months ended September 30, 2003, versus $793,822 for the comparable period ended September 30, 2002. This decrease of 36.8% in operating expenses is principally attributable to decreased professional fees and personnel expenses due to reduced professionals associated with strategic and financial planning activities and reduced staff. NET LOSS - -------- We recorded a consolidated net loss of $705,322 and $1,045,850 for the six month periods ended September 30, 2003 and 2002, respectively. The decrease in net loss of 32.6% was primarily attributable to reduced operating expenses and lower interest expense. Basic and diluted loss per common share were ($0.09) for the six month period ended September 30, 2003 compared to ($0.20) for the same period ended September 30, 2002. This reduction in loss per share was primarily attributable to the decrease in net loss, as well as greater number of common shares outstanding during the six month period ended September 30, 2003, as compared to the six month period ended September 30, 2002. 12 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- To date, we have funded our capital requirements for the current operations from net funds received from the public and private sale of debt and equity securities, as well as from the issuance of common stock in exchange for services. Our cash position at September 30, 2003 was $937 as compared to $6,332, at March 31, 2003, representing a decrease of $5,395. During the six months ended September 30, 2003, operating activities used net cash of $307,736. In our financing activities, we received $315,000 from the sale of common stock and $150,000 from issuance of a convertible note. We repaid in full a secured promissory note in the amount of $160,000. During the six month period ended September 30, 2003, net cash used in operating activities primarily consisted of net loss of $705,322. Net loss was offset principally by depreciation of $78,993, a beneficial conversion feature of $150,000, accounts payable and accrued liabilities of $29,093 and amounts due to related parties of $118,909. Changes in current assets and current liabilities of ($141,488) resulted in a negative working capital position of ($4,148,963) at September 30, 2003, as compared to a negative working capital of ($4,007,475) at March 31, 2003. Our current deficit in working capital requires us to obtain funds in the short-term to be able to continue in business, and in the longer term to fund research and development on products not yet ready for market. We are seeking to fund these and other operating needs in the next 12 months from funds to be obtained through a corporate acquisition of or merger with another entity with greater financial resources, or from the proceeds of additional private placements or public offerings of debt or equity securities, or both. Due to the our recurring losses during the development stage, and continued need for capital, our independent certified public accountants have included an explanatory paragraph in their audit report in the Company's Form 10-KSB at March 31, 2003, stating that these factors raise substantial doubt about the Company's ability to continue as a going concern. 13 We expect to raise additional capital within the next three months to fund research and development and other activities. Our operations to date have consumed substantial capital without generating revenues, and we will continue to require substantial and increasing capital funds to conduct necessary research and development and pre-clinical and clinical testing of our Hemopurifier products, and to market any of those products that receive regulatory approval. We do not expect to generate revenue from operations for the foreseeable future, and our ability to meet our cash obligations as they become due and payable is expected to depend for at least the next several years on our ability to sell securities, borrow funds or a combination thereof. Our future capital requirements will depend upon many factors, including progress with pre-clinical testing and clinical trials, the number and breadth of our programs, the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other proprietary rights, the time and costs involved in obtaining regulatory approvals, competing technological and market developments, and our ability to establish collaborative arrangements, effective commercialization, marketing activities and other arrangements. We expect to continue to incur increasing negative cash flows and net losses for the foreseeable future. Management does not believe that inflation has had or is likely to have any material impact on the Company's limited operations. At the date of this filing, we do not have plans to purchase significant amounts of equipment or hire significant numbers of employees prior to successfully raising additional capital. ITEM 3. CONTROLS AND PROCEDURES Under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the 34 Act) as of the end of the period covered by this report (the "Evaluation Date"). Based upon that evaluation, the CEO and CFO concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in timely alerting them to the material information relating to us (or our consolidated subsidiaries) required to be included in our periodic filings with the SEC and that such information is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Based on their most recent evaluation as of the Evaluation Date, the CEO and the CFO have also concluded that there are no significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information, and such officers have identified no material weaknesses in internal controls. There were no significant changes made in our internal control over financial reporting during the period covered by this report that are reasonably likely to significantly affect these controls subsequent to the date of their evaluation. 14 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES In July 2003, the Company issued 380,000 shares of restricted common stock at prices ranging from $0.25 to $0.30 per share for cash totaling $100,000. In connection with the issuance of such shares, the Company granted the stockholders 380,000 warrants to purchase common stock of the Company at prices ranging from $0.25 to $0.30 per share. The warrants vest immediately and expire through July 2004. In July 2003, the Company issued 50,000 shares of restricted common stock in conjunction with consulting activities rendered. The stock was valued at $20,000 based on the market price at issuance and such amount is included in the accompanying statement of operations. In September 2003, the Company issued 160,000 shares of restricted common stock at $0.25 per share for cash totaling $40,000. In connection with the issuance of such shares, the Company granted the stockholder 160,000 warrants to purchase common stock of the Company at $0.25 per share. The warrants vest immediately and expire through September 2004. In September 2003, the Company issued 60,000 shares of restricted common stock at $0.25 per share for cash totaling $15,000 in connection with the exercise of warrants. In October 2003, the Company issued 80,000 shares of restricted common stock at $0.25 per share for cash totaling $20,000 in connection with the exercise of warrants. In November 2003, the Company issued 40,000 shares of restricted common stock at $0.25 per share for cash totaling $10,000 in connection with the exercise of warrants. In November 2003, the Company issued 60,000 shares of restricted common stock at $0.25 per share for cash totaling $15,000. In connection with the issuance of such shares, the Company granted the stockholder 60,000 warrants to purchase common stock of the Company at $0.25 per ITEM 3. DEFAULTS UPON SENIOR SECURITIES As of the date of this report, various promissory and convertible notes payable in the aggregate principal amount of $1,052,000 have reached maturity and are past due. The Company is currently seeking other financing arrangements to retire all past due notes. 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. The following documents are filed as part of this report: 31.1 Certification of CEO pursuant to Securities Exchange Act rules 13a-15 and 15d-15(c) as adopted pursuant to section 302 of the Sarbanes-Oxley act of 2002. 31.2 Certification of CFO pursuant to Securities Exchange Act rules 13a-15 and 15d-15(c) as adopted pursuant to section 302 of the Sarbanes-Oxley act of 2002. 32.1 Certification of James A. Joyce, Chief Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 2002. 32.2 Certification of Edward C. Hall, Chief Financial Officer (Principal Accounting Officer) pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 2002. (b) Reports on Form 8-K filed during the quarter ended September 30, 2003. None 15 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 19, 2003 BY: /S/ JAMES A. JOYCE BY: /S/ EDWARD C. HALL --------------------------- --------------------------- JAMES A. JOYCE EDWARD C. HALL CHAIRMAN, PRESIDENT AND CHIEF FINANCIAL OFFICER CHIEF EXECUTIVE OFFICER AETHLON MEDICAL, INC. 16 EX-31.1 3 aethlon_10qex31-1.txt Exhibit 31.1 CERTIFICATIONS Certification of CEO pursuant to Securities Exchange Act rules 13a-15 and 15d-15(c) as adopted pursuant to section 302 of the Sarbanes-Oxley act of 2002. I, James A. Joyce, certify that: 1. I have reviewed this report on Form 10-QSB of Aethlon Medical, Inc. (the "Registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this quarterly report. 4. The small business issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures or cause such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter that has materially affect, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weakness in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information ; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal controls over financial reportings; and Date: November 19, 2003 /S/ JAMES A. JOYCE -------------------- JAMES A. JOYCE CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER) EX-31.2 4 aethlon_10qex31-2.txt Exhibit 31.2 Certification of CFO pursuant to Securities Exchange Act rules 13a-15 and 15d-15(c) as adopted pursuant to section 302 of the Sarbanes-Oxley act of 2002. I, Edward C. Hall, certify that: 1. I have reviewed this report on Form 10-QSB of Aethlon Medical, Inc. (the "Registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this quarterly report. 4. The small business issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures or cause such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter that has materially affect, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weakness in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information ; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal controls over financial reportings; and Date: November 19, 2003 /S/ EDWARD C. HALL ------------------- EDWARD C. HALL CHIEF FINANCIAL OFFICER (PRINCIPAL ACCOUNTING OFFICER) EX-32.1 5 aethlon_10qex32-1.txt EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Aethlon Medical, Inc. Quarterly Report on Form 10-QSB for the quarter and nine months ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James A. Joyce, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) Fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (2) The information contained in such Quarterly Report on Form 10-QSB fairly presents in all material respects the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906, another document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Aethlon Medical, Inc. and will be retained by Aethlon Medical, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. /S/ JAMES A. JOYCE -------------------- JAMES A. JOYCE CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER) November 19, 2003 EX-32.2 6 aethlon_10qex32-2.txt EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Aethlon Medical, Inc. Quarterly Report on Form 10-QSB for the quarter and nine months ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Edward C. Hall, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) Fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (2) The information contained in such Quarterly Report on Form 10-QSB fairly presents in all material respects the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906, another document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Aethlon Medical, Inc. and will be retained by Aethlon Medical, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. /S/ EDWARD C. HALL ------------------- EDWARD C. HALL CHIEF FINANCIAL OFFICER (PRINCIPAL ACCOUNTING OFFICER) November 19, 2003 -----END PRIVACY-ENHANCED MESSAGE-----