<PAGE>
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
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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
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
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AETHLON MEDICAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
2000 March 31,
(unaudited) 2000
<S> <C> <C>
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
==================================
</TABLE>
See accompanying notes.
4
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AETHLON MEDICAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
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
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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
</TABLE>
See accompanying notes.
5
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AETHLON MEDICAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative During
Six months Six months Development Stage
ended ended through
September 30, September 30, September 30,
2000 1999 2000
<S> <C> <C> <C>
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
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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
</TABLE>
See accompanying notes.
6
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AETHLON MEDICAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
PAID IN
CAPITAL-
COMMON STOCK PAID IN WARRANTS ACCUMULATED
SHARES AMOUNT CAPITAL and OPTIONS DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C>
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)
========================================================================================
</TABLE>
See accompanying notes.
7
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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
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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
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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
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EXHIBIT INDEX
27. Financial Data Schedule.
11
