<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1999
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
BISHOP EQUITIES, 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
LAJOLLA, CALIFORNIA 92037
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (619) 456-5777
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
--- ---
As of June 30, 1999, the registrant had 2,686,500 shares outstanding of
its Common Stock, $.001 par value.
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets (unaudited) at June 30, 1999
and March 31, 1999....................................................
Consolidated Statements of Operations (unaudited) for the
three months ended June 30, 1999 and 1998.............................
Consolidated Statements of Cash Flows (unaudited)
for the three months ended June 30, 1999 and 1998.....................
Notes to Consolidated Financial Statements............................
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........................
PART II. OTHER INFORMATION................................................
SIGNATURES .............................................................
1
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INSERT FROM AUDITORS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company experienced a net increase in cash of $558 during the first
quarter of Fiscal Year 1999. Cash of $ 60,000 was provided by the initial
proceeds from a private placement of 12-month notes bearing interest of 12%.
Cash of $59,442 was used to fund certain current operating expenses related to
the reorganization of the Company after the acquisition of Aethlon, Inc. and
Hemex, Inc. in the last month of the previous quarter.
During the first quarter the Company's accounts payable increased by
$29,204, principally for legal and accounting fees incurred in the
reorganization of the Company. Deferred compensation earned but not taken by
three officers during the quarter increased by $80,000.
The principal cash requirements for the balance of Fiscal Year 2000
will be for (1) completion of the restructuring of the Company following the
reorganization with Aethlon, Inc. and Hemex, Inc., including filling certain
scientific and business positions, leasing a larger office and laboratory
facility for the Hemex, Inc. subsidiary, and the purchase of laboratory and
business equipment, (2) expenses related to completion of the aforementioned
debt offering, as well as a planned private placement of the Company's common
stock in the amount of $5 million to $7 million, and (3) the start of clinical
trials and other expenses related to the development and commercialization of
the Hemex line of medical devices for the extracorporeal removal of metal
intoxicants from the blood.
The implementation of the Company's business plan is dependent upon its
ability to raise capital. The Company has undertaken a private placement of
$750,000 principal amount of 12-month notes bearing interest at 12% per annum.
The Company has also received a letter from an investment banker agreeing to use
its best efforts to sell $5.0 million of the Company's common stock in a private
placement anticipated to commence in September 1999. The Company believes that
the successful completion of these offerings will satisfy the Company's
anticipated cash requirements related to the development of the Company and of
the Hemex subsidiary business and products for three years; however, additional
financing may be required in the case of further acquisitions or to develop
other technologies.
1
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RESULTS OF OPERATIONS
The Company is in the initial stages of its operations and has not yet
engaged in any commercial activities. As a development stage enterprise, the
company had no revenue in the quarter ended June 30, 1999. From inception,
revenue has been $1,568,000, of which $1,424,000 was grant income.
Expenses in the quarter ended June 30, 1999 were $178,057. Expenses
from inception to June 30, 1999 were $5,187,126.
The net loss for the quarter ended June 30, 1999 was $178,113 or $.07
per common share. The loss from inception to June 30, 1999 was $3,625,147 or
$2.81 per common share.
YEAR 2000 MATTERS
The inability of computers, software, and other equipment utilizing
microprocessors to recognize and properly process date fields containing a two
digit year reference such as "00" for the year 2000 is commonly referred to as
the Year 2000 issue. Any of the Company's computer programs that utilize two
digit years may recognize "00" as the year 1900 rather than the year 2000. Such
recognition problems could cause disruptions of operations, including the
inability to perform essential business tasks.
The Company has identified all significant applications that could
require modification to address the Year 2000 issue. Testing of these
applications is complete, and no modification has been found necessary.
The Company has no third party vendors whose inability to comply with
the Year 2000 issue would disrupt the management and operations of the Company.
FORWARD LOOKING STATEMENT
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 Bishop Equities, 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.
2
<PAGE>
BISHOP EQUITIES, INC. (D/B/A AETHLON MEDICAL, INC.)
AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL REPORT
AS OF JUNE 30, 1999
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TABLE OF CONTENTS
<TABLE>
PAGE
<S> <C>
INDEPENDENT ACCOUNTANT'S REPORT 1
CONSOLIDATED STATEMENTS OF OPERATIONS AND 2
ACCUMULATED DEFICIT
CONSOLIDATED BALANCE SHEET 3
CONSOLIDATED STATEMENTS OF CASH FLOWS 4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 5
(DEFICIT)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
</TABLE>
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<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
Bishop Equities, Inc. and Subsidiaries
Buffalo, New York
We have reviewed the accompanying consolidated balance sheets of Bishop
Equities, Inc. (d/b/a Aethlon Medical, Inc.) and Subsidiaries (A Development
Stage Enterprise) as of June 30, 1999, and the related consolidated statements
of operations, stockholders' deficit, and cash flows for the three-months years
then ended and for the period from January 31, 1984 (inception) to June 30,
1999. These financial statements are the responsibility of the Company's
management.
The March 31, 1999 financial statements were audited by other auditors whose
report dated June 18, 1999, on those statements included an explanatory
paragraph describing conditions that raised substantial doubt about the
Company's ability to continue as a going concern. No audit procedures have been
performed since that date.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and its total liabilities exceed its total assets. This raises substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are so described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Gainer Metzler Kriner & Co LLP
August 13, 1999
1
<PAGE>
BISHOP EQUITIES, INC. (D/B/A AETHLON MEDICAL, INC.)
AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
REVIEW
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<TABLE>
<CAPTION>
FOR THE THREE FOR THE YEAR CUMULATIVE DURING
MONTHS ENDED ENDED DEVELOPMENT STAGE
JUNE 30, MARCH 31, THROUGH JUNE 30,
1999 1999 1999
(UNAUDITED) (AUDITED)
<S> <C> <C> <C>
REVENUE
Grant income $ -- $ -- $ 1,424,012
Subcontract income -- -- 73,746
Sale of research and development -- -- 35,810
Other income -- -- 17,225
Interest Income -- -- 17,415
----------- ----------- -----------
Total revenue -- -- 1,568,208
EXPENSES
Personnel costs 88,087 221,779 2,935,583
Research and development consultation -- -- 240,463
Subcontract expense -- -- 195,964
Contractual costs -- -- 192,112
Rent and utilities 8,486 32,429 264,375
Equipment and maintenance -- 1,674 164,699
Office expense 6,914 5,715 166,712
Professional fees 65,729 45,887 382,709
Miscellaneous 18 3,131 98,321
Depreciation 2,325 16,287 126,145
Travel and meetings 3,840 5,325 121,257
Insurance -- (2,347) 57,311
Laboratory supplies -- 180 99,733
Interest 615 13,823 91,376
Amortization 2,043 8,171 36,770
Dues and subscription -- -- 13,596
----------- ----------- -----------
Total expenses 178,057 352,054 5,187,126
----------- ----------- -----------
LOSS BEFORE INCOME TAXES (178,057) (352,054) (3,618,918)
PROVISION FOR INCOME TAXES 56 625 6,229
----------- ----------- -----------
NET LOSS $ (178,113) $ (352,679) $(3,625,147)
----------- ----------- -----------
----------- ----------- -----------
PER SHARE:
Net loss $ (0.07) $ (0.23) $ (2.81)
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of
common shares outstanding 2,686,500 1,522,083 1,290,357
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
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SEE ACCOMPANYING NOTES AND ACCOUNTANT'S REPORT.
2
<PAGE>
BISHOP EQUITIES, INC. (D/B/A AETHLON MEDICAL, INC.)
AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
REVIEW
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<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1999 1999
AS OF (UNAUDITED) (AUDITED)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 3,610 $ 3,052
----------- -----------
Total current assets 3,610 3,052
Property and equipment, net 31,283 33,608
Patents, net 43,370 45,413
----------- -----------
Total assets $ 78,263 $ 82,073
----------- -----------
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LIABILITIES
Current liabilities
Accounts payable:
Trade $ 251,055 $ 232,371
Related parties 168,826 158,306
Accrued liabilities 143,361 63,577
Deferred compensation 317,823 310,008
Loans payable - stockholders 60,000 --
Due to stockholder -- 2,500
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Total current liabilities 941,065 766,762
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock - $.001 par value 2,686 2,686
25,000,000 shares authorized, 2,686,500
shares issued and outstanding
Additional paid in capital 2,759,659 2,759,659
Retained earnings (deficit) (3,625,147) (3,447,034)
----------- -----------
Total stockholders' equity (deficit) (862,802) (684,689)
----------- -----------
Total liabilities and
stockholders' equity (deficit) $ 78,263 $ 82,073
----------- -----------
----------- -----------
</TABLE>
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SEE ACCOMPANYING NOTES AND ACCOUNTANT'S REPORT.
3
<PAGE>
BISHOP EQUITIES, INC. (D/B/A AETHLON MEDICAL, INC.)
AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
REVIEW
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<TABLE>
<CAPTION>
FOR THE THREE FOR THE YEAR CUMULATIVE
MONTHS ENDED ENDED DURING
JUNE 30, MARCH 31, DEVELOPMENT
1999 1999 STAGE THROUGH
(UNAUDITED) (AUDITIED) JUNE 30, 1999
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (178,113) $ (352,679) $(3,625,147)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 2,325 16,287 126,145
Amortization 2,043 8,171 36,770
Deferred compensation forgiven -- 37,600 217,223
Changes in liabilities in noncash operating activities:
(Increase) decrease in assets:
Accounts payable 29,204 12,838 419,838
Accrued expenses 77,284 77,074 208,099
Deferred compensation 7,815 77,959 317,822
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Net cash used by operating activities (59,442) (122,750) (2,299,250)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment -- -- (157,428)
Purchase of patents -- -- (80,740)
------------ ----------- -----------
Net cash used by investing activities -- -- (238,168)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in loan payable - stockholders 60,000 -- 430,384
Advances from subsidiary -- 122,100 122,100
Proceeds from issuance of common stock -- 2,470 1,988,544
------------ ----------- -----------
Net cash provided by financing activities 60,000 124,570 2,541,028
NET INCREASE IN CASH 558 1,820 3,610
CASH, BEGINNING 3,052 1,232 --
------------ ----------- -----------
CASH, ENDING $ 3,610 $ 3,052 $ 3,610
------------ ----------- -----------
------------ ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the year for:
Interest -- $ -- $ 23,580
Income taxes -- 325 5,812
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Loans converted to common stock and of Hemex $ -- $ 435,094 $ 367,882
------------ ----------- -----------
------------ ----------- -----------
Net assets of entities acquired in exchange
for the issuance of common stock $ -- $ 119,014 $ 119,014
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
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SEE ACCOMPANYING NOTES AND ACCOUNTANT'S REPORT.
4
<PAGE>
BISHOP EQUITIES, INC. (D/B/A AETHLON MEDICAL, INC.)
AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
REVIEW
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<TABLE>
<CAPTION>
COMMON STOCK PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE AT APRIL 1, 1997 1,274,000 $ 1,274 $ 2,091,693 $(2,602,483) $ (509,516)
Forgiven employee/stockholder
deferred compensation -- -- 75,200 -- 75,200
Net Loss - 1998 -- -- -- (491,872) (491,872)
--------- ----------- ----------- ----------- -----------
BALANCE AT MARCH 31, 1998 1,274,000 1,274 2,166,893 (3,094,355) (926,188)
Conversion of loans payable -
stockholders into Hemex
common stock (Note 6) 76,000 76 435,018 -- 435,094
Issuance of common stock for
acquisition of Bishop (Note 3) 511,500 511 (2,437) -- (1,926)
Issuance of common stock for
acquisition of Aetholon (Note 3) 825,000 825 122,585 -- 123,410
Forgiven employee/stockholder
deferred compensation (Note 5) -- -- 37,600 -- 37,600
Net loss - 1999 -- -- -- (352,679) (352,679)
--------- ----------- ----------- ----------- -----------
BALANCE AT MARCH 31, 1999 2,686,500 $ 2,686 $ 2,759,659 $(3,447,034) $ (684,689)
Net loss three months ended
June 30, 1999 -- -- -- (178,113) (178,113)
--------- ----------- ----------- ----------- -----------
BALANCE AT JUNE 30, 1999 2,686,500 $ 2,686 $ 2,759,659 $(3,625,147) $ (862,802)
--------- ----------- ----------- ----------- -----------
--------- ----------- ----------- ----------- -----------
</TABLE>
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SEE ACCOMPANYING NOTES AND ACCOUNTANT'S REPORT.
5
<PAGE>
BISHOP EQUITIES, INC. (D/B/A AETHLON MEDICAL, INC.)
AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
REVIEW
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NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Bishop
Equities, Inc. (doing business as Aethlon Medical, Inc.) (Bishop) and
its wholly owned subsidiaries, Hemex, Inc. (Hemex) and Aethlon, Inc.
(Aethlon) (collectively the Company). All significant intercompany
balances and transactions have been eliminated.
NATURE OF BUSINESS
Bishop, which was formerly a non-operating public shell, is the parent
company to Aethlon and Hemex. Aethlon was incorporated on June 24, 1998
to acquire proprietary medical device technologies with the ability to
be developed and commercialized on an international basis. Hemex was
incorporated on January 31, 1984 and is a start-up research and
development company involved in developing the Hemopurifier which is a
medical device which removes toxic metals present in the bloodstream.
To date the Company is in the initial stage of its operations and has
not yet engaged in any commercial activities.
ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and receipts and expenditures during the reporting period. Actual
results could differ from estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reported in the balance sheets approximate fair
value.
ACCOUNTING STANDARDS CHANGES
Effective fiscal 1998, the Company adopted SFAS 131, Disclosures about
Segments and Related Information, which establishes standards for the
way public companies report information about operating segments in both
interim and annual financial statements and related disclosures.
The Company is currently organized, managed and internally reported as
one segment. The segments are determined based on differences in
products, production processes and internal reporting. The segment
operates entirely within the United States.
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SEE ACCOUNTANT'S REPORT.
6
<PAGE>
BISHOP EQUITIES, INC. (D/B/A AETHLON MEDICAL, INC.)
AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
REVIEW
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NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NET LOSS PER COMMON SHARE
In accordance with SFAS 128, dual presentation of basic and diluted
earnings per share is required on the face of the statement of
operations. Net loss per share is based upon the weighted average number
of common shares outstanding during the periods presented. Outstanding
stock options, warrants and convertible debentures have not been
considered common stock equivalents because their assumed exercise would
be anti-dilutive.
EQUIPMENT AND DEPRECIATION
Equipment is recorded at cost. Depreciation has been determined using
the straight-line method over the estimated useful lives of the assets.
Depreciation expense for the three-months ended June 30, 1999 was $2,325
and the year ended March 31, 1999 was $16,287. Accumulated depreciation
as of June 30, 1999 amounted to $126,145 and as of March 31, 1999
amounted to $123,820.
PATENTS AND AMORTIZATION
Three patents were acquired in December 31, 1994 from a stockholder in
exchange for a note payable in the amount of $80,140. The patents are
being amortized on the straight-line method over their remaining lives.
The patents expire between the years 2003 through 2005. Amortization for
the three-months ended June 30, 1999 was $2,043 and the year ended March
31, 1999 was $8,171. Accumulated amortization as of June 30, 1999
amounted to $36,770 and as of March 31, 1999 amounted to $34,727.
RESEARCH, DEVELOPMENTAL AND ORGANIZATIONAL COSTS
Research, developmental and organizational costs are expensed as
incurred.
INCOME TAXES
Income taxes are computed in accordance with Financial Accounting
Standards Board Statement No. 109, Accounting for Income Taxes. Deferred
taxes are provided on temporary differences arising from assets and
liabilities whose bases are different for financial reporting and income
tax purposes. Differences in basis for which deferred taxes are provided
relate primarily to cost associated with research and development.
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SEE ACCOUNTANT'S REPORT.
7
<PAGE>
BISHOP EQUITIES, INC. (D/B/A AETHLON MEDICAL, INC.)
AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
REVIEW
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NOTE 2: FINANCIAL CONDITION
On March 10, 1999, Bishop acquired the outstanding stock of two
privately held Development Stage Enterprises, Hemex and Aethlon, in
order to pursue its commitment to become a significant developer and
manufacturer of medical device technologies (see Note 3). Hemex has
developed a proprietary and patented technology for the extracorporeal
removal of toxic materials from the blood, and has completed its first
clinical trial of one application of this technology. Aethlon was formed
as a medical device acquisition company, whose mission will now be
carried forward by Bishop. Management intends to seek other acquisitions
in related medical device technologies while in the near term
concentrating on the commercialization of the Hemex Hemopurifier -TM-
product line. It is expected that, subject to FDA approval,
commercialization of this product will begin on a limited basis in late
2000.
Since the acquisition of Hemex and Aethlon, the Company has undertaken
an offering of short term debt in the amount of $750,000. Proceeds from
this offering are expected to be available in August 1999. The Company
has also received a letter from a major investment bank agreeing to use
its best efforts in leading the private placement of the Company's
common stock in the amount of $5 million to $7 million beginning in
September 1999. Management believes that the financing provided by these
two offerings, should they be completed, will be sufficient to meet the
Company's cash needs, including the commercialization of the
Hemopurifier products, for at least three years. Additional financing
may be required in the case of further acquisitions.
Management has several strategies for the conservation of capital while
it is a Development Stage Enterprise. Management will invest principally
in research and product development, and to a lesser extent in marketing
planning and development. Strategic partnerships and subcontracting
relationships are planned for direct sales, distribution and
manufacturing activities related to the Hemex product line. Careful
management of general and administrative expenses, including the use of
part-time experts in specific functions, will minimize "burn rate"
during the pre-revenue phase.
The Company has sustained substantial operating losses in recent years,
and expects to do so for two additional years, and its current
liabilities exceed its current assets by $937,455 at June 30, 1999.
Management believes that the actions described above will provide the
basis for the Company to transition from a Development Stage Enterprise
and commence principal operations, but can offer no assurances that its
present plans will be sufficiently successful to enable the Company to
continue to operate as a going concern.
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SEE ACCOUNTANT'S REPORT.
8
<PAGE>
BISHOP EQUITIES, INC. (D/B/A AETHLON MEDICAL, INC.)
AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
REVIEW
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NOTE 3: CAPITAL TRANSACTION
In February 1999, Bishop (a non-operating public shell) entered into a
merger agreement with Hemex and Aethlon whereby Bishop issued 1,350,000
and 825,000 shares of its common stock to Hemex and Aethlon,
respectively, in exchange for 100 percent of their outstanding shares.
Hemex and Aethlon survived as the operating entities and wholly-owned
subsidiaries of Bishop. Bishop, who is currently doing business as
Aethlon Medical, Inc., is in the process of formally changing its name
to Aethlon Medical, Inc..
As a result of the merger, the Hemex shareholders became the majority
owners of the Company and have effective operating control. Accordingly,
the transaction has been accounted for as a reverse acquisition whereby
Hemex is deemed to be the accounting acquirer of Bishop and Aethlon
through the issuance of stock for their net monetary assets, followed by
a recapitalization. The assets and liabilities of Aethlon and Bishop
have been recorded at their historical cost, which approximated their
fair market value. The results of operations include those of Bishop and
Aethlon since the date of acquisition. Hemex has changed its fiscal year
end from December 31 to that of Bishop, with Aethlon also adopting
Bishop's fiscal year.
The following is a proforma summary of the results of operations had
Hemex, Bishop and Aethlon been combined as of April 1, 1998:
1999
Net loss $(427,828)
--------------------
--------------------
NOTE 4: LEASES
The Company rents laboratory space from the University of Buffalo
Foundation on a month to month basis. Total rent expense for the
three-months ended June 30, 1999 was $8,486 and the year ended March 31,
1999 was $32,429.
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SEE ACCOUNTANT'S REPORT.
9
<PAGE>
BISHOP EQUITIES, INC. (D/B/A AETHLON MEDICAL, INC.)
AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
REVIEW
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NOTE 5: DEFERRED COMPENSATION
The Company has deferred compensation agreements with two of its present
employee/ stockholders and two former employee/stockholders. The terms
of the agreements require the Company to compensate the individuals the
amount owed as soon as the Company has funds available. To facilitate
the capital transaction described in Note 3, the employees have agreed
to accept a discounted amount as full payment of the compensation
originally deferred. As a result, the deferred compensation liability
presented in the accompanying financial statements has been discounted
by 40 percent, reflecting the amount of funds management estimates will
be available to satisfy the payment of the deferred compensation. The
difference between the full amount owed and the discounted amount has
been recorded as an increase in additional paid in capital. This
additional paid in capital amounted to $-0- for the three-months ended
June 30, 1999 and $37,600 for the year ended March 31, 1999. Deferred
compensation expense for the three-months ended June 30, 1999 was $7,815
and the year ended March 31, 1999 totaled $115,558.
NOTE 6: LOANS PAYABLE - STOCKHOLDERS
Stockholder loans payable consist of one year notes with interest
payable quarterly at 12 percent per annum. At the option of the
stockholders, these loans are convertible to the terms of the private
placement debt offering as described in Note 8. Accrued interest on
these loans amounted to $615 at June 30, 1999.
During the year ended March 31, 1999, the Company had convertible loans
payable to certain stockholders of Hemex aggregating $367,883. The loans
accrued interest at rates ranging from 8 percent to 14 percent. The
loans were convertible into shares of Hemex common stock at the rate of
one share per $250 of outstanding loan balance. At December 31, 1998,
outstanding loan balances of $367,883 along with accrued interest of
$67,211 were converted into 1,740 shares of Hemex's common stock.
Interest expense related to these loans for the three-months ended June
30, 1999 was $615 and for the year ended March 31, 1999 was $13,823.
NOTE 7: INCOME TAXES
The Company has elected under Internal Revenue Code, Section 174, to
capitalize for income tax purposes all research and development
expenditures incurred in conjunction with its product development
process. Net costs associated with the research and development process
amount to approximately $3,556,000 at June 30, 1999. When the Company
realizes benefits from such expenditures, the costs will be amortized
over a period of 60 months.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEE ACCOUNTANT'S REPORT.
10
<PAGE>
BISHOP EQUITIES, INC. (D/B/A AETHLON MEDICAL, INC.)
AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
REVIEW
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 7: INCOME TAXES
A valuation allowance has been provided for 100 percent of the deferred
tax asset as realization of the asset is contingent upon Food and Drug
Administration approval of the Hemopurifier and the Company generating
sufficient taxable income to offset the research and development
amortization expenses.
The Company's deferred tax assets consist of:
<TABLE>
<CAPTION>
JUNE 30, 1999 MARCH 31, 1999
<S> <C> <C>
Federal:
Deferred tax asset $ 501,345 $ 484,110
Valuation allowance 501,345 484,110
--------- ------------
$ -- $ --
--------- ------------
--------- ------------
State:
Deferred tax asset $267,384 $258,192
Valuation allowance 267,384 258,192
--------- ------------
$ -- $ --
--------- ------------
--------- ------------
</TABLE>
NOTE 8: RELATED PARTY TRANSACTIONS
In addition to the stockholder loans payable, the officers of the
Company and other related entities regularly pay expenses on behalf of
the Company. The officers also advance the Company funds to cover
short-term working capital shortages. These non interest-bearing amounts
have been included as accounts payable - related parties in the
accompanying financial statements.
NOTE 9: COMMITMENTS AND CONTINGENCIES
The Company entered into an agreement to issue up to $750,000 of debt in
units of $25,000 in a private placement offering. Each unit will contain
a 12 percent interest rate and warrants to purchase 12,500 shares of
common stock at a price of five dollars per share for a five-year term.
The warrants may be called by the Company upon meeting certain per share
market price goals.
On April 1, 1999, the Company granted to its President options to
purchase 412,500 shares of common stock at an exercise price of $3 per
share. The options vest 18 months from the grant date and expire five
years from the vesting date.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEE ACCOUNTANT'S REPORT.
11
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On June 15, 1999, the Company filed a Current Report on Form 8-K
regarding a change in the Company's certifying accountant. The Company dismissed
its former principal accountant, Jody M. Weber, C.P.A., and engaged Freed,
Maxick, Sachs & Murphy, PC as its independent auditors effective June 15, 1999.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BISHOP EQUITIES, INC.
Date: August 16, 1999 By: /s/ James A. Joyce
-------------------------------------
James A. Joyce, Chairman of the Board
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,610
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,610
<PP&E> 157,428
<DEPRECIATION> 126,145
<TOTAL-ASSETS> 78,263
<CURRENT-LIABILITIES> 941,065
<BONDS> 0
0
0
<COMMON> 2,686
<OTHER-SE> (865,488)
<TOTAL-LIABILITY-AND-EQUITY> 78,263
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 178,057
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (178,057)
<INCOME-TAX> 56
<INCOME-CONTINUING> (178,113)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (178,113)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
