10QSB: Optional form for quarterly and transition reports of small business issuers
Published on August 8, 2007
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2007
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.)
3030 Bunker Hill St, Ste 4000, San Diego, CA 92109
- -------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(858)-459-7800
---------------
(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 [ ].
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares of common stock of the registrant outstanding as of July
30, 2007, was 32,063,643.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
Documents incorporated by reference: None
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 2007 1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED JUNE 30, 2007 AND 2006 AND FOR THE PERIOD
JANUARY 31, 1984 (INCEPTION) THROUGH JUNE 30, 2007 2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED JUNE 30, 2007 AND 2006 AND FOR THE PERIOD
JANUARY 31, 1984 (INCEPTION) THROUGH JUNE 30, 2007 3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 11
ITEM 3. CONTROLS AND PROCEDURES 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS 15
PART I.
FINANCIAL INFORMATION
All references to "us", "we", "our" "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.
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
June 30,
2007
------------
ASSETS
Current assets
Cash $ 2,658
Prepaid expenses 5,155
------------
Total current assets 7,813
Property and equipment, net 12,985
Patents, net 137,238
Other assets 13,200
------------
Total assets $ 171,236
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued
liabilities $ 1,545,765
Due to related parties 1,083,999
Notes payable 502,500
Convertible notes payable, net of discount 50,000
Warrant obligation 4,267,675
------------
Total current liabilities 7,449,939
Commitments and Contingencies
Stockholders' Deficit
Common stock, par value $0.001 per
share; 100,000,000 shares authorized;
32,063,643 shares issued
and outstanding 32,064
Additional paid-in capital 21,312,424
Deficit accumulated during development stage (28,623,191)
------------
(7,278,703)
------------
$ 171,236
============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
1
AETHLON MEDICAL, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Aethlon Medical, Inc. ("Aethlon" or the "Company") engages in the research and
development of a medical device known as the Hemopurifier(R) that removes
harmful substances from the blood. Aethlon is in the development stage on the
Hemopurifier(R) 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") or the regulatory
agency of any foreign country where it intends to sell its device. Aethlon has
submitted an Investigational Device Exemption ("IDE") to the FDA and plans to
begin FDA sanctioned clinical trials within the next twelve months. Since many
of Aethlon's patents were issued in the 1980's, some have expired and other are
scheduled to expire in the near future. Thus, some patents may expire before FDA
approval or approval in a foreign country, if any, is obtained. However, the
Company believes that certain patent applications and/or other patents issued
more recently will help protect the proprietary nature of the Hemopurifier(R)
treatment technology.
Aethlon is classified as a development stage enterprise under accounting
principles generally accepted in the United States of America ("GAAP"), and has
not generated revenues from its planned principal operations.
Aethlon's common stock is quoted on the Over-the-Counter Bulletin Board
administered by the National Association of Securities Dealers ("OTCBB") under
the symbol "AEMD.OB."
The accompanying unaudited condensed consolidated financial statements of 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 adjustments) considered necessary for a fair presentation
have been included. Operating results for the three-month period ended June 30,
2007 are not necessarily indicative of the results that may be expected for the
fiscal year ending March 31, 2008. For further information, refer to the
Company's Annual Report on Form 10-KSB for the year ended March 31, 2007, which
includes audited financial statements and footnotes as of March 31, 2007 and for
the years ended March 31, 2006 and 2007.
The Company's 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.
NOTE 2. GOING CONCERN AND LIQUIDITY CONSIDERATIONS
The accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates, among other things, the
realization of assets and the satisfaction of liabilities in the ordinary course
of business. The Company has experienced continuing losses from operations, is
in default on certain debt, has negative working capital of approximately
($7,442,000) recurring losses from operations and a deficit accumulated during
the development stage of approximately ($28,623,000) at June 30, 2007, which
among other matters, raises significant doubt about its ability to continue as a
going concern. The Company has not generated significant revenue or any profit
from operations since inception. A significant 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. The Company intends to fund
operations through debt and/or equity financing arrangements, which management
believes may be insufficient to fund its capital expenditures, working capital
and other cash requirements (consisting of accounts payable, accrued
liabilities, amounts due to related parties and amounts due under various notes
payable) for the fiscal year ending March 31, 2008. Therefore the Company will
be required to seek additional funds to finance its short-term operations.
The Company is currently addressing its liquidity issue by exploring
investment capital opportunities through the public markets, specifically,
through private placement of common stock. The Company believes that its access
to capital, together with existing cash resources, will be sufficient to meet
its liquidity needs for fiscal 2008. In August 2007, the Company raised $660,000
in a private placement (see Note 7). However, no assurance can be given that the
Company will receive any funds in addition to the funds in its capital raising
efforts. As of the date of this filing the Company has sufficient working
capital to sustain operations for approximately five months.
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.
4
AETHLON MEDICAL, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
NOTE 3. 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 condensed
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 inactive legal wholly-owned
subsidiaries Aethlon, Inc., Hemex, Inc. and Cell Activation, Inc. (collectively
hereinafter referred to as the "Company"). These subsidiaries are dormant and
there are no material intercompany transactions or balances.
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 ("SFAS") 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. There
were 9,475,184 and 7,133,811 potentially dilutive common shares outstanding for
the three months ended June 30, 2007 and 2006, respectively.
PATENTS
The Company capitalizes the cost of patents, some of which were acquired, and
amortizes such costs over the shorter of the remaining legal life or their
estimated economic life, upon issuance of the patent.
RESEARCH AND DEVELOPMENT EXPENSES
The Company incurred approximately $220,180 and $177,107 of research and
development expenses during the three months ended June 30, 2007 and 2006,
respectively, which are included in operating expenses in the accompanying
condensed consolidated statements of operations.
EQUITY INSTRUMENTS FOR SERVICES PROVIDED BY OTHER THAN EMPLOYEES
The Company follows SFAS No. 123-R "SHARE BASED PAYMENT" as interpreted by
Emerging Issues Task Force ("EITF") Issue No. 96-18, "ACCOUNTING FOR EQUITY
INSTRUMENTS THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN
CONJUNCTION WITH SELLING, GOODS OR SERVICES" to account for transactions
involving goods and services provided by third parties where the Company issues
equity instruments as part of the total consideration. Pursuant to paragraph 7
of SFAS No. 123-R, the Company accounts for such transactions using the fair
value of the consideration received (i.e. the value of the goods or services) or
the fair value of the equity instruments issued, whichever is more reliably
measurable.
The Company applies EITF Issue No. 96-18, in transactions, when the value of the
goods and/or services are not readily determinable and (1) the fair value of the
equity instruments is more reliably measurable and (2) the counterparty receives
equity instruments in full or partial settlement of the transactions, using the
following methodology:
(a) For transactions where goods have already been delivered or services
rendered, the equity instruments are issued on or about the date the
performance is complete (and valued on the date of issuance).
(b) For transactions where the instruments are issued on a fully vested,
non-forfeitable basis, the equity instruments are valued on or about the
date of the contract.
(c) For any transactions not meeting the criteria in (a) or (b) above, the
Company re-measures the consideration at each reporting date based on its
then current stock value.
5
AETHLON MEDICAL, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
The Company follows SFAS No. 144, "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
LONG-LIVED ASSETS" in accounting and reporting for the impairment or disposal of
long-lived assets. SFAS No. 144 requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that their
carrying amounts may not be recoverable. If the cost basis of a long-lived asset
is greater than the projected future undiscounted net cash flows from such asset
(excluding interest), an impairment loss is recognized. Impairment losses are
calculated as the difference between the cost basis of an asset and its
estimated fair value. SFAS No. 144 also requires companies to separately report
discontinued operations and extends that reporting requirement to a component of
an entity that either has been disposed of (by sale, abandonment or in a
distribution to owners) or is classified as held for sale. Assets to be disposed
of are reported at the lower of the carrying amount or the estimated fair value
less costs to sell, if any. Management noted no impairment indicators requiring
review for impairment at or during the three months ended June 30, 2007.
BENEFICIAL CONVERSION FEATURE OF CONVERTIBLE NOTES PAYABLE
The convertible feature of certain notes payable provides for a rate of
conversion that was below market value at issuance. Such feature is normally
characterized as a "beneficial conversion feature" ("BCF"). Pursuant to EITF
Issue No. 98-5, "ACCOUNTING FOR CONVERTIBLE SECURITIES WITH BENEFICIAL
CONVERSION FEATURES OR CONTINGENTLY ADJUSTABLE CONVERSION RATIO" and EITF Issue
No. 00-27, "APPLICATION OF EITF ISSUE NO. 98-5 TO CERTAIN CONVERTIBLE
INSTRUMENTS," the estimated fair value of the BCF is recorded in the
consolidated financial statements as a discount from the face amount of the
notes. Such discounts are amortized to interest expense over the term of the
notes.
DERIVATIVE LIABILITIES AND CLASSIFICATION OF WARRANT OBLIGATION
The Company evaluates free-standing instruments (or embedded derivatives)
indexed to its common stock to properly classify such instruments within equity
or as liabilities in its financial statements, pursuant to the requirements of
the EITF Issue No. 00-19, "ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS
INDEXED TO AND POTENTIALLY SETTLED IN, A COMPANY'S OWN STOCK," EITF Issue No.
01-06, "THE MEANING OF INDEXED TO A COMPANY'S OWN STOCK," EITF Issue No. 05-04,
"THE EFFECT OF A LIQUIDATED DAMAGES CLAUSE ON A FREESTANDING FINANCIAL
INSTRUMENT SUBJECT TO EITF Issue No. 00-19," and SFAS No. 133, "ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES," as amended. The Company's policy
is to settle instruments indexed to its common shares on a first-in-first-out
basis.
In the fiscal year ending March 31, 2006, the Company was obligated to register
for resale the shares underlying warrants in connection with the issuance of its
10% Series A Convertible Promissory Notes. In accordance with EITF Issue No.
00-19, the value of the warrants were recorded as a liability until the
registration became effective on January 20, 2006. On or about March 13, 2007,
the Company determined that the effectiveness of the registration statement
underlying the conversion and warrant shares associated with the 10% Series A
Promissory Notes had lapsed on October 27, 2006. In accordance with EITF Issue
No. 00-19, the Company reversed the accounting effect of the prior registration
effectiveness and recorded a warrant liability which is required to be revalued
at the end of each reporting period. At June 30, 2007, the fair value of the
warrant liability was determined to be $4,267,675 and for the three months ended
June 30, 2007 a gain in the amount of approximately $422,000 was recognized as
other income as a result of the change in the fair value of such liability since
March 31, 2007.
REGISTRATION PAYMENT ARRANGEMENTS
The Company accounts for its liquidated damages on registration rights
agreements in accordance with FASB Staff Position EITF Issue No. 00-19-2
"ACCOUNTING FOR REGISTRATION PAYMENT ARRANGEMENTS" which specifies that the
contingent obligation to make future payments or otherwise transfer
consideration under a registration payment arrangement should be separately
recognized and measured in accordance with SFAS No. 5, "Accounting for
Contingencies." On June 30, 2007, the Company had recorded $220,000 of accrued
liquidated damages in accounts payable and accrued liabilities on the
accompanying condensed consolidated balance sheet.
6
AETHLON MEDICAL, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
STOCK BASED COMPENSATION
Effective April 1, 2006, the Company adopted the provisions of SFAS No. 123-R,
"SHARE-BASED PAYMENT,". SFAS No. 123-R requires employee stock options and
rights to purchase shares under stock participation plans to be accounted for
under the fair value method and requires the use of an option pricing model for
estimating fair value. Accordingly, share-based compensation is measured at the
grant date, based on the fair value of the award. The exercise price of options
is generally equal to the market price of the Company's common stock (defined as
the closing price as quoted on the Over-the-Counter Bulletin Board administered
by Nasdaq) on the date of grant. Under the modified prospective method of
adoption for SFAS No. 123-R which the Company elected to adopt the compensation
cost recognized by the Company beginning April 1, 2006 includes, (a)
compensation cost for all equity incentive awards granted prior to, but not yet
vested as of April 1, 2006, based on the grant-date fair value estimated in
accordance with the original provisions of SFAS No. 123, and (b) compensation
cost for all equity incentive awards granted subsequent to April 1, 2006, based
on the grant-date fair value estimated in accordance with the provisions of SFAS
No. 123-R.
From time to time, the Company's Board of Directors grants common share purchase
options or warrants to selected directors, officers, employees, consultants and
advisors in payment of goods or services provided by such persons on a
stand-alone basis outside of any of the Company's formal stock plans. The terms
of these grants are individually negotiated and generally expire within five
years from the grant date.
In August 2000, the Company adopted the 2000 Stock Option Plan ("Stock Option
Plan"), which was approved by its stockholders in September 2000. The Stock
Option Plan provides for the issuance of up to 500,000 options to purchase
shares of common stock. Such options can be incentive options or nonstatutory
options, and may be granted to employees, directors and consultants. The Stock
Option Plan has limits as to the eligibility of those stockholders who own more
than 10% of Company stock, as defined. The options granted pursuant to the Stock
Option Plan may have exercise prices of no less than 100% of fair market value
of the Company's common stock at the date of grant (incentive options), or no
less than 75% of fair market value of such stock at the date of grant
(nonstatutory). At June 30, 2007, the Company had granted 47,500 options under
the 2000 Stock Option Plan of which 15,000 had been forfeited, with 467,500
available for future issuance. All of these options vested prior to the adoption
of FAS 123-R.
The effects of share-based compensation resulting from the application of SFAS
No. 123-R to options granted outside of the Company's Stock Option Plan resulted
in a non-cash expense of $283,505 and $4,750 for the quarters ended June 30,
2007 and 2006, respectively. This expense was recorded as stock compensation
included in payroll and related expenses in the accompanying June 30, 2007 and
2006 consolidated statement of operations.
The Company recognizes share-based compensation as a result of the adoption of
SFAS No. 123-R and uses the Binomial Lattice option pricing model for estimating
fair value of options granted.
The following table summarizes the effect of share-based compensation pursuant
to the application of SFAS No. 123-R to options granted:
On June 13, 2007, the Company granted its Chief Executive Officer an option to
purchase 2,500,000 shares of common stock at an exercise price of $0.36 per
share. The options vested 1,000,000 shares at grant, with 500,000 shares vesting
each annual anniversary date through June 13, 2010. On the grant date, the fair
value of this option was determined to be approximately $922,000, with $260,000
of share-based compensation expense related to this grant recognized upon grant
and included in general and administrative expense for the three-month period
ended June 30, 2007.
7
AETHLON MEDICAL, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In accordance with SFAS No. 123-R, the Company adjusts share-based compensation
on a quarterly basis for changes to the estimate of expected award forfeitures
based on actual forfeiture experience. The effect of adjusting the forfeiture
rate for all expense amortization after March 31, 2006 is recognized in the
period the forfeiture estimate is changed. The effect of forfeiture adjustments
in the first quarter ended June 30, 2007 was insignificant.
The following weighted average assumptions were used as applicable in the above
table:
Three Months Ended
June 30
-----------------------------
2007 2006
---------- ----------
Annual dividends zero zero
Expected volatility 92% 72%
Risk free interest rate 4.72% 4.18%
Expected life 2.14 years 4.7 years
The expected volatility is based on the historical volatility. The expected life
of options granted is based on the "simplified method" described in the SEC's
Staff Accounting Bulletin No. 107 due to changes in the vesting terms and
contractual life of current option grants compared to the Company's historical
grants. Options outstanding that have vested and are expected to vest as of June
30, 2007 are as follows:
Weighted
Weighted Average
Average Remaining Aggregate
Number of Exercise Contractual Intrinsic
Shares Price Term in Years Value (1)
- --------------------------- --------- -------- ------------- ------------
Vested 9,369,060 $ 0.39 5.54 $ 2,668,940
Expected to vest 2,335,000 0.32 8.54 812,400
----------- ------------
Total 11,704,060 $ 3,481,340
=========== ============
(1) These amounts represent the difference between the exercise price and $0.67,
the closing market price of the Company's common stock on June 30, 2007 as
quoted on the Over-the-Counter Bulletin Board under the symbol "AEMD.OB" for all
in-the-money options outstanding.
Options outstanding that are expected to vest are net of estimated future
forfeitures in accordance with the provisions of SFAS No. 123-R, which are
estimated when compensation costs are recognized. The Company estimated such
forfeiture rate to be zero. Additional information with respect to stock option
activity is as follows:
Outstanding Options
-------------------------------------
Shares Weighted Aggregate
Available Number of Average Intrinsic
for Grant Shares Exercise Price Value (1)
- --------------------------- --------- ------ -------------- ----------
March 31, 2007 467,500 9,204,060 $ 0.38 $3,802,324
==========
Grants -- 2,500,000 0.36
Exercises -- -- --
Cancellations -- -- --
--------- ---------- ------
June 30, 2007 467,500 11,704,060 $ 0.37 $3,481,340
========= ========== ====== ==========
Options exercisable at:
March 31, 2007 8,369,060 $ 0.39
========= ======
June 30, 2007 7,135,518 $ 0.39
========= ======
(1) Represents the difference between the exercise price and the March 31, 2007
or June 30, 2007 market price of the Company's common stock, which was $0.74 and
$0.67, respectively.
8
AETHLON MEDICAL, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
At June 30, 2007, there was approximately $754,000 of unrecognized
compensation cost related to share-based payments which is expected to be
recognized over a weighted average period of 2.44 years.
INCOME TAXES
Under SFAS No. 109, "ACCOUNTING FOR INCOME TAXES," deferred tax assets and
liabilities are recognized for the future tax consequences attributable to the
difference between the consolidated financial statements and their respective
tax basis. Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts reported for income tax purposes, and (b) tax
credit carryforwards. The Company records a valuation allowance for deferred tax
assets when, based on management's best estimate of taxable income (if any) in
the foreseeable future, it is more likely than not that some portion of the
deferred tax assets may not be realized.
SIGNIFICANT RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued FASB Interpretation ("FIN") No. 48, "Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109."
FIN No. 48 establishes a single model to address accounting for certain tax
positions. FIN No. 48 clarifies the accounting for income taxes by prescribing a
minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements. FIN No. 48 also provides guidance on
derecognition measurement, classification, interest and penalties, accounting in
interim periods, disclosure and transition.
The Company adopted the provisions of FIN No. 48 on April 1, 2007. Upon
adoption, the Company recognized no adjustment in the amount of unrecognized tax
benefits. As of the date of adoption the Company had no unrecognized tax
benefits. The Company's policy is to recognize interest and penalties that would
be assessed in relation to the settlement of unrecognized tax benefits as a
component of income tax expense. The Company has recognized approximately
$36,000 in penalties and interest upon the adoption of FIN No. 48.
The Company and it subsidiaries are subject to federal income tax. With few
exceptions, the Company is no longer subject to U.S. federal income tax
examination for years before 2000; state and local tax examinations before 2000.
However, to the extent allowed by law, the tax authorities may have the right to
examine prior periods where net operating losses were generated and carried
forward, and make adjustments up to the amount of the net operating loss
carryforward amount.
The Company is not currently under Internal Revenue Service (IRS), state, local
or foreign jurisdiction tax examinations.
For the quarter ended June 30, 2007, the Company recorded no income tax
provision.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
which defines fair value, establishes a framework for measuring fair value in
accordance with GAAP, and expands disclosures about fair value measurements.
SFAS No. 157 simplifies and codifies related guidance within GAAP, but does not
require any new fair value measurements. The guidance in SFAS No. 157 applies to
derivatives and other financial instruments measured at estimated fair value
under SFAS No. 133 and related pronouncements. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities." SFAS No. 159 allows entities to
choose, at specified election dates, to measure eligible financial assets and
liabilities at fair value that are not otherwise required to be measured at fair
value. If the Company elects the fair value option for an eligible item, changes
in that item's fair value in subsequent reporting periods must be recognized in
current earnings. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. Management has not yet evaluated the effects on future
consolidated financial statements.
Other recent accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force), the American Institute of Certified Public
Accountants, and the Securities and Exchange Commission did not or are not
believed by management to have a material impact on the Company's present or
future consolidated financial statements.
9
AETHLON MEDICAL, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
NOTE 4. NOTES AND CONVERTIBLE NOTES PAYABLE
At June 30, 2007, the Company had $502,500 in principal amount of notes payable
outstanding with fourteen noteholders.
The Company is currently in default on $502,500 of amounts owed under various
unsecured notes payable and is currently seeking other arrangements with its
noteholders. At June 30, 2007 the Company had accrued interest in the amount of
$377,191 associated with these defaulted notes payable.
At June 30, 2007, convertible notes payable, net consists of $1,050,000 in
principal amount of convertible notes payable outstanding, net of ($1,000,000)
discount, held by six noteholders. The discount is attributable to the valuation
of warrant rights associated with the extinguishment and effective reissuance of
the convertible notes on March 22, 2007.
NOTE 5. EQUITY TRANSACTIONS
In April 2007, the Company issued 30,617 shares of restricted common
stock as the result of a cashless exercise of 80,000 warrants held by a former
noteholder.
In April 2007, the Company issued 15,152 shares of restricted common
stock at $0. 33 per share in payment of an option agreement valued at $5,000.
This transaction was exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.
In April 2007, the Company issued 8,651 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.58 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.
In April 2007, the Company issued 3,937 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.76 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.
In May 2007, the Company issued 13,124 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.76 per share in payment for regulatory affairs
consulting services to the Company valued at $10,000 based on the value of the
services.
In May 2007, the Company issued 5,155 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.58 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.
In June 2007, the Company issued 41,999 shares of restricted common
stock at between $0.30 and $0.74 per share in payment for investor relations
services to the Company valued at $20,000 based on the value of the services.
In June 2007, the Company issued 17,526 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.58 per share in payment for regulatory affairs
consulting services to the Company valued at $10,200 based on the value of the
services.
In June 2007, the Company issued 5,155 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.58 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.
In June 2007, the Company issued 10,174 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.63 per share in payment for regulatory affairs
consulting services to the Company valued at $6,450 based on the value of the
services.
10
AETHLON MEDICAL, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
NOTE 6. COMMITMENTS AND CONTINGENCIES
LEGAL MATTERS
From time to time, claims are made against the Company in the ordinary course of
business, which could result in litigation. Claims and associated litigation are
subject to inherent uncertainties and unfavorable outcomes could occur, such as
monetary damages, fines, penalties or injunctions prohibiting the Company from
selling one or more products or engaging in other activities. The occurrence of
an unfavorable outcome in any specific period could have a material adverse
effect on the Company's results of operations for that period or future periods.
The Company is not presently a party to any pending or threatened legal
proceedings.
NOTE 7. SUBSEQUENT EVENTS
On July 13, 2007 the Company entered into a twelve-month 12%
Convertible Note ("Note") for $60,000 with an individual accredited investor.
The Note accrues interest at 12%, payable at maturity and is convertible into
the Company's Common Stock at a fixed conversion price of $0.50 per share.
Beginning July 17, 2007, the Company commenced a $1.0 million Private
Placement Offering ("Placement"). The offering is for the sale of units, each
unit to include two shares of common stock and one warrant. The offering is made
to certain private investors known to the Company. Each Warrant is exercisable
for three years from issuance and allows the purchase of one share of common
stock at an exercise price of $0.50 per share. As of August 3, 2007, the Company
had received confirmed subscriptions for the sale of $660,000 of such units.
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
We are a developmental stage medical device company focused on expanding the
applications of our Hemopurifier(R) platform technology which is designed to
rapidly reduce the presence of infectious viruses and other toxins from human
blood. As such, we focus on developing therapeutic devices to treat acute viral
conditions brought on by pathogens targeted as potential biological warfare
agents and chronic viral conditions including HIV/AIDS and Hepatitis-C. The
Hemopurifier(R) combines the established scientific technologies of hemodialysis
and affinity chromatography as a means to mimic the immune system's response of
clearing viruses and toxins from the blood before cell and organ infection can
occur. The Hemopurifier(R) cannot cure these afflictions but can lower viral
loads and allow compromised immune systems to overcome otherwise serious or
fatal medical conditions.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act
and must file reports, proxy statements and other information with the SEC. The
reports, information statements and other information we file with the
Commission can be inspected and copied at the Commission Public Reference Room,
100F Street, N.W. Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at (800) SEC-0330. The
Commission also maintains a Web site (http://www.sec.gov) that contains reports,
proxy, and information statements and other information regarding registrants,
like us, which file electronically with the Commission. Our headquarters are
located at 3030 Bunker Hill Street, Suite 4000, San Diego, California 92109. Our
telephone number is 858/459-7800. Our Web site is maintained at
http://www.aethlonmedical.com.
Our common stock is traded on the OTCBB under the symbol "AEMD.OB".
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED JUNE 30, 2007 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2006.
OPERATING EXPENSES
Consolidated operating expenses were $871,273 for the three months ended June
30, 2007, versus $501,832 for the comparable period one year ago. This
represents an absolute dollar increase of $369,441 or approximately 74% as
compared to the prior time period. This difference is comprised of increases in
payroll and related and general and administrative expenses of approximately
$336,929 and $45,611, respectively, offset by a decrease in professional expense
of $13,099.
Professional fees decreased by $13,099 or approximately 7% from the prior period
one year ago. The decrease was comprised of an increase in legal expense of
$48,248 and accounting fees of $4,942, offset by decreases in scientific
consulting expense of $52,758 and other professional expenses of $8,589. The
increase in legal expense resulted from the comparatively high legal expense in
the period ended June 30, 2007, a result of our increased number of public
filings as compared to the prior period one year ago. Scientific professional
expense decreased due to the comparatively high expense incurred during the
fiscal quarter ended June 30, 2006 as a result of the completion of our human
safety studies in India during that quarter.
Payroll and related expenses increased $336,929 or approximately 183% as
compared to the prior period one year ago. This increase is primarily a result
of additional non-cash stock compensation expense of $283,605 which includes
approximately $269,000 related to stock options granted to our Chief Executive
Officer in June 2007 and the additional salary of our President, who was hired
in August 2006.
General and administrative expenses increased $45,611 or approximately 39% as
compared to the prior comparable quarter one year ago. The increase is primarily
attributable to an increase in lab supplies of $48,054 a result of the testing
and preparation of Hemopurifier(R) cartridges required for an upcoming trial in
India related to a Dengue fever application. This increase was offset by a
decrease in all other general and administrative expenses of $2,893.
OTHER EXPENSE
Other expenses decreased by $452,398 or approximately 386% as compared to the
prior quarter one year ago. This decrease was comprised of a non-cash reduction
in the fair value of warrant liability of $421,775, a $64,044 reduction in
interest expense and an increase of $33,421 in other expenses. Interest expense
was reduced because the BCF associated with the Company's 10% Series A
Convertible Promissory Notes ("Notes") was fully amortized to interest expense
prior to the current fiscal quarter. The warrant liability is also related to
the Notes and it is required to be revalued at the end of each reporting period
until effective registration of the shares underlying the Notes and related
Warrants becomes effective (See Note 3 to the condensed consolidated financial
statements). Other expense increased as a result of the recognition of estimated
penalties and interest related to tax obligations.
NET LOSS
We recorded a consolidated net loss of $536,199 and $619,156 for the quarters
ended June 30, 2007 and 2006, respectively. The decrease in net loss of
approximately 13% was generally attributable to a significant non-cash benefit
due to the valuation of the warrant liability associated with the Company's 10%
Series A Convertible Notes at June 30, 2007, offset by increased expenses
related to the recognition of stock compensation expense.
Basic and diluted loss per common share were ($0.02) for the three month period
ended June 30, 2007 as compared to ($0.02) for the same period ended June 30,
2006.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has funded its 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. The Company's cash position at March 31, 2007 was $440,106 compared to
$2,658, at June 30, 2007, representing a decrease of $437,448. During the three
months ended June 30, 2007, operating activities used net cash of $433,451. The
Company received no cash from financing activites and purchased $3,997 of
property and equipment.
A decrease in working capital during the three months in the amount of $181,774
increased the Company's negative working capital position to ($7,442,126) at
June 30, 2007 as compared to a negative working capital of ($7,260,352) at March
31, 2007.
The Company's 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.
The Company's operations to date have consumed substantial capital without
generating revenues, and will continue to require substantial capital funds to
conduct necessary research and development and pre-clinical and clinical testing
of Hemopurifier(R) products, and to market any of those products that receive
regulatory approval. The Company does not expect to generate revenue from
operations for the foreseeable future, and its ability to meet its cash
obligations as they become due and payable is expected to depend for at least
the next several years on its ability to sell securities, borrow funds or a
combination thereof. The Company's 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 management's
ability to establish collaborative arrangements, effect successful
commercialization strategies, marketing activities and other arrangements. The
Company expects to continue to incur increasing negative cash flows and net
losses for the foreseeable future, and presently requires a minimum of $125,000
per month to sustain operations. The Company is in the presses of completing a
scheduled $1.0 million Private Placement Offering ("Placement"). As of August 3,
2007, the Company had received confirmed subscriptions for the sale of $660,000
of such units.
Management does not believe that inflation has had or is likely to have any
material impact on the Company's 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.
PLAN OF OPERATION
The Company is a development stage medical device company that has not yet
engaged in significant commercial activities. The primary focus of our resources
is the advancement of our proprietary Hemopurifier(R) platform treatment
technology, which is designed to rapidly reduce the presence of infectious
viruses and toxins in human blood. Our focus is to prepare our Hemopurifier(R)
to treat chronic viral conditions, acute viral conditions and viral-based
bioterror threats in human clinical trials.
The Company plans to continue research and development activities related to our
Hemopurifier(R) platform technology, with particular emphasis on the advancement
of our treatment for "Category A" pathogens as defined by the Federal Government
under Project Bioshield and the All Hazards Preparedness Act of 2006. The
Company has filed an Investigational Device Exemption ("IDE") with the FDA in
order to proceed with Human safety studies of the Hemopurifier(R). Such studies,
complemented by planned in-vivo and appropriate animal in-vitro studies should
allow the Company to proceed to Premarket Approval ("PMA") process. The PMA
process is the last major FDA hurdle in determining the safety and effectiveness
of Class III medical Devices (of which the Hemopurifier(R) is one).
Management anticipates continuing to increase spending on research and
development over the next 12 months. Additionally, associated with the Company's
anticipated increase in research and development expenditures, we anticipate
purchasing additional amounts of equipment during this period to support our
laboratory and testing operations. Operations to date have consumed substantial
capital without generating revenues, and will continue to require substantial
and increasing capital funds to conduct necessary research and development and
pre-clinical and clinical testing of our Hemopurifier(R) products, as well as
market any of those products that receive regulatory approval. The Company does
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. Future capital requirements
will depend upon many factors, including progress with pre-clinical testing and
clinical trials, the number and breadth of our clinical 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
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
obtaining regulatory approvals, competing technological and market developments,
as well as management's ability to establish collaborative arrangements,
effective commercialization, marketing activities and other arrangements. The
Company expects to continue to incur increasing negative cash flows and net
losses for the foreseeable future.
CRITICAL ACCOUNTING POLICIES
The preparation of condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires the Company 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, the Company evaluates estimates and assumptions
based upon historical experience and various other factors and circumstances.
Management believes the Company's estimates and assumptions are reasonable in
the circumstances; however, actual results may differ from these estimates under
different future conditions.
The Company believes that the estimates and assumptions that are most important
to the portrayal of the Company's financial condition and results of operations,
in that they require the 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, stock compensation, classification
of warrant obligation, 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 the Company's
future financial conditions or results of operations.
There have been no changes to the Company's critical accounting policies as
disclosed in its Form 10-KSB for the year ended March 31, 2007.
OFF BALANCE SHEET ARRANGEMENTS
There are no guarantees, commitments, lease and debt agreements or other
agreements that could trigger an adverse change in our credit rating, earnings,
cash flows or stock price, including requirements to perform under standby
agreements.
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
Securities Exchange Act of 1934) 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 June 30, 2007, 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.
Changes in Controls and Procedures
There were no significant changes made in our internal controls over financial
reporting during the quarter ended June 30, 2007 that have materially affected
or are reasonably likely to materially affect these controls. Thus, no
corrective actions with regard to significant deficiencies or material
weaknesses were necessary.
Limitations on the Effectiveness of Internal Control
Our management, including the CEO, does not expect that our disclosure controls
and procedures or our internal control over financial reporting will necessarily
prevent all fraud and material errors. An internal control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations on all internal control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within Aethlon Medical have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, and/or by management override of
the control. The design of any system of internal control is also based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. Over time, controls may become inadequate
because of changes in circumstances, and/or the degree of compliance with the
policies and procedures may deteriorate. Because of the inherent limitations in
a cost-effective internal control system, financial reporting misstatements due
to error or fraud may occur and not be detected on a timely basis.
14
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In June 2007, the Company issued 41,999 shares of restricted common stock at
between $0.30 and $0.74 per share in payment for investor relations services to
the Company valued at $20,000 based on the value of the services. The shares
were issued without registration under the Securities Act in reliance upon the
exemption from registration set forth in Section 4(2).
In April 2007, the Company issued 30,617 shares of restricted common stock as
the result of a cashless exercise of 80,000 warrants held by a former
noteholder. The shares were issued without registration under the Securities Act
in reliance upon the exemption from registration set forth in Section 4(2).
On July 13, 2007 the Company entered into a twelve-month 12% Convertible Note
("Note") for $60,000 with an individual accredited investor. The Note accrues
interest at 12%, payable at maturity and is convertible into the Company's
Common Stock at a fixed conversion price of $0.50 per share.
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 $502,500 have reached maturity and are in
default. The Company is currently seeking other alternative arrangements with
the holders of these obligations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
The following documents are filed as part of this report:
10.1 10% Convertible Promissory Note dated July 13, 2007, between the
Company and the Phillip A Ward Trust.
31.1 Certification of our Chief Executive Officer and President, pursuant to
Securities Exchange Act rules 13a-14(a) and 15d-14(a) as adopted
pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
31.2 Certification of our Chief Financial Officer and Chief Accounting
Officer, pursuant to Securities Exchange Act rules 13a-14(a) and
15d-14(a) as adopted pursuant to Section 302 of the Sarbanes Oxley Act
of 2002.
32.1 Statement of our Chief Executive Officer under Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
32.2 Statement of our Chief Financial Officer and Chief Accounting Officer
under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section
1350)
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: August 8, 2007
BY: /S/ JAMES A. JOYCE BY: /S/ JAMES W. DORST
--------------------------- ---------------------------------
JAMES A. JOYCE JAMES W. DORST
CHAIRMAN, PRESIDENT AND CHIEF FINANCIAL OFFICER AND CHIEF
CHIEF EXECUTIVE OFFICER ACCOUNTING OFFICER
16