SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _____to_____
COMMISSION FILE NUMBER 0-21846
AETHLON MEDICAL, INC.
---------------------
(Exact name of registrant as specified in its charter)
NEVADA 13-3632859
---------------------- ----------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7825 FAY AVENUE, SUITE 200, LA JOLLA, CA 92037
----------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(858) 456-5777
---------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
The number of shares of common stock of the registrant outstanding as of
November 14, 2003 was 8,174,960.
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 2003 (UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE
THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 AND FOR THE
PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH SEPTEMBER 30, 2003
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE
THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 AND FOR THE
PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
ITEM 3. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
2
PART I.
FINANCIAL INFORMATION
All references to "us", "we", "Aethlon", "Aethlon Medical", or "the
Company" refer to Aethlon Medical, Inc., its predecessors and its subsidiaries.
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AETHLON MEDICAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
September 30,
2003
(Unaudited)
-------------
ASSETS
Current assets
Cash $ 937
Prepaid expenses 12,219
-------------
13,156
Property and equipment, net 19,195
Patents and patents pending, net 249,010
Employment contract 31,734
Other assets 5,605
-------------
$ 318,700
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued
liabilities $ 1,575,711
Due to related parties 1,533,908
Notes payable 392,500
Convertible notes payable 660,000
-------------
4,162,119
Commitments and Contingencies
Stockholders' Deficit
Common stock,par value $0.001 per
share; 25,000,000 shares authorized;
7,994,960 shares issued
and outstanding 7,995
Additional paid-in capital 12,480,423
Deficit accumulated during
development stage (16,331,837)
-------------
(3,843,419)
-------------
$ 318,700
=============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
AETHLON MEDICAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended September 30, 2003 and 2002 and For
the Period January 31, 1984 (Inception) Through September 30, 2003
(Unaudited)
January 31, 1984
Three Months Three Months Six Months Six Months (Inception)
Ended Ended Ended Ended through
September 30, September 30, September 30, September 30, September 30,
2003 2002 2003 2002 2003
------------- ------------- ------------- ------------- -------------
REVENUES
Grant income $ -- $ -- $ -- $ -- $ 1,424,012
Subcontract income -- -- -- -- 73,746
Sale of research
and development -- -- -- -- 35,810
------------- ------------- ------------- ------------- -------------
-- -- -- -- 1,533,568
EXPENSES
Personnel 107,478 164,941 210,131 298,383 5,363,155
Professional fees 80,932 223,823 136,164 334,169 3,563,003
Impairment -- -- -- -- 1,231,531
Other expenses 76,726 87,534 155,532 161,270 3,399,697
------------- ------------- ------------- ------------- -------------
265,136 476,298 501,827 793,822 13,557,386
OPERATING LOSS (265,136) (476,298) (501,827) (793,822) (12,023,818)
OTHER EXPENSE (INCOME)
Interest and other
debt expenses 21,994 170,385 203,495 253,654 4,187,827
Interest income -- -- -- -- (17,415)
Other -- -- -- (1,616) 137,607
------------- ------------- ------------- ------------- -------------
21,994 170,385 203,495 252,028 4,308,019
------------- ------------- ------------- ------------- -------------
NET LOSS (287,130) (646,683) (705,322) (1,045,850) (16,331,837)
============= ============= ============= ============= =============
BASIC AND DILUTED LOSS PER
COMMON SHARE ($ 0.04) ($ 0.12) ($ 0.09) ($ 0.20)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,753,547 5,448,408 7,536,108 5,342,505
============= ============= ============= =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
AETHLON MEDICAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended September 30, 2003 and 2002 and For the Period January
31, 1984 (Inception) Through September 30, 2003
(Unaudited)
January 31, 1984
Six Months Six Months (Inception)
Ended Ended Through
September 30, September 30, September 30,
2003 2002 2003
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (705,322) $ (1,045,850) $(16,331,837)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 78,993 81,808 861,908
Gain on sale of property and equipment -- -- (13,065)
Fair market value of warrants issued in connection with
accounts payable and debt -- (24,714) 2,715,736
Fair market value of common stock, warrants and
options issued for services 22,500 57,000 2,152,934
Beneficial conversion feature of convertible
notes payable 150,000 230,000 635,000
Impairment of patents pending -- -- 334,304
Impairment of goodwill -- -- 897,227
Deferred compensation forgiven -- -- 217,223
Changes in operating assets and liabilities:
Prepaid expenses (1,909) 76,224 149,318
Other assets -- -- (5,605)
Accounts payable and accrued liabilities 29,093 99,670 1,663,366
Due to related parties 118,909 233,612 1,533,908
------------- ------------- -------------
Net cash used in operating activities (307,736) (292,250) (5,189,583)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (2,659) 1,197) (212,043)
Acquisition of patents and patents pending -- (19,995) (352,833)
Proceeds from sale of property and equipment -- -- 17,065
Cash of acquired company -- -- 10,728
------------- ------------- -------------
Net cash used in investing activities (2,659) (21,192) (537,083)
(continued)
5
The accompanying notes are an integral part of these condensed consolidated
financial statements.
AETHLON MEDICAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended September 30, 2003 and 2002 and For the Period January
31, 1984 (Inception) Through September 30, 2003
(Unaudited)
January 31,1984
Six Months Six Months (Inception)
Ended Ended Through
September 30, September 30, September 30,
2003 2002 2003
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable $ -- $ 255,000 $ 1,480,000
Principal payments on notes payable (160,000) (25,000) (170,000)
Net proceeds from issuance of convertible
notes payable 150,000 -- 948,000
Net proceeds from issuance of common stock 315,000 74,000 3,469,603
------------ ------------ ------------
Net cash provided by financing activities 305,000 304,000 5,727,603
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH (5,395) (9,442) 937
CASH - beginning of period 6,332 10,667 --
------------ ------------ ------------
CASH - end of period $ 937 $ 1,225 $ 937
============ ============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
AETHLON MEDICAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
NOTE 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Aethlon Medical, Inc. (the "Company") is a development stage therapeutic device
company focused on expanding the applications of its Hemopurifier (TM) platform
technology, which is designed to rapidly reduce the presence of infectious
viruses and toxic viral proteins from human blood. In this regard, Aethlon
Medical's core focus is the development of therapeutic devices that treat
HIV/AIDS, Hepatitis-C, and other infectious diseases. In pre-clinical testing,
the Company's lead product, AEMD-45 removed 55% of HIV from human blood in three
hours and in excess of 85% in twelve hours. This same treatment cartridge was
able to remove 90% of toxic proteins that deplete immune cells in one hour. In
January of 2003, the Company completed early stage blood studies of its
HCV-Hemopurifier, which documented a consistent ability to remove 58 percent of
the Hepatitis-C virus from infected blood in two hours. The Company is in the
development stage on the Hemopurifier and significant research and testing are
still needed to reach commercial viability. Any resulting medical device or
process will require approval by the U.S. Food and Drug Administration ("FDA"),
and the Company has not yet begun efforts to obtain FDA approval on its current
lead product candidate, which may take several years. Since many of the
Company's patents were issued in the 1980's, they are scheduled to expire in the
near future. Thus, such patents may expire before FDA approval, if any, is
obtained.
The Company is classified as a development stage enterprise under accounting
principles generally accepted in the United States ("GAAP"), and has not
generated revenues from its principal operations.
The Company's common stock is quoted on the Over-the-Counter Bulletin Board of
the National Association of Securities Dealers under the symbol "AEMD".
The accompanying unaudited condensed consolidated financial statements of
Aethlon Medical, Inc. (the "Company") have been prepared in accordance with GAAP
for interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and
six-month period ended September 30, 2003 are not necessarily indicative of the
results that may be expected for the year ending March 31, 2004. For further
information, refer to the Company's Annual Report on Form 10-KSB for the year
ended March 31, 2003, which includes audited financial statements and footnotes
as of and for the years ended March 31, 2003 and 2002.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies of the Company presented below is
designed to assist the reader in understanding the Company's consolidated
financial statements. Such financial statements and related notes are the
representations of Company management, who is responsible for their integrity
and objectivity. These accounting policies conform to GAAP in all material
respects, and have been consistently applied in preparing the accompanying
condensed consolidated financial statements.
PRINCIPLES OF CONSOLIDATION
---------------------------
The accompanying condensed consolidated financial statements include the
accounts of Aethlon Medical, Inc. and its legal wholly-owned subsidiaries
Aethlon, Inc., Hemex, Inc. and Cell Activation, Inc. ("Cell") (collectively
hereinafter referred to as the "Company"). All significant intercompany balances
and transactions have been eliminated in consolidation.
7
AETHLON MEDICAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
STOCK BASED COMPENSATION
------------------------
At September 30, 2003, the Company has two stock-based employee compensation
plans. The Company accounts for those plans under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
Interpretations.
No stock-based employee compensation cost is reflected in net loss, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," as
amended to stock-based employee compensation.
2003 2002
------------ ------------
Net loss:
As reported $ (705,322) $(1,045,850)
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards (26,000) (120,000)
------------ ------------
Pro forma $ (731,322) $(1,165,850)
============ ============
Basic and diluted net loss per share:
As reported $ (0.09) $ (0.20)
============ ============
Pro forma $ (0.10) $ (0.22)
============ ============
LOSS PER COMMON SHARE
---------------------
Loss per common share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the year in
accordance with Statement of Financial Accounting Standards No. 128, "Earnings
per Share."
Securities that could potentially dilute basic loss per share (prior to their
conversion, exercise or redemption) were not included in the
diluted-loss-per-share computation because their effect is anti-dilutive. The
total potential common shares that have not been included in such computation
are approximately 1,140,000 (using the treasury stock method) at September 30,
2003.
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
Recent accounting pronouncements discussed in the notes to the March 31, 2003
audited consolidated financial statements, filed previously with the U.S.
Securities and Exchange Commission in Form 10-KSB, that were required to be
adopted during the period ended September 30, 2003 did not have a significant
impact on the Company's financial statements.
RECLASSIFICATIONS
-----------------
Certain reclassifications have been made to the September 30, 2002 financial
statement presentation to correspond to the September 30, 2003 format.
NOTE 3. CONVERTIBLE PROMISSORY NOTES
CONVERTIBLE PROMISSORY NOTES
-----------------------------
In April 2003, the Company issued a convertible note in the amount of $150,000,
bearing interest at 9% per annum, with principal and interest due in June 2003,
which is in default. The convertible note requires no payment of principal or
interest during the term and may be converted to common stock of the Company at
the conversion price of $0.25 per share at any time at the option of the
noteholder. The Company has recorded a beneficial conversion feature ("BCF") of
$150,000 in connection with the issuance of the note and amortized such amount
to interest expense during the six month period ended September 30, 2003.
The Company is currently in default on approximately $1,052,500 of amounts owed
under various notes payable and accrued liabilities and is currently seeking
other financing arrangements to retire all past due notes.
NOTE 4. GOING CONCERN AND LIQUIDITY CONSIDERATIONS
The accompanying condensed consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the ordinary course of business. The Company has
experienced a loss of approximately $16.3 million for the period from January
31, 1984 (Inception) through September 30, 2003. The Company has not generated
significant revenue or any profit from operations since inception. A substantial
amount of additional capital will be necessary to advance the development of the
Company's products to the point at which they may become commercially viable.
Such factors indicate that the Company may be unable to continue as a going
concern for a reasonable period of time. Management is in discussions with
potential investors to pursue additional capital infusions into the Company,
which management believes are necessary at least until such time that the
Company generates sufficient revenues and achieves profitability and positive
cash flow.
The condensed consolidated financial statements do not include any adjustments
relating to the recoverability of assets that might be necessary should the
Company be unable to continue as a going concern. The Company's continuation as
a going concern is dependent upon its ability to obtain additional financing as
may be required, and generate sufficient revenue and operating cash flow to meet
its obligations on a timely basis.
9
AETHLON MEDICAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
NOTE 5. COMMITMENTS AND CONTINGENCIES
REGISTRATION RIGHTS AGREEMENTS
------------------------------
The Company is obligated under various agreements to register its common stock,
including the common stock underlying certain warrants and options. The Company
is subject to penalties for failure to register such securities, the amount of
which could be material to the Company's financial position, results of
operations and cash flows. The Company filed a registration statement on Form
SB-2 with the Securities and Exchange Commission in December 2000 to register
the necessary securities. However, such registration statement was never
declared effective. Management is currently unaware of any potential claims
related to the lack of registration and plans to file a revised registration
statement as funds to cover registration expenses become available. The Company
may incur additional charges in exchange for further waivers through the date of
an effective registration statement.
DELINQUENT SEC FILING
---------------------
The Company's March 31, 2002 Form 10-KSB did not contain certain disclosure
items in its Executive Compensation, Security Ownership of Certain Beneficial
Owners and Management and Certain Relationships and Related Transactions. Such
sections were intended to be incorporated by reference in the Company's proxy
statement, which was not filed. The failure to file the proxy statement with the
disclosures required in Form 10-KSB constitutes non-compliance with the periodic
reporting requirements of the Securities and Exchange Act of 1934 (the "Exchange
Act") and, among other things, could result in de-listing of the Company's
common stock from the Over-the-Counter Bulletin Board ("OTCBB").
In addition, any owners of the Company's restricted securities who are otherwise
eligible to sell such securities under Rule 144 may be temporarily unable to do
so until such filing delinquency is cured. The Company intends to file an
amendment to its Annual Report on Form 10-KSB for the year ended March 31, 2002
to cure such delinquency.
NOTE 6. STOCK TRANSACTIONS
In July 2003, the Company issued 380,000 shares of restricted common stock at
prices ranging from $0.25 to $0.30 per share for cash totaling $100,000. In
connection with the issuance of such shares, the Company granted the
stockholders 380,000 warrants to purchase common stock of the Company at prices
ranging from $0.25 to $0.30 per share. The warrants vest immediately and expire
through July 2004.
In July 2003, the Company issued 50,000 shares of restricted common stock in
conjunction with consulting activities rendered. The stock was valued at $20,000
based on the market price at issuance and such amount is included in the
accompanying statement of operations.
In September 2003, the Company issued 160,000 shares of restricted common stock
at $0.25 per share for cash totaling $40,000. In connection with the issuance of
such shares, the Company granted the stockholder 160,000 warrants to purchase
common stock of the Company at $0.25 per share. The warrants vest immediately
and expire through September 2004.
In September 2003, the Company issued 60,000 shares of restricted common stock
at $0.25 per share for cash totaling $15,000 in connection with the exercise of
warrants.
NOTE 7. SUBSEQUENT EVENTS
In October 2003, the Company issued 80,000 shares of restricted common stock at
$0.25 per share for cash totaling $20,000 in connection with the exercise of
warrants.
In November 2003, the Company issued 40,000 shares of restricted common stock at
$0.25 per share for cash totaling $10,000 in connection with the exercise of
warrants.
In November 2003, the Company issued 60,000 shares of restricted common stock at
$0.25 per share for cash totaling $15,000. In connection with the issuance of
such shares, the Company granted the stockholder 60,000 warrants to purchase
common stock of the Company at $0.25 per share. The warrants vest immediately
and expire through November 2004.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion of Aethlon Medical's financial condition and results of
operations should be read in conjunction with, and is qualified in its entirety
by the condensed consolidated financial statements and notes thereto, included
in Item 1 in this Quarterly Report on Form 10-QSB. This item contains
forward-looking statements that involve risks and uncertainties. Actual results
may differ materially from those indicated in such forward-looking statements.
FORWARD LOOKING STATEMENTS
--------------------------
All statements, other than statements of historical fact, included in this Form
10-QSB are, or may be deemed to be, "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended ("the
Securities Act"), and Section 21E of the Exchange Act. Such forward-looking
statements involve assumptions, known and unknown risks, uncertainties and other
factors which may cause the actual results, performance, or achievements of
Aethlon Medical, Inc. ("the Company") to be materially different from any future
results, performance, or achievements expressed or implied by such forward
looking statements contained in this Form 10-QSB. Such potential risks and
uncertainties include, without limitation, completion of the Company's
capital-raising activities, FDA approval of the Company's products, other
regulations, patent protection of the Company's proprietary technology, product
liability exposure, uncertainty of market acceptance, competition, technological
change, and other risk factors detailed herein and in other of the Company's
filings with the Securities and Exchange Commission. The forward-looking
statements are made as of the date of this Form 10-QSB, and the Company assumes
no obligation to update the forward-looking statements, or to update the reasons
actual results could differ from those projected in such forward-looking
statements.
THE COMPANY
-----------
Aethlon Medical is a development stage therapeutic device company that has not
yet engaged in significant commercial activities. The primary focus of our
resources is the advancement of our proprietary Hemopurifier(TM) platform
treatment technology, which is designed to remove viruses and toxic viral
proteins from human blood. Our main focus during fiscal 2004 is to prepare our
HIV-Hemopurifier to treat HIV/AIDS for human clinical trials, and to initiate
the pre-clinical human blood studies of our HCV-Hemopurifier for treating
Hepatitis-C. See Item 1, "NATURE OF BUSINESS".
Our principal executive office is located at 7825 Fay Avenue, Suite 200, La
Jolla, California 92037. Our telephone number is 858/456-5777, and our website
is www.aethlonmedical.com.
We file annual, quarterly, special reports, proxy statements and other
information with the Securities Exchange Commission (SEC). Reports, proxy
statements and other information filed with the SEC can be inspected and copied
at the public reference facilities of the SEC at 450 Fifth Street NW,
Washington, DC 20549. Such material may also be accessed electronically by means
of the SEC's website at www.sec.gov.
Our common stock, par value $0.001 per share, is traded on the OTCBB under the
symbol "AEMD".
CRITICAL ACCOUNTING POLICIES
----------------------------
The preparation of condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires us to make a number of estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements. Such estimates and
assumptions affect the reported amounts of expenses during the reporting period.
On an ongoing basis, we evaluate estimates and assumptions based upon historical
experience and various other factors and circumstances. We believe our estimates
and assumptions are reasonable in the circumstances; however, actual results may
differ from these estimates under different future conditions.
We believe that the estimates and assumptions that are most important to the
portrayal of our financial condition and results of operations, in that they
require our most difficult, subjective or complex judgments, form the basis for
the accounting policies deemed to be most critical to us. These critical
accounting policies relate to stock purchase warrants issued with notes payable,
beneficial conversion feature of convertible notes payable, impairment of
intangible assets and long lived assets, contingencies and litigation. We
believe estimates and assumptions related to these critical accounting policies
are appropriate under the circumstances; however, should future events or
occurrences result in unanticipated consequences, there could be a material
impact on our future financial conditions or results of operations.
11
RESULTS OF OPERATIONS
---------------------
THE THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2002.
OPERATING EXPENSES
------------------
Consolidated operating expenses were $265,136 for the three months ended
September 30, 2003, versus $476,298 for the comparable period ended September
30, 2002. This decrease of 44.3% in operating expenses is principally
attributable to decreased professional fees and personnel expenses due to
reduced professionals associated with strategic and financial planning
activities and reduced staff.
NET LOSS
--------
We recorded a consolidated net loss of $287,130 and $646,683 for the quarters
ended September 30, 2003 and 2002, respectively. The decrease in net loss of
55.6% was primarily attributable to reduced operating expenses and lower
interest expense.
Basic and diluted loss per common share were ($0.04) for the three month period
ended September 30, 2003 compared to ($0.12) for the same period ended September
30, 2002. This reduction in loss per share was primarily attributable to the
decrease in net loss, as well as greater number of common shares outstanding
during the three month period ended September 30, 2003, as compared to the three
month period ended September 30, 2002.
THE SIX MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THE SIX MONTHS ENDED
SEPTEMBER 30, 2002.
OPERATING EXPENSES
------------------
Consolidated operating expenses were $501,827 for the six months ended September
30, 2003, versus $793,822 for the comparable period ended September 30, 2002.
This decrease of 36.8% in operating expenses is principally attributable to
decreased professional fees and personnel expenses due to reduced professionals
associated with strategic and financial planning activities and reduced staff.
NET LOSS
--------
We recorded a consolidated net loss of $705,322 and $1,045,850 for the six month
periods ended September 30, 2003 and 2002, respectively. The decrease in net
loss of 32.6% was primarily attributable to reduced operating expenses and lower
interest expense.
Basic and diluted loss per common share were ($0.09) for the six month period
ended September 30, 2003 compared to ($0.20) for the same period ended September
30, 2002. This reduction in loss per share was primarily attributable to the
decrease in net loss, as well as greater number of common shares outstanding
during the six month period ended September 30, 2003, as compared to the six
month period ended September 30, 2002.
12
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
To date, we have funded our capital requirements for the current operations from
net funds received from the public and private sale of debt and equity
securities, as well as from the issuance of common stock in exchange for
services. Our cash position at September 30, 2003 was $937 as compared to
$6,332, at March 31, 2003, representing a decrease of $5,395.
During the six months ended September 30, 2003, operating activities used net
cash of $307,736. In our financing activities, we received $315,000 from the
sale of common stock and $150,000 from issuance of a convertible note. We repaid
in full a secured promissory note in the amount of $160,000.
During the six month period ended September 30, 2003, net cash used in operating
activities primarily consisted of net loss of $705,322. Net loss was offset
principally by depreciation of $78,993, a beneficial conversion feature of
$150,000, accounts payable and accrued liabilities of $29,093 and amounts due to
related parties of $118,909.
Changes in current assets and current liabilities of ($141,488) resulted in a
negative working capital position of ($4,148,963) at September 30, 2003, as
compared to a negative working capital of ($4,007,475) at March 31, 2003.
Our current deficit in working capital requires us to obtain funds in the
short-term to be able to continue in business, and in the longer term to fund
research and development on products not yet ready for market. We are seeking to
fund these and other operating needs in the next 12 months from funds to be
obtained through a corporate acquisition of or merger with another entity with
greater financial resources, or from the proceeds of additional private
placements or public offerings of debt or equity securities, or both.
Due to the our recurring losses during the development stage, and continued need
for capital, our independent certified public accountants have included an
explanatory paragraph in their audit report in the Company's Form 10-KSB at
March 31, 2003, stating that these factors raise substantial doubt about the
Company's ability to continue as a going concern.
13
We expect to raise additional capital within the next three months to fund
research and development and other activities. Our operations to date have
consumed substantial capital without generating revenues, and we will continue
to require substantial and increasing capital funds to conduct necessary
research and development and pre-clinical and clinical testing of our
Hemopurifier products, and to market any of those products that receive
regulatory approval. We do not expect to generate revenue from operations for
the foreseeable future, and our ability to meet our cash obligations as they
become due and payable is expected to depend for at least the next several years
on our ability to sell securities, borrow funds or a combination thereof. Our
future capital requirements will depend upon many factors, including progress
with pre-clinical testing and clinical trials, the number and breadth of our
programs, the time and costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims and other proprietary rights, the time
and costs involved in obtaining regulatory approvals, competing technological
and market developments, and our ability to establish collaborative
arrangements, effective commercialization, marketing activities and other
arrangements. We expect to continue to incur increasing negative cash flows and
net losses for the foreseeable future.
Management does not believe that inflation has had or is likely to have any
material impact on the Company's limited operations.
At the date of this filing, we do not have plans to purchase significant amounts
of equipment or hire significant numbers of employees prior to successfully
raising additional capital.
ITEM 3. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the 34
Act) as of the end of the period covered by this report (the "Evaluation Date").
Based upon that evaluation, the CEO and CFO concluded that, as of the end of the
period covered by this report, our disclosure controls and procedures were
effective in timely alerting them to the material information relating to us (or
our consolidated subsidiaries) required to be included in our periodic filings
with the SEC and that such information is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms. Based
on their most recent evaluation as of the Evaluation Date, the CEO and the CFO
have also concluded that there are no significant deficiencies in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the Company's ability to record, process, summarize
and report financial information, and such officers have identified no material
weaknesses in internal controls.
There were no significant changes made in our internal control over financial
reporting during the period covered by this report that are reasonably likely to
significantly affect these controls subsequent to the date of their evaluation.
14
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
In July 2003, the Company issued 380,000 shares of restricted common stock at
prices ranging from $0.25 to $0.30 per share for cash totaling $100,000. In
connection with the issuance of such shares, the Company granted the
stockholders 380,000 warrants to purchase common stock of the Company at prices
ranging from $0.25 to $0.30 per share. The warrants vest immediately and expire
through July 2004.
In July 2003, the Company issued 50,000 shares of restricted common stock in
conjunction with consulting activities rendered. The stock was valued at $20,000
based on the market price at issuance and such amount is included in the
accompanying statement of operations.
In September 2003, the Company issued 160,000 shares of restricted common stock
at $0.25 per share for cash totaling $40,000. In connection with the issuance of
such shares, the Company granted the stockholder 160,000 warrants to purchase
common stock of the Company at $0.25 per share. The warrants vest immediately
and expire through September 2004.
In September 2003, the Company issued 60,000 shares of restricted common stock
at $0.25 per share for cash totaling $15,000 in connection with the exercise of
warrants.
In October 2003, the Company issued 80,000 shares of restricted common stock at
$0.25 per share for cash totaling $20,000 in connection with the exercise of
warrants.
In November 2003, the Company issued 40,000 shares of restricted common stock at
$0.25 per share for cash totaling $10,000 in connection with the exercise of
warrants.
In November 2003, the Company issued 60,000 shares of restricted common stock at
$0.25 per share for cash totaling $15,000. In connection with the issuance of
such shares, the Company granted the stockholder 60,000 warrants to purchase
common stock of the Company at $0.25 per
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of the date of this report, various promissory and convertible notes payable
in the aggregate principal amount of $1,052,000 have reached maturity and are
past due. The Company is currently seeking other financing arrangements to
retire all past due notes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following documents are filed as part of this report:
31.1 Certification of CEO pursuant to Securities Exchange Act rules 13a-15 and
15d-15(c) as adopted pursuant to section 302 of the Sarbanes-Oxley act of 2002.
31.2 Certification of CFO pursuant to Securities Exchange Act rules 13a-15 and
15d-15(c) as adopted pursuant to section 302 of the Sarbanes-Oxley act of 2002.
32.1 Certification of James A. Joyce, Chief Executive Officer pursuant to 18
U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
act of 2002.
32.2 Certification of Edward C. Hall, Chief Financial Officer (Principal
Accounting Officer) pursuant to 18 U.S.C. section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley act of 2002.
(b) Reports on Form 8-K filed during the quarter ended September 30, 2003.
None
15
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AETHLON MEDICAL, INC
Date: November 19, 2003
BY: /S/ JAMES A. JOYCE BY: /S/ EDWARD C. HALL
--------------------------- ---------------------------
JAMES A. JOYCE EDWARD C. HALL
CHAIRMAN, PRESIDENT AND CHIEF FINANCIAL OFFICER
CHIEF EXECUTIVE OFFICER
AETHLON MEDICAL, INC.
16