<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 June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from __________ to __________
Commission file number 0-21846
AETHLON MEDICAL, INC.
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(Exact name of registrant as specified in its charter)
NEVADA 13-3632859
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7825 FAY AVENUE, SUITE 200, LA JOLLA, CA 92037
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(Address of principal executive offices) (Zip Code)
(858) 456-5777
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Number of shares of common stock outstanding
on June 30, 2000 2,771,652
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets (unaudited) at June 30, 2000
And March 31, 2000
Consolidated Statements of Operations (unaudited) for the three months ended
June 30, 2000 and June 30, 1999
Consolidated Statements of Cash Flows (unaudited) for the three months ended
June 30, 2000 and June 30, 1999
Consolidated Statement of Stockholders' Deficiency (unaudited)
Notes to Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis or Plan of Operation
PART II. OTHER INFORMATION
SIGNATURES
2
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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>
June 30, March 31,
2000 2000
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 22,878 $ 217,017
Accounts receivable 69,011 61,495
Prepaid expenses 26,948 36,940
Employee advances 12,200 15,800
----------- -----------
Total current assets 131,037 331,252
PROPERTY AND EQUIPMENT, NET 37,887 41,535
OTHER ASSETS
Patents and trademarks, net 353,602 177,065
Deferred debt expense, net 214,909 273,738
Goodwill, net 1,593,575 495,088
Other 1,330 1,330
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Total other assets 2,163,416 947,221
----------- -----------
Total assets $ 2,332,340 $ 1,320,008
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable:
Trade $ 894,603 $ 740,562
Related parties 234,464 234,324
Notes payable, net of discount 750,881 526,708
Accrued liabilities 210,822 201,631
Deferred compensation 329,835 329,835
----------- -----------
Total current liabilities 2,420,605 2,033,060
STOCKHOLDERS' DEFICIENCY
Common stock - $.001 par value
25,000,000 shares authorized,
2,771,652 and 2,672,500 shares issued
and outstanding 2,772 2,673
Additional paid in capital - common stock 4,066,809 3,290,865
Additional paid in capital - warrants and options 1,215,013 739,826
Deficit accumulated during development stage (5,372,859) (4,746,416)
----------- -----------
Total stockholders' deficiency (88,265) (713,052)
----------- -----------
Total liabilities and stockholders' deficiency $ 2,332,340 $ 1,320,008
=========== ===========
</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
Three months Three months Development Stage
ended ended through
June 30, June 30, June 30,
2000 1999 2000
REVENUE
<S> <C> <C> <C>
Grant income $ -- $ -- $ 1,430,799
Subcontract income -- -- 73,746
Sale of research and development -- -- 35,810
Other income 21,321 -- 52,318
Interest income -- -- 17,415
----------- ----------- -----------
Total revenue 21,321 -- 1,610,088
EXPENSES
Interest and debt expense 314,198 615 830,044
Personnel costs 161,052 88,087 3,466,177
Professional fees 53,439 65,729 624,677
Amortization-goodwill 41,186 -- 53,881
Rent and office expense 29,122 15,400 520,836
Insurance 16,712 -- 107,198
Travel and meetings 12,745 3,840 156,900
Laboratory supplies 6,482 -- 108,865
Miscellaneous 4,114 18 109,044
Depreciation 4,045 2,325 138,963
Amortization-patents 2,043 2,043 44,942
Equipment and maintenance 1,967 -- 167,289
R & D consultation -- -- 240,463
Subcontract expense -- -- 195,964
Contractual costs -- -- 192,112
Dues and subscriptions -- -- 13,596
----------- ----------- -----------
Total expenses 647,105 178,057 6,970,951
LOSS BEFORE INCOME TAXES (625,784) (178,057) (5,360,863)
PROVISION FOR INCOME TAXES 659 56 11,996
----------- ----------- -----------
NET LOSS $ (626,443) $ (178,113) $(5,372,859)
=========== =========== ===========
PER SHARE:
Net loss $ (0.23) $ (0.07) $ (3.86)
Weighted average number of
common shares outstanding 2,771,652 2,686,500 1,392,510
</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
Three months Three months Development Stage
ended ended through
June 30, June 30, June 30,
2000 1999 2000
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (626,443) $ (178,113) $(5,372,859)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 4,045 2,325 138,963
Amortization-patents & goodwill 43,229 2,043 98,822
Amortization-debt expense & note discount 280,399 -- 551,557
Services paid by issuance of warrants -- -- 5,000
Deferred compensation forgiven -- -- 217,223
(Increase) decrease in assets:
Accounts receivable and advances (3,916) -- (18,545)
Prepaid expenses 9,992 -- (26,948)
Other assets -- -- (1,329)
Increase (decrease) in liabilities:
Accounts payable (4,374) 29,204 593,610
Accrued liabilities 9,192 77,284 278,061
Deferred compensation -- 7,815 329,834
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Net cash used by operating activities (287,876) (59,442) (3,206,611)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (2,500) -- (173,404)
Sale of equipment 4,000 -- 4,000
Purchase of patents (11,299) -- (131,863)
Cash of acquired company 2,286 -- 10,728
----------- ----------- -----------
Net cash used by investing activities (7,513) -- (290,539)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in notes payable 112,500 60,000 1,165,000
Deferred debt costs (11,250) -- (126,000)
Loans from stockholders -- -- 370,384
Advances from affiliate -- -- 122,100
Proceeds from issuance of common stock -- -- 1,988,544
----------- ----------- -----------
Net cash provided by financing activities 101,250 60,000 3,520,028
NET INCREASE IN CASH (194,139) 558 22,878
CASH, BEGINNING 217,017 3,052 --
----------- ----------- -----------
CASH, END $ 22,878 $ 3,610 $ 22,878
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the period for:
Interest $ 4,703 $ -- $ 47,010
Income taxes $ 3,570 -- 10,732
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Loans converted to common stock of Hemex $ -- $ -- $ 435,094
Net assets of entities acquired in exchange
for the issuance of common stock and options $ 1,174,677 $ -- $ 1,813,691
Patent acquired for 12,500 shares of common stock $ -- $ -- $ 100,000
Debt placement fees paid by issuance of warrants $ 22,094 $ -- $ 268,207
Allocation of note proceeds to note discount $ 76,553 $ -- $ 811,379
</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
COMMON STOCK PAID IN CAPITAL- ACCUMULATED
SHARES AMOUNT CAPITAL WARRANTS DEFICIT TOTAL
AND OPTIONS
<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 99 775,944 398,634 1,174,677
Warrants to acquire common stock
issued with promissory notes 76,553 76,553
Net loss for the three months
ended June 30, 2000 (626,443) $ (626,443)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT JUNE 30, 2000 2,771,652 $ 2,772 $ 4,066,809 $ 1,215,013 $(5,372,859) $ (88,265)
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
7
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2000
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Aethlon
Medical, Inc. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended June 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending March 31, 2001. For further information, refer to
the Company's Annual Report on Form 10-KSB for the year ended March 31, 2000,
which includes audited financial statements and footnotes as of and for the
years ended March 31, 2000 and 1999.
The consolidated financial statements include the accounts of Aethlon
Medical, Inc. and its wholly owned subsidiaries, Hemex, Inc., Aethlon, Inc.,
Syngen Research, Inc., and Cell Activation, Inc. Syngen Research and Cell
Activation are doing business as Aethlon Laboratories, Inc. All significant
intercompany balances and transactions have been eliminated.
NOTE 2. CAPITAL TRANSACTION
On April 10, 2000, the Company acquired all the outstanding common stock of
Cell Activation, Inc. ("Cell") in exchange for 99,152 shares of common stock of
the Company. In addition, all the outstanding stock options of Cell were
exchanged for options to purchase 50,848 shares of common stock of the Company
for $.3933 per share. The options expire in 2007. The acquisition has been
accounted for using the purchase method of accounting whereby the results of
operations of Cell since the date of acquisition have been included in the
accompanying Statement of Operations. The excess of the purchase price over the
tangible assets acquired has been allocated $167,281 to patents and trademarks
and $1,139,674 to goodwill. Patents will be amortized over their lives from date
of issuance, and goodwill will be amortized over ten years. Had the Cell
acquisition taken place on April 1, 1999, the impact on the Company's results of
operations for the three months ended June 30, 1999 would have been immaterial.
NOTE 3. NOTES PAYABLE
During the quarter ended June 30, 2000, the Company issued additional
one-year promissory notes in the principal amount of $112,500. Detachable
warrants to purchase 56,250 shares of the Company's common stock were issued
in connection with these notes. Of the note proceeds, $76,553 was allocated
to the warrants and recorded as note discount. The note discount is being
amortized as additional interest expense over the one-year term of the
related notes.
8
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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 quarter ended June 30, 2000, the Company financed its research and
development activities through the private placement of approximately $1,100,000
principal amount of 12-month notes bearing interest at 12% per annum. The
Company has entered into an agreement with an investment banking firm under
which the firm will use its best efforts to sell $10 million of the Company's
common stock in a private placement offering. The Private Placement Memorandum
was issued in July 2000. The Company believes that the successful completion of
the stock offering will satisfy the Company's anticipated capital requirements
related to the development of its business for three years; however, additional
financing may be required in the case of further acquisitions or to successfully
develop other technologies. At the present time, the Company has no plans to
purchase significant amounts of equipment or hire significant numbers of
additional employees prior to the successful completion of the private placement
of its common stock.
FORWARD LOOKING STATEMENTS
All statements, other than statements of historical fact, included in this
Form 10-QSB are, or may be deemed to be, "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended ("the
Securities Act"), and Section 21E of the Securities Exchange Act of 1934 ("the
Exchange Act"). Such forward-looking statements involve assumptions, known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance, or achievements of Aethlon Medical, Inc.("the Company") to
be materially different from any future results, performance, or achievements
expressed or implied by such forward looking statements contained in this Form
10-QSB. Such potential risks and uncertainties include, without limitation,
completion of the Company's capital-raising activities, FDA approval of the
Company's products, other regulations, patent protection of the Company's
proprietary technology, product liability exposure, uncertainty of market
acceptance, competition, technological change, and other risk factors detailed
herein and in other of the Company's filings with the Securities and Exchange
Commission. The forward-looking statements are made as of the date of this Form
10-QSB, and the Company assumes no obligation to update the forward-looking
statements, or to update the reasons actual results could differ from those
projected in such forward-looking statements.
9
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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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) During the quarter ended June 30, 2000, the Company filed a Form 8-K,
dated April 10, 2000, to report the acquisition of all the outstanding common
stock of Cell Activation, Inc.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AETHLON MEDICAL, INC
Date: August 14, 2000
/s/ Franklyn S. Barry, Jr.
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Franklyn S. Barry, Jr., President
10
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EXHIBIT INDEX
27. Financial Data Schedule.
11
