<PAGE>
As filed with the Securities and Exchange Commission on December 18, 2000
Registration No.
An Exhibit List can be found on page II-2.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AETHLON MEDICAL, INC.
(Exact name of registrant as specified in its charter)
NEVADA 13-3632859
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7825 FAY AVENUE, SUITE 200
LA JOLLA, CALIFORNIA 92037
(Address of Principal Executive Office) (Zip Code)
FRANKLYN S. BARRY, JR., CHIEF EXECUTIVE OFFICER
AETHLON MEDICAL, INC.
7825 FAY AVENUE, SUITE 200, LA JOLLA, CALIFORNIA, 92037
(Name and address of agent for service)
(858) 456-5777
(Telephone number, including area code, of agent for service)
Copy to:
Bruce H. Haglund, Esq.
Gibson, Haglund & Paulsen
2 Park Plaza, Suite 450, Irvine, California 92614
------------------
Approximate date of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [X]
<PAGE>
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================================
Proposed Proposed Maximum
Title of Amount Maximum aggregate Amount of
securities to be to be offering price offering registration
registered registered per share(1) price(3) fee (3)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES OF COMMON STOCK, $.001 PAR VALUE(2)(3) 1,600,000 $3.38 $ 5,408,000 $ 1,427.71
SHARES OF COMMON STOCK, $.001 PAR VALUE(4) 1,600,000 $3.38 $ 5,408,000 $ 1,427.71
TOTAL 3,200,000 $10,816,000 $ 2,855.42
=======================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended
(the "Act"), based on the average of the closing bid and asked prices for
the Registrant's Common Stock (the "Common Stock") as reported on the
Nasdaq OTC Bulletin Board on December 15, 2000 and, with respect to shares
of common stock of the Company issuable upon exercise of outstanding
warrants, the higher of (i) such average sales price or (ii) the exercise
price of such warrants.
(2) Issuable as Put Shares.
(3) Pursuant to Rules 416 and 457 under the Act, additional shares as may be
issuable pursuant to the anti-dilution provisions of the warrants are also
being registered.
(4) Issuable upon exercise of Warrants with an exercise price of $3.85 issued
to the Finders.
-----------------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PRELIMINARY PROSPECTUS
Subject To Completion, Dated , 2001
The information in this prospectus is not complete and may be changed.
AETHLON MEDICAL, INC.
7825 Fay Avenue, Suite 200
LaJolla, California 92037
(858) 456-5777
[1] Shares
Common Stock
THE OFFERING
The resale of up to [3,200,000] shares of Common Stock on the Nasdaq
Over-the-Counter Bulletin Board at the prevailing market price or in
negotiated transactions.
- Up to 1,600,000 shares are issuable as Put Shares to certain selling
shareholders identified in this Prospectus (the "Selling Shareholders");
- Up to 1,600,000 shares are issuable upon the exercise of Purchase
Warrants issuable to certain finders identified in this Prospectus (the
"Finders").
We will receive no proceeds from the sale of the shares by the Selling
Shareholders or the Finders. However, we may receive proceeds from the sale of
Put Notes to the Selling Shareholders and, if the Purchase Warrants are
exercised, we will receive proceeds from the sale of shares issuable upon the
exercise of the Purchase Warrants by the Selling Shareholders or the Finders.
TRADING SYMBOL:
AEMD (Nasdaq Over-the-Counter Bulletin Board)
------------------------------
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK.
See "Risk Factors" beginning on page 2.
------------------------------
THE SECURITIES AND EXCHANGE COMMISSION (SEC) AND STATE SECURITIES
REGULATORS HAVE NOT APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND
IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THIS PROSPECTUS IS INCLUDED IN THE REGISTRATION STATEMENT THAT WAS
FILED BY AETHLON MEDICAL, INC., WITH THE SECURITIES AND EXCHANGE COMMISSION.
THE SELLING SHAREHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT BECOMES EFFECTIVE.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED IN
THIS PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL THE INFORMATION YOU SHOULD
CONSIDER BEFORE INVESTING IN THE SECURITIES. BEFORE MAKING AN INVESTMENT
DECISION, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE
"RISK FACTORS" SECTION, THE FINANCIAL STATEMENTS AND THE NOTES TO THE
FINANCIAL STATEMENTS. SOME OF THE STATEMENTS MADE IN THIS PROSPECTUS DISCUSS
FUTURE EVENTS AND DEVELOPMENTS, INCLUDING OUR FUTURE BUSINESS STRATEGY AND
OUR ABILITY TO GENERATE REVENUE, INCOME AND CASH FLOW. THESE FORWARD-LOOKING
STATEMENTS INVOLVE RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED IN THESE FORWARD-LOOKING
STATEMENTS.
Our Company
Aethlon Medical, Inc. ("AEMD") is a developer and marketer of
extracorporeal medical device technologies. We have applied our proprietary
platform technology known as the Hemopurifier(TM) to develop an extracorporeal
therapeutic treatment for HIV-AIDS. Pre-clinical trials have documented the
rapid removal of up to 70% of the HIV virus during one 60-minute application. We
intend to build our business in three ways:
- Commercialize the Hemopurifier line of extracorporeal blood filtration
devices upon completion of clinical trials with priority on the
device for the removal of viruses from the blood;
- Develop and exploit new applications of the Hemopurifier platform
technology, such as the virus-removal therapy; and
- Continue the strategy of acquiring related medical device technologies
that can be developed and commercialized on an international basis.
We are the parent company of Hemex, Inc. and Aethlon Laboratories, Inc.,
our wholly-owned subsidiaries. We also intend to acquire additional
businesses and technologies that complement our products under development.
The Offering
Common Stock Offered for Resale [3,200,000] shares
1
<PAGE>
Use of Proceeds We will not receive proceeds from
the resale of the Common Stock
described in this Prospectus.
However, we will receive proceeds
from the initial placement of Put
Notes and Warrants with the Selling
Shareholders.
Nasdaq OTC Bulletin Board Symbol AEMD
RISK FACTORS
An investment in shares of our common stock is very risky. You should
carefully consider the following factors as well as the other information
contained and incorporated by reference in this prospectus before deciding to
invest.
LIMITED OPERATING HISTORY; LACK OF OPERATING REVENUE; EARLY STAGE OF
DEVELOPMENT. AEMD was originally founded in April 1991 as Bishop Equities, Inc.
for the purpose of providing a public vehicle for acquisition of a private
company. Our acquisition of Aethlon, Inc. and Hemex, Inc. in March 1999 was the
first of a series of acquisitions that formed the entity operating known as
Aethlon Medical, Inc. today. We have a limited operating history on which to
base an evaluation of our business and prospects. From our formation through
September 30, 2000, we have received and earned revenues, including grant
income, aggregating approximately $1,600,000. Our prospects must be considered
in light of the risks and uncertainties encountered by companies in the early
stages of development. Potential investors should be aware of the problems,
delays, expenses and difficulties usually encountered by an enterprise in the
Company's stage of development, many of which may be beyond our control. These
include unanticipated problems relating to product development, testing, initial
and continuing regulatory compliance, manufacturing costs, production and
assembly, the competitive and regulatory environment in which we plan to
operate, marketing problems and additional costs and expenses that may exceed
current estimates.
HISTORY OF LOSSES AND ANTICIPATED FUTURE LOSSES. Since the formation of
our business, we have incurred substantial net losses. As of September 30, 2000,
our accumulated deficit was approximately $6,087,000. As we continue to
implement our growth strategy, we intend to spend significant amounts on
research and development, sales and marketing, and general and administrative
activities. We expect to incur these costs in advance of anticipated revenues,
which may further increase our operating losses in some periods. As a result of
our expansion, we may continue to incur significant operating losses and
negative cash flows from operations for the next few years. It is possible that
we may never achieve favorable operating results or profitability.
SIGNIFICANT ADDITIONAL FINANCING NEEDS. We require substantial working
capital to fund our business. Since our inception, we have experienced negative
cash flow from operations, and we expect to experience significant negative cash
flow from operations for the near future. In November 2000, we entered into a
Subscription Agreement and raised $375,000 from the sale of a Convertible Note.
Under the terms of the Subscription Agreement, we were granted the right to
borrow additional funds under the terms of Put Notes. The Put Notes allow us to
raise up to an additional $4,625,000 in convertible debt during the two years
following the date of this Prospectus. Depending on the amount and timing of
additional capital, if any, raised through the issuance of Put Notes, we may
need to raise additional capital through other
2
<PAGE>
sources within the next few months. We currently anticipate that a private
placement of our common stock for up to $10 million will be undertaken early
in 2001. The net proceeds of this stock offering are expected to be
sufficient to meet anticipated needs for working capital and capital
expenditures for the next three years. If we raise additional funds through
the issuance of equity, our existing shareholders will be diluted in terms of
their percentage ownership of the Company. If we are unable to raise
additional funds when necessary, we may have to reduce planned capital
expenditures, scale back our development of new products, sales or other
operations, enter into financing arrangements on terms that we would not
otherwise accept, sell some or all of the Company's assets, or we may have to
cease operations.
SUBSTANTIAL LIABILITIES; LIMITATIONS ON THE USE OF PROCEEDS FROM THE
SALE OF THE NOTES AND THE PUT NOTES. As disclosed in our 10-QSB filing at
September 30, 2000, our total liabilities were in excess of $2,800,000. These
liabilities include notes payable, trade debt (including debt owed to related
parties), accrued liabilities, and deferred compensation. However, we may not
use the proceeds from the sale of the Notes and the Put Notes to repay notes
payable or non-trade obligations.
THE COMPANY MAY NOT RECEIVE REGULATORY APPROVAL FOR FUTURE PRODUCTS AND
THEREFORE MAY NOT BE ABLE TO SELL THOSE PRODUCTS FOR CLINICAL PURPOSES IN THE
UNITED STATES OR ABROAD. We plan to develop multiple products utilizing
extracorporeal treatment with broad applications in the future. In order to be
able to market all of these products, we will be required to obtain approval of
the Federal Drug Administration ("FDA") and of similar foreign authorities
through approval procedures similar to, and in addition to, those already
completed by us for the DFO Hemopurifier. Our failure to obtain necessary
approvals to market future products in one or more significant markets could
cause material harm to our business, financial condition, and results of
operation.
DIFFICULTY IN FORECASTING REVENUES AND EXPENSES. Due to our limited
operating history, we cannot predict our future revenues or results of
operations accurately. We base our current and future expense levels on our
current and anticipated fixed expenses, our operating plans, and our estimates
of future revenues. Operating results are difficult to forecast because they
depend in large part on product completion and FDA approval processes. As a
result, we may be unable to adjust our spending in a timely manner to compensate
for any unexpected revenue shortfall. This inability could materially harm our
business and ability to operate.
THE COMPANY'S BUSINESS IS, AND IN THE FUTURE MAY BECOME, SUBJECT TO
ADDITIONAL REGULATIONS AND IF UNABLE TO COMPLY WITH THEM MAY BE MATERIALLY
HARMED. We are subject to various other federal, state, and international laws.
The target industries for our extracorporeal products are strictly regulated by
the FDA, and participants in these markets must comply with all regulations and
standards set forth by the FDA. We are unable to predict the extent of future
government regulations or industry standards. New regulations may result in
increased costs and inhibit our ability to market our products. As a result, our
business, financial condition, and results of operation could be materially
harmed.
INTENSE COMPETITION. The market for medical devices is intensely
competitive. Many of our potential competitors have longer operating histories,
greater name recognition, more employees, and significantly greater financial,
technical, marketing, public relations, and distribution resources than we have.
This intense competitive environment may require us to make changes in our
products, pricing, licensing, services or marketing to maintain and extend our
current brand and technology franchise. Price concessions or the emergence of
other pricing or distribution strategies of competitors may diminish our
3
<PAGE>
revenues, adversely impact our margins or lead to a reduction in our market
share, any of which may harm our business.
TECHNOLOGICAL OBSOLESCENCE. Our products may be made unmarketable by
new scientific or technological developments where new treatment modalities are
introduced that are more efficacious or more economical that our planned
extracorporeal therapies.
FAILURE TO MANAGE GROWTH. We have considerably expanded our operations
since the acquisition of Hemex, Inc. and Aethlon, Inc. in March 1999. Continued
expansion of our business may place increasing strains on our ability to manage
our growth, including our ability to monitor operations, bill customers, control
costs and maintain effective quality controls. If our financing efforts are
successful, we plan to significantly expand our research and development
activities, expand our sales and marketing, hire additional employees, and
expand our internal information, accounting and billing systems. To successfully
manage our growth, we must identify, attract, motivate, train, and retain highly
skilled managerial, financial, engineering, business development, sales and
marketing, and other personnel. Competition for this type of personnel is
intense. If we fail to manage our growth effectively, we could materially harm
our business.
LIMITED MARKETING CAPABILITIES; UNCERTAINTY OF MARKET ACCEPTANCE.
Because of the sophisticated nature and early stage of development of our
products, we will be required to educate potential customers and successfully
demonstrate that the merits of our products justify the costs associated with
such products. In certain cases, however, we will likely encounter resistance
from customers reluctant to make the modifications necessary to incorporate our
products into their processes. In some instances, we will be required to rely on
distributors or other strategic partners to market our products. The success of
any such relationship will depend in part on the other party's own competitive,
marketing, and strategic considerations, including the relative advantages of
alternative products being developed and/or marketed by any such party. There
can be no assurance that we will be able to market our products properly and
generate meaningful product sales.
LOSS OF KEY PERSONNEL. Given the early stage of our development, we
depend on the performance and efforts of our senior management team and other
key employees. If we lost the service of any members of our senior management or
other key employees, that loss could materially harm our business.
MISAPPROPRIATION OF INTELLECTUAL PROPERTY. Our success depends on our
internally developed technologies and other intellectual property. We regard
our technology as proprietary and we attempt to protect it with patents,
copyrights, trade secret laws, and confidentiality and nondisclosure agreements.
Despite these precautions, it may be possible for a third party to obtain and
use our services or technology without authorization. Third parties also may
develop similar technology independently. We have applied for a number of United
States and foreign patents and have already been issued five U.S. and
international patents. Some or all of these patents may not sufficiently protect
our technology. If any patents are not issued or if they fail to provide
protection for its technology, it may make it easier for our competitors to
offer technology equivalent or superior to ours. Moreover, we have applied for
registration of a number of key trademarks and service marks, and we intend to
introduce new trademarks and service marks. We may not be successful in
obtaining registration for one or more of these trademarks.
We may need to resort to litigation in the future to enforce or to
protect our intellectual property rights, including our patent and trademark
rights. In addition, our technologies and trademarks may be
4
<PAGE>
claimed to conflict with or infringe upon the patent, trademark or other
proprietary rights of third parties. If this occurred, we would have to
defend against challenges to our patents, which could result in substantial
costs and the diversion of resources. We also may have to obtain a license to
use those proprietary rights or possibly cease using those rights altogether.
Any of these events could materially harm our business.
THE COMPANY MAY BE SUBJECT TO RISKS ASSOCIATED WITH ITS PRODUCTS
INCLUDING PRODUCT LIABILITY OR PATENT AND TRADEMARK INFRINGEMENT CLAIMS. Our
current and future products may contain defects which could subject us to
product liability claims. Although we will maintain limited product liability
insurance, if any successful products liability claim is not covered by or
exceeds our insurance, our business, results of operations, and financial
condition would be harmed. Additionally, third parties may assert claims against
us alleging infringement, misappropriation or other violations of patent,
trademark or other proprietary rights, whether or not such claims have merit.
Such claims can be time consuming and expensive to defend and could require the
Company to cease using and selling the allegedly infringing products and to
incur significant litigation costs and related expenses.
THE COMPANY'S COMMON STOCK HAS LIMITED LIQUIDITY. At the present time,
the Common Stock of the Company is not listed on The Nasdaq Stock Market, Inc.
or on any national exchange. Although dealer prices for our Common Stock are
listed on the Nasdaq OTC Bulletin Board, trading has been limited since such
quotations first appeared in March 1993. We intend to apply to have our Common
Stock approved for listing on the Nasdaq SmallCap Market or the American Stock
Exchange in 2001. We cannot assure investors that we will be able to secure
either of such listings, or, if received, that we will meet the requirements for
continued listing on the Nasdaq SmallCap Market or the American Stock Exchange.
Under Nasdaq rules, in order to maintain a listing on the Nasdaq SmallCap
Market, a company must have, among other things, either $4,000,000 in net
tangible assets, a market capitalization of $50,000,000 or more, or $750,000 net
income in its last fiscal year or two of its last three fiscal years. In
addition, the listed security must have a minimum bid price of $3.00 per share.
Further, NASDAQ has the right to withdraw or terminate a listing on the Nasdaq
SmallCap Market at any time and for any reason at its discretion. If the Company
were unable to obtain or to maintain listing on the Nasdaq SmallCap Market
quotations, any "bid" and "asked" prices of the Common Stock would be quoted in
the "pink sheets" published by the National Quotation Bureau, Inc. or on the
Nasdaq OTC Electronic Bulletin Board where shares of its Common Stock have been
quoted prior to the date of this Prospectus. In such event, an investor could
find it more difficult to dispose of or to obtain accurate quotations of prices
for the shares of Aethlon Medical Common Stock than would be the case if the
shares of the Company's Common Stock were quoted on the NASDAQ SmallCap Market
or on the American Stock Exchange. Irrespective of whether or not shares of the
Company's Common Stock are included in the Nasdaq system or on the American
Stock Exchange, no assurance can be made to investors that the public market for
shares of its Common Stock will become more active or liquid in the future. In
that regard, prospective purchasers of the Common Stock should consider that
this Offering is being made without underwriting arrangements typically found in
an initial public offering of securities. Such arrangements generally provide
for the issuer of the securities to sell the securities to an underwriter which,
in turn, sells the securities to its customers and other members of the public
at a fixed offering price, with the result that the underwriter has a continuing
interest in the market for such securities following the Offering.
SMALL "FLOAT" AND POSSIBLE VOLATILITY OF STOCK PRICE. Broad
fluctuations in the stock markets can, obviously, adversely affect the market
price of our Common Stock. In addition, failure to meet or exceed analysts'
expectations of financial performance may result in immediate and significant
price and volume fluctuations in the trading of our Common Stock. Without a
significantly larger number of shares
5
<PAGE>
available for trading by the public, or public "float," our Common Stock will
be less liquid than stocks with broader public ownership, and as a result,
trading prices of our Common Stock may significantly fluctuate and certain
institutional investors may be unwilling to invest in such a thinly traded
security
LACK OF DIVIDENDS ON COMMON STOCK. We have never paid any cash
dividends on our Common Stock, and we do not anticipate paying dividends in the
near future.
THE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK UPON CONVERSION OF
CONVERTIBLE AND PUT NOTES MAY CAUSE SIGNIFICANT DILUTION OF EXISTING
SHAREHOLDERS' INTERESTS AND EXERT DOWNWARD PRESSURE ON THE PRICE OF OUR COMMON
STOCK. Significant dilution of existing shareholders' interests may occur if we
issue additional shares of common stock underlying outstanding or subsequently
issued Notes, Put Notes, and Warrants. As of November 30, 2000, we had $375,000
principal amount of Convertible Notes outstanding. We may issue additional Put
Notes. The number of shares of Common Stock issuable upon conversion of the
Convertible Notes and Put Notes (the "Notes") may constitute a significant
percentage of the total outstanding shares of our Common Stock, as such
conversion is based on a formula pegged to the market price of the Common Stock.
The formula provides, specifically, that the number of shares of Common
Stock issuable upon the conversion of the Notes shall be the lower of (i) 90% of
the closing price for the Common Stock on the principal market or exchange where
the Common Stock is listed or traded for the last trading day immediately prior
to but not including the issue date of the Notes; or (ii) 75% of the average of
the three lowest closing bid prices for the Common Stock on the principal market
or exchange where the Common Stock is listed or traded, for the 10 trading days
prior to but not including the date of conversion. Therefore, there is a
possibility that the Notes may convert to Common Stock at a rate that may be
below the prevailing market price of the Common Stock at the time of conversion.
The exact number of shares of common stock into which the Notes may
ultimately be convertible will vary over time as the result of ongoing changes
in the trading price of our Common stock. Decreases in the trading price of our
common stock would result in increases in the number of shares of Common Stock
issuable upon conversion of the Notes. The following consequences could result:
- If the market price of our Common Stock declines, thereby
proportionately increasing the number of shares of Common Stock issuable upon
conversion of the Notes, an increasing downward pressure on the market price
of the Common Stock might result (sometimes referred to as a downward
"spiral" effect).
- The dilution caused by conversion of Notes and sale of
the underlying shares could also cause downward pressure on the market price
of the Common Stock.
- Once downward pressure is placed on the market price of
the Company's stock, the pressure could encourage short sales by holders of
Notes and others, thus placing further downward pressure in the price of the
Common Stock.
- The conversion of Notes would dilute the book value and
earnings per share of Common Stock held by our existing shareholders.
6
<PAGE>
USE OF PROCEEDS
We expect to sell to the Selling Shareholders, subject to effective
registration and applicable trading volume, and other limitations, up to
$4,625,000 of Put Notes that are convertible into Common Stock. Additional
amounts may be received if the warrants to purchase Common Stock issued in
connection with the placement of the Put Notes are exercised. Net proceeds are
determined after deducting all expenses of the offering (estimated to be
$425,000).
We intend, in the following order of priority, to use the net proceeds
from this offering (excluding proceeds from warrant exercises), if any, as
follows:
<TABLE>
<S> <C>
Product Development Activities..........................................................$ 720,000
(with principal focus on HIV/AIDS device)
FDA Clinical Trials..................................................................... 2,078,400
Business Development Activities......................................................... 1,000,000
(including corporate communications,
SEC registration of common stock, and other
corporate activities)
Debt Service............................................................................ 401,600
(including interest on outstanding notes,
but excluding repayment of principal in the
maximum amount of $35,000)
----------
Total Proceeds..........................................................................$4,200,000
</TABLE>
PRICE RANGE OF COMMON STOCK
LIMITED PUBLIC MARKET FOR SHARES OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq Over-the-Counter
Bulletin Board ("OTCBB"). The Company's trading symbol is "AEMD." The Company's
Common Stock has had a limited trading history, and trading has been limited and
sporadic.
The following table sets forth for the period indicated the high and
low bid quotations for the Common Stock as reported by the OTCBB. The prices
represent quotations between dealers, without adjustment for retail markup, mark
down or commission, and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH BID LOW BID
2000
<S> <C> <C>
4th Quarter $4.6875 $2.875
3rd Quarter $6.50 $1.50
2nd Quarter $7.00 $2.25
1st Quarter $8.00 $4.00
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
1999
<S> <C> <C>
4th Quarter $8.75 $7.03
3rd Quarter $8.75 $7.00
2nd Quarter $8.50 $7.75
1st Quarter $8.50 $8.00
</TABLE>
There are approximately 100 record holders of the Company's Common
Stock.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
currently anticipate that we will retain all future earnings for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
THE FOLLOWING PLAN OF OPERATION SHOULD BE READ IN CONJUNCTION WITH
THE FINANCIAL STATEMENTS AND THE RELATED NOTES. THIS DISCUSSION CONTAINS
FORWARD-LOOKING STATEMENTS BASED UPON CURRENT EXPECTATIONS THAT INVOLVE RISKS
AND UNCERTAINTIES, SUCH AS OUR PLANS, OBJECTIVES, EXPECTATIONS AND
INTENTIONS. OUR ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS,"
"BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS. SEE "RISK FACTORS."
PLAN OF OPERATION
The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto appearing elsewhere in this
report.
The Company is in the initial stages of its operations and has not yet
engaged in significant commercial activities. During the fiscal year 2001, the
Company plans to continue its research and development activities relating to
the Hemopurifier, and commence clinical trials for the device to remove iron
from the blood. See "Business."
The implementation of our business plan is dependent upon our ability
to raise equity capital. During the fiscal year ended March 31, 2000, we
financed our research and development activities through the private placement
of approximately $1,000,000 principal amount of 12-month notes bearing interest
at 12% per annum. We entered into an agreement in November 2000 providing for
the issuance of $375,000 in Convertible Notes and allowing us to borrow up to
$4,625,000 in Put Notes that are issuable during the two-year period following
the date of this Prospectus. 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 anticipated to
commence in the first calendar quarter of 2001. 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
8
<PAGE>
equipment or hire significant numbers of additional employees prior to the
successful completion of the private placement of its Common Stock.
BUSINESS
OVERVIEW
On March 10, 1999, the Company executed an Agreement and Plan of
Reorganization for the Acquisition of All of the Outstanding Stock (the "Aethlon
Agreement") of Aethlon, Inc., a California corporation ("Aethlon"). Pursuant to
the Aethlon Agreement, Aethlon became a wholly-owned subsidiary of the Company.
Also on March 10, 1999, the Company executed an Agreement and Plan of
Reorganization for the Acquisition of All of the Outstanding Stock (the "Hemex
Agreement") of Hemex, Inc., a Delaware corporation ("Hemex"). Pursuant to the
Hemex Agreement, Hemex became a wholly-owned subsidiary of the Company.
In connection with these acquisitions, the Company issued 2,083,500
shares of the Company's Common Stock to the former shareholders of Aethlon and
Hemex.
Effective January 1, 2000, the Company entered into an agreement under
which an invention and related patent rights for a method of removing HIV and
other viruses from the blood using the Hemex Hemopurifier were assigned to the
Company. In addition to certain royalty payments to be made on future sales of
the patented product, the consideration for the acquired rights included the
issuance of 25,000 shares of the Company's common stock to the inventors.
On January 10, 2000, the Company acquired from Richard H. Tullis,
PhD, all the outstanding common stock of Syngen Research, Inc. in exchange
for 65,000 shares of the Company's common stock. Syngen Research, Inc. (dba
Aethlon Laboratories, Inc.) became a wholly-owned subsidiary of the Company
and will engage in the development of the virus-removing device under the
direction of Dr. Tullis.
On April 6, 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 opitions of Cell
were exchanged for options to purchase 50,848 shares of common stock of the
Company at $.3933 per share. Following the transaction Cell became a
wholly-owned subsidiary of the Company and will operate as part of Aethlon
Laboratories Inc.
In developing this business, AEMD will act as a parent company to
wholly-owned subsidiaries such as Hemex, Inc. and Aethlon Laboratories, Inc. It
also intends to pursue the acquisition of additional businesses and technologies
that complement those under development.
HEMEX
Hemex, Inc. was the first acquisition completed by Aethlon Medical,
Inc. It operates as a wholly owned subsidiary of AEMD, with its own staff,
facilities, and subsidiary business plan. AEMD will provide general management
to Hemex, as well as financial and legal services, and will be responsible for
funding the operations of Hemex.
The first product developed by Hemex is the DFO Hemopurifier-TM-
device for the removal of iron and aluminum. This device has been proven safe
in hemodialysis patients in an FDA-approved Feasibility Trial, and will be
the subject of an application to the FDA for a Humanitarian Device Exemption
in early 2001 leading to potential commercialization in fiscal year 2002.
9
<PAGE>
Devices for removing lead and cisplatin, a chemotherapeutic agent, are
in final laboratory research, with few questions remaining before their clinical
trials can begin. Based on results from animal testing, Hemex researchers are
confident that each device will prove clinically safe and effective. The
lead-removing device is used to treat lead intoxication in adults, children, and
industrial workers, and the cisplatin-removing device is applied after cisplatin
has passed through the target tumor, sparing the normal cells of the cancer
patient from its toxic side-effects.
In addition to these metal-removing applications, Hemex acquired,
effective January 1, 2000, the rights to a novel process (patent pending) for
removing targeted viruses from the blood using the Hemopurifier platform and
DNA/antibody technology. This device will be developed at Aethlon
Laboratories. See below for a more detailed discussion of this product.
Other areas of current research interest are the removal of various
antigens, addictive narcotics, and other heavy metals in both civilian and
military environments.
THE HEMOPURIFIER-TM- DEVICE. The Hemopurifier device is a novel
hollow-fiber cartridge containing an immobilized antidote for removing toxic
material from the blood. The device is used in extracorporeal circulation
systems that are similar to those used in hemodialysis or any one of the simpler
apheresis systems used today.
The Hemopurifier device is a long cylindrical cartridge containing a
bundle of approximately 10,000 hollow fibers and an antidote or attractor
compound. The antidote, which is present in a proprietary form within the
fibers, has a strong and specific affinity to remove a targeted toxin from the
blood. When the patient's blood flows through the lumen of each of the fibers,
molecules of a certain size can travel through the pores of the fiber membrane
and come in contact with the attractor compound. The toxic material is captured
by the compound, and other small molecules return through the same pores to the
lumen. The cartridge itself is a dialyzer encasement with minor modifications:
The clinical advantages offered by the Hemopurifier device over present
treatments are:
- Toxic material can be selectively removed WITHOUT SIDE EFFECTS, since no
substance enters the body. Toxicity of the antidote is eliminated, because
it is immobilized in the device rather than injected into the patient.
- Antidotes of GREATER STRENGTH AND EFFECTIVENESS, which were previously used
sparingly because of their toxicity, can be used in this device without
regard for the side effects which would occur if the same substance were in
the bloodstream.
- The device is HIGHLY EFFICIENT. The structure of the Hemopurifier device
provides a large surface area for immobilization of a relatively large
quantity of antidote, allowing exposure to a large volume of blood in a
short period of time.
- The device is SAFE:
- In a closed system, the amount of blood retained by the Hemopurifier
device is small. No replacement fluid is needed, and no blood
transfusions are required. As a result, the risks of
10
<PAGE>
volume expansion, blood pressure changes, infections and blood
incompatibility (inherent in blood transfusions) are eliminated.
- Only the targeted toxic materials are removed. All other blood
components remain in the circulation.
- The device uses well-established extracorporeal applications, especially
hemodialysis, as well as apheresis or other types of transfusion
procedures. These methods are widely used and available in hospitals and
clinics.
AEMD believes that the Hemopurifier device represents a true
breakthrough in the potential treatment of certain conditions ranging from acute
poisoning to chronic and life-threatening illnesses. It is novel because the
immobilized antidote in the Hemopurifier device binds the toxic material, thus
extracting it safely from the body. Harmful agents in the blood can be removed
efficiently and without side effects, reducing treatment times. The results of
these advantages are improved patient management and cost reduction for health
care providers.
Hemex' first series of products has been developed for the
extracorporeal removal of the following harmful metals from the blood: iron,
lead, and cisplatin. The combined potential markets for these initial products
is approximately $900 million per year in the United States, and $2.6 billion
worldwide. These projections have been developed from an analysis of the
targeted patient population for each metal intoxication, as reported in medical
journals and government publications.
IRON. The first product to be introduced by Hemex will be the DFO Hemopurifier.
With the chelator desferrioxamine (DFO) immobilized in the Hemopurifier, the
therapist can remove excess iron from the blood in a completely safe and
efficient manner. Among the target markets for this device are:
- HEREDITARY HEMACHROMATOSIS. This inherited life-threatening
disorder is one of the most under-diagnosed, yet common,
conditions in North America. 1.2 million Americans suffer from
this genetic condition which causes iron overload, which can lead
to organ damage and a number of serious medical manifestations.
Current treatment of choice is periodic phlebotomy, usually
weekly, with greater frequency for urgently symptomatic patients.
Phlebotomy removes whole blood, including excess iron. The
Hemopurifier treatment can be used in those cases where
phlebotomy is not possible.
- ACQUIRED IRON OVERLOAD. Iron overload is an unavoidable
complication of life-sustaining chronic blood transfusions.
Patients with Cooley's Anemia, Sickle Cell Disease, and other such
conditions can acquire iron overload leading to organ damage and
other difficulties. Also, in the process of 15,000 to 20,000 organ
transplants per year, iron overload is a major concern to
transplant surgeons.
Current treatment of this patient population involves the
administration of various chelators, including DFO, directly into
the body. The toxic side-effects and inefficient rate of iron
removal are in contrast to the completely safe and effective
Hemopurifier treatment.
11
<PAGE>
CISPLATIN. Cisplatin, and other closely-related platinum derivatives, are among
the most effective chemotherapeutic agents for the treatment of certain types of
cancer. Direct infusion of cisplatin is typically followed by severe nausea and
vomiting. Cisplatin may deposit in the sensory nerves, resulting in
incapacitating levels of pain that can last for years after treatment has been
discontinued. The prescribed dosage of cisplatin, therefore, is often limited by
its toxicity.
The Hemopurifier device for the removal of cisplatin can be applied to the vein
draining the tumor, or to any major vein in systemic treatment, either during or
immediately after cisplatin administration. With no other known means of
removing cisplatin from the body (painkillers and medications can only mitigate
the side effects), this procedure is especially promising and unique. Animal
tests have demonstrated the effectiveness of this approach.
With the Hemopurifier device, the oncologist can administer substantially higher
doses of cisplatin, thereby increasing its effectiveness as a chemotherapeutic
agent. The patient will receive more effective treatment while enjoying a better
quality of life during and after treatment. Hemex estimates that there are
annually over 265,700 new cancer patients who could be treated with cisplatin.
LEAD. The market for the removal of lead from the blood has three principal
segments, all of which are substantial in numbers as well as in need for
improved treatment modalities.
- YOUNG CHILDREN. Among children aged 1 to 5 years, it is estimated
that 890,000 have some level of lead toxicity. Direct chelation
therapy is used very cautiously in children, depending on the
individual level of lead burden. When used, the most frequently
prescribed chelation agent, EDTA, is given by infusion over
consecutive days. This process is repeated 2 or 3 times, with long
rests between treatments. The child passes the lead/chelator
complex, but is at risk for side-effects serious enough to require
that the treatments be given in a hospital setting.
The Hemopurifier treatment is safe, with no toxic substance entering the
child's body to create nasty side-effects. It is also more effective, as
demonstrated by extensive animal studies conducted by Hemex. In addition,
the Hemopurifier treatment causes lead residing in the tissue and bone to
migrate to the blood, where it can be removed by this extracorporeal
process. This phenomenon is the subject of a provisional patent applied for
in May 1999, and a full patent filed in April 2000.
- PREGNANT WOMEN. The Public Health Service estimates that there are
23,000 pregnant women in the U.S. with high blood lead levels,
clearly creating a danger to their fetuses. Sadly, these
12
<PAGE>
mothers cannot be treated by current chelation therapies because
of the toxicity of EDTA and other chelators to the fetus.
Because of the safety of the Hemopurifier, this extracorporeal method can
be used by pregnant women to reduce their blood lead levels with no risk to
mother or the fetus.
- INDUSTRIAL WORKERS. It is estimated by OSHA that nearly 600,000
workers are directly exposed to lead in the workplace, and that
one third have elevated blood levels. Since chelation therapy is
rarely used in the workplace because of its side-effects, workers
are normally sent home or reassigned until their blood lead levels
return to acceptable levels. In addition to the "down time"
involved, the prospect of long-term illness and cognitive damage
makes lead overload an expensive issue for certain employers.
Lead poisoning is also receiving attention form the legal community, and is
considered by some the next major target for class action suits. This further
increases the need to find an effective and safe therapy for lead overload.
Beyond these initial applications of the Hemex platform technology, additional
medical products will be developed for a variety of applications. In addition to
the virus-removing device discussed in below, future research will address
treatment of overdose of cardioactive and psychoactive drugs, improving patient
management in conditions with circulating harmful antibodies or antigen-antibody
complexes (e.g. in various types of cancer, diabetes, hemophilia); and treating
genetic enzyme deficiency diseases. The Department of Energy has shown an
interest in Hemex technology for various battlefield and civilian detoxification
applications in the U.S. and abroad.
PATENTS. The following patents have been issued to Dr. Ambrus and her
collaborators, with U.S. patents subsequently assigned to Hemex. Foreign
patent assignments are in process:
- Removing Metal Ions From the Blood
USA: No. 4,612,122 Issued September 16, 1986
Europe: No. 0,073,888 Issued April 23, 1986
Japan: No: 110,047/82 Issued June 7, 1994
- Blood Purification
USA: No. 4,714,556 Issued December 22, 1987
USA: No. 4,787,974 Issued November 29, 1988
- Immobilization of a Chelator on Silica
USA: No. 6,071,412 Issued June 6, 2000
Additional patents claiming a method for removing heavy metal from bone (Patent
filed April 27, 2000), and a method for removing toxins from blood (Provisional
Application filed June 26, 2000), are at the US PTO.
13
<PAGE>
MARKETING. The fundamental AEMD marketing goal is to make the Hemopurifier(TM)
device the preferred treatment in the U.S. for each of the conditions for which
the device is designed, and to then expand use of the device into international
markets. Because the Hemopurifier will be sold into many different medical
markets, a single detailed marketing plan is not possible.
There are over 25,000 installed hemodialysis stations in hospital and
free-standing dialysis clinics in the United States. With a trend to peritonal
dialysis, performed in the home rather than in a clinic, the utilization of
these dialysis stations is likely to diminish. The operators of dialysis clinics
should welcome additional opportunities to use their assets, including the
on-site staffs, for new medical applications.
The Hemopurifier devices for the removal of iron overload and for the removal of
lead are ideally suited to use in a hemodialysis setting. They use a modified
dialysis cartridge which is compatible with existing equipment, and require
repeat patient visits. And, unlike cartridges used in dialysis, the devices are
for a single use, increasing revenue potential per visit. The Company believes
that this model is compelling from both patient management and economic
viewpoints.
Hemex will use multi-faceted sales and marketing strategies for penetrating
the U.S. market. Sales and promotional efforts will be directed to three
target audiences: the distributor, the prescribing physician or medical
facility, and the patient.
- Distributors. Hemex will employ area marketing managers, who will act
as missionary salesmen in working with distributors' sales forces. In
areas of lower population density, Hemex will use independent,
commissioned sales representatives who work with a small number of
closely aligned products.
- Physicians and Medical Facilities. Area marketing managers will visit
physicians and hospital/medical practice administrators, often with
distributor salesmen who have strong pre-established relationships with
these buyers. In addition, physicians will learn of the Hemopurifier
device at medical society meetings, and through medical journals.
Members of the Scientific Advisory Board will continue to write medical
papers for publication in specific medical journals, and give
presentations and posters in the appropriate medical meetings.
Marketing management will attend medical meetings to set up booths and
distribute literature.
- Patients. As consumers take a greater interest in their own health in
today's environment, it will be important to build awareness of the
potential of the Hemopurifier among each patient population. Hemex will
work with professional public relations advisors to promote the
Hemopurifier in newspapers and general interest magazines, as well as
in targeted patient-oriented publications. Talk shows and medical
programming on radio and television are hungry for truly newsworthy
health-related developments like the Hemopurifier. Of particular
interest to the general public may be the Hemopurifier device for lead,
as it applies to children and to industrial lead poisoning.
Hemex will form strategic alliances with a small number of significant
distributors of those medical products which are sold to Hemex target buyers.
The criteria for strategic partners are: (1) they offer a knowledgeable sales
force with strong relations with the dialysis clinics and other medical
facilities Hemex seeks to penetrate, and (2) they have the financial and
physical capacity to manage inventory and order processing well.
14
<PAGE>
For the DFO Hemopurifier device, potential partners include suppliers to the
dialysis industry and large hospital supply companies. With potential to add
exciting new, higher priced products with good profit margins, Hemex products
will be attractive to these major firms. The use of aggressive area marketing
managers will ensure that Hemex receives more than its fair "share of mind" of
distributor sales people.
AETHLON LABORATORIES. Aethlon Laboratories, Inc. will, like Hemex, operate
as a wholly-owned subsidiary of Aethlon Medical, Inc., with its own staff,
facilities, and subsidiary business plan. AEMD will provide general
management, as well as financial and legal services, and will be responsible
for funding the operations of Aethlon Laboratories.
The mission of Aethlon Laboratories is to identify and develop new applications
of the Company's Hemopurifier(TM) technology, as well as related diagnostic and
therapeutic technologies which enhance the value of the core business. Working
in collaboration with Hemex, this subsidiary will develop early-stage devices
acquired through acquisition or identified in its own internal research. In
doing so, Aethlon Laboratories will continue to fill the product "pipeline" as
more mature products are commercialized.
Aethlon Laboratories will focus in the next three years on the development of
the technologies acquired by AEMD in the last quarter of FY 2000. As additional
technologies are acquired by the parent company, research and development
priorities will be reevaluated and adjusted as necessary.
- VIRUS THERAPY. Effective January 1, 2000, AEMD acquired the rights
to a novel process (patent pending) for the removal of targeted
viruses from the blood using the Hemopurifier extracorporeal
treatment method. While early research emphasis will be on HIV and
Hepatitis C viruses, because of the large underlying markets, this
therapeutic approach can be effective in dealing with any virus
whose DNA can be identified and replicated.
This invention combines DNA and antibody technology with
extracorporeal treatment. DNA strands and antiviral antibodies are
immobilized in the Hemopurifier cartridge so that as blood passes
through the device, any virus not encapsulated in white blood
cells is attracted to, and can bond with, the immobilized DNA and
antibody combination.
This treatment is designed to enhance the effectiveness of other
therapies, like protease inhibitors in HIV treatment, by reducing
the body burden of virus in a rapid and safe fashion. By capturing
circulating viruses that would otherwise invade cells, this
therapy will inhibit the growth of the virus and allow drug
therapies to work more rapidly and effectively.
The development of this device will be assigned the highest
priority at Aethlon Laboratories, with an aggressive development
program leading to an initial Feasibility Trial in FY 2002.
- CELL ACTIVATION THERAPY. On April 6, 2000, AEMD acquired Cell
Activation, Inc., a young biotechnology company working in the
field of inappropriate cell activation. Inappropriate cell
activation is the pathological overreaction of the body's immune
system, in various circumstances, causing the white blood cells to
exacerbate, rather than ameliorate, the underlying medical issue.
Cell Activation scientists have demonstrated that inappropriate
cell activation is likely to be a major cause of life-threatening
conditions frequently encountered by patients in the emergency
room or in the intensive care unit.
15
<PAGE>
- Aethlon Laboratories will focus on the development of
extracorporeal therapies for inappropriate cell activation in
trauma care, high-risk surgery, and cardiovascular care.
Immobilization techniques for the removal of those complement
factors which cause this pathological reaction, thought to be
certain enzymes, will be similar to those used by Hemex to remove
metal intoxicants from the blood.
- CELL ACTIVATION DIAGNOSTICS. Detection of the presence of a
potentially troublesome complement factor is a precondition for
the application of extracorporeal therapy. Therefore, Aethlon
Laboratories will continue to develop the diagnostic products well
underway at Cell Activation at the time of the acquisition. These
include the Plazmazyme(TM) plasma assay kit (patent pending),
which detects the presence of a certain enzyme that is a likely
cause of complications in patients who receive blood and blood
products in organ transplants and other procedures. Tests for
additional complement factors will be developed to enhance the
potential for widespread use of the Company's proprietary therapy
for inappropriate cell activation.
Although the diagnostic business is not a strategic priority for
the Company, closely related products like the Plasmazyme kit can
be important sources of early revenue and improved market
acceptance of higher margin therapeutic products.
- OTHER PROJECTS. Syngen Research also has applied for a patent on a
method of enzyme detection of DNA hybridization probes and has
other work underway in the field of protein amplification. These
opportunities will receive a lower priority than those set forth
above, but each represents a potential product opportunity for the
AEMD pipeline, or for a license to another company.
Syngen Research was acquired by AEMD on January 10, 2000, and Syngen began
doing business as "Aethlon Laboratories." Syngen will be merged into the
former Aethlon, Inc. subsidiary, and the surviving corporation's name will be
changed to Aethlon Laboratories. Cell Activation, Inc. was acquired on April
6, 2000. Cell Activation will also be merged into Aethlon Laboratories.
Aethlon Laboratories is a California corporation.
Syngen Research was founded in 1995 by Dr. Tullis as an operating company, with
revenues from consulting contracts and sub-contract development in a well
equipped laboratory with a staff oriented to DNA replication and amplification.
Prior to the January 2000 merger, laboratory work was performed there for Cell
Activation, as well as for several other biotechnology companies. Dr. Tullis
received 65,000 shares
16
<PAGE>
of AEMD common stock in exchange for 100% of the stock of Syngen Research,
and was appointed to the Board of Directors of AEMD, and was elected its Vice
President for Business Development.
Cell Activation was formed in December 1997 by a group of distinguished
scientists and businessmen who were all employed in senior positions in their
respective organizations, but wished to exploit the emerging inappropriate cell
activation technology in which they had a common interest. Although Cell
Activation had no salaried employees, it made good progress in developing its
diagnostic products, particularly the Plazmazyme Assay Kit, in its two plus
years of operation. The six owners of Cell Activation received a total of 99,152
shares of AEMD common stock, and options to purchase 50,848 shares of AEMD
common stock, in exchange for 100% of the shares of Cell Activation.
Aethlon Laboratories intends to become a research and development company with
specialized resources for the development of extracorporeal treatments of
blood-borne pathogens. As products under development approach readiness for
human clinical trials, Aethlon Laboratories will work closely with Hemex in
planning and executing these trials. Manufacturing, as well as distribution and
sales, will be arranged through strategic partners and contractors, also in
close collaboration with Hemex.
As products from Hemex and Aethlon Laboratories mature, management will continue
to review the most cost-efficient location - Aethlon Laboratories, Hemex, or
AEMD - for various activities which can be shared among subsidiaries.
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The names, ages and positions of the Company's directors and executive
officers as of the date of this Prospectus are listed below:
<TABLE>
<CAPTION>
NAMES TITLE OR POSITION AGE
----- ----------------- ---
<S> <C> <C>
James A. Joyce Chairman, Secretary, and Director 39
Franklyn S. Barry, Jr. President/Chief Executive Officer 61
and Director
John M. Murray Vice President-Finance and Chief 67
Financial Officer
Richard H. Tullis, Ph. D. Vice President-Business Development 55
and Director
Clara M. Ambrus, Chief Scientific Officer 75
MD, Ph. D. and Director
Edward G. Broenniman Director 64
Robert J. Lambrix Director 61
John P. Penhune, Ph. D. Director 64
</TABLE>
17
<PAGE>
Resumes of Management follow:
JAMES A. JOYCE
As the Chairman of Aethlon Medical, Mr. Joyce has led the efforts that
have resulted in the recent acquisitions of Hemex, Inc., Syngen Research,
Inc., Cell Activation, Inc., and Bishop Equities, Inc. Mr. Joyce founded
Aethlon, Inc., the predecessor to Aethlon Medical in May 1998. He has been
the Chairman of the Board and Secretary of the Company since March 1999. In
February 1993, Mr. Joyce was the founder and Chief Executive Officer of James
Joyce & Associates; an organization that provided management consulting and
investment banking advisory services to CEO's and CFO's of publicly traded
companies. Selected transactions include the structure and placement of over
$20 million in private equity on behalf of a publicly traded computer
distribution company, and management and advisory services which led to the
successful Initial Public Offering of a non-related biomedical company.
Previously, Mr. Joyce was Chief Executive Officer of Mission Labs, Inc., and
a principal in charge of U.S. operations for London Zurich Securities, Inc.
Mr. Joyce graduated from the University of Maryland in 1984.
FRANKLYN S. BARRY, JR.
Mr. Barry has over 30 years of experience in managing and building
companies. He has been the President and Chief Executive Officer of Hemex since
April 1997, and became a director of the Company on March 10, 1999. Included
among his prior experiences are tenures as President of Fisher-Price and as
co-founder and CEO of Software Distribution Services, which today operates as
Ingram Micro-D, an international distributor of personal computer products. Mr.
Barry serves on the Board of Directors of Technology, Inc., Barrister Global
Services Network, Inc. (AMEX) and Merchants Mutual Insurance Company, a property
and casualty insurance underwriter.
JOHN M. MURRAY, C.P.A.
Mr. Murray joined the Company in September 1999. From 1988 until
his retirement in 1998 Mr. Murray was Vice President-Finance and Treasurer of
American Precision Industries Inc., a multi-national manufacturer of
industrial motion control and heat transfer products listed on The New York
Stock Exchange.
RICHARD H. TULLIS, Ph.D.
Dr. Tullis has extensive biotechnology management and research
experience. In 1996 he founded Syngen Research to pursue research in the
fluorescent detection of DNA hybridization reactions. Syngen was acquired by
the Company in January 2000, and he was elected a director of the Company at
that time. During the past five years, Dr. Tullis also served as Chief
Executive Officer of DNA Sciences, Inc. and Genetic Vectors, Inc.
CLARA M. AMBRUS, M.D., Ph.D.
Dr. Ambrus invented the Hemopurifier cartridge and is the founder of
Hemex, Inc. which was acquired by the Company in March 1999. She was elected
a director of the Company on July 14, 1999. She is a Research Professor at
the State University of New York at Buffalo in both the School of Medicine
and the School of Pharmacology.
18
<PAGE>
EDWARD G. BROENNIMAN
Mr. Broenniman became a director of the Company on March 10, 1999. Mr.
Broenniman has 30 years of management and executive experience with high-tech,
privately-held growth firms where he has served as a CEO, COO, or corporate
advisor, using his expertise to focus management on increasing profitability and
stockholder value. He is the Managing Director of The Piedmont Group, LLC, a
venture advisory firm. Mr. Broenniman recently served on the Board of Directors
of publicly-traded QuesTech (acquired by CACI International), and currently
serves on the Boards of four privately-held firms, the Dingham Center for
Entrepreneurship's Board of Advisors at the University of Maryland, and the
Board of the Association for Corporate Growth.
ROBERT J. LAMBRIX
Mr. Lambrix became a director of the Company on February 1, 2000.
Since April 2000, Mr. Lambrix has been the Chief Executive Officer of U.S.
Medical, Inc., a distributor of new and used medical equipment. From
January 1997 to March 2000 he was a management consultant, and in 1996 he
was Chief Financial Officer of Senior Campus Living. From March 1994 to May
1995, Mr. Lambrix was a principal with Kotter Associates. He is the former
Senior Vice President and Chief Financial Officer of Baxter International,
Inc., a global leader in the development, manufacture, and distribution of
medical devices and hospital supplies.
JOHN P. PENHUNE, Ph.D.
Dr. Penhune was a founder, President, and Chairman of the Board of Cell
Activation, Inc. prior to its acquisition by the Company in April 2000, and he
was elected a director of the Company at that time. In addition, he is Senior
Vice President of Research at Science Applications International Corporation
(SAIC), a Fortune 500 company with annual sales exceeding $5 billion.
Each of the directors is serving for a term that extends to the next
Annual Meeting of Shareholders of the Company. The Company's Board of
Directors presently has an Audit Committee and a Compensation Committee on
each of which Messrs. Broenniman, Lambrix, and Penhune serve. Mr. Lambrix is
Chairman of the Audit Committee, and Mr. Broenniman is Chairman of the
Compensation Committee.
Mr. Broenniman is the son-in-law of Dr. Ambrus.
MANAGEMENT
EXECUTIVE COMPENSATION
During the fiscal year ended March 31, 2000, Mr. Joyce and Mr. Barry
each earned a salary of $120,000 of which $90,000 has been paid and $30,000 is
unpaid and deferred. No other officer of the Company received compensation in
excess of $100,000 for the fiscal year.
In April 1999, the Company entered into two-year employment agreements
with Mr. Joyce and Mr. Barry. Each agreement provides for base compensation of
$120,000 per year. The agreements also provide that the employees are eligible
to receive the Company's standard benefits package and
19
<PAGE>
participation in an incentive compensation program to be developed and
approved by the Board of Directors.
No compensation was paid to the directors of the Company during the
fiscal year ended March 31, 2000. At a meeting held on May 31, 2000, the Board
of Directors approved a fee arrangement for non-employee directors, effective
with the May 31, 2000 meeting. An annual retainer will consist of a stock option
for 2,000 shares of Company stock with an exercise price equal to 75% of the
average closing price of the stock for the 30 days prior to issuance. A cash fee
of $1,000 for each day or partial day spent attending board and committee
meetings will be paid. The cash fee for telephonic attendance will be $500. In
addition, for each board and committee attended in person or by phone, the
director will receive an option to acquire 100 shares of Company stock with an
exercise price equal to 75% of the average closing price of the stock for the 30
days prior to the meeting date. All out-of-pocket expenses incurred to attend
meetings are reimbursed by the Company.
EMPLOYMENT AGREEMENTS
In addition to the employment agreements with Mr. Joyce and Mr. Barry
referred to in "Executive Compensation" above, the Company has employment
agreements with Dr. Ambrus and Dr. Tullis. The employment agreement with Dr.
Ambrus provides for annual compensation of $80,000 and is terminable by the
Company on March 31, 2002 on written notice 60 days prior to the end of the
term. If the Company does not serve notice of termination 60 days prior to the
end of the term the agreement continues for successive one-year terms. The
employment agreement with Dr. Tullis provides for annual compensation of $80,000
and is terminable by the Company on January 9, 2002 on written notice 60 days
prior to the end of the term. If the Company does not serve notice of
termination 60 days prior to the end of the term the agreement continues for
successive one-year terms.
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of the
Company's officers, directors, and persons who own more than five percent of the
Company's common stock as of November 30 , 2000:
<TABLE>
<CAPTION>
------------------------------- ---------------------------- ---------------------------------------------------------
Name and Positions Held Number and Percentage (2) of Shares
Address (1) Beneficially Owned
------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C> <C>
James A. Joyce Chairman, Secretary, and 675,400 24.4%
Director
------------------------------- ---------------------------- ---------------------------- ----------------------------
Franklyn S. Barry, Jr. President, Chief Executive 418,593 (3) 13.2% (3)
Officer, and Director
------------------------------- ---------------------------- ---------------------------- ----------------------------
Edward G. Broenniman Director 258,374 (4) 9.3%
------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C> <C>
------------------------------- ---------------------------- ---------------------------- ----------------------------
Clara Ambrus Chief Scientific Officer 450,279 16.3%
and Director
------------------------------- ---------------------------- ---------------------------- ----------------------------
Richard H. Tullis Director 65,000 2.4%
------------------------------- ---------------------------- ---------------------------- ----------------------------
John P. Penhune Director 40,646 (5) 1.5%
------------------------------- ---------------------------- ---------------------------- ----------------------------
John M. Murray Chief Financial Officer -0- 0%
------------------------------- ---------------------------- ---------------------------- ----------------------------
Robert J. Lambrix Director 2,500 (6) 0.1%
------------------------------- ---------------------------- ---------------------------- ----------------------------
Deborah Salerno (7) Shareholder 247,600 8.9%
------------------------------- ---------------------------- ---------------------------- ----------------------------
All directors and executive 2,158,382 (8) 59.9% (8)
officers of Company as a
group (8 persons)
------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
(1) The shareholders' address, unless otherwise indicated, is at the
Company's principal executive offices at 7825 Fay Avenue, Suite 200,
LaJolla, California 92037.
(2) Assumes 2,771,652 shares outstanding plus the number of options presently
exercisable by each named person.
(3) Includes 412,500 shares issuable upon the exercise of
presently-exercisable incentive stock options at an exercise price of
$3.00 per share. The percentage ownership for Mr. Barry is based on
3,184,152 shares outstanding, assuming the exercise of the 412,500
options.
(4) Includes 201,989 shares owned of record by Linda Broenniman,
Mr. Broenniman's wife. Also includes 2,500 shares issuable upon the
exercise of presently exercisable non-qualified stock options at exercise
prices ranging from $3.75 to $5.80 per share.
(5) Includes 2,500 shares issuable upon the exercise of presently exercisable
non-qualified stock options at exercise prices ranging from $3.75 to
$5.80 per share.
(6) Represents 2,500 shares issuable upon the exercise of presently
exercisable non-qualified stock options at exercise prices ranging from
$3.75 to $5.80 per share.
(7) Ms. Salerno's address is 355 South End Avenue, New York, NY 10280.
(8) Includes 420,000 shares issuable upon the exercise of
presently-exercisable stock options held by the officers and directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
DESCRIPTION OF SECURITIES
The following description of the capital stock of the Company and
certain provisions of the Company's Articles of Incorporation and Bylaws is a
summary and is qualified in its entirety by the provisions of the Articles of
Incorporation and Bylaws, which have been filed as exhibits to the Company's
Registration Statement of which this Prospectus is a part.
The authorized capital stock of the Company currently consists of
25,000,000 shares of Common Stock, $.001 par value and no shares of Preferred
Stock.
COMMON STOCK
The Common Stock holders have equal ratable rights to dividends from
funds legally available therefor, when, as and if declared by the Board of
Directors and are entitled to share ratably in all of the assets of the Company
available for distribution to the holders of shares of Common Stock upon the
21
<PAGE>
liquidation, dissolution or winding up of the affairs of the Company. Except as
described herein, no pre-emptive, subscription, or conversion rights pertain to
the Common Stock and no redemption or sinking fund provisions exist for the
benefit thereof. All outstanding shares of Common Stock offered hereby will be
duly authorized, validly issued, fully paid and nonassessable.
As a consequence of their ownership of Common Stock, the current
stockholders of the Company will continue to control a majority of the voting
power of the Company and, accordingly, will be able to elect all of the
Company's directors.
REDEEMABLE WARRANTS
At any time commencing on the date of issuance until the fifth
anniversary date of the Prospectus for that offering, each Warrant will be
exercisable to purchase one share of Common Stock. A copy of the Warrant
Agreement has been filed as an exhibit to the Registration Statement for this
offering.
REDEMPTION
The Warrants may be exercised upon surrender of the certificate or
certificates therefor on or prior to the expiration or the redemption date at
the offices of the Company's warrant agent (the "Warrant Agent") with the
subscription form on the reverse side of the certificate or certificates
completed and executed as indicated, accompanied by payment (in the form of a
certified or cashier's check payable to the order of the Company) of the full
exercise price for the number of Warrants being exercised.
The Warrants contain provisions that protect the holders thereof
against dilution by adjustment of the exercise price per share and the number of
shares issuable upon exercise thereof upon the occurrence of certain events at
less than market value, stock dividends, stock splits, mergers, sale of
substantially all of the Company's assets, and for other extraordinary events;
provided, however, that no such adjustment shall be made upon, among other
things, (i) the issuance or exercise of options or other securities under the
Company's Stock Option Plan or other employee benefit plans or (ii) the sale or
exercise of outstanding options or warrants or the shares underlying Warrants.
The Company is not required to issue fractional shares of Common Stock
and in lieu thereof will make a cash payment based upon the current market value
of such fractional shares. The holder of the Warrants will not possess any
rights as a stockholder of the Company unless and until he or she exercises the
Warrants.
REGISTRATION RIGHTS
The Company has granted certain demand and piggyback registration
rights to the Selling Shareholders, which rights have been satisfied in
connection with the filing of the registration statement covering this
Prospectus.
TRANSFER AGENT AND WARRANT AGENT
Computershare Investor Services, Lakewood, Colorado, will serve as
Transfer Agent for the shares of Common Stock and Warrant Agent for the
Warrants.
22
<PAGE>
CERTAIN STATUTORY AND CHARTER PROVISIONS UNDER THE NEVADA GENERAL CORPORATION
LAW
Section 203 of the Nevada General Corporation Law provides, in general,
that a stockholder acquiring more than 15% of the outstanding voting shares of a
publicly-held Nevada corporation subject to the statute (an "Interested
Stockholder") may not engage in certain "Business Combinations" with the
corporation for a period of three years subsequent to the date on which the
stockholder became an Interested Stockholder unless (i) prior to such date the
corporation's board of directors approved either the Business Combination or the
transaction in which the stockholder became an Interested Stockholder or (ii)
upon consummation of the Business Combination, the Interested Stockholder owns
85% or more of the outstanding voting stock of the corporation (excluding shares
owned by directors who are also officers of the corporation or shares held by
employee stock option plans that do not provide employees with the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer), or (iii) the Business Combination is
approved by the corporation's board of directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the affirmative
vote of at least two-thirds of the outstanding voting stock of the corporation
not owned by the Interested Stockholder.
Section 203 defines the term "Business Combination" to encompass a wide
variety of transactions with or caused by an Interested Stockholder in which the
Interested Stockholder receives or could receive a benefit on other than a pro
rata basis with other stockholders, including mergers, certain asset sales,
certain issuances of additional shares to the Interested Stockholder or
transactions in which the Interested Stockholder receives certain other
benefits.
These provisions could have the effect of delaying, deferring or preventing
a change of control of the Company. The Company's stockholders, by adopting an
amendment to the Certificate of Incorporation or Bylaws of the Company, may
elect not to be governed by Section 203, effective twelve months after adoption.
Neither the Certificate of Incorporation nor the Bylaws of the Company currently
excludes the Company from the restrictions imposed by Section 203.
The Nevada General Corporation Law permits a corporation through its
Certificate of Incorporation to eliminate the personal liability of its
directors to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty of loyalty and care as a director with certain exceptions. The
exceptions include a breach of the director's duty of loyalty, acts or omissions
not in good faith or which involve intentional misconduct or knowing violation
of law, and improper personal benefit. The Company's Certificate of
Incorporation exonerates its directors from monetary liability to the fullest
extent permitted by this statutory provision.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of common stock in the public
market could adversely affect market prices prevailing from time to time. Under
the terms of this offering, the [1] shares of common stock to be issued, or
underlying the warrants to be issued, may be resold without restrictions or
further registration under the Securities Act of 1933, except that any shares
purchased by our "affiliates," as that
23
<PAGE>
term is defined under the Securities Act, may generally only be sold in
compliance with the limitations of Rule 144 under the Securities Act.
OUTSTANDING RESTRICTED STOCK
2,559,201 outstanding shares of common stock are restricted
securities within the meaning of Rule 144 and may not be sold in the absence
of registration under the Securities Act unless an exemption from
registration is available, including the exemption from registration offered
by Rule 144. In general, under Rule 144, as currently in effect, a person who
has beneficially owned restricted shares for at least one year, including a
person who may be deemed to be our affiliate, may sell within any three-month
period a number of shares of common stock that does not exceed a specified
maximum number of shares. This maximum is equal to the greater of 1% of the
then outstanding shares of our common stock or the average weekly trading
volume in the common stock during the four calendar weeks immediately
preceding the sale. Sales under Rule 144 are also subject to restrictions
relating to manner of sale, notice and availability of current public
information about us. In addition, under Rule 144(k) of the Securities Act, a
person who is not our affiliate, has not been an affiliate of ours within
three months prior to the sale and has beneficially owned shares for at least
two years would be entitled to sell such shares immediately without regard to
volume limitations, manner of sale provisions, notice or other requirements
of Rule 144.
WARRANTS
The resale of shares of common stock to be issued upon the exercise of
the warrants issued or issuable to finder under the Investment Agreement are
being registered by this offering statement.
PLAN OF DISTRIBUTION
The Selling Shareholders are free to offer and sell their common shares
at such times, in such manner and at such prices as they may determine. The
types of transactions in which the common shares are sold may include
transactions in the over-the-counter market (including block transactions),
negotiated transactions, the settlement of short sales of common shares, or a
combination of such methods of sale. The sales will be at market prices
prevailing at the time of sale or at negotiated prices. Such transactions may or
may not involve brokers or dealers. The Selling Shareholders have advised us
that they have not entered into any agreements, understandings or arrangements
with any underwriters or broker-dealers regarding the sale of its securities.
The Selling Shareholders do not have an underwriter or coordinating broker
acting in connection with the proposed sale of the common shares.
The Selling Shareholders may effect such transactions by selling common
stock directly to purchasers or to or through broker-dealers, which may act as
agents or principals. Such broker-dealers may receive compensation in the form
of discounts, concessions, or commission from the Selling Shareholders. They may
also receive compensation from the purchasers of common shares for whom such
broker-dealers may act as agents or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
Each Selling Shareholder is, and any broker-dealer that acts in
connection with the sale of common shares may be deemed to be, an "underwriter"
within the meaning of Section 2(11) of the
24
<PAGE>
Securities Act. Any commissions received by such broker-dealers and any
profit on the resale of the common shares sold by them while acting as
principals might be deemed to be underwriting discounts or commissions.
Because the Selling Shareholders are "underwriters" within the meaning
of Section 2(11) of the Securities Act, they will be subject to prospectus
delivery requirements.
We have informed the Selling Shareholders that the anti-manipulation
rules of the SEC, including Regulation M promulgated under the Securities and
Exchange Act, may apply to their sales in the market and have provided each
Selling Shareholder with a copy of such rules and regulations.
The Selling Shareholders also may resell all or a portion of the common
shares in open market transactions in reliance upon Rule 144 under the
Securities and Exchange Act, provided it meets the criteria and conforms to the
requirements of such Rule.
SELLING SHAREHOLDERS
The Selling Shareholders are offering hereby a total of up to
3,200,000 shares of our Common Stock. The following table sets forth certain
information with respect to the Selling Shareholders as of November 30, 2000.
The Selling Shareholders are not currently affiliates of the Company, and
have not had a material relationship with the Company during the past three
years, other than as a holder of securities of the Company and the
negotiation of the Subscription Agreement.
<TABLE>
<CAPTION>
Beneficial Amount and Percentage
Name and Address Ownership of Maximum Number of Shares of Common Stock
of Beneficial Common Stock of Common Stock Offered Beneficially Owned
Owner as of November 30, 2000(1) for Sale in this Offering(1) After the Offering(2)
---------------- ------------------------- --------------------------- ---------------------
<S> <C> <C> <C> <C>
Esquire Trade & Finance, Inc. 1,600,000 1,600,000 0 0
Libra Finance, S.A.(3) 1,600,000 1,600,000 0 0
</TABLE>
(1) This number includes (solely for purposes of this prospectus) up to an
aggregate of 3,200,000 shares of our common stock that we may issue to
the Selling Shareholders pursuant to the terms of the Subscription
Agreement including Common Stock underlying the Put Notes and
Warrants, which shares would not be deemed beneficially owned within
the meaning of Sections 13(d) and 13(g) of the Exchange Act before
their acquisition by the Selling Shareholders. It is expected that the
Selling Shareholders will not beneficially own more than 9.9% of our
outstanding common stock at any time.
(2) Assumes that the Selling Shareholders will sell all of the shares of
common stock offered hereby. We cannot assure you that the Selling
Shareholders will sell
25
<PAGE>
all or any of the shares offered hereunder or in the prior offering.
(3) This number includes 119,048 shares of common stock issuable upon exercise
of outstanding Warrants that are currently exercisable, which represents
4.1% of our issued and outstanding as of November 30, 2000, assuming the
full exercise of the Warrants.
SUBSCRIPTION AGREEMENT
Overview. On November 1, 2000, we entered into a Subscription
Agreement (the "Subscription Agreement") with the Esquire Trade & Finance,
Inc. ("ETF"), one of the Selling Shareholders pursuant to which we issued a
Convertible Note bearing interest at 8% in the principle amount of $375,000
(the "Note"). The conversion formula provides that the number of shares of
Common Stock issuable upon the conversion of the Note shall be the lower of
(i) 90% of the closing price for the Common Stock on the principal market or
exchange where the Common Stock is listed or traded for the last trading day
immediately prior to but not including the issue date of the Notes (the
"Maximum Base Price"); or (ii) 75% of the average of the three lowest closing
bid prices for the Common Stock on the principal market or exchange where the
Common Stock is listed or traded (the "Principal Market"), for the 10 trading
days prior to but not including the date of conversion. We also agreed to
issue up to $4,625,000 in additional Convertible Notes (the "Put Notes") on
the same terms as the Note, except that the conversion shall be the lower of
(i) the Maximum Base Price; or (ii) 82.5% of the average of the three lowest
closing bid prices of the Common Stock on the Principal Market for the 10
trading days prior to but not including the conversion date, and we have the
right to require ETF to subscribe for the Put Notes under certain
circumstances (the "Put Right").
Put Rights. In order to invoke the Put Right, we must have an
effective registration statement on file with the SEC registering the resale
of the common shares which may be issued as a consequence of the invocation
of that Put Right. Additionally, we must provide the Selling Shareholders
with a "Put Notice," which must set forth the "Put Amount" which we intend to
sell to the Selling Shareholders. The Put Amount sold to the Selling
Shareholders in a Put may not exceed a limit based on the price of the Common
Stock and the average daily reported trading volume during the 30 calendar
days preceding the delivery of the Put Notice. The Put Amount specified in a
Put Notice may not be less than $100,000.
Limitations and Conditions Precedent to our Put Rights. The Selling
Shareholders' obligation to acquire and pay for any common shares with respect
to any particular put is subject to certain conditions precedent, including:
- This Registration Statement must be effective;
- Trading of our Common Stock must not have been suspended, and our
Common Stock must continue to be listed on its principal market;
- Until our shareholders vote to approve the [2], no more than 3,200,000
shares of Common Stock may be issued; and
- The average trading volume for our Common Stock over the previous 30
trading days must equal or exceed 20,000 shares per trading day.
26
<PAGE>
Short Sales. The Selling Shareholders and their affiliates are
prohibited from engaging in short sales of our common stock at a per share price
of less than $10.00 per share unless they have received a put notice and the
amount of shares involved in a short sale does not exceed the number of shares
specified in the put notice.
LEGAL MATTERS
The validity of the shares of common stock being offered hereby will be
passed upon for the Company by Gibson, Haglund & Paulsen, Irvine, California.
EXPERTS
The financial statements of Aethlon Medical, Inc. ("AEMD") at March
31, 2000, and for each of the two years in the period ended March 31, 2000,
appearing in this Prospectus and Registration Statement have been audited by
Freed, Maxick, Sachs & Murphy, PC, independent auditors, as set forth in their
report thereon (which contains an explanatory paragraph describing conditions
that raise substantial doubt about the Company's ability to continue as a
going concern as described in Note 2 to the financial statements) appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the
Securities Act of 1933, as amended, relating to the shares of common stock being
offered by this prospectus, and reference is made to such registration
statement. This prospectus constitutes the prospectus of AEMD filed as part of
the registration statement, and it does not contain all information in the
registration statement, as certain portions have been omitted in accordance with
the rules and regulations of the SEC.
We are subject to the informational requirements of the Securities
Exchange Act of 1934 and pursuant to those requirements, we file reports, proxy
statements and other information with the Securities and Exchange Commission
relating to our business, financial statements and other matters. Reports, proxy
and information statements filed under Sections 14(a) and 14(c) of the
Securities Exchange Act of 1934 and other information filed with the SEC,
including copies of the registration statement, can be inspected and copied
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
The public may obtain information on the operation of the Public Reference Room
by calling 1-800-SEC-0330. The SEC also maintains an Internet site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC at http://www.sec.gov.
We intend to furnish our shareholders with annual reports containing
audited financial statements.
27
<PAGE>
AETHLON MEDICAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
number
<S> <C>
FISCAL YEARS ENDED MARCH 31, 2000 AND MARCH 31, 1999:
Independent Auditor's Report F-1
Consolidated financial statements:
Statements of Operations F-2
Balance Sheets F-3
Statements of Cash Flows F-4
Statements of Stockholders' Deficiency F-5
Notes to consolidated financial statements F-6 to F-11
SIX MONTHS ENDED SEPTEMBER 30, 2000:
Consolidated financial statements:
Statements of Operations F-12
Balance Sheets F-13
Statements of Cash Flows F-14
Statements of Stockholders' Deficiency F-15
Notes to consolidated financial statements F-16 to F-17
</TABLE>
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Aethlon Medical, Inc. and Subsidiaries
Buffalo, New York
We have audited the accompanying consolidated balance sheets of Aethlon
Medical, Inc. (formerly Bishop Equities, Inc.) and Subsidiaries (A
Development Stage Enterprise) as of March 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' deficiency, and cash
flows for the years then ended and for the period from January 31, 1984
(inception) to March 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial stastments are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Aethlon
Medical, Inc. and Subsidiaries (A Development Stage Enterprise) as of March
31, 2000 and 1999, and the results of its operations and its cash flows for
the years then ended and from January 31, 1984 (inception) to March 31, 2000
in conformity with generally accepted accounting principles.
The accompanying consolidated fianancial 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 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 also described in Note 2.
The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Buffalo, New York
June 21, 2000
F-1
<PAGE>
AETHLON MEDICAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31,
<TABLE>
<CAPTION>
Cumulative
during
development
stage through
2000 1999 March 31, 2000
<S> <C> <C> <C>
REVENUE
Grant income $ - $ - $ 1,424,012
Subcontract income - - 73,746
Sale of research and development - - 35,810
Other income 20,559 - 37,784
Interest income - - 17,415
------------------------------------------------------
Total revenue 20,559 - 1,588,767
EXPENSES
Personnel costs 457,629 221,779 3,305,125
Interest and debt expense 425,085 13,823 515,846
Professional fees 254,258 45,887 571,238
Rent and office expense 76,027 38,144 491,714
Insurance 33,175 (2,347) 90,486
Travel and meetings 26,738 5,325 144,155
Depreciation 11,098 16,287 134,918
Amortization-patents 8,172 8,171 42,899
Amortization-goodwill 12,695 - 12,695
Laboratory supplies 2,650 180 102,383
Miscellaneous 6,627 3,131 104,930
Equipment and maintenance 623 1,674 165,322
Research and development consultation - - 240,463
Subcontract expense - - 195,964
Contractual costs - - 192,112
Dues and subscriptions - - 13,596
------------------------------------------------------
Total expenses 1,314,777 352,054 6,323,846
------------------------------------------------------
Loss before income tax provision (1,294,218) (352,054) (4,735,079)
Income tax provision 5,164 625 11,337
------------------------------------------------------
NET LOSS $ (1,299,382) $ (352,679) $ (4,746,416)
======================================================
PER SHARE:
Net loss $ (0.50) $ (0.23) $ (3.30)
======================================================
Weighted average number of
common shares outstanding 2,612,292 1,506,833 1,439,595
======================================================
</TABLE>
See accompanying notes.
F-2
<PAGE>
AETHLON MEDICAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
MARCH 31,
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 217,017 $ 3,052
Accounts receivable 61,495 -
Prepaid expenses 36,940 -
Employee advances 15,800 -
--------------------------------
Total current assets 331,252 3,052
FURNITURE AND EQUIPMENT, NET 41,535 33,608
OTHER ASSETS
Patents and trademarks, net 177,065 45,413
Deferred debt expense, net 273,738 -
Goodwill, net 495,088 -
Other 1,330 -
--------------------------------
Total other assets 947,221 45,413
--------------------------------
Total assets $1,320,008 $ 82,073
================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable:
Trade $ 740,562 $252,178
Related parties 259,324 229,806
Notes payable, net of discount 501,708 -
Accrued liabilities 201,631 63,577
Deferred compensation 329,835 310,008
--------------------------------
Total current liabilities 2,033,060 855,569
STOCKHOLDERS' DEFICIENCY:
Common stock - $.001 par value
25,000,000 shares authorized, 2,672,500
(2,595,000 - 1999) shares issued and outstanding 2,673 2,595
Additional paid in capital 3,290,865 2,670,943
Additional paid in capital - warrants 739,826 -
Deficit accumulated during development stage (4,746,416) (3,447,034)
--------------------------------
Total stockholders' deficiency (713,052) (773,496)
--------------------------------
Total liabilities and stockholders' deficiency $1,320,008 $ 82,073
================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
AETHLON MEDICAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31,
<TABLE>
<CAPTION>
Cumulative
during
development
stage through
2000 1999 March 31, 2000
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,299,382) $ (352,679) $ (4,746,416)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 11,098 16,287 134,918
Amortization 292,024 8,171 326,751
Services paid by issuance of warrants 5,000 5,000
Deferred compensation forgiven - 37,600 217,223
(Increase) decrease in assets:
Accounts receivable and advances (14,629) (14,629)
Prepaid expenses (36,940) (36,940)
Other assets (1,329) (1,329)
Increase (decrease) in liabilities:
Accounts payable 207,350 12,838 597,984
Accrued liabilities 138,054 77,074 268,869
Deferred compensation 19,827 77,959 329,834
-----------------------------------------------------
Net cash used by operating activities (678,927) (122,750) (2,918,735)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (13,476) - (170,904)
Purchase of patents (39,824) - (120,564)
Cash of acquired company 8,442 - 8,442
-----------------------------------------------------
Net cash used by investing activities (44,858) - (283,026)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in notes payable 1,052,500 - 1,052,500
Loan acquisition costs (114,750) - (114,750)
Loans from stockholders 370,384
Advances from affiliate - 122,100 122,100
Proceeds from issuance of common stock - 2,470 1,988,544
-----------------------------------------------------
Net cash provided by financing activities 937,750 124,570 3,418,778
NET INCREASE IN CASH 213,965 1,820 217,017
Cash - beginning of year 3,052 1,232 -
-----------------------------------------------------
Cash - end of year $ 217,017 $ 3,052 $ 217,017
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the period for:
Interest $ 18,727 $ - $ 42,307
Income taxes $ 1,350 $ 325 $ 7,162
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Loans converted to common stock of Hemex $ - $ 435,094 $ 435,094
Net assets of entities acquired in exchange
for the issuance of common stock $ 520,000 $ 119,014 $ 639,014
Patent acquired for 12,500 shares of
common stock $ 100,000 $ - $ 100,000
Debt placement fees paid by issuance
of warrants $ 246,119 $ - $ 246,119
Allocation of note proceeds to note
discount $ 734,826 $ - $ 734,826
</TABLE>
See accompanying notes.
F-4
<PAGE>
AETHLON MEDICAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
COMMON STOCK PAID IN
---------------------------- PAID IN CAPITAL- ACCUMULATED
SHARES AMOUNT CAPITAL WARRANTS DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1998 1,274,000 $ 1,274 $ 1,987,270 $ - $ (3,094,355) $(1,105,811)
Conversion of loans payable -
stockholders into Hemex common
stock 76,000 76 435,018 - - 435,094
Issuance of common stock for
acquisition of Aethlon Medical 511,500 511 (2,437) - - (1,926)
Issuance of common stock for
acquisition of Aethlon 733,500 734 102,869 - - 103,603
Forgiven employee/stockholder
deferred compensation - - 217,223 - - 217,223
Net loss - 1999 - - - - (352,679) (352,679)
--------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1999 2,595,000 2,595 2,739,943 - (3,447,034) (704,496)
as previously reported
Prior period adjustment
(Note 3) - - (69,000) - - (69,000)
--------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1999
as adjusted 2,959,000 2,595 2,670,943 - (3,447,034) (773,496)
Issuance of common stock for
acquisition of Aethlon Labs 65,000 65 519,935 - - 520,000
Issuance of common stock for
acquisition of patent rights 12,500 13 99,987 - - 100,000
Warrants to acquire common stock
issued with promissory notes - - - 734,826 - 734,826
Warrants to acquire common stock
issued in exchange for services - - - 5,000 - 5,000
Net loss - 2000 - - - - (1,299,382) (1,299,382)
--------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2000 2,672,500 $ 2,673 $ 3,290,865 $ 739,826 $ (4,746,416) $ (713,052)
============================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
AETHLON MEDICAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Aethlon Medical, Inc. (formerly Bishop Equities,
Inc.) (Aethlon Medical) and its wholly owned subsidiaries, Hemex, Inc.
(Hemex), Syngen Research, Inc. (doing business as Aethlon Laboratories, Inc.)
(Aethlon Labs), and Aethlon, Inc. (collectively the Company). All
significant intercompany balances and transactions have been eliminated.
NATURE OF BUSINESS - Aethlon Medical, which was formerly a
non-operating public shell, is the parent company of Aethlon Inc., Aethlon
Labs, and Hemex. Hemex, incorporated on January 31, 1984 and acquired by
Aethlon Medical on March 10, 1999, is a start-up research and development
company involved in developing the Hemopurifier-TM- which is a medical device
for removing substances from the blood. Aethlon, Inc. was incorporated on
June 24, 1998 to acquire proprietary medical device technologies with the
potential to be developed and commercialized on an international basis.
Aethlon Labs was incorporated on October 14, 1999 and acquired by Aethlon
Medical on January 10, 2000.
To date the Company is in the initial stage of its operations and
has not yet engaged in significant commercial activities. Marketing of the
Hemopurifier is subject to FDA approval.
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 amounts of the
current assets and liabilities reported in the balance sheets approximate
fair value due to their short-term maturity.
SEGMENT REPORTING - The Company is currently organized, managed and
internally reported as one segment. The segment operates entirely within the
United States.
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 and warrants 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
F-6
<PAGE>
years ended March 31, 2000 and 1999 was $11,098 and $16,287, respectively.
Accumulated depreciation as of March 31, 2000 and 1999 amounted to $132,771
and $123,820, respectively.
INTANGIBLE ASSETS - Intangible assets consist of patents, goodwill,
and deferred debt expense. The Company periodically reviews the
recoverability of the carrying value of its intangible assets. In
determining whether there is an impairment, the Company compares the sum of
the expected future cash flows (undiscounted and without interest charges) to
the carrying amount of the asset. In addition, the Company will consider
other significant events or changes in the economic and competitive
environments that may indicate that the remaining estimated useful lives of
its intangibles may warrant revision. At March 31, 2000, the Company believed
that no impairment of intangibles existed.
PATENTS AND AMORTIZATION - Three patents were acquired during the
year ended December 31, 1994 from a stockholder in exchange for a note
payable in the amount of $80,140. These patents are being amortized on the
straight-line method over their remaining lives which expire between the
years 2003 through 2005. Amortization for each of the years ended March 31,
2000 and 1999 was $8,171. Accumulated amortization as of March 31, 2000 and
1999 amounted to $42,899 and $34,727, respectively. During the year ended
March 31, 2000, the Company capitalized costs relative to seven patent
applications and three trademarks totaling $139,824. The Company will
amortize these costs over the lives of the patents and trademarks beginning
with date of issuance.
GOODWILL - Goodwill relates to the acquisition of Syngen Research,
Inc. on January 10, 2000. Goodwill is being amortized over ten years, and
amortization in the year ended March 31, 2000 amounted to $12,695.
DEFERRED DEBT EXPENSE - The cash fees paid and warrants granted to
private placement firms in connection with promissory notes sold are being
amortized on a straight-line basis over the one-year term of the related
notes. Amortization expense for the year ended March 31, 2000 was $87,124 and
accumulated amortization as of March 31, 2000 was $87,124.
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 costs associated with research and development.
NOTE 2. - FINANCIAL CONDITION
On March 10, 1999, Aethlon Medical acquired the outstanding stock of
two privately held Development Stage Enterprises, Hemex and Aethlon, Inc., 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, Inc. was formed as a medical device
acquisition company, whose mission will now be carried forward by Aethlon
Medical.
During fiscal year 2000, the Company consummated the acquisition of
an invention and related patents and also acquired all of the common stock of
Syngen Research, Inc. (see Note 3). These acquisitions were accomplished
through the issuance of shares of the common stock of the Company.
F-7
<PAGE>
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.
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, the Company financed its research and development activities through
the private placement of $1,052,500 principal amount of 12-month notes
bearing interest at 12% per annum. In March 2000, the Company entered into an
agreement with an investment banking firm under which the firm will use its
best efforts to complete the private placement of the Company's common stock
in the amount of $10 million. Management believes that the financing provided
by this stock offering, should it be completed, will be sufficient to meet
the Company's cash needs, including the commercialization of the
Hemopurifier-TM- 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 the next two fiscal years. Also, its current
liabilities exceed its current assets by $1,701,808 at March 31, 2000.
Management believes that the actions described above will provide the basis
for the Company to make the transition from a Development Stage Enterprise to
commercial operations. However, there is no assurance that the Company's
present plans will be successful.
NOTE 3. - CAPITAL TRANSACTION
In February 1999, Aethlon Medical (a non-operating public shell)
entered into a merger agreement with Hemex and Aethlon, Inc. whereby
Aethlon Medical issued 1,350,000 and 733,500 shares of its common stock to
Hemex and Aethlon, Inc., respectively, in exchange for 100% of their
outstanding shares. Hemex and Aethlon, Inc. survived as the operating
entities and wholly-owned subsidiaries of Aethlon Medical.
During the fiscal year ended March 31, 2000, the Company corrected
the accounting for the acquisition of Aethlon, Inc. to reflect an additional
liability in the amount of $69,000 which should have been recorded at the
date of acquisition. This correction has been treated as a prior period
adjustment, which results in a corresponding adjustment to paid in capital as
of March 31, 1999.
As a result of the merger, the Hemex shareholders became the
majority owners of the Company and have effective operating control.
Accordingly, the transaction was accounted for as a reverse acquisition
whereby Hemex was deemed to be the accounting acquirer of Aethlon Medical and
Aethlon,
F-8
<PAGE>
Inc. through the issuance of stock for their net monetary assets, followed by
a recapitalization. The assets and liabilities of Aethlon Medical and
Aethlon, Inc. have been recorded at their historical cost, which approximated
their fair market value. The results of operations include those of Aethlon
Medical and Aethlon, Inc. since the date of acquisition. Hemex has changed
its fiscal year end from December 31 to that of Aethlon Medical, with
Aethlon, Inc. also adopting the same fiscal year.
On January 10, 2000, the Company acquired from Richard H. Tullis,
PhD all the outstanding common stock of Syngen Research, Inc. in exchange
for 65,000 share of the Company's common stock. Syngen Research, Inc.
(d/b/a Aethlon Laboratories, Inc.) became a wholly-owned subsidiary of the
Company and will engage primarily in the development of the virus removing
device under the direction of Dr. Tullis. The acquisition was accounted for
using the purchase method of accounting, and the results of operations of
Aethlon Labs have been included in the accompanying consolidated financial
statements from the date of acquisition.
The following is a proforma summary of the results of operations had
Aethlon Medical, Aethlon, Inc. and Hemex been combined as of April 1, 1998
and had Aethlon Labs been acquired as of April 1, 1998:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
2000 1999
<S> <C> <C>
Net loss $(1,311,975) $ (497,728)
=========== ==========
Net loss per share $ (.49) $ (.20)
</TABLE>
NOTE 4. - LEASES
The Company rents laboratory space in San Diego, California and
Amherst, New York and office space in La Jolla, California and Williamsville,
New York on a month-to-month basis. Total rent expense for the years ended
March 31, 2000 and 1999 was $55,183 and $32,429, respectively.
NOTE 5. - DEFERRED COMPENSATION
The Company has accrued but unpaid compensation obligations
(deferred compensation) with two of its present officers/stockholders and two
stockholders who are former officers. The Company has entered into an
agreement with the individuals, the terms of which 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
deferred compensation. 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 from a proposed private placement (see Note 2) to satisfy the
payment of the deferred compensation. The amounts discounted and forgiven by
the employee/stockholders in the amount of $217,223 was recorded as an
increase in additional paid in capital at March 31, 1999.
NOTE 6. - NOTES PAYABLE
During the year ended March 31, 2000, the Company entered into
arrangements for the issuance of up to $1,350,000 of private placement debt
in units of $25,000. The notes bear interest at 12% per annum and mature one
year from the date of issuance. Each unit contains a warrant to purchase
12,500 shares of the Company's common stock at a price of $5 per share for a
five-year term. The warrants may be called by the Company upon meeting
certain per share market price goals. At March 31, 2000, notes aggregating
$1,017,500 had been issued under this program, and there were noteholder
warrants outstanding for 508,750 shares of stock.
F-9
<PAGE>
The Company has allocated the proceeds from the private placement
debt to the warrants and notes on a pro-rata basis based upon the estimated
fair value of each financial instrument separately. Accordingly, $734,826 of
the note proceeds was allocated to the noteholder warrants. This amount is
reflected as a note discount, which is netted against the note payable
balance in the accompanying balance sheet and is also included as additional
paid in capital - warrants. The note discount is being amortized as
additional interest expense over the one-year term of the notes. Amortization
in the year ended March 31, 2000 totaled $184,034, and the remaining
unamortized note discount at March 31, 2000 was $550,792.
The Company incurred cash fees of $114,750 and agreed to grant
warrants for 50,875 shares of common stock, valued at $246,113, in connection
with this private placement of debt which are being amortized over the
one-year term of the notes. These warrants will have the same terms as the
warrants granted to noteholders. Pending issuance of the warrants, the value
of these warrants is reflected in accounts payable at March 31, 2000.
Amortization for the placement fees during the year ended March 31, 2000
amounted to $87,124. In addition, the Company has agreed to pay additional
placement fees equal to 10% of the proceeds from the exercise of warrants by
noteholders at such time as noteholder warrants are exercised.
In connection with the issuance of certain 10% demand notes, in the
amount of $64,500, issued and repaid during the current fiscal year, the
Company has agreed to issue 14,250 shares of the Company's common stock as
additional compensation to the lender. Pending issuance of these shares, the
Company's obligation for this additional compensation, in the amount of
$114,125, is included in accounts payable.
Outstanding notes payable at March 31, 2000 were as follows:
<TABLE>
<S> <C> <C>
Private placement notes, net of discount $466,708
Stockholder notes - 12% 35,000
Related party note 25,000
Total $526,708
</TABLE>
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
$4,430,000 at March 31, 2000. When the Company realizes benefits from such
expenditures, the costs will be amortized over a period of 60 months. The
related deferred tax asset at March 31, 2000 was approximately $1,019,000,
and at March 31, 1999 it was approximately $742,000.
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-TM- and the Company generating
sufficient taxable income to offset the research and development amortization
expenses.
NOTE 8. - RELATED PARTY TRANSACTIONS
In addition to the stockholder loans payable, the officers of the
Company and other related entities have paid expenses on behalf of the
Company. The officers have also advanced the Company funds to
F-10
<PAGE>
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 - OPTIONS AND WARRANTS
In addition to the warrants for 508,750 shares of common stock
exercisable at $5 per share issued to noteholders (see Note 6), the Company
has issued warrants for 3,750 shares exercisable at $6 per share and has
agreed to issue warrants for 15,000 shares exercisable at $3 per share to
certain parties in exchange for services rendered. The value for these
warrants is based on the estimated fair value of the services rendered in the
amount of $35,000.
In connection with the merger agreement among Aethlon Medical,
Aethlon, Inc., and Hemex, a commitment was made to grant an option to the
Company's Chief Executive Officer for 412,500 shares of common stock at $3
per share, the fair market value on the date of that commitment. This grant
was formalized in a Stock Option Agreement dated April 1, 1999 which permits
the option to be exercised between September 10, 2000 and September 11, 2005.
The Company applies APB Opinion No. 25 in accounting for stock
options. Accordingly, no compensation expense has been charged to earnings
for the option referred to above since such option has an exercise price
equal to 100% of market value on the date of grant. Had the Company adopted
the provisions of FASB Statement No. 123, compensation expense for this
option would have increased the Company's net loss for the fiscal year ended
March 31, 2000 from $1,299,382 to $1,602,677, and the loss per share for this
period would have increased from $.50 to $.61.
The fair value of the option was estimated using the Black-Scholes
option pricing model using a risk-free interest rate of 5.51%, an expected
term of 7.1 years, and an annual standard deviation (volatility) of 15%. The
resultant fair value of this option is $1.06 per share.
NOTE 10 - SUBSEQUENT EVENT
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 50,148 shares of common stock
of the Company at $.3933 per share. Following the transaction, Cell became a
wholly-owned subsidiary of the Company and will operate as part of Aethlon
Labs. The acquisition will be accounted for as a purchase.
NOTE 11 - FOURTH QUARTER ADJUSTMENTS
During the year ended March 31, 2000, the Company recognized an
adjustment in the fourth quarter relating to the issuance of detachable
warrants in connection with a private placement debt offering which took
place throughout the year. The value allocated to these warrants was
subsequently determined and recorded as a note discount and additional paid
in capital (See Note 6). The portion of the $734,826 discount that relates to
the second and third quarters amounts of $86,165 and $260,021, respectively.
The amortization of the discount which would have been recorded as debt
expense in these quarters amounts to $14,000 and $54,000, respectively.
Also related to this offering, the Company granted warrants to
purchase 50,875 shares of the Company's common stock as debt placement fees.
The value allocated to these warrants was subsequently determined and
recorded (See Note 6). The portion of the $246,113 in deferred debt cost that
relates to the second and third quarters amounts to $25,113 and $76,981,
respectively. The amortization of the deferred debt costs which would have
been recorded as debt expense in the periods amounts to approximately $4,000
and $16,000, respectively.
NOTE 12 - CONTINGENCIES
Effective January 1, 2000, the Company entered into an agreement
under which an invention and related patent rights for a method of removing
HIV and other viruses from the blood using the Hemex Hemopurifier were
assigned to the Company. In addition to certain royalty payments to be made
on future sales of the patented product, the consideration for the acquired
rights included the issuance of 12,500 shares of the Company's common stock
to the inventors on March 23, 2000. Upon the issuance of the first US letters
patent relating to the invention, the Company is obligated to issue an
additional 12,500 shares of common stock to the inventors. If the market
price of the Company's common stock on the date the patent is issued is below
$8 per share, then the number of shares to be issued will be that number
which equates to $100,000. The total cost incurred by the Company as of March
31, 2000 in connection with this patent is $118,144. The Company will
amortize the cost of this patent over a period ending with its expiration
date, starting on the date the patent is issued.
F-11
<PAGE>
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
-----------------------------------------------------------------------------------------------
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.
F-12
<PAGE>
AETHLON MEDICAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
2000 March 31,
(unaudited) 2000
ASSETS
<S> <C> <C>
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.
F-13
<PAGE>
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> <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
--------------------------------------------------------
Net cash provided by financing activities 278,750 198,750 3,697,528
NET INCREASE IN CASH (215,750) 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.
F-14
<PAGE>
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.
F-15
<PAGE>
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 tangible assets acquired has been
allocated $167,281 to patents and trademarks and $1,139,674 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, $117,173 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.
F-16
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
NONE
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Information regarding directors and executive officers of the Company
will appear in the Proxy Statement of the Annual Meeting of Stockholders and is
incorporated herein by this reference. The Proxy Statement will be filed with
the SEC within 120 days following March 31, 2001.
ITEM 10. EXECUTIVE COMPENSATION
Information regarding executive compensation will appear in the Proxy
Statement for the Annual Meeting of Stockholders and is incorporated herein by
this reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management will appear in the Proxy Statement for the Annual Meeting of
Stockholders and is incorporated herein by this reference.
===============================================================================
You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with information
different from the information contained in this prospectus. This document
may only be used where it is legal to sell the securities. The information in
this document may only be accurate on the date of this document.
F-17
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary............................................................... 1
Risk Factors..................................................................... 2
Use of Proceeds.................................................................. 7
Price Range of Common Stock...................................................... 7
Dividend Policy.................................................................. 8
Management's Discussion and Analysis or Plan of Operation........................ 8
Business......................................................................... 9
Management....................................................................... 19
Description of Securities........................................................ 21
Shares Eligible For Future Sale.................................................. 23
Plan of Distribution............................................................. 24
Selling Shareholders............................................................. 25
Legal Matters.................................................................... 27
Experts.......................................................................... 27
Available Information............................................................ 27
Index to Financial Statements....................................................
</TABLE>
3,200,000 SHARES
OF COMMON STOCK
AETHLON MEDICAL, INC.
PROSPECTUS
, 2001
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses in connection with the
distribution described in this Registration Statement will be as shown below.
All expenses incurred with respect to the distribution, except for fees of
counsel, if any, retained individually by the Selling Shareholders and any
discounts or commissions payable with respect to sales of the shares, will be
paid by AEMD. See "Plan of Distribution."
<TABLE>
<S> <C>
SEC registration fee $ 2,855.42
Printing expenses 5,000.00
Accounting fees and expenses 2,500.00
Legal fees and expenses 20,000.00
Total $30,355.42
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to the General Corporation Law of the State of
Nevada. As permitted by Nevada law, the Company's Articles of Incorporation
contain an article limiting the personal liability of directors. The Articles of
Incorporation provides that a director of the Company shall not be personally
liable for any damages from any breach of fiduciary duty as a director, except
for liability based on a judgment or other final adjudication adverse to him
establishing that his acts or omissions were committed in bad faith or were the
result of active or deliberate dishonesty and were material to the cause of
action so adjudicated, or that he personally gained a financial profit or other
advantage to which he was not legally entitled. The Company's Articles of
Incorporation and Bylaws also provide for indemnification of all officers and
directors of the Company to the fullest extent permitted by law.
The Company has entered into Indemnification Agreements
("Indemnification Agreements") with each of Clara M. Ambrus, Franklyn S.
Barry, Jr., Edward G. Broenniman, James A. Joyce, Robert J. Lambrix, John M.
Murray, John P. Penhune, and Richard H. Tullis (collectively, the
"Indemnitees"). The Indemnification Agreements permit the Company to
indemnify the Indemnitees for liabilities and expenses arising from certain
actions taken by the Indemnitees for or on behalf of the Company and require
indemnification in certain circumstances.
ITEM 16. EXHIBITS.
The following exhibits are filed or incorporated by reference as part
of this Registration Statement.
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
3.1 Certificate of Amendment of Articles of Incorporation dated March 28, 2000 (6)
3.2 Bylaws of the Company (1)
5.1 Opinion of Counsel to the Company with respect to the legality of the shares*
10.1 Employment Agreement between the Company and Franklyn S. Barry, Jr. dated April 1, 1999 (2)
10.2 Employment Agreement between the Company and James A. Joyce dated April 1, 1999 (2)
10.3 Agreement and Plan of Reorganization Between the Company and Aethlon, Inc. dated March 10, 1999 (3)
10.4 Agreement and Plan of Reorganization Between the Company and Hemex, Inc. dated March 10, 1999 (3)
10.5 Agreement and Plan of Reorganization Between the Company and Syngen Research, Inc. (4)
10.6 Agreement and Plan of Reorganization Between the Company and Cell Activation, Inc. (5)
10.7 Subscription Agreement, dated November 1, 2000, between the Company and certain Subscribers
10.8 Convertible Note dated November 1, 2000 issued in connection with the Subscription Agreement
10.9 Common Stock Purchase Warrant dated November 1, 2000 issued in connection with the Subscription Agreement
23.1 Consent of Counsel (included in the Opinion of Counsel filed as Exhibit 5.1)
23.2 Independent Auditors' Consent - Freed, Maxick, Sachs & Murphy, P.C.
</TABLE>
------------------------------------------
(1) Filed with Company's Registration Statement on Form SB-2 and incorporated
by reference.
(2) Filed with Company's Annual Report on Form 10 KSB for the year ended
March 31, 1999.
(3) Filed with Company's Current Report on Form 8-K dated March 10, 1999.
(4) Filed with Company's Current Report on Form 8-K dated January 10, 2000.
(5) Filed with Company's Current Report on Form 8-K dated March 31, 2000.
(6) Filed with Company's Current Report on Form 10 KSB for the year ended
March 31, 2000.
*To be filed by Amendment.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering; and
II-2
<PAGE>
(b) For purposes of determining any liability under the Securities Act of 1933,
each filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities, other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding, is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Buffalo, State of New York, on December 18,
2000.
AETHLON MEDICAL, INC.
By: /S/ FRANKLYN S. BARRY, JR.
-----------------------------------------------
Franklyn S. Barry, Jr., Chief Executive Officer
By: /S/ JOHN M. MURRAY
-----------------------------------------------
John M. Murray, Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ JAMES A. JOYCE Chairman of the Board
---------------------------
James A. Joyce
/S/ CLARA M. AMBRUS Director
---------------------------
Clara M. Ambrus
/S/ FRANKLYN S. BARRY, JR. Director
---------------------------
Franklyn S. Barry, Jr.
/S/ EDWARD G. BROENNIMAN Director
---------------------------
Edward G. Broenniman
/S/ ROBERT J. LAMBRIX Director
---------------------------
Robert J. Lambrix
/S/ JOHN P. PENHUNE Director
---------------------------
John P. Penhune
/S/ RICHARD H. TULLIS Director
---------------------------
Richard H. Tullis
</TABLE>
II-4
<PAGE>
EXHIBITS INDEX
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NAME OF EXHIBIT NUMBERED PAGE SEQUENTIALLY
<S> <C> <C> <C>
3.1 Certificate of Amendment of Articles of Incorporation dated March 28, 2000 (6)
3.2 Bylaws of the Company (1)
5.1 Opinion of Counsel to the Company with respect to the legality of the shares*
10.1 Employment Agreement between the Company and Franklyn S. Barry, Jr. dated April 1, 1999 (2)
10.2 Employment Agreement between the Company and James A. Joyce dated April 1, 1999 (2)
10.3 Agreement and Plan of Reorganization Between the Company and Aethlon, Inc. dated March 10, 1999 (3)
10.4 Agreement and Plan of Reorganization Between the Company and Hemex, Inc. dated March 10, 1999 (3)
10.5 Agreement and Plan of Reorganization Between the Company and Syngen Research, Inc. (4)
10.6 Agreement and Plan of Reorganization Between the Company and Cell Activation, Inc. (5)
10.7 Subscription Agreement, dated November 1, 2000, between the Company and certain Subscribers
10.8 Convertible Note dated November 1, 2000 issued in connection with the Subscription Agreement
10.9 Common Stock Purchase Warrant dated November 1, 2000 issued in connection with the Subscription Agreement
23.1 Consent of Counsel (included in the Opinion of Counsel filed as Exhibit 5.1)
23.2 Independent Auditors' Consent - Freed, Maxick, Sachs & Murphy, P.C.
</TABLE>
------------------------------------------
(1) Filed with Company's Registration Statement on Form SB-2 and incorporated
by reference.
(2) Filed with Company's Annual Report on Form 10 KSB for the year ended
March 31, 1999.
(3) Filed with Company's Current Report on Form 8-K dated March 10, 1999.
(4) Filed with Company's Current Report on Form 8-K dated January 10, 2000.
(5) Filed with Company's Current Report on Form 8-K dated March 31, 2000.
(6) Filed with Company's Current Report on Form 10 KSB for the year ended
March 31, 2000.
*To be filed by Amendment.
