SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K-A1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
March 10, 1999
Date of Report
(Date of Earliest Event Reported)
BISHOP EQUITIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada 33-44567-NY 13-3632859
(State or other juris- (Commission File No.) (IRS Employer I.D. No.)
diction of incorporation)
7825 Fay Avenue, Suite 200
LaJolla, California 92037
(Address of Principal Executive Offices)
(619) 456-5777
Registrant's Telephone Number
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
There have been the following changes to this Item, which was contained in
the 8-K Current Report of the Company dated March 10, 1999.
(a) Financial Statements of Business Acquired.
Pro Forma Combined Financial Report for Bishop Equities, Inc. at
December 31, 1998
Audited financial statements for Hemex, Inc. at December 31, 1998
Audited financial statements for Hemex, Inc. at December 31, 1997
(b) Exhibits. (See attached Financial Statements.)
All other portions of the previously filed 8-K Current Report dated March
10, 1999 remain unchanged.
(c) Exhibits.
**10.1 Agreement and Plan of Reorganization Between the Registrant and
Aethlon
** Exhibit "A" - List of Aethlon Shareholders
** Exhibit "B" - Aethlon Letter of Intent
** Exhibit "C" - Hemex Letter of Intent
** Exhibit "D" - Resolutions of Bishop
** Exhibit "E-1" - Indemnification of Barry
** Exhibit "E-2" - Indemnification of Joyce
** Exhibit "E-3" - Indemnification of Broenniman
** Exhibit "F" - Copies of Shares or Lost Certificate Affidavits
** Exhibit "G" - Power of Attorney to Shareholder Representative
** Exhibit "H" - Legal Opinion of Bishop Counsel
** Exhibit "I" - Schedule of Exceptions of Aethlon
** Exhibit "J" - Financial Statements of Aethlon
** Exhibit "K" - List of Aethlon Bank Accounts and Signatories
Therefor
** Exhibit "L" - Schedule of Exceptions of Bishop
** Exhibit "M" - Financial Statements of Bishop**
** Exhibit "N" - List of Bishop Bank Accounts and Signatories Therefor
**10.2 Agreement and Plan of Reorganization Between the Registrant and
Hemex
** Exhibit "A" - List of Hemex Shareholders
** Exhibit "B" - Hemex Letter of Intent
** Exhibit "C" - Bishop Letter of Intent
** Exhibit "D" - Resolutions of Bishop
** Exhibit "E-1" - Indemnification of Barry
** Exhibit "E-2" - Indemnification of Joyce
** Exhibit "E-3" - Indemnification of Broenniman
** Exhibit "F" - Copies of Shares or Lost Certificate Affidavits
** Exhibit "G" - Power of Attorney to Shareholder Representative
** Exhibit "H" - Legal Opinion of Bishop Counsel
** Exhibit "I" - Schedule of Exceptions of Hemex
** Exhibit "J" - Financial Statements of Hemex
** Exhibit "K" - Legal Descriptions of Real Property of Hemex
** Exhibit "L" - List of Personal Property of Hemex
** Exhibit "M" - Patents, Trademarks, Service Marks of Hemex
** Exhibit "N" - List of Insurance Policies of Hemex
** Exhibit "O" - List of Hemex Bank Accounts and Signatories Therefor
** Exhibit "P" - Schedule of Exceptions of Bishop
** Exhibit "Q" - Financial Statements of Bishop**
** Exhibit "R" - List of Bishop Bank Accounts and Signatories Therefor
**Filed with Registrant's Form 8-K on March 10, 1999 and incorporated
herein by this reference.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
BISHOP EQUITIES, INC.
Date: May 24, 1999 By:/s/James A. Joyce
--------------------
James A. Joyce, Chairman, Secretary and Director
BISHOP EQUITIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Pro Forma Combined Financial Report
December 31, 1998
BISHOP EQUITIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
PRO FORMA COMBINED FINANCIAL REPORT
As of December 31, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
ACCOUNTANT'S REPORT 1
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
AND ACUMULATED DEFICIT 2
PRO FORMA COMBINED BALANCE SHEETS 4
PRO FORMA COMBINED CUMULATIVE STATEMENTS OF
OPERATIONS DURING THE DEVELOPMENT STAGE 5
To the Stockholders of
Bishop Equities, Inc.
La Jolla, California
We have compiled the accompanying pro forma combined balance sheets of Bishop
Equities, Inc. (doing business as "Aethlon Medical, Inc.") as of December 31,
1998, the related pro forma combined statements of operations and accumulated
deficit for the years ended December 31, 1998 and 1997 and the related pro forma
combined cumulative statements of operations during the development stage
through December 31, 1998, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
The accompanying pro forma combined financial statements, described above,
combine the historical balance sheets and statements of operations and
accumulated deficit of Bishop Equities, Inc., Hemex, Inc. and Aethlon, Inc.,
giving effect to their March 10, 1999 merger as if the companies had always been
combined since their respective inception dates (as indicated in the financial
statements), using the pooling of interests method of accounting for a business
combination. This information is being provided for supplementary analysis and
illustrative purposes only, and should be read in conjunction with the
historical financial statements of the respective companies. The companies may
have performed differently had they always been combined. These pro forma
combined financial statements should not be relied upon as being indicative of
the historical results that would have been achieved had the companies always
been combined or the future results that the combined company will experience
after the merger.
Management has elected to omit substantially all of the disclosures and the
statements of cash flows required by generally accepted accounting principles.
If the omitted disclosures and statements were included in the financial
statements, they might influence the user's conclusions about the companies' pro
forma combined financial position, results of operations and cash flows.
Accordingly, these financial statements are not designed for those who are not
informed about such matters.
Gaines Metzler Kriner & Co LLP
May 20, 1999
1
BISHOP EQUITIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
PRO FORMA COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
COMPILATION
HISTORIC
AETHLON PROFORMA PROFORMA
FOR THE YEAR ENDED DECEMBER 31, 1997 HEMEX BISHOP ADJUSTMENTS COMBINED
- ------------------------------------ -------- -------- ----------- --------
REVENUE
Grant income $ --- $ --- $ --- $ ---
Subcontract income --- --- --- ---
Sale of research and development --- --- --- ---
Interest Income --- --- --- ---
----------- ----------- ------- -----------
Total revenue --- --- --- ---
EXPENSES
Personnel costs 216,829 --- --- 216,829
Research and development consultation 36,173 --- --- 36,173
Subcontract expense --- --- --- ---
Contractual costs 1,305 --- --- 1,305
Rent and utilities 36,516 --- --- 36,516
Equipment and maintenance 2,056 --- --- 2,056
Office expense 11,239 944 --- 12,183
Professional fees 52,001 302 --- 52,303
Miscellaneous 4,922 --- --- 4,922
Depreciation 17,942 --- --- 17,942
Travel and meetings 42,069 --- --- 42,069
Insurance 3,957 --- --- 3,957
Laboratory supplies 17,916 --- --- 17,916
Patent 9,440 --- --- 9,440
Interest 25,290 --- --- 25,290
Amortization 8,171 120 --- 8,291
Dues and subscription 2,427 --- --- 2,427
----------- ----------- ------- -----------
Total expenses 488,253 1,366 --- 489,619
----------- ----------- ------- -----------
LOSS BEFORE INCOME TAXES (488,253) (1,366) --- (489,619)
PROVISION FOR INCOME TAXES (1,475) --- --- (1,475)
----------- ----------- ------- -----------
NET LOSS (486,778) (1,366) --- (488,144)
ACCUMULATED DEFICIT, BEGINNING (2,373,873) (34,468) --- (2,408,341)
----------- ----------- ------- -----------
ACCUMULATED DEFICIT, ENDING $(2,860,651) $ (35,834) $ --- $(2,408,341)
----------- ----------- ------- -----------
----------- ----------- ------- -----------
SEE ACCOUNTANT'S REPORT.
2
BISHOP EQUITIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
PRO FORMA COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
COMPILATION
HISTORIC
AETHLON PROFORMA PROFORMA
FOR THE YEAR ENDED DECEMBER 31, 1998 HEMEX BISHOP AETHLON ADJUSTMENTS COMBINED
- ------------------------------------ -------- -------- -------- ----------- --------
REVENUE
Grant income $ --- $ --- $ --- $--- $ ---
Subcontract income --- --- --- --- ---
Sale of research and development 2,810 --- --- --- 2,810
Other income 17,225 --- --- --- 17,225
Interest Income --- --- 46 --- 46
----------- ----------- ----------- --------- -----------
Total revenue 20,035 --- 46 --- 20,081
EXPENSES
Personnel costs 164,296 --- --- --- 164,296
Research and development consultation --- --- --- --- ---
Subcontract expense --- --- --- --- ---
Contractual costs 135 --- --- --- 135
Rent and utilities 32,686 --- --- --- 32,686
Equipment and maintenance 1,572 --- --- --- 1,572
Office expense 5,314 1,395 6,947 --- 13,656
Professional fees 39,660 1,814 39,000 --- 80,474
Miscellaneous 645 --- --- --- 645
Depreciation 16,783 --- --- --- 16,783
Travel and meetings 3,477 --- --- --- 3,477
Insurance (1,872) --- --- --- (1,872)
Laboratory supplies 206 --- --- --- 206
Patent 6,060 --- --- --- 6,060
Interest 27,664 --- --- --- 27,664
Amortization 8,171 120 2,917 --- 11,208
Dues and subscription --- --- --- --- ---
----------- ----------- ----------- --------- -----------
Total expenses 304,797 3,329 48,864 --- 356,990
----------- ----------- ----------- --------- -----------
LOSS BEFORE INCOME TAXES (284,762) (3,329) (48,818) --- (336,909)
PROVISION FOR INCOME TAXES 349 --- --- --- 349
----------- ----------- ----------- --------- -----------
NET LOSS (285,111) (3,329) (48,818) --- (337,258)
ACCUMULATED DEFICIT, BEGINNING (2,860,651) (35,834) --- --- (2,896,485)
----------- ----------- ----------- --------- -----------
ACCUMULATED DEFICIT, ENDING $(3,145,762) $ (39,163) $ (48,818) $--- $(3,233,743)
----------- ----------- ----------- --------- -----------
----------- ----------- ----------- --------- -----------
SEE ACCOUNTANT'S REPORT.
3
BISHOP EQUITIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
PRO FORMA COMBINED BALANCE SHEETS
COMPILATION
AS OF DECEMBER 31, 1998
HISTORIC
AETHLON PROFORMA PROFORMA
HEMEX BISHOP AETHLON ADJUSTMENTS COMBINED
-------- ------ -------- ----------- --------
ASSETS
Current assets
Cash and cash equivalents $ 3,062 $ 1,415 $ 5,710 --- $ 10,187
----------- ----------- ----------- ------------ -----------
Total current assets 3,062 1,415 5,710 --- 10,187
Other assets
Property and equipment, net 37,381 --- --- --- 37,381
Investment in Aethlon, Inc. --- 120,082 --- (120,082) ---
Advances to Hemex --- --- 85,000 (85,000) ---
Patents, net 47,455 --- --- --- 47,455
Organizational costs, net --- 30 32,082 --- 32,112
----------- ----------- ----------- ------------ -----------
Total assets $ 87,898 $ 121,527 $ 122,792 $ (205,082) $ 127,135
----------- ----------- ----------- ------------ -----------
----------- ----------- ----------- ------------ -----------
LIABILITIES
Current liabilities
Accounts payable $ 390,978 $ 586 $ 2,710 --- $ 394,274
Accrued liabilities 334,044 --- --- --- 334,044
Due to stockholder --- 2,500 --- --- 2,500
----------- ----------- ----------- ------------ -----------
Total current liabilities 725,022 3,086 2,710 --- 730,818
Advances from Aethlon 85,000 --- --- (85,000) ---
Investment in Hemex, Inc. --- 722,124 --- (722,124) ---
----------- ----------- ----------- ------------ -----------
Total liabilities 810,022 725,210 2,710 (807,124) 730,818
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock 39 2,686 --- (2,175) 550
Preferrred stock ---
Additional paid in capital 2,573,599 2,627,374 168,900 (2,740,363) 2,629,510
Retained earnings (deficit) (3,145,762) (3,233,743) (48,818) 3,194,580 (3,233,743)
Treasury stock (150,000) --- --- 150,000 ---
----------- ----------- ----------- ------------ -----------
Total stockholders' equity (deficit) (722,124) (603,683) 120,082 602,042 (603,683)
----------- ----------- ----------- ------------ -----------
Total liabilities and
stockholders' equity (deficit) $ 87,898 $ 121,527 $ 122,792 $ (205,082) $ 127,135
----------- ----------- ----------- ------------ -----------
----------- ----------- ----------- ------------ -----------
SEE ACCOUNTANT'S REPORT.
4
BISHOP EQUITIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
PRO FORMA COMBINED CUMULATIVE STATEMENTS OF OPERATIONS
DURING THE DEVELOPMENT STAGE
COMPILATION
HISTORIC
HEMEX BISHOP AETHLON
JANUARY 31, 1984 APRIL 17, 1991 JUNE 24, 1998
THROUGH THROUGH THROUGH PROFORMA PROFORMA
DECEMBER 31, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998 ADJUSTMENTS COMBINED
----------------- ----------------- ----------------- ----------- --------
REVENUE
Grant income $ 1,424,012 $ --- $ --- $--- $ 1,424,012
Subcontract income 73,746 --- --- --- 73,746
Sale of research and development 35,810 --- --- --- 35,810
Other income 17,225 --- --- --- 17,225
Interest Income 17,415 --- 46 --- 17,461
----------- ----------- ----------- ---- -----------
Total revenue 1,568,208 --- 46 --- 1,568,254
EXPENSES
Personnel costs 2,574,866 4,000 --- --- 2,578,866
Research and development consultation 240,463 --- --- --- 240,463
Subcontract expense 195,964 --- --- --- 195,964
Contractual costs 193,552 --- --- --- 193,552
Rent and utilities 247,691 --- --- --- 247,691
Equipment and maintenance 164,597 --- --- --- 164,597
Office expense 156,813 13,115 6,947 --- 176,875
Professional fees 247,530 16,221 39,000 --- 302,751
Miscellaneous 95,274 --- --- --- 95,274
Depreciation 120,047 --- --- --- 120,047
Travel and meetings 112,991 5,257 --- --- 118,248
Insurance 56,763 --- --- --- 56,763
Laboratory supplies 99,238 --- --- --- 99,238
Patent 62,865 --- --- --- 62,865
Interest 90,761 --- --- --- 90,761
Amortization 32,684 570 2,917 --- 36,171
Dues and subscription 16,023 --- --- --- 16,023
----------- ----------- ----------- ---- -----------
Total expenses 4,708,122 39,163 41,917 --- 4,796,149
----------- ----------- ----------- ---- -----------
LOSS BEFORE INCOME TAXES (3,139,914) (39,163) (41,871) --- (3,227,895)
PROVISION FOR INCOME TAXES 5,848 --- --- --- 5,848
----------- ----------- ----------- ---- -----------
NET LOSS $(3,145,762) $ (39,163) $ (41,871) $--- $(3,233,743)
----------- ----------- ----------- ---- -----------
----------- ----------- ----------- ---- -----------
SEE ACCOUNTANT'S REPORT.
5
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Financial Report
December 31, 1997
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL REPORT
AS OF DECEMBER 31, 1997
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT 1
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT 2
BALANCE SHEET 3
STATEMENTS OF CASH FLOWS 4
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) 5
NOTES TO FINANCIAL STATEMENTS 7
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Hemex, Inc.
Buffalo, New York
We have audited the accompanying balance sheet of Hemex, Inc. (A Development
Stage Enterprise) as of December 31, 1997, and the related statements of
operations and accumulated deficit, cash flows and stockholders' equity
(deficit) for the year then ended and for the period from January 31, 1984
(inception) to December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hemex, Inc. (A Development
Stage Enterprise) as of December 31, 1997, and the results of its operations and
cash flows for the year then ended and from January 31, 1984 (inception) to
December 31, 1997 in conformity with generally accepted accounting principles.
Gaines Metzler Kriner & Co LLP
May 7, 1999
1
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
CUMULATIVE DURING
FOR THE DEVELOPMENT STAGE
YEAR ENDED THROUGH DECEMBER
DECEMBER 31, 1997 31, 1997
----------------- -----------------
RECEIPTS
Grant SBIR - Lead $ --- $ 804,512
S.C. Johnson & Son, Inc. --- 245,000
SBIR - Phase I --- 44,828
SBIR - Phase II --- 284,816
New York State Matching Grant --- 44,856
Subcontract income --- 73,746
Interest income --- 17,415
Sale of research and development --- 33,000
---------------------------------
Total receipts --- 1,548,173
EXPENDITURES
Personnel costs 216,829 2,410,570
Research and development consultation 36,173 240,463
Subcontract Hemo-Purifier production --- 195,964
Contractual costs 1,305 193,417
Lab rent and utilities 36,516 215,005
Equipment and maintenance 2,056 163,025
Office expense 7,293 118,665
Legal 41,890 153,021
Miscellaneous 4,922 94,629
Depreciation 17,942 103,264
Travel and meeting 42,069 109,514
Insurance 3,957 58,635
Laboratory supplies 5,088 58,087
Patent 9,440 56,805
Accounting 10,111 54,849
Interest expense 25,290 63,097
Laboratory animal expense 12,828 40,945
Office assistance --- 17,874
Amortization 8,171 24,513
Dues and subscriptions 2,427 16,023
Computer expense 3,946 14,960
---------------------------------
Total expenditures 488,253 4,403,325
LOSS FROM OPERATIONS BEFORE
PROVISION FOR INCOME TAXES (488,253) (2,855,152)
PROVISION FOR INCOME TAXES (1,475) 5,499
---------------------------------
NET LOSS (486,778) $(2,860,651)
-----------
-----------
ACCUMULATED DEFICIT, BEGINNING OF YEAR (2,373,873)
--------------
ACCUMULATED DEFICIT, END OF YEAR $(2,860,651)
--------------
--------------
SEE ACCOMPANYING NOTES.
2
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
AS OF DECEMBER 31, 1997
-----------------------
ASSETS
CURRENT ASSETS
Cash $ 310
Prepaid insurance 1,023
---------
Total current assets 1,333
PROPERTY AND EQUIPMENT
Equipment 157,428
Less: Accumulated depreciation 103,264
---------
Property and equipment, net 54,164
OTHER ASSETS
Patents, net of accumulated amortization of $24,513 55,626
---------
$ 111,123
---------
AS OF DECEMBER 31, 1997
-----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 209,817
Accounts payable - related parties 187,849
Accrued payroll taxes 193
Accrued interest 39,548
Accrued wages 1,961
Accrued income taxes 325
------------
Total current liabilities 439,693
LONG-TERM LIABILITIES
Loans payable - stockholders 290,883
Loan payable 50,000
Deferred compensation 202,654
------------
Total long-term liabilities 543,537
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - $0.001 par value,
100,000 shares authorized, 37,004 shares issued,
29,004 shares outstanding 37
Preferred stock - $0.001 par value,
3,000 shares authorized ---
Contributed capital 2,138,507
Deficit accumulated during the development stage (2,860,651)
Less: Treasury stock, 8,000 shares at cost (150,000)
------------
Total stockholders' equity (872,107)
---------
$ 111,123
---------
---------
SEE ACCOMPANYING NOTES.
3
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
CUMULATIVE DURING
FOR THE DEVELOPMENT STAGE
YEAR ENDED THROUGH DECEMBER
DECEMBER 31, 1997 31, 1997
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (486,778) $(2,860,651)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 17,942 103,264
Amortization 8,171 24,513
Changes in liabilities in noncash operating activities:
(Increase) decrease in assets:
Prepaid insurance 477 (1,023)
Increase (decrease) in liabilities:
Accounts payable 116,586 209,817
Accounts payable - related parties 81,039 187,849
Accrued payroll taxes (10,500) 193
Accrued interest 25,321 39,548
Accrued income taxes (2,866) 325
Accrued wages (1,323) 1,961
Accrued expenses - other (1,497) ---
Deferred compensation 63,499 202,654
------------------------------------
Net cash used by operating activities (189,929) (2,091,550)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment --- (157,428)
Purchase of patents --- (80,140)
------------------------------------
Net cash used by investing activities --- (237,568)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in loans payable - stockholders 93,514 290,884
Increase in loan payable 50,000 50,000
Proceeds from issuance of common stock 22,000 2,138,544
Purchase of treasury stock --- (150,000)
------------------------------------
Net cash provided by financing activities 165,514 2,329,428
NET INCREASE (DECREASE) IN CASH (24,415) 310
CASH, BEGINNING 24,725 ---
------------------------------------
CASH, ENDING $ 310 $ 310
------------------------------------
------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the year for:
Interest $ --- $ 23,580
Income taxes 325 4,382
SEE ACCOMPANYING NOTES.
4
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
From January 31, 1984 (Inception) Through December 31, 1997
$0.001 PAR
--------------------------------
NUMBER OF NUMBER OF
$0.001 PAR VALUE TREASURY
COMMON SHARES SHARES
---------------- ---------
Initial Sale of Stock for Cash 11.00 ---
Net income for 1984
--------------------------------
Balance, December 31, 1984 11.00 ---
Additional Capital Contributed by Shareholders
Net loss for 1985
--------------------------------
Balance, December 31, 1985 11.00 ---
Additional Capital Contributed by Shareholders
Net loss for 1986
--------------------------------
Balance, December 31, 1986 11.00 ---
Issuance of Stock for Cash at $100 Per Share 0.55
Net loss for 1987
--------------------------------
Balance, December 31, 1987 11.55 ---
Net loss for 1988
--------------------------------
Balance, December 31, 1988 11.55 ---
Net income for 1989
--------------------------------
Balance, December 31, 1989 11.55 ---
Issuance of Stock for Cash at $100 Per Share 0.35
Net loss for 1990
--------------------------------
Balance, December 31, 1990 11.90 ---
Additional Capital Contributed by Shareholders
Net loss for 1991
--------------------------------
Balance, December 31, 1991 11.90 ---
VALUE COMMON STOCK
DEFICIT
COMMON TREASURY ADDITIONAL ACCUMULATED
TOTAL STOCK SHARES PAID-IN DURING THE
SHARES VALUE AT COST CAPITAL DEVELOPMENT STAGE
------ ------ -------- ---------- -----------------
11.00 $ 1,100.00 $ --- $ 25,424 $ ---
59,710
- -----------------------------------------------------------------------------------------------------------
11.00 1,100.00 --- 25,424 59,710
13,139
(92,774)
- -----------------------------------------------------------------------------------------------------------
11.00 1,100.00 --- 38,563 (33,064)
25,000
(31,652)
- -----------------------------------------------------------------------------------------------------------
11.00 1,100.00 --- 63,563 (64,716)
0.55 55.00 24,945
(21,076)
- -----------------------------------------------------------------------------------------------------------
11.55 1,155.00 --- 88,508 (85,792)
(11,744)
- -----------------------------------------------------------------------------------------------------------
11.55 1,155.00 --- 88,508 (97,536)
66,109
- -----------------------------------------------------------------------------------------------------------
11.55 1,155.00 --- 88,508 (31,427)
0.35 35.00 59,965
(25,257)
- -----------------------------------------------------------------------------------------------------------
11.90 1,190.00 --- 148,473 (56,684)
133,000
(151,987)
- -----------------------------------------------------------------------------------------------------------
11.90 $ 1,190.00 $ --- $ 281,473 $ (208,671)
Continued on next page
SEE ACCOMPANYING NOTES.
5
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
From January 31, 1984 (Inception) Through December 31, 1997
Continued from previous page
$0.001 PAR
--------------------------------
NUMBER OF NUMBER OF
$0.001 PAR VALUE TREASURY
COMMON SHARES SHARES
---------------- ---------
Adjustment to Outstanding Shares for Prior Purchases (1.95)
Additional Capital Contributed by Shareholders
Purchase of Treasury Stock for Cash at $100 Per Share 4.00
------------------------------
Net loss for 1992
Balance, December 31, 1992 9.95 4.00
Issuance of Stock for Cash at $100 Per Share 0.08
------------------------------
Net loss for 1993
Balance, December 31, 1993 10.03 4.00
Issuance of Stock for Cash at $100 Per Share 0.27
------------------------------
Net loss for 1994
Balance, December 31, 1994 10.30 4.00
Issuance of 1.30 Shares of Common Stock in consideration
of Deferred Compensation 1.30
Promissory Notes Payable to Shareholders were
converted to 0.56 Shares of Common Stock 0.56
Stock Split 2,000:1 24,326.00 8,000.00
Common Stock Offering at $250 per share 3,200.00
------------------------------
Net loss for 1995
Balance, December 31, 1995 27,526.00 8,000.00
Common Stock Offering at $250 per share 1,390.00
------------------------------
Net loss for 1996
Balance, December 31, 1996 28,916.00 8,000.00
Issuance of Stock for Cash at $250 Per Share 88.00
------------------------------
Net loss for 1997
Balance, December 31, 1997 29,004.00 8,000.00
------------------------------
------------------------------
VALUE COMMON STOCK
DEFICIT
COMMON TREASURY ADDITIONAL ACCUMULATED
TOTAL STOCK SHARES PAID-IN DURING THE
SHARES VALUE AT COST CAPITAL DEVELOPMENT STAGE
------ ------ -------- ---------- -----------------
(1.95) $ (195.00)
250,095
4.00 400.00 150,000
(220,032)
- ---------------------------------------------------------------------------------------------------------
13.95 1,395.00 150,000 531,568 (428,703)
0.08 8.00 14,992
(61,150)
- ---------------------------------------------------------------------------------------------------------
14.03 1,403.00 150,000 546,560 (489,853)
0.27 27.00 39,973
(381,877)
- ---------------------------------------------------------------------------------------------------------
14.30 1,429.50 150,000 586,533 (871,730)
1.30 130.00 267,276
0.56 56.00 113,519
32,326.00 32.33 1,682
3,200.00 3.20 799,997
(605,385)
- ---------------------------------------------------------------------------------------------------------
35,526.00 35.53 150,000 1,769,007 (1,477,115)
1,390.00 1.39 347,500
(896,758)
- ---------------------------------------------------------------------------------------------------------
36,916.00 36.92 150,000 2,116,507 (2,373,873)
88.00 0.09 22,000
(486,778)
- ---------------------------------------------------------------------------------------------------------
37,004.00 $ 37.01 $150,000 $2,138,507 $(2,860,651)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES.
6
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Hemex, Inc. (the Company) is a Developmental Stage Enterprise formed
on January 31, 1984. The Company is a start-up research and
development company involved in developing the Hemo-Purifier. This is
a medical device which removes toxic metals present in the
bloodstream. The Company has incurred losses since 1985.
The Company has received funds from federal, state and private grants,
proceeds from issuance of common stock, proceeds from long-term
borrowings, and other resources to continue its involvement in
developing the Hemo - Purifier.
ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and receipts and expenditures during the reporting
period. Actual results could differ from estimates.
EQUIPMENT AND DEPRECIATION
Equipment is recorded at cost. Depreciation has been determined using
the straight-line method over the estimated useful lives of the
assets. Depreciation expense for the year ended December 31, 1997 was
$17,942.
PATENTS AND AMORTIZATION
Three patents were acquired in December 31, 1994 from a stockholder in
exchange for a note payable in the amount of $80,140. The patents are
being amortized on the straight-line method over their remaining
lives. The patents expire between the years 2003 through 2005.
Amortization for the year ended December 31, 1997 was $8,171.
INCOME TAXES
Income taxes are computed in accordance with Financial Accounting
Standards Board Statement No. 109, Accounting for Income Taxes.
Deferred taxes are provided on temporary differences arising from
assets and liabilities whose bases are different for financial
reporting and income tax purposes. Basis differences for which
deferred taxes are provided relate primarily to cost associated with
research and development.
SEE ACCOUNTANT'S REPORT.
7
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INCOME TAXES
For financial reporting purposes the Company, in accordance with
generally accepted accounting principles, expenses these research and
development costs as incurred.
The Company has elected under Internal Revenue Code, Section 174, to
capitalize for income tax purposes all research and development
expenditures incurred in conjunction with its product development
process. Net costs associated with the research and development
process amount to approximately $2,850,000 at December 31, 1997. When
the Company realizes benefits from such expenditures, the costs will
be amortized over a period of 60 months.
A valuation allowance has been provided for 100 percent of the
deferred tax asset as realization of the asset is contingent upon Food
and Drug Administration approval of the product.
The Company's deferred tax assets as of December 31, 1997 consist of:
AS OF DECEMBER 31, 1997
------------------ ----
FEDERAL
Deferred tax asset $427,536
Valuation allowance 427,536
--------
Net deferred tax asset $ ---
--------
--------
STATE
Deferred tax asset $228,019
Valuation allowance 228,019
--------
Net deferred tax asset $ ---
--------
--------
STATEMENT OF CASH FLOWS
The Company considers all short-term investments with an original
maturity of three months or less to be cash equivalents.
SEE ACCOUNTANT'S REPORT.
8
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
NOTE 2: LONG-TERM LIABILITIES
As of December 31, 1997, the Company had loans payable to various
stockholders in the amount of $290,883. The loans were unsecured and
accrued interest at a range of 8 to 10 percent. These loans were
converted to shares of the Company's common stock at a rate of $250
per share at December 31, 1998.
On October 30, 1997, the Company entered into a loan agreement with a
non-shareholder in the amount of $50,000. The loan was unsecured and
accrued interest at 14 percent. The loan was converted to shares of
the Company's common stock at a rate of $250 per share at December 31,
1998.
NOTE 3: LEASES
The Company rents lab space from the University of Buffalo Foundation
on a yearly basis. Total rent expense for the year ended December 31,
1997 was $32,324.
NOTE 4: DEFERRED COMPENSATION
The Company has deferred compensation agreements with two of its
present employees and two former employees. The terms of the
agreements require the Company to compensate the employees the amount
owed as soon as the Company has funds available. Pursuant to the
business combination, as described in Note 7, a limited amount of
funds are expected to become available during 1999. To facilitate this
business combination, the employees have agreed to accept a discounted
amount as full payment of the compensation originally deferred. As a
result, the deferred compensation liability presented in the
accompanying financial statements reflects a discount of 40 percent.
Deferred compensation expense for the year ended December 31, 1997
totaled $63,499.
NOTE 5: RELATED PARTY TRANSACTIONS
In addition to the related party loans payable, the officers of the
Company regularly pay expenses on behalf of the Company. The officers
also advance the Company funds to cover short-term working capital
shortages. These non interest-bearing amounts have been included as
accounts payable - related party in the accompanying financial
statements. Such amounts payable to related parties amounted to
$187,849 at December 31, 1997.
SEE ACCOUNTANT'S REPORT.
9
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
NOTE 6: EMPLOYMENT AGREEMENT
The Company has an employment agreement with its President, that
commenced April 1, 1997, which provides for a minimum annual salary of
$108,000. Either party may terminate the agreement at any time for
cause, or at any time upon 60 days written notice to the other party
without cause. Pursuant to a stock option agreement, the President
also has the right to purchase up to three hundred shares of the
Company's common stock at any time during the first three years of
employment at the rate of $1.00 per share. The President also has the
option to purchase additional shares at a discounted price, if certain
performance objectives are achieved.
NOTE 7: SUBSEQUENT EVENT
BUSINESS COMBINATION
On March 10, 1999, the Company was acquired by Aethlon Medical, Inc.
in a business combination accounted for as a pooling of interests.
Aethlon Medical, Inc. is a publicly traded company. It intends to
raise additional capital through a public offering during 1999, some
of which are intended to finance the operating activities and reduce
the liabilities of the Company.
Hemex, Inc. became a wholly owned subsidiary of Aethlon Medical, Inc.
(the Parent Company) through the exchange of all of the company's
outstanding stock for 1,350,000 shares of Aethlon Medical, Inc. As a
result of the combination, the Company changed its year-end to March
31st to conform with the parent Company's fiscal year-end.
SEE ACCOUNTANT'S REPORT.
10
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Financial Report
December 31, 1998
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL REPORT
AS OF DECEMBER 31, 1998
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT 1
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT 2
BALANCE SHEET 3
STATEMENTS OF CASH FLOWS 4
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) 6
NOTES TO FINANCIAL STATEMENTS 8
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Hemex, Inc.
Buffalo, New York
We have audited the accompanying balance sheet of Hemex, Inc. (A Development
Stage Enterprise) as of December 31, 1998, and the related statements of
operations and accumulated deficit, cash flows and stockholders' equity
(deficit) for the year then ended and for the period from January 31, 1984
(inception) to December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hemex, Inc. (A Development
Stage Enterprise) as of December 31, 1998, and the results of its operations and
cash flows for the year then ended and from January 31, 1984 (inception) to
December 31, 1998 in conformity with generally accepted accounting principles.
Gaines Metzler Kriner & Co LLP
May 7, 1999
1
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
CUMULATIVE DURING
DEVELOPMENT STAGE
FOR THE YEAR ENDED THROUGH DECEMBER
DECEMBER 31, 1998 31, 1998
------------------ -----------------
RECEIPTS
Grant SBIR - Lead $ --- $ 804,512
S.C. Johnson & Son, Inc. --- 245,000
SBIR - Phase I --- 44,828
SBIR - Phase II --- 284,816
New York State Matching Grant --- 44,856
Subcontract income --- 73,746
Interest income --- 17,415
Sale of research and development --- 33,000
Other income 17,225 17,225
Sale of cartridges 2,810 2,810
-----------------------------------
Total receipts 20,035 1,568,208
EXPENDITURES
Personnel costs 164,296 2,574,866
Research and development consultation --- 240,463
Subcontract Hemo-Purifier production --- 195,964
Contractual costs 135 193,552
Lab rent and utilities 32,685 247,691
Equipment and maintenance 1,572 164,597
Office expense 5,066 123,731
Legal 39,660 192,681
Miscellaneous 648 95,274
Depreciation 16,783 120,047
Travel and meeting 3,477 112,991
Insurance expense (recovery) (1,872) 56,763
Laboratory supplies 206 58,293
Patent 6,060 62,865
Accounting --- 54,849
Interest expense 27,664 90,761
Laboratory animal expense --- 40,945
Office assistance --- 17,874
Amortization 8,171 32,684
Dues and subscriptions --- 16,023
Computer expense 248 15,208
-----------------------------------
Total expenditures 304,797 4,708,122
LOSS FROM OPERATIONS BEFORE
PROVISION FOR INCOME TAXES (284,762) (3,139,914)
PROVISION FOR INCOME TAXES 349 5,848
-----------------------------------
NET LOSS (285,111) $(3,145,762)
-----------
-----------
ACCUMULATED DEFICIT, BEGINNING OF YEAR (2,860,651)
-------------
ACCUMULATED DEFICIT, END OF YEAR $(3,145,762)
-------------
-------------
SEE ACCOMPANYING NOTES.
2
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
AS OF DECEMBER 31, 1998
-----------------------
ASSETS
CURRENT ASSETS
Cash $ 3,062
---------
Total current assets 3,062
PROPERTY AND EQUIPMENT
Equipment 157,428
Less: Accumulated depreciation 120,047
---------
Property and equipment, net 37,381
OTHER ASSETS
Patents, net of accumulated amortization of $32,684 47,455
-------
$87,898
-------
-------
AS OF DECEMBER 31, 1998
-----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 232,229
Accounts payable - related parties 158,749
Deferred compensation 302,386
Accrued wages 31,333
Accrued income taxes 325
----------
Total current liabilities 725,022
LONG-TERM LIABILITIES
Advance from Aethlon 85,000
----------
Total long-term liabilities 85,000
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - $0.001 par value,
100,000 shares authorized, 38,744 shares issued,
30,744 shares outstanding 39
Preferred stock - $0.001 par value,
3,000 shares authorized ---
Contributed capital 2,573,599
Deficit accumulated during the development stage (3,145,762)
Less: Treasury stock, 8,000 shares at cost (150,000)
----------
Total stockholders' equity (722,124)
---------
$ 87,898
---------
---------
SEE ACCOMPANYING NOTES.
3
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
CUMULATIVE DURING
FOR THE DEVELOPMENT STAGE
YEAR ENDED THROUGH DECEMBER
DECEMBER 31, 1998 31, 1998
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (285,111) $(3,145,762)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 16,783 120,047
Amortization 8,171 32,684
Changes in liabilities in noncash operating activities:
(Increase) decrease in assets:
Prepaid insurance 1,023 ---
Increase (decrease) in liabilities:
Accounts payable 22,412 232,229
Accounts payable - related parties (29,100) 158,749
Accrued payroll taxes (193) ---
Accrued interest 27,663 67,211
Accrued income taxes --- 325
Accrued wages 29,372 31,333
Deferred compensation 99,732 302,386
---------------------------------
Net cash used by operating activities (109,248) (2,200,798)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment --- (157,428)
Purchase of patents --- (80,140)
---------------------------------
Net cash used by investing activities --- (237,568)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in loan payable - stockholders --- 290,884
Increase in loan payable 27,000 77,000
Advances from Aethlon 85,000 85,000
Proceeds from issuance of common stock --- 2,138,544
Purchase of treasury stock --- (150,000)
---------------------------------
Net cash provided by financing activities 112,000 2,441,428
NET INCREASE IN CASH 2,752 3,062
CASH, BEGINNING 310 ---
---------------------------------
CASH, ENDING $ 3,062 $ 3,062
---------------------------------
---------------------------------
Continued on next page
SEE ACCOMPANYING NOTES.
4
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
Continued from Previous Page
CUMULATIVE DURING
FOR THE DEVELOPMENT STAGE
YEAR ENDED THROUGH DECEMBER
DECEMBER 31, 1998 31, 1998
----------------- -----------------
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Loans converted to common stock and
additional paid-in capital $367,882 $367,882
Accrued interest converted to common stock
and additional paid-in capital 67,211 67,211
--------------------------
Total increase in common stock and
additional paid-in capital $435,093 $435,093
--------------------------
--------------------------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the year for:
Interest $ --- $ 23,580
Income taxes 325 4,707
SEE ACCOMPANYING NOTES.
5
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
From January 31, 1984 (Inception) Through December 31, 1998
$0.001 PAR
---------------------------
NUMBER OF NUMBER OF
$0.001 PAR VALUE TREASURY
COMMON SHARES SHARES
---------------- ---------
Initial Sale of Stock for Cash 11.00 ---
Net income for 1984
---------------------------
Balance, December 31, 1984 11.00 ---
Additional Capital Contributed by Shareholders
Net loss for 1985
---------------------------
Balance, December 31, 1985 11.00 ---
Additional Capital Contributed by Shareholders
Net loss for 1986
---------------------------
Balance, December 31, 1986 11.00 ---
Issuance of Stock for Cash at $100 Per Share 0.55
Net loss for 1987
---------------------------
Balance, December 31, 1987 11.55 ---
Net loss for 1988
---------------------------
Balance, December 31, 1988 11.55 ---
Net income for 1989
---------------------------
Balance, December 31, 1989 11.55 ---
Issuance of Stock for Cash at $100 Per Share 0.35
Net loss for 1990
---------------------------
Balance, December 31, 1990 11.90 ---
Additional Capital Contributed by Shareholders
Net loss for 1991
---------------------------
Balance, December 31, 1991 11.90 ---
VALUE COMMON STOCK
DEFICIT
COMMON TREASURY ADDITIONAL ACCUMULATED
TOTAL STOCK SHARES PAID-IN DURING THE
SHARES VALUE AT COST CAPITAL DEVELOPMENT STAGE
------ ------ -------- ---------- -----------------
11.00 $ 1,100.00 $ --- $ 25,424 $ ---
59,710
- ---------------------------------------------------------------------------------------
11.00 1,100.00 --- 25,424 59,710
13,139
(92,774)
- ---------------------------------------------------------------------------------------
11.00 1,100.00 --- 38,563 (33,064)
25,000
(31,652)
- ---------------------------------------------------------------------------------------
11.00 1,100.00 --- 63,563 (64,716)
0.55 55.00 24,945
(21,076)
- ---------------------------------------------------------------------------------------
11.55 1,155.00 --- 88,508 (85,792)
(11,744)
- ---------------------------------------------------------------------------------------
11.55 1,155.00 --- 88,508 (97,536)
66,109
- ---------------------------------------------------------------------------------------
11.55 1,155.00 --- 88,508 (31,427)
0.35 35.00 59,965
(25,257)
- ---------------------------------------------------------------------------------------
11.90 1,190.00 --- 148,473 (56,684)
133,000
(151,987)
- ---------------------------------------------------------------------------------------
11.90 $ 1,190.00 $ --- $281,473 $(208,671)
Continued on next page
SEE ACCOMPANYING NOTES.
6
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM JANUARY 31, 1984 (INCEPTION) THROUGH DECEMBER 31, 1998
CONTINUED FROM PREVIOUS PAGE
$0.001 PAR
-------------------------------
NUMBER OF NUMBER OF
$0.001 PAR VALUE TREASURY
COMMON SHARES SHARES
---------------- ---------
Adjustment to Outstanding Shares for Prior Purchases (1.95)
Additional Capital Contributed by Shareholders
Purchase of Treasury Stock for Cash at $100 Per Share 4.00
Net loss for 1992
-----------------------------
Balance, December 31, 1992 9.95 4.00
Issuance of Stock for Cash at $100 Per Share 0.08
Net loss for 1993
-----------------------------
Balance, December 31, 1993 10.03 4.00
Issuance of Stock for Cash at $100 Per Share 0.27
Net loss for 1994
-----------------------------
Balance, December 31, 1994 10.30 4.00
Issuance of 1.30 Shares of Common Stock in consideration
of Deferred Compensation 1.30
Promissory Notes Payable to Shareholders were
converted to 0.56 Shares of Common Stock 0.56
Stock Split 2,000:1 24,326.00 8,000.00
Common Stock Offering at $250 per share 3,200.00
Net loss for 1995
-----------------------------
Balance, December 31, 1995 27,526.00 8,000.00
Common Stock Offering at $250 per share 1,390.00
Net loss for 1996
-----------------------------
Balance, December 31, 1996 28,916.00 8,000.00
Issuance of Stock for Cash at $250 Per Share 88.00
Net loss for 1997
-----------------------------
Balance, December 31, 1997 29,004.00 8,000.00
Conversion of Debt to Stock at $250 per share 1,471.53
Conversion of Accrued Interest to Stock at $250 per share 268.84
Net loss for 1998
-----------------------------
Balance, December 31, 1998 30,744.37 8,000.00
-----------------------------
-----------------------------
VALUE COMMON STOCK
DEFICIT
COMMON TREASURY ADDITIONAL ACCUMULATED
TOTAL STOCK SHARES PAID-IN DURING THE
SHARES VALUE AT COST CAPITAL DEVELOPMENT STAGE
------ ------ -------- ---------- -----------------
(1.95) $(195.00)
250,095
4.00 400.00 150,000
(220,032)
- ----------------------------------------------------------------------------------------------------
13.95 1,395.00 150,000 531,568 (428,703)
0.08 8.00 14,992
(61,150)
- ----------------------------------------------------------------------------------------------------
14.03 1,403.00 150,000 546,560 (489,853)
0.27 27.00 39,973
(381,877)
- ----------------------------------------------------------------------------------------------------
14.30 1,429.50 150,000 586,533 (871,730)
1.30 130.00 267,276
0.56 56.00 113,519
32,326.00 32.33 1,682
3,200.00 3.20 799,997
(605,385)
- ----------------------------------------------------------------------------------------------------
35,526.00 35.53 150,000 1,769,007 (1,477,115)
1,390.00 1.39 347,500
(896,758)
- ----------------------------------------------------------------------------------------------------
36,916.00 36.92 150,000 2,116,507 (2,373,873)
88.00 0.09 22,000
(486,778)
- ----------------------------------------------------------------------------------------------------
37,004.00 37.01 150,000 2,138,507 (2,860,651)
1,471.53 1.47 367,881
268.84 0.27 67,211
(285,111)
- ----------------------------------------------------------------------------------------------------
38,744.37 $ 38.75 $150,000 $ 2,573,599 $ (3,145,762)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES.
7
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Hemex, Inc. (the Company) is a Developmental Stage Enterprise formed
on January 31, 1984. The Company is a start-up research and
development company involved in developing the Hemo-Purifier. This is
a medical device which removes toxic metals present in the
bloodstream. The Company has incurred losses since 1985.
The Company has received funds from federal, state and private grants,
proceeds from issuance of common stock, proceeds from long-term
borrowings, and other resources to continue its involvement in
developing the Hemo - Purifier.
ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and receipts and expenditures during the reporting
period. Actual results could differ from estimates.
EQUIPMENT AND DEPRECIATION
Equipment is recorded at cost. Depreciation has been determined using
the straight-line method over the estimated useful lives of the
assets. Depreciation expense for the year ended December 31, 1998 was
$16,783
PATENTS AND AMORTIZATION
Three patents were acquired in December 31, 1994 from a stockholder in
exchange for a note payable in the amount of $80,140. The patents are
being amortized on the straight-line method over their remaining
lives. The patents expire between the years 2003 through 2005.
Amortization for the year ended December 31, 1998 was $8,171.
INCOME TAXES
Income taxes are computed in accordance with Financial Accounting
Standards Board Statement No. 109, Accounting for Income Taxes.
Deferred taxes are provided on temporary differences arising from
assets and liabilities whose bases are different for financial
reporting and income tax purposes. Basis differences for which
deferred taxes are provided relate primarily to cost associated with
research and development.
SEE ACCOUNTANT'S REPORT.
8
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INCOME TAXES
For financial reporting purposes the Company, in accordance with
generally accepted accounting principles, expenses these research and
development costs as incurred.
The Company has elected under Internal Revenue Code, Section 174, to
capitalize for income tax purposes all research and development
expenditures incurred in conjunction with its product development
process. Net costs associated with the research and development
process amount to approximately $3,146,000 at December 31, 1998. When
the Company realizes benefits from such expenditures, the costs will
be amortized over a period of 60 months.
A valuation allowance has been provided for 100 percent of the
deferred tax asset as realization of the asset is contingent upon Food
and Drug Administration approval of the product.
The Company's deferred tax assets as of December 31, 1998 consist of:
AS OF DECEMBER 31, 1998
------------------ ----
FEDERAL
Deferred tax asset $ 471,838
Valuation allowance 471,838
---------
Net deferred tax asset $ ---
---------
---------
STATE
Deferred tax asset $ 251,647
Valuation allowance 251,647
---------
Net deferred tax asset $ ---
---------
---------
STATEMENT OF CASH FLOWS
The Company considers all short-term investments with an original
maturity of three months or less to be cash equivalents.
SEE ACCOUNTANT'S REPORT.
9
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
NOTE 2: LONG-TERM LIABILITIES - ADVANCES
In accordance with the terms of a Letter of Intent dated July 28, 1998
between Aethlon, Inc. and the Company, Aethlon Medical, Inc. advanced
the Company funds to cover current working capital needs. The total
amounts advanced, which are non-interest bearing and have no set
repayment terms, amounted to $85,000 at December 31, 1998.
NOTE 3: CONVERTIBLE DEBT
The conversion option of all of the loans payable was exercised on all
outstanding principal and accrued interest effective on December 31,
1998. A total of approximately 1,740 shares of stock were issued in
this transaction.
NOTE 4: LEASES
The Company rents lab space from the University of Buffalo Foundation
on a yearly basis. Total rent expense for the year ended December 31,
1998 was $30,290.
NOTE 5: DEFERRED COMPENSATION
The Company has deferred compensation agreements with two of its
present employees and two former employees. The terms of the
agreements require the Company to compensate the employees the amount
owed as soon as the Company has funds available. Pursuant to the
business combination, as described in Note 8, a limited amount of
funds are expected to become available during 1999. To facilitate this
business combination, the employees have agreed to accept a discounted
amount as full payment of the compensation originally deferred. As a
result, the deferred compensation liability presented in the
accompanying financial statements reflects a discount of 40 percent.
Deferred compensation expense for the year ended December 31, 1998
totaled $99,732.
SEE ACCOUNTANT'S REPORT.
10
HEMEX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
NOTE 6: RELATED PARTY TRANSACTIONS
In addition to the related party loans payable, the officers of the
Company regularly pay expenses on behalf of the Company. The officers
also advance the Company funds to cover short-term working capital
shortages. These non interest-bearing amounts have been included as
accounts payable - related party in the accompanying financial
statements. Such amounts payable to related parties amounted to
$158,749 at December 31, 1998.
NOTE 7: EMPLOYMENT AGREEMENT
The Company has an employment agreement with its President, that
commenced April 1, 1997, which provides for a minimum annual salary of
$108,000. Either party may terminate the agreement at any time for
cause, or at any time upon 60 days written notice to the other party
without cause. Pursuant to a stock option agreement, the President
also has the right to purchase up to three hundred shares of the
Company's common stock at any time during the first three years of
employment at the rate of $1.00 per share. The President also has the
option to purchase additional shares at a discounted price, if certain
performance objectives are achieved.
NOTE 8: SUBSEQUENT EVENT
BUSINESS COMBINATION
On March 10, 1999, the Company was acquired by Aethlon Medical, Inc.
in a business combination accounted for as a pooling of interests.
Aethlon Medical, Inc. is a publicly traded company. It intends to
raise additional capital through a public offering during 1999, some
of which are intended to finance the operating activities and reduce
the liabilities of the Company.
Hemex, Inc. became a wholly owned subsidiary of Aethlon Medical, Inc.
(the Parent Company) through the exchange of all of the company's
outstanding stock for 1,350,000 shares of Aethlon Medical, Inc. As a
result of the combination, the Company changed its year-end to March
31st to conform with the parent Company's fiscal year-end.
SEE ACCOUNTANT'S REPORT.
11