ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AETHLON MEDICAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
| | | |
| | |
| |
September 30, 2022 | | |
March 31, 2022 | |
| |
| (Unaudited) | | |
| | |
ASSETS | |
| | | |
| | |
Current assets | |
| | | |
| | |
Cash | |
$ | 19,604,025 | | |
$ | 17,072,419 | |
Accounts receivable | |
| 114,849 | | |
| 127,965 | |
Prepaid expenses and other current assets | |
| 784,638 | | |
| 956,623 | |
Total current assets | |
| 20,503,512 | | |
| 18,157,007 | |
| |
| | | |
| | |
Property and equipment, net | |
| 1,138,623 | | |
| 441,238 | |
Right-of-use lease asset | |
| 1,282,328 | | |
| 696,698 | |
Patents, net | |
| 1,925 | | |
| 2,200 | |
Restricted cash | |
| 87,506 | | |
| 87,506 | |
Deposits | |
| 33,305 | | |
| 33,305 | |
Total assets | |
$ | 23,047,199 | | |
$ | 19,417,954 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 361,001 | | |
$ | 499,962 | |
Due to related parties | |
| 177,527 | | |
| 155,742 | |
Deferred revenue | |
| 574,245 | | |
| 344,547 | |
Lease liability, current portion | |
| 247,144 | | |
| 126,905 | |
Other current liabilities | |
| 741,529 | | |
| 696,893 | |
Total current liabilities | |
| 2,101,446 | | |
| 1,824,049 | |
| |
| | | |
| | |
Lease liability, less current portion | |
| 1,077,529 | | |
| 602,505 | |
Total liabilities | |
| 3,178,975 | | |
| 2,426,554 | |
| |
| | | |
| | |
Stockholders’ Equity | |
| | | |
| | |
Common stock, par value $0.001 per share; 60,000,000 and 30,000,000 shares authorized as of September 30, 2022 and March 31, 2022, respectively; 22,946,232 and 15,419,163 shares issued and outstanding as of September 30, 2022 and March 31, 2022, respectively | |
| 22,948 | | |
| 15,421 | |
Additional paid-in capital | |
| 156,887,555 | | |
| 147,446,868 | |
Accumulated deficit | |
| (137,042,279 | ) | |
| (130,329,181 | ) |
Total Aethlon Medical, Inc. stockholders’ equity before noncontrolling interests | |
| 19,868,224 | | |
| 17,133,108 | |
| |
| | | |
| | |
Noncontrolling interests | |
| – | | |
| (141,708 | ) |
| |
| | | |
| | |
Total stockholders’ equity | |
| 19,868,224 | | |
| 16,991,400 | |
| |
| | | |
| | |
Total liabilities and stockholders’ equity | |
$ | 23,047,199 | | |
$ | 19,417,954 | |
See accompanying notes.
AETHLON MEDICAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Month Periods Ended September
30, 2022 and 2021
(Unaudited)
| |
| | | |
| | | |
| | | |
| | |
| |
Three Months Ended September 30, 2022 | | |
Three Months Ended September 30, 2021 | | |
Six Months Ended September 30, 2022 | | |
Six Months Ended September 30, 2021 | |
| |
| | |
| | |
| | |
| |
REVENUES | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Government contract revenue | |
$ | – | | |
$ | 131,966 | | |
$ | – | | |
$ | 263,932 | |
| |
| | | |
| | | |
| | | |
| | |
OPERATING EXPENSES | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Professional fees | |
| 1,003,870 | | |
| 649,460 | | |
| 1,847,899 | | |
| 1,232,929 | |
Payroll and related expenses | |
| 1,112,955 | | |
| 805,608 | | |
| 2,142,641 | | |
| 1,822,350 | |
General and administrative | |
| 1,548,484 | | |
| 685,702 | | |
| 2,582,505 | | |
| 1,315,895 | |
Total operating expenses | |
| 3,665,309 | | |
| 2,140,770 | | |
| 6,573,045 | | |
| 4,371,174 | |
OPERATING LOSS | |
| (3,665,309 | ) | |
| (2,008,804 | ) | |
| (6,573,045 | ) | |
| (4,107,242 | ) |
| |
| | | |
| | | |
| | | |
| | |
OTHER EXPENSE | |
| | | |
| | | |
| | | |
| | |
Loss on dissolution of subsidiary | |
| 142,121 | | |
| – | | |
| 142,121 | | |
| – | |
| |
| | | |
| | | |
| | | |
| | |
NET LOSS | |
| (3,807,430 | ) | |
| (2,008,804 | ) | |
| (6,715,166 | ) | |
| (4,107,242 | ) |
| |
| | | |
| | | |
| | | |
| | |
LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS | |
| – | | |
| (825 | ) | |
| – | | |
| (1,960 | ) |
| |
| | | |
| | | |
| | | |
| | |
NET LOSS ATTRIBUTABLE TO AETHLON MEDICAL, INC. | |
$ | (3,807,430 | ) | |
$ | (2,007,979 | ) | |
$ | (6,715,166 | ) | |
$ | (4,105,282 | ) |
| |
| | | |
| | | |
| | | |
| | |
BASIC LOSS PER SHARE | |
$ | (0.18 | ) | |
$ | (0.13 | ) | |
$ | (0.37 | ) | |
$ | (0.29 | ) |
DILUTED LOSS PER SHARE | |
$ | (0.18 | ) | |
$ | (0.13 | ) | |
$ | (0.37 | ) | |
$ | (0.29 | ) |
| |
| | | |
| | | |
| | | |
| | |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC | |
| 20,744,999 | | |
| 15,386,486 | | |
| 18,130,177 | | |
| 14,114,639 | |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – DILUTED | |
| 20,744,999 | | |
| 15,386,486 | | |
| 18,130,177 | | |
| 14,114,639 | |
See accompanying notes.
AETHLON MEDICAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY
For the Six Months Ended September 30, 2022 and
2021
(Unaudited)
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
Common Stock | | |
Additional Paid In | | |
Accumulated | | |
Non- Controlling | | |
Total | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Interests | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| | |
| |
BALANCE - MARCH 31, 2022 | |
| 15,419,163 | | |
$ | 15,421 | | |
$ | 147,446,868 | | |
$ | (130,329,181 | ) | |
$ | (141,708 | ) | |
$ | 16,991,400 | |
Issuances of common stock for cash
under at the market program | |
| 574,560 | | |
| 575 | | |
| 618,867 | | |
| – | | |
| – | | |
| 619,442 | |
Stock-based compensation expense | |
| – | | |
| – | | |
| 215,437 | | |
| – | | |
| – | | |
| 215,437 | |
Net loss | |
| – | | |
| – | | |
| – | | |
| (2,905,668 | ) | |
| (413 | ) | |
| (2,906,081 | ) |
BALANCE - JUNE 30, 2022 | |
| 15,993,723 | | |
| 15,996 | | |
| 148,281,172 | | |
| (133,234,849 | ) | |
| (142,121 | ) | |
| 14,920,198 | |
Issuances of common stock for cash under at the market program | |
| 6,906,276 | | |
| 6,906 | | |
| 8,300,863 | | |
| – | | |
| – | | |
| 8,307,769 | |
Issuance of common stock upon vesting of restricted stock units | |
| 46,233 | | |
| 46 | | |
| (8,019 | ) | |
| – | | |
| – | | |
| (7,973 | ) |
Stock-based compensation expense | |
| – | | |
| – | | |
| 313,539 | | |
| – | | |
| – | | |
| 313,539 | |
Loss on dissolution of subsidiary | |
| – | | |
| – | | |
| – | | |
| – | | |
| 142,121 | | |
| 142,121 | |
Net loss | |
| – | | |
| – | | |
| – | | |
| (3,807,430 | ) | |
| – | | |
| (3,807,430 | ) |
BALANCE – SEPTEMBER 30, 2022 | |
| 22,946,232 | | |
$ | 22,948 | | |
$ | 156,887,555 | | |
$ | (137,042,279 | ) | |
$ | – | | |
$ | 19,868,224 | |
| |
Common Stock | | |
Additional Paid In | | |
Accumulated | | |
Non- Controlling | | |
Total | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Interests | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| | |
| |
BALANCE - MARCH 31, 2021 | |
| 12,150,597 | | |
$ | 12,152 | | |
$ | 129,331,542 | | |
$ | (119,913,090 | ) | |
$ | (136,914 | ) | |
$ | 9,293,690 | |
Issuances of common stock for cash
under at the market program | |
| 626,000 | | |
| 626 | | |
| 4,947,159 | | |
| – | | |
| – | | |
| 4,947,785 | |
Issuances of common stock for cash
in registered direct financing | |
| 1,380,555 | | |
| 1,381 | | |
| 11,657,663 | | |
| – | | |
| – | | |
| 11,659,044 | |
Issuances of common stock for cash
under warrant exercises | |
| 531,167 | | |
| 531 | | |
| 820,407 | | |
| – | | |
| – | | |
| 820,938 | |
Issuances of common stock for cash
under stock option exercises | |
| 11,562 | | |
| 11 | | |
| 28,314 | | |
| – | | |
| – | | |
| 28,325 | |
Issuances of common stock under cashless
warrant exercises | |
| 675,554 | | |
| 676 | | |
| (676 | ) | |
| – | | |
| – | | |
| – | |
Issuance of common stock upon vesting
of restricted stock units | |
| 10,932 | | |
| 11 | | |
| (35,797 | ) | |
| – | | |
| – | | |
| (35,786 | ) |
Stock-based compensation expense | |
| – | | |
| – | | |
| 120,154 | | |
| – | | |
| – | | |
| 120,154 | |
Net loss | |
| – | | |
| – | | |
| – | | |
| (2,097,303 | ) | |
| (1,135 | ) | |
| (2,098,438 | ) |
BALANCE - JUNE 30, 2021 | |
| 15,386,367 | | |
| 15,388 | | |
| 146,868,766 | | |
| (122,010,393 | ) | |
| (138,049 | ) | |
| 24,735,712 | |
Issuances of common stock upon vesting
of restricted stock units | |
| 10,932 | | |
| 11 | | |
| (28,145 | ) | |
| – | | |
| – | | |
| (28,134 | ) |
Stock-based compensation expense | |
| – | | |
| – | | |
| 201,062 | | |
| – | | |
| – | | |
| 201,062 | |
Net loss | |
| – | | |
| – | | |
| – | | |
| (2,007,979 | ) | |
| (825 | ) | |
| (2,008,804 | ) |
BALANCE – SEPTEMBER 30, 2021 | |
| 15,397,299 | | |
$ | 15,399 | | |
$ | 147,041,683 | | |
$ | (124,018,372 | ) | |
$ | (138,874 | ) | |
$ | 22,899,836 | |
See accompanying notes.
AETHLON MEDICAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended September 30, 2022 and
2021
(Unaudited)
| |
| | | |
| | |
| |
Six Months Ended September 30, 2022 | | |
Six Months Ended September 30, 2021 | |
| |
| | |
| |
Cash flows used in operating activities: | |
| | | |
| | |
Net loss | |
$ | (6,715,166 | ) | |
$ | (4,107,242 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 83,224 | | |
| 80,690 | |
Stock based compensation | |
| 528,975 | | |
| 321,216 | |
Accretion of right-of-use lease asset | |
| 9,633 | | |
| (2,180 | ) |
Loss of dissolution of subsidiary | |
| 142,121 | | |
| – | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses and other current assets | |
| 173,856 | | |
| 98,772 | |
Accounts receivable | |
| 13,116 | | |
| 17,116 | |
Accounts payable and other current liabilities | |
| (94,540 | ) | |
| (374,020 | ) |
Deferred revenue | |
| 229,698 | | |
| – | |
Due to related parties | |
| 21,785 | | |
| 15,687 | |
Net cash used in operating activities | |
| (5,607,298 | ) | |
| (3,949,961 | ) |
| |
| | | |
| | |
Cash flows used in investing activities: | |
| | | |
| | |
Purchases of property and equipment | |
| (780,334 | ) | |
| (78,861 | ) |
Net cash used in investing activities | |
| (780,334 | ) | |
| (78,861 | ) |
| |
| | | |
| | |
Cash flows provided by financing activities: | |
| | | |
| | |
Proceeds from the issuance of common stock, net | |
| 8,927,211 | | |
| 17,456,092 | |
Tax withholding payments or tax equivalent payments for net share settlement of restricted stock units and net stock option expense | |
| (7,973 | ) | |
| (63,920 | ) |
Net cash provided by financing activities | |
| 8,919,238 | | |
| 17,392,172 | |
| |
| | | |
| | |
Net increase in cash and restricted cash | |
| 2,531,606 | | |
| 13,363,350 | |
| |
| | | |
| | |
Cash and restricted cash at beginning of period | |
| 17,159,925 | | |
| 9,908,301 | |
| |
| | | |
| | |
Cash and restricted cash at end of period | |
$ | 19,691,531 | | |
$ | 23,271,651 | |
| |
| | | |
| | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
| |
| | | |
| | |
Supplemental disclosures of non-cash investing and financing activities: | |
| | | |
| | |
Issuance of common stock under cashless warrant exercises | |
$ | – | | |
$ | 676 | |
Par value of shares issued for vested restricted stock units and net stock option exercise | |
$ | 46 | | |
$ | 22 | |
Initial recognition of right-of-use lease asset and lease liability | |
$ | 625,471 | | |
$ | – | |
| |
| | | |
| | |
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 19,604,025 | | |
$ | 23,224,925 | |
Restricted cash | |
| 87,506 | | |
| 46,726 | |
Cash and restricted cash | |
$ | 19,691,531 | | |
$ | 23,271,651 | |
See accompanying notes.
AETHLON MEDICAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2022
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION ORGANIZATION
Aethlon Medical, Inc. (“Aethlon”,
the “Company”, “we” or “us”) is a medical therapeutic company focused on developing products to diagnose
and treat cancer and life threatening infectious diseases. The Aethlon Hemopurifier is a clinical-stage immunotherapeutic device designed
to combat cancer and life-threatening viral infections. In cancer, the Hemopurifier is designed to deplete the presence of circulating
tumor-derived exosomes that promote immune suppression, seed the spread of metastasis and inhibit the benefit of leading cancer therapies.
The U.S. Food and Drug Administration, or FDA, has designated the Hemopurifier as a “Breakthrough Device” for two independent
indications:
|
· |
the treatment of individuals with advanced or metastatic cancer who are either unresponsive to or intolerant of standard of care therapy, and with cancer types in which exosomes have been shown to participate in the development or severity of the disease; and |
|
· |
the treatment of life-threatening viruses that are not addressed with approved therapies. |
We believe the Hemopurifier can be a substantial
advance in the treatment of patients with advanced and metastatic cancer through the clearance of exosomes that promote the growth and
spread of tumors through multiple mechanisms. We are currently conducting a clinical trial in patients with advanced and metastatic head
and neck cancer. We are initially focused on the treatment of solid tumors, including head and neck cancer, gastrointestinal cancers and
other cancers. As we advance our clinical trials, we are in close contact with our clinical sites to navigate and assess the impact of
the COVID-19 global pandemic on our clinical trials and current timelines.
On October 4, 2019, the FDA approved our Investigational
Device Exemption, or IDE, application to initiate an Early Feasibility Study, or EFS, of the Hemopurifier in patients with head and neck
cancer in combination with standard of care pembrolizumab (Keytruda). The primary endpoint for the EFS, designed to enroll 10 to 12 subjects
at a single center, is safety, with secondary endpoints including measures of exosome clearance and characterization, as well as response
and survival rates. This study, initially being conducted at the UPMC Hillman Cancer Center in Pittsburgh, PA, or UPMC, has treated two
patients to date. Due to lack of further patient enrollment, we and UPMC have terminated this study at UPMC. We are considering adding
one or more alternative sites to this trial to accelerate recruitment. We also are in the process of designing other clinical trials in
oncology.
We also believe the Hemopurifier can be part of
the broad-spectrum treatment of life-threatening highly glycosylated, or carbohydrate coated, viruses that are not addressed with an already
approved treatment. In small-scale or early feasibility human studies, the Hemopurifier has been used in the past to treat individuals
infected with human immunodeficiency virus, or HIV, hepatitis-C, and Ebola.
Additionally, in vitro, the Hemopurifier
has been demonstrated to capture Zika virus, Lassa virus, MERS-CoV, cytomegalovirus, Epstein-Barr virus, Herpes simplex virus, Chikungunya
virus, Dengue virus, West Nile virus, smallpox-related viruses, H1N1 swine flu virus, H5N1 bird flu virus, Monkeypox virus, and the reconstructed
Spanish flu virus of 1918. In several cases, these studies were conducted in collaboration with leading government or non-government research
institutes.
On June 17, 2020, the FDA approved a supplement
to our open IDE for the Hemopurifier in viral disease to allow for the testing of the Hemopurifier in patients with SARS-CoV-2/COVID-19
in a New Feasibility Study. That study is designed to enroll up to 40 subjects at up to 20 centers
in the U.S. Subjects will have established laboratory diagnosis of COVID-19, be admitted to an intensive care unit, or ICU, and will have
acute lung injury and/or severe or life-threatening disease, among other criteria. Endpoints for this study, in addition to safety, will
include reduction in circulating virus as well as clinical outcomes (NCT # 04595903). In June 2022, the first patient in this study
was enrolled and has completed the Hemopurifier treatment phase of the protocol. Under Single Patient
Emergency Use regulations, the Company has also treated two patients with COVID-19 with the Hemopurifier.
We currently are experiencing a short-term disruption
in our Hemopurifier supply, as our existing supply of Hemopurifiers expired on September 30, 2022. As previously disclosed, we are dependent
on the FDA approval of qualified suppliers to manufacture our Hemopurifier. Our intended transition to a new supplier for Galanthus nivalis
agglutinin, or GNA, is delayed as we work with the FDA for approval of our supplement to our Investigational Device Exemption, which is
required to make this manufacturing change.
We also obtained ethics review board approval
and entered into a clinical trial agreement with Medanta Medicity Hospital, a multi-specialty hospital in Delhi NCR, India, for a COVID-19
clinical trial at that location. One patient has completed participation in the Indian COVID-19 study. The relevant authorities in India
have accepted the use of the Hemopurifiers made with the GNA from our new supplier.
Previously we were the majority owner of Exosome
Sciences, Inc., or ESI, a company formed to focus on the discovery of exosomal biomarkers to diagnose and monitor life-threatening diseases,
and thus consolidated ESI in our consolidated financial statements. For more than four years, the primary activities of ESI were limited
to the payment of patent maintenance fees and applications. In September 2022, the Board of Directors of ESI and the Company, as the majority
stockholder of ESI, approved the dissolution of ESI. Accordingly, ESI is eliminated from our September 30, 2022 balance sheet.
Successful outcomes of human trials will also
be required by the regulatory agencies of certain foreign countries where we plan to sell the Hemopurifier. Some of our patents may expire
before FDA approval or approval in a foreign country, if any, is obtained. However, we believe that certain patent applications and/or
other patents issued more recently will help protect the proprietary nature of the Hemopurifier treatment technology.
In addition to the foregoing, we are monitoring
closely the impact of the COVID-19 global pandemic, inflation, and the war in Ukraine on our business. Given the level of uncertainty
regarding the duration and impact of these events on capital markets and the U.S. economy, we are unable to assess the impact on our timelines
and future access to capital. The full extent to which the COVID-19 pandemic, inflation, and the war in Ukraine will impact our business,
results of operations, financial condition, clinical trials, and preclinical research will depend on future developments, as well as the
economic impact on national and international markets that are highly uncertain.
Our executive offices are located at 11555 Sorrento
Valley Road, Suite 203, San Diego, California 92121. Our telephone number is (619) 941-0360. Our website address is www.aethlonmedical.com.
Our common stock is listed on the Nasdaq Capital Market under the symbol
“AEMD.”
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
During the three months ended September 30, 2022,
there were no changes to our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended
March 31, 2022.
Basis of Presentation and Use of Estimates
The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for
interim financial information and with the instructions to Form 10-Q and Article 8 of the Securities and Exchange Commission, or SEC,
Regulation S-X. Accordingly, they should be read in conjunction with the audited financial statements and notes thereto for the fiscal
year ended March 31, 2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on June 28, 2022. The accompanying
unaudited condensed consolidated financial statements include the accounts of Aethlon Medical, Inc. and its previously majority-owned
subsidiary, ESI, which dissolved in September 2022. All significant inter-company transactions and balances have been eliminated in consolidation.
The unaudited condensed consolidated financial statements contain all normal recurring accruals and adjustments that, in the opinion of
management, are necessary to present fairly the condensed consolidated financial statements as of and for the six months ended September
30, 2022, and the condensed consolidated statement of cash flows for the six months ended September 30, 2022. Estimates were made relating
to useful lives of fixed assets, impairment of assets, share-based compensation expense and accruals for clinical trial and research and
development expenses. Actual results could differ materially from those estimates. The accompanying condensed consolidated balance sheet
at March 31, 2022 has been derived from the audited consolidated balance sheet at March 31, 2022, contained in the above referenced 10-K.
The results of operations for the six months ended September 30, 2022 are not necessarily indicative of the results to be expected for
the full year or any future interim periods.
Reclassifications
Certain prior year balances within the unaudited
condensed consolidated financial statements have been reclassified to conform to the current year presentation.
LIQUIDITY AND GOING CONCERN
Management expects existing cash as of September
30, 2022 to be sufficient to fund the Company’s operations for at least twelve months from the issuance date of these condensed
consolidated financial statements.
Restricted Cash
To comply with the terms of our laboratory and
office lease and our new lease for our manufacturing space, see Note 11, we caused our bank to issue two standby letters of credit, or
the L/Cs, in the aggregate amount of $87,506 in favor of the landlord. The L/Cs are in lieu of a security deposit. In order to support
the L/Cs, we agreed to have our bank withdraw $87,506 from our operating accounts and to place that amount in a restricted certificate
of deposit. We have classified that amount as restricted cash, a long-term asset, on our balance sheet.
2. LOSS PER COMMON SHARE
Basic loss per share is computed by dividing net
loss by the weighted average number of common shares outstanding during the period of computation. Diluted loss per share is computed
similar to basic loss per share, except that the denominator is increased to include the number of additional dilutive common shares that
would have been outstanding if potential common shares had been issued, if such additional common shares were dilutive. Since we had net
losses for all periods presented, basic and diluted loss per share are the same, and additional potential common shares have been excluded,
as their effect would be antidilutive.
As of September 30, 2022 and 2021, an aggregate
of 2,239,025 and 1,616,866 potential common shares, respectively, consisting of shares underlying outstanding stock options and warrants
were excluded, as their inclusion would be antidilutive.
3. RESEARCH AND DEVELOPMENT EXPENSES
Our research and development costs are expensed
as incurred. We incurred research and development expenses during the three and six month periods ended September 30, 2022 and 2021, which
are included in various operating expense line items in the accompanying condensed consolidated statements of operations. Our research
and development expenses in those periods were as follows:
Research and Development expenses | |
| | |
| |
| |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | |
Three months ended | |
$ | 852,464 | | |
$ | 478,201 | |
Six months ended | |
$ | 1,570,654 | | |
$ | 1,045,539 | |
4. RECENT ACCOUNTING PRONOUNCEMENTS
None.
5. EQUITY TRANSACTIONS IN THE SIX MONTHS ENDED SEPTEMBER 30, 2022
2022 At The Market Offering Agreement with H.C. Wainwright &
Co., LLC
On March 24, 2022, we entered into an At The Market
Offering Agreement, or the 2022 ATM Agreement, with H.C. Wainwright & Co., LLC, or Wainwright, which established an at-the-market
equity program pursuant to which we may offer and sell shares of our common stock from time to time as set forth in the 2022 ATM Agreement.
The offering was registered under the Securities
Act of 1933, as amended, or the Securities Act, pursuant to our shelf registration statement on S-3 (Registration Statement No. 333-259909),
as previously filed with the SEC and declared effective on October 21, 2021. We filed a prospectus supplement, dated March 24, 2022, with
the SEC that provides for the sale of shares of our common stock having an aggregate offering price of up to $15,000,000, or the 2022
ATM Shares.
Under the 2022 ATM Agreement, Wainwright may sell
the 2022 ATM Shares by any method permitted by law and deemed to be an “at the market offering” as defined in Rule 415 promulgated
under the Securities Act, including sales made directly on the Nasdaq Capital Market, or on any other existing trading market for the
2022 ATM Shares. In addition, under the 2022 ATM Agreement, Wainwright may sell the 2022 ATM Shares in privately negotiated transactions
with our consent and in block transactions. Under certain circumstances, we may instruct Wainwright not to sell the 2022 ATM Shares if
the sales cannot be effected at or above the price designated by us from time to time.
We are not obligated to make any sales of the
2022 ATM Shares under the 2022 ATM Agreement. The offering of the 2022 ATM Shares pursuant to the 2022 ATM Agreement will terminate upon
the termination of the 2022 ATM Agreement by Wainwright or us, as permitted therein.
The 2022 ATM Agreement contains customary representations,
warranties and agreements by us, and customary indemnification and contribution rights and obligations of the parties. We agreed to pay
Wainwright a placement fee of up to 3.0% of the aggregate gross proceeds from each sale of the 2022 ATM Shares. We also agreed to reimburse
Wainwright for certain specified expenses in connection with entering into the 2022 ATM Agreement.
In the six months ended September 30, 2022, we
raised net proceeds of $8,927,211, net of $229,610 in commissions to Wainwright and $27,153 in other offering expense, through the sale
of, 7,480,836 shares of our common stock at an average price of $1.19 per share under the 2022 ATM Agreement.
Restricted Stock Unit Grants
The Compensation Committee of the Board of Directors
of the Company approved, effective as of April 1, 2022, pursuant to the terms of the Company’s Amended and Restated Non-Employee
Directors Compensation Policy, or the Directors Compensation Policy, the grant of the annual Restricted Stock Unit awards, or RSUs, to
each of the two non-employee directors of the Company then serving on the Board of Directors of the Company, or Board, and the grant of
an RSU for the then newly appointed director. The RSU grants were made subject to stockholder approval of an increase of 1,800,000 shares
of common stock authorized for issuance under the Company’s 2020 Equity Incentive Plan, or the 2020 Plan, at the Company’s
2022 annual meeting of stockholders. The increase was approved at the Company’s 2022 annual meeting of stockholders held in September
2022. The Directors Compensation Policy provides for a grant of stock options or $50,000 worth of RSUs at the beginning of each fiscal
year for current non-employee directors then serving on the Board and for a grant of stock options or $75,000 worth of RSUs for a newly
elected director, with each RSU priced at the average for the closing prices for the five days preceding and including the date of grant,
or $1.46 per share as of April 1, 2022. The two then-current eligible directors each was granted a contingent RSU in the amount of 34,247
shares under the 2020 Plan and the then newly appointed director received a contingent RSU grant for 51,370 shares under the 2020 Plan.
The RSUs are subject to vesting in three installments, 50% on September 30, 2022, and 25% on each of December 31, 2022, and March
31, 2023, subject to the recipient's continued service with the Company on each such vesting date.
6. RELATED PARTY TRANSACTIONS
During the three months ended September 30, 2022,
we accrued unpaid fees of $57,000 owed to our non-employee directors as of September 30, 2022. Amounts due to related parties were comprised
of the following items:
Due to related parties | |
| | |
| |
| |
September 30, 2022 | | |
March 31, 2022 | |
Accrued Board fees | |
$ | 57,000 | | |
$ | 55,750 | |
Accrued vacation to all employees | |
| 120,527 | | |
| 99,992 | |
Total due to related parties | |
$ | 177,527 | | |
$ | 155,742 | |
7. OTHER CURRENT LIABILITIES
Other current liabilities were comprised of the following items:
Other Current Liabilities | |
| | |
| |
| |
September 30, | | |
March 31, | |
| |
2022 | | |
2022 | |
Accrued professional fees | |
$ | 741,529 | | |
$ | 696,893 | |
Total other current liabilities | |
$ | 741,529 | | |
$ | 696,893 | |
8. STOCK COMPENSATION
The following tables summarize share-based compensation
expenses relating to RSUs and stock options and the effect on basic and diluted loss per common share during the three and six month periods
ended September 30, 2022 and 2021:
Share-based compensation expense relating to RSUs | |
| | | |
| | | |
| | | |
| | |
| |
Three Months
Ended
September 30,
2022 | | |
Three Months
Ended
September 30,
2021 | | |
Six Months
Ended September 30, 2022 | | |
Six Months
Ended September 30, 2021 | |
Vesting of stock options and restricted stock units | |
$ | 313,538 | | |
$ | 201,062 | | |
$ | 528,975 | | |
$ | 321,216 | |
Total stock-based compensation expense | |
$ | 313,538 | | |
$ | 201,062 | | |
$ | 528,975 | | |
$ | 321,216 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares
outstanding – basic and diluted | |
| 20,744,999 | | |
| 15,386,486 | | |
| 18,130,177 | | |
| 14,114,639 | |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted loss per common share
attributable to stock-based compensation expense | |
$ | (0.02 | ) | |
$ | (0.01 | ) | |
$ | (0.03 | ) | |
$ | (0.02 | ) |
All of the stock-based compensation expense recorded
during the six months ended September 30, 2022 and 2021, an aggregate of $528,975 and $321,216, respectively, is included in payroll and
related expense in the accompanying condensed consolidated statements of operations. Stock-based compensation expense recorded during
each of the six months ended September 30, 2022 and 2021 represented an impact on basic and diluted loss per common share of $(0.03) and
$(0.02), respectively.
We review share-based compensation on a quarterly
basis for changes to the estimate of expected award forfeitures based on actual forfeiture experience. The cumulative effect of adjusting
the forfeiture rate for all expense amortization is recognized in the period the forfeiture estimate is changed. The effect of forfeiture
adjustments for the six months ended September 30, 2022 was insignificant.
Stock Option Activity
During the six months ended September 30, 2022,
we recognized a stock option grant made in the fiscal year ended March 31, 2022 to purchase 61,600 shares of our common stock under our
2020 Plan that previously was contingent on stockholder approval of an increase of 1,800,000 shares of common stock authorized for issuance
under the 2020 Plan, at the Company’s 2022 annual meeting of stockholders. The increase was approved at the Company’s 2022
annual meeting of stockholders held in September 2022.
During the six months ended September 30, 2021,
we issued a stock option grant to Charles J. Fisher, Jr., MD, our Chief Executive Officer, or CEO, for the purchase of 266,888 shares
of our common stock under our 2020 Plan. The purchase price for the shares subject to the option is $5.17 per share, the fair market value
of the common stock on the date of the grant. The shares subject to the option are subject to vesting over four years, commencing on the
date of grant, or Vesting Commencement Date, with twenty-five percent (25%) of the shares subject to the option vesting on the first anniversary
of the Vesting Commencement Date and the remaining shares vesting in equal monthly installments over the following thirty-six (36) months,
in each case subject to Dr. Fisher’s Continuous Service (as defined in the 2020 Plan) through each vesting date.
Stock options outstanding that have vested as
of September 30, 2022 and stock options that are expected to vest subsequent to September 30, 2022 are as follows:
Options outstanding that have vested and are expected to vest | |
| | | |
| | | |
| | |
| |
Number of Shares | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Term in Years | |
Vested | |
| 440,206 | | |
$ | 2.86 | | |
| 8.06 | |
Expected to vest | |
| 1,271,327 | | |
$ | 2.06 | | |
| 8.44 | |
Total | |
| 1,711,533 | | |
| | | |
| | |
A summary of stock option activity during the
six months ended September 30, 2022 is presented below:
Schedule of stock option activity | |
| | | |
| | | |
| | |
| |
Amount | | |
Range of Exercise Price | | |
Weighted Average Exercise Price | |
Stock options outstanding at March 31, 2022 | |
| 1,665,948 | | |
$ | 1.28 - 142.50 | | |
$ | 2.31 | |
Exercised | |
| – | | |
$ | – | | |
$ | – | |
Granted | |
| 61,600 | | |
$ | 1.21 | | |
$ | 1.21 | |
Cancelled/Expired | |
| (16,015 | ) | |
$ | 1.41 - 57 | | |
$ | 3.54 | |
Stock options outstanding at September 30, 2022 | |
| 1,711,533 | | |
$ | 1.28 - 142.50 | | |
$ | 2.26 | |
Stock options exercisable at September 30, 2022 | |
| 440,206 | | |
$ | 1.28 - 142.50 | | |
$ | 2.86 | |
On September 30, 2022, our outstanding stock options
had no intrinsic value since the closing share price on that date of $0.58 per share was below the weighted average exercise price of
our outstanding stock options.
At September 30, 2022, there was approximately
$2,422,000 of unrecognized compensation cost related to share-based payments, which is expected to be recognized over a weighted average
period of 2.72 years.
9. WARRANTS
During the six months ended September 30, 2022
and 2021, we did not issue any warrants.
A summary of warrant activity during the six months
ended September 30, 2022 is presented below:
Schedule of Warrant Activity | |
| | | |
| | | |
| | |
| |
Amount | | |
Range of Exercise Price | | |
Weighted Average Exercise Price | |
Warrants outstanding at March 31, 2022 | |
| 576,738 | | |
$ | 1.50 – 59.25 | | |
$ | 11.21 | |
Exercised | |
| – | | |
$ | – | | |
$ | – | |
Cancelled/Expired | |
| (49,246 | ) | |
$ | 20.63 – 59.25 | | |
$ | 50.69 | |
Warrants outstanding at September 30, 2022 | |
| 527,492 | | |
$ | 1.50 – 16.50 | | |
$ | 7.52 | |
Warrants exercisable at September 30, 2022 | |
| 527,492 | | |
$ | 1.50 – 16.50 | | |
$ | 7.52 | |
10. GOVERNMENT CONTRACTS AND RELATED REVENUE RECOGNITION
We entered into the following contract with the
National Cancer Institute, or NCI, part of the National Institutes of Health, or NIH, in September 2019:
Phase 2 Melanoma Cancer Contract
On September 12, 2019, the NCI awarded to us an
SBIR Phase II Award Contract, for NIH/NCI Topic 359, entitled “A Device Prototype for Isolation of Melanoma Exosomes for Diagnostics
and Treatment Monitoring”, or the Award Contract. The Award Contract amount is $1,860,561 and, as amended, ran for the period from
September 16, 2019 through September 15, 2022.
The work performed pursuant to this Award Contract
was focused on melanoma exosomes. This work followed from our completion of a Phase I contract for the Topic 359 solicitation that ran
from September 2017 through June 2018, as described below. Following on the Phase I work, the deliverables in the Phase II program involved
the design and testing of a pre-commercial prototype of a more advanced version of the exosome isolation platform.
We did not record government contract revenue
on the Phase 2 Melanoma Cancer Contract in the three and six month periods ended September 30, 2022. We recorded $114,849 and $229,698
of government contract revenue on the Phase 2 Melanoma Cancer Contract in the three and six month periods ended September 30, 2021, respectively.
We recorded the invoices related to the September 30, 2022 period as deferred revenue, since we fell short of certain milestones related
to those periods.
The contract ended on September 15, 2022 and we
presented the required final report to the NCI. Once the NCI completes the close out review of the contract, we expect to recognize as
revenue the $574,245 currently recorded as deferred revenue on our September 30, 2022 balance sheet.
Subaward with University of Pittsburgh
In December 2020, we entered into a cost reimbursable
subaward arrangement with the University of Pittsburgh in connection with an NIH contract entitled “Depleting Exosomes to Improve
Responses to Immune Therapy in HNNCC.” Our share of the award was $256,750. We did not record revenue related to this subaward in
the three and six month periods ended September 30, 2022. We recorded $17,117 and $34,234 of revenue related to this subaward in the three
and six month periods ended September 30, 2021, respectively.
In October 2022, we agreed with the University
of Pittsburgh to terminate the subaward arrangement, effective as of November 10, 2022, since it related to our clinical trial in head
and neck cancer in which the University of Pittsburgh was unable to recruit patients.
11. COMMITMENTS AND CONTINGENCIES
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
On September 29, 2021, we entered into an agreement
with a leading global contract research organization, or CRO, to oversee our clinical studies investigating the Hemopurifier, or the CRO
Agreement. Pursuant to the CRO Agreement, the CRO agreed to manage our ongoing study of the Hemopurifier for patients who are critically
ill with COVID-19 (NCT04595903), with the option for the parties to agree to include additional studies under the CRO Agreement. The CRO
Agreement has a five year term, but may be extended by mutual agreement. The CRO Agreement also may be terminated by Aethlon without cause
upon 30 days’ prior written notice and may be terminated by either party following notice for breach or insolvency of the other
party. In November 2022, Aethlon provided the CRO with a 30-day termination notice due to the lack of enrollment of COVID patients and
the delay in FDA approval of the Company’s GNA supplier for the manufacture of the Hemopurifiers.
LEASE COMMITMENTS
Previous Office and Lab Leases
In September 2021, our lease of approximately
2,600 square feet of our previous executive office space at 9635 Granite Ridge Drive, Suite 100, San Diego, California 92123 expired.
Through December 31, 2021, we rented approximately
1,700 square feet of laboratory space at 11585 Sorrento Valley Road, Suite 109, San Diego, California 92121, at the rate of $6,148 per
month on a one-year lease that originally was to expire on November 30, 2020. In December 2020, we entered into a short-term lease extension
running from December 1, 2020 through the completion date of our construction of our new laboratory space which is adjacent to our then
current laboratory.
New Office, Lab and Manufacturing Space Leases
In December 2020, we entered into an agreement
to lease approximately 2,823 square feet of office space and 1,807 square feet of laboratory space located at 11555 Sorrento Valley Road,
Suite 203, San Diego, California 92121 and 11575 Sorrento Valley Road, Suite 200, San Diego, California 92121, respectively. The agreement
carries a term of 63 months and we took possession of the office space effective October 1, 2021. We took possession of the lab space
effective January 1, 2022. In October 2021, we entered into another lease for (i) approximately 22,260 square feet of space located at
11588 Sorrento Valley Road, San Diego, California 92121, or the Building, and (ii) 2,655 square feet of space located in the Building
and commonly known as Suite 18 to house our manufacturing operations. The term is for 55 months and we took possession of the manufacturing
space in August 2022.
During the three months ended September 30, 2022,
we recorded a $625,471 right-of-use lease asset and associated lease liability related to the manufacturing space component of the lease
based on the present value of lease payments over the expected lease term of 55 months, discounted using our estimated incremental borrowing
rate of 4.25%. The current monthly base rent under the manufacturing component of the lease is $12,540.
The office, lab and manufacturing leases are
coterminous with a remaining term of 54 months. The weighted average discount rate is 4.25%.
As of our September 30, 2022 balance sheet, we
have a right-of-use lease asset of $1,282,328.
In addition, the lease agreements for the new
office, lab and manufacturing space required us to post a standby L/C in favor of the landlord in the aggregate amount of $87,506 in lieu
of a security deposit. We arranged for our bank to issue standby L/Cs for the new office and lab in the amounts of $46,726 in the fiscal
year ended March 31, 2021 and for the manufacturing space in the amount of $40,780 in the fiscal year ended March 31, 2022. We transferred
like amounts to a restricted certificate of deposit which secured the bank’s risk in issuing those L/Cs. We have classified those
restricted certificates of deposit on our balance sheet as restricted cash with a balance of $87,506.
Mobile Clean Room
In addition, we rented a mobile clean room on
a short term, month-to-month basis, where we housed our manufacturing operations until our permanent manufacturing space was completed.
The mobile clean room was located on leased land near our office and lab and we paid $2,000 per month for the right to locate it there.
We paid approximately $167,615 in total rent expense to lease the mobile clean room located on this space during the six months ended
September 30, 2022. The arrangement was terminated in September 2022 and the mobile clean room was returned to the vendor that leased
it to us.
Overall, our rent expense, which is included in
general and administrative expenses, approximated $309,000 and $167,000 for the six month periods ended September 30, 2022 and 2021, respectively.
LEGAL MATTERS
From time to time, claims are made against us
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 us 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 our results of operations for that period or future periods. We are not presently
a party to any pending or threatened legal proceedings.
12. SUBSEQUENT EVENTS
Management has evaluated events subsequent to
September 30, 2022 through the date that the accompanying condensed consolidated financial statements were filed with the SEC for transactions
and other events which may require adjustment of and/or disclosure in such financial statements.
On September 29, 2021, we entered into the CRO
Agreement with the CRO to oversee our clinical studies investigating the Hemopurifier. Pursuant to the CRO Agreement, the CRO agreed to
manage our ongoing study of the Hemopurifier for patients who are critically ill with COVID-19 (NCT04595903), with the option for the
parties to agree to include additional studies under the CRO Agreement. The CRO Agreement has a five year term, but may be extended by
mutual agreement. The CRO Agreement also may be terminated by Aethlon without cause upon 30 days’ prior written notice and may be
terminated by either party following notice for breach or insolvency of the other party. In November 2022, Aethlon provided the CRO with
a 30-day termination notice due to the lack of enrollment of COVID patients and the delay in FDA approval of the Company’s GNA supplier
for the manufacture of the Hemopurifiers.
In October 2022, we launched a wholly-owned subsidiary
in Australia, formed to conduct clinical research in that country. Our current plan is that the subsidiary will initially focus on the
oncology market in Australia.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion of our 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-Q. 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-Q are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended,
or the Exchange Act. Such forward-looking statements involve assumptions, known and unknown risks, uncertainties and other factors which
may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements contained in this Form 10-Q. Such potential risks and uncertainties include, without
limitation, successful completion of our clinical trials, our ability to raise additional capital, our ability to maintain our Nasdaq
listing, U.S. Food and Drug Administration, or FDA, approval of our products candidates, our ability to comply with changing government
regulations, patent protection of our proprietary technology, product liability exposure, uncertainty of market acceptance, competition,
technological change, and other risk factors detailed herein and in other of our filings with the Securities and Exchange Commission,
or the SEC. The forward-looking statements are made as of the date of this Form 10-Q, and we assume 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.
Overview
Aethlon Medical, Inc. (“Aethlon”,
“we” or “us”) is a medical therapeutic company focused on developing products to diagnose and treat cancer and
life threatening infectious diseases. The Aethlon Hemopurifier is a clinical-stage immunotherapeutic device designed to combat cancer
and life-threatening viral infections. In cancer, the Hemopurifier is designed to deplete the presence of circulating tumor-derived exosomes
that promote immune suppression, seed the spread of metastasis and inhibit the benefit of leading cancer therapies. The FDA has designated
the Hemopurifier as a “Breakthrough Device” for two independent indications:
|
· |
the treatment of individuals with advanced or metastatic cancer who are either unresponsive to or intolerant of standard of care therapy, and with cancer types in which exosomes have been shown to participate in the development or severity of the disease; and |
|
· |
the treatment of life-threatening viruses that are not addressed with approved therapies. |
We believe the Hemopurifier can be a substantial
advance in the treatment of patients with advanced and metastatic cancer through the clearance of exosomes that promote the growth and
spread of tumors through multiple mechanisms. We are currently conducting a clinical trial in patients with advanced and metastatic head
and neck cancer. We are initially focused on the treatment of solid tumors, including head and neck cancer, gastrointestinal cancers and
other cancers. As we advance our clinical trials, we are in close contact with our clinical sites to navigate and assess the impact of
the global COVID-19 pandemic on our clinical trials and current timelines.
On October 4, 2019, the FDA approved our Investigational
Device Exemption, or IDE, application to initiate an Early Feasibility Study, or EFS, of the Hemopurifier in patients with head and neck
cancer in combination with standard of care pembrolizumab (Keytruda). The primary endpoint for the EFS, designed to enroll 10 to 12 subjects
at a single center, is safety, with secondary endpoints including measures of exosome clearance and characterization, as well as response
and survival rates. This study, which was initially being conducted at the UPMC Hillman Cancer Center in Pittsburgh, PA, or UPMC, has
treated two patients to date. Due to lack of further patient enrollment, we and UPMC have terminated this study at UPMC. We are considering
adding one or more alternative sites to this trial to accelerate recruitment. We also are in the process of designing other clinical trials
in oncology.
We also believe the Hemopurifier can be part of
the broad-spectrum treatment of life-threatening highly glycosylated, or carbohydrate coated, viruses that are not addressed with an already
approved treatment. In small-scale or early feasibility human studies, the Hemopurifier has been used in the past to treat individuals
infected with human immunodeficiency virus, or HIV, hepatitis-C, and Ebola.
Additionally, in vitro, the Hemopurifier
has been demonstrated to capture Zika virus, Lassa virus, MERS-CoV, cytomegalovirus, Epstein-Barr virus, Herpes simplex virus, Chikungunya
virus, Dengue virus, West Nile virus, smallpox-related viruses, H1N1 swine flu virus, H5N1 bird flu virus, Monkeypox virus, and the reconstructed
Spanish flu virus of 1918. In several cases, these studies were conducted in collaboration with leading government or non-government research
institutes.
On June 17, 2020, the FDA approved a supplement
to our open IDE for the Hemopurifier in viral disease to allow for the testing of the Hemopurifier in patients with SARS-CoV-2/COVID-19
in a New Feasibility Study. That study is designed to enroll up to 40 subjects at up to 20 centers
in the U.S. Subjects will have established laboratory diagnosis of COVID-19, be admitted to an intensive care unit, or ICU, and will have
acute lung injury and/or severe or life-threatening disease, among other criteria. Endpoints for this study, in addition to safety, will
include reduction in circulating virus as well as clinical outcomes (NCT # 04595903). In June 2022, the first patient in this study
was enrolled and has completed the Hemopurifier treatment phase of the protocol. Under Single Patient
Emergency Use regulations, we have also treated two patients with COVID-19 with the Hemopurifier.
We currently are experiencing a short-term disruption
in our Hemopurifier supply as our existing supply of Hemopurifiers expired on September 30, 2022. As previously disclosed, we are dependent
on the FDA approval of qualified suppliers to manufacture our Hemopurifier. Our intended transition to a new supplier for Galanthus nivalis
agglutinin, or GNA, is delayed as we work with the FDA for approval of our supplement to our Investigational Device Exemption, which is
required to make this manufacturing change.
We also obtained ethics review board approval
and entered into a clinical trial agreement with Medanta Medicity Hospital, a multi-specialty hospital in Delhi NCR, India, for a COVID-19
clinical trial at that location. One patient has completed participation in the Indian COVID-19 study. The relevant authorities in India
have accepted the use of the Hemopurifiers made with the GNA from our new supplier.
Previously we were the majority owner of Exosome
Sciences, Inc., or ESI, a company formed to focus on the discovery of exosomal biomarkers to diagnose and monitor life-threatening diseases,
and thus consolidated ESI in our consolidated financial statements. For more than four years, the primary activities of ESI were limited
to the payment patent of maintenance fees and applications. In September 2022, the Board of Directors of ESI and Aethlon, as the majority
stockholder of ESI, approved the dissolution of ESI. Accordingly, ESI is eliminated from our September 30, 2022 balance sheet.
Successful outcomes of human trials will also
be required by the regulatory agencies of certain foreign countries where we plan to sell the Hemopurifier, if successfully developed.
Some of our patents may expire before FDA approval or approval in a foreign country, if any, is obtained. However, we believe that certain
patent applications and/or other patents issued more recently will help protect the proprietary nature of the Hemopurifier treatment technology.
We were formed on March 10, 1999. Our executive
offices are located at 11555 Sorrento Valley Road, Suite 203, San Diego, California 92121. Our telephone number is (619) 941-0360. Our
website address is www.aethlonmedical.com.
Our common stock is listed on the Nasdaq Capital Market under the symbol
“AEMD.”
COVID-19, Inflation and International Conflicts
The COVID-19 pandemic, the conflict in Ukraine, and inflation has negatively
impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. Given
the level of uncertainty regarding the COVID-19 pandemic, Ukraine conflict, and inflationary environment on capital markets and the U.S.
economy, we are unable to assess the impact of these events on our future access to capital. Further, while we have not experienced significant
disruptions to our manufacturing supply chain, business, results of operations, financial condition, clinical trials, or preclinical research
to date, we are unable to assess the potential impact these events could have on our manufacturing supply chain, business, results of
operations, financial condition, clinical trials, or preclinical research in the future.
As we continue to actively advance our clinical
trials, we remain in close contact with our clinical sites and are assessing the impact of COVID-19 on our trials, expected timelines
and costs on an ongoing basis. We will assess any potential delays in our ability to timely ship clinical trial materials, including internationally,
due to transportation interruptions. The extent of the impact of COVID-19, the Ukraine conflict, and inflation on our operational and
financial performance will depend on certain developments, including the impact on our clinical trials, employees and vendors, all of
which are uncertain and cannot be predicted. Given these uncertainties, we cannot reasonably estimate the related impact to our business,
operating results and financial condition, if any.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational
requirements of the Exchange Act, and must file reports, proxy statements and other information with the SEC. The SEC 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 SEC. Our headquarters are located at 11555 Sorrento Valley Road, Suite 203, San Diego,
California 92121. Our phone number at that address is (619) 941-0360. Our website is http://www.aethlonmedical.com.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2022 COMPARED TO THE THREE MONTHS
ENDED SEPTEMBER 30, 2021
Government Contract Revenues
We did not record government contract revenue
in the three months ended September 30, 2022. We recorded $131,966 in government contract revenue in the three months ended September
30, 2021. This revenue resulted from work performed under our government contracts with NIH as follows:
|
|
Three Months
Ended
09/30/22 |
|
|
Three Months
Ended
09/30/21 |
|
|
Change in
Dollars |
|
Phase 2 Melanoma Cancer Contract |
|
$ |
– |
|
|
$ |
114,849 |
|
|
$ |
(114,849 |
) |
Subaward with University of Pittsburgh |
|
|
– |
|
|
|
17,117 |
|
|
|
(17,117 |
) |
Total Government Contract and Grant Revenue |
|
$ |
– |
|
|
$ |
131,966 |
|
|
$ |
(131,966 |
) |
We have recognized revenue under the following contracts/grants:
Phase 2 Melanoma Cancer Contract
On September 12, 2019, the NCI awarded to us an
SBIR Phase II Award Contract, for NIH/NCI Topic 359, entitled “A Device Prototype for Isolation of Melanoma Exosomes for Diagnostics
and Treatment Monitoring”, or the Award Contract. The Award Contract amount was $1,860,561 and, as amended, ran for the period from
September 16, 2019 through September 15, 2022.
The work performed pursuant to this Award Contract
was focused on melanoma exosomes. This work followed from our completion of a Phase I contract for the Topic 359 solicitation that ran
from September 2017 through June 2018, as described below. Following on the Phase I work, the deliverables in the Phase II program involved
the design and testing of a pre-commercial prototype of a more advanced version of the exosome isolation platform.
We did not record government contract revenue
on the Award Contract in the three months ended September 30, 2022. We recorded $114,849 of government contract revenue on the Award
Contract in the three months ended September 30, 2021. We recorded the invoices related to the September 30, 2022 period as deferred revenue,
since we fell short of certain milestones related to those periods.
The Award Contract ended on September 15, 2022
and we presented the required final report to the NCI. Once the NCI completes the close out review of the contract, we expect to recognize
as revenue the $574,245 currently recorded as deferred revenue on our September 30, 2022 balance sheet.
Subaward with University of Pittsburgh
In December 2020, we entered into a cost reimbursable
subaward arrangement with the University of Pittsburgh in connection with an NIH contract entitled “Depleting Exosomes to Improve
Responses to Immune Therapy in HNNCC.” Our share of the award was $256,750. We did not record revenue related to this subaward in
the three months ended September 30, 2022. We recorded $17,117 of revenue related to this subaward in the three months ended September
30, 2021.
In October 2022, we agreed with the University
of Pittsburgh to terminate the subaward arrangement, effective as of November 10, 2022, since it related to our clinical trial in head
and neck cancer in which the University of Pittsburgh was unable to recruit patients.
Operating Expenses
Consolidated operating expenses for the three
months ended September 30, 2022 were $3,665,309, compared to $2,140,770 for the three months ended September 30, 2021. This increase of
$1,524,539, or 71.2%, in the 2022 period was due to increases in our general and administrative expenses of $862,782, in our professional
fees of $354,410 and in our payroll and related expenses of $307,347.
The $862,782 increase in our general and administrative
expenses was primarily due to the combination of a $383,654 increase in our clinical trial expenses, a $258,246 increase in supplies,
primarily for manufacturing Hemopurifiers, a $139,752 increase in subcontract expenses related to our government contracts, a $50,377
increase in our rent expense and a $32,424 increase in our insurance expense.
The $354,410 increase in our professional fees
was primarily due to the combination of a $151,792 increase in our contract labor expense associated with product development and analytical
services, a $136,265 increase in our legal fees and a $60,885 increase in our investor relations expenses, primarily related to solicitation
expenses associated with our 2022 annual meeting of stockholders.
The $307,347 increase in our payroll and related
expenses was due to an increase in our stock-based compensation expense of $112,476. Our cash-based compensation expense increased by
$194,871 due to our increased headcount.
Other Expense
In September 2022, the Board of Directors of ESI
and Aethlon as the majority stockholder of ESI approved the dissolution of ESI. As a result of this dissolution, we recorded a non-cash
charge of $142,121 as other expense in the three months ended September 30, 2022.
Net Loss
As a result of the changes in revenues and expenses
noted above, our net loss increased to approximately $3,807,000 in the three months ended September 30, 2022, from approximately $2,009,000
in the three months ended September 30, 2021.
Basic and diluted loss attributable to common
stockholders were ($0.18) for the three months ended September 30, 2022, compared to ($0.13) for the three month period ended September
30, 2021.
SIX MONTHS ENDED SEPTEMBER 30, 2022 COMPARED TO THE SIX MONTHS ENDED
SEPTEMBER 30, 2021
Government Contract Revenues
We did not record government contract revenue
in the six months ended September 30, 2022. We recorded $263,932 in government contract revenue in the six months ended September 30,
2021. This revenue resulted from work performed under our government contracts with NIH as follows:
| |
Six Months Ended 09/30/22 | | |
Six Months Ended 09/30/21 | | |
Change in Dollars | |
Phase 2 Melanoma Cancer Contract | |
$ | – | | |
$ | 229,698 | | |
$ | (229,698 | ) |
Subaward with University of Pittsburgh | |
| – | | |
| 34,234 | | |
| (34,234 | ) |
Total Government Contract and Grant Revenue | |
$ | – | | |
$ | 263,932 | | |
$ | (263,932 | ) |
We have recognized revenue under the following contracts/grants:
Phase 2 Melanoma Cancer Contract
On September 12, 2019, the NCI awarded to us the
Award Contract. The Award Contract amount was $1,860,561 and, as amended, ran for the period from September 16, 2019 through September
15, 2022.
The work performed pursuant to this Award Contract
was focused on melanoma exosomes. This work followed from our completion of a Phase I contract for the Topic 359 solicitation that ran
from September 2017 through June 2018, as described below. Following on the Phase I work, the deliverables in the Phase II program involved
the design and testing of a pre-commercial prototype of a more advanced version of the exosome isolation platform.
We did not record government contract
revenue on the Award Contract in the six months ended September 30, 2022. We recorded $229,698 of government contract revenue on the
Award Contract in the six months ended September 30, 2021. We recorded the invoices related to the September 30, 2022 period as
deferred revenue, since we fell short of certain milestones related to those periods.
The Award Contract ended on September 15, 2022
and we presented the required final report to the NCI. Once the NCI completes the close out review of the contract, we expect to recognize
as revenue the $574,245 currently recorded as deferred revenue on our September 30, 2022 balance sheet.
Subaward with University of Pittsburgh
In December 2020, we entered into a cost reimbursable
subaward arrangement with the University of Pittsburgh in connection with an NIH contract entitled “Depleting Exosomes to Improve
Responses to Immune Therapy in HNNCC.” Our share of the award was $256,750. We did not record revenue related to this subaward in
the six months ended September 30, 2022. We recorded $34,234 of revenue related to this subaward in the six months ended September 30,
2021.
In October 2022, we agreed with the University
of Pittsburgh to terminate the subaward arrangement, effective as of November 10, 2022, since it related to our clinical trial in head
and neck cancer in which the University of Pittsburgh was unable to recruit patients.
Operating Expenses
Consolidated operating expenses for the six months
ended September 30, 2022 were $6,573,045, compared to $4,371,174 for the six months ended September 30, 2021. This increase of $2,201,871,
or 50.4%, in the 2022 period was due to increases in our general and administrative expenses of $1,266,610, in our professional fees of
$614,970 and in our payroll and related expenses of $320,291.
The $1,266,610 increase in our general and administrative
expenses was primarily due to the combination of a $544,916 increase in our clinical trial expenses, a $355,475 increase in supplies,
primarily for manufacturing Hemopurifiers, a $147,962 increase in subcontract expenses related to our government contracts, a $141,826
increase in our rent expense and a $58,928 increase in our insurance expense.
The $614,970 increase in our professional fees
was primarily due to the combination of a $306,082 increase in our contract labor expense associated with product development and analytical
services, a $135,983 increase in our legal fees, a $120,303 increase in professional fees associated with regulatory strategy services
and a $73,292 increase in our investor relations expenses, primarily related to solicitation expenses associated with our 2022 annual
meeting of stockholders.
The $320,291 increase in our payroll and related
expenses was due to an increase in our stock-based compensation expense of $207,760. Our cash-based compensation expense increased by
$112,531 due to our increased headcount.
Other Expense
In September 2022, the Board of Directors of ESI
and Aethlon as the majority stockholder of ESI approved the dissolution of ESI. As a result of this dissolution, we recorded a non-cash
charge of $142,121 as other expense in the six months ended September 30, 2022.
Net Loss
As a result of the changes in revenues and expenses
noted above, our net loss increased to approximately $6,715,000 in the six months ended September 30, 2022, from approximately $4,107,000
in the six months ended September 30, 2021.
Basic and diluted loss attributable to common
stockholders were ($0.37) for the six months ended September 30, 2022, compared to ($0.29) for the six months ended September 30, 2021.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2022, we had a cash balance
of $19,604,025 and working capital of $18,402,066. This compares to a cash balance of $17,072,419 and working capital of $16,332,958 at
March 31, 2022. We expect our existing cash as of September 30, 2022 to be sufficient to fund our operations for at least twelve months
from the issuance date of these financial statements.
2022 At The Market Offering Agreement with H.C. Wainwright &
Co., LLC
On March 24, 2022, we entered into an At The Market
Offering Agreement, or the 2022 ATM Agreement, with H.C. Wainwright & Co., LLC, or Wainwright, which established an at-the-market
equity program pursuant to which we may offer and sell shares of our common stock from time to time as set forth in the 2022 ATM Agreement.
The offering was registered under the Securities
Act pursuant to our shelf registration statement on S-3 (Registration Statement No. 333-259909), as previously filed with the
SEC and declared effective on October 21, 2021. We filed a prospectus supplement, dated March 24, 2022, with the SEC that provides for
the sale of shares of our common stock having an aggregate offering price of up to $15,000,000, or the 2022 ATM Shares.
Under the 2022 ATM Agreement, Wainwright may sell
the 2022 ATM Shares by any method permitted by law and deemed to be an “at the market offering” as defined in Rule 415 promulgated
under the Securities Act, including sales made directly on the Nasdaq Capital Market, or on any other existing trading market for the
2022 ATM Shares. In addition, under the 2022 ATM Agreement, Wainwright may sell the 2022 ATM Shares in privately negotiated transactions
with our consent and in block transactions. Under certain circumstances, we may instruct Wainwright not to sell the 2022 ATM Shares if
the sales cannot be effected at or above the price designated by us from time to time.
We are not obligated to make any sales of the
2022 ATM Shares under the 2022 ATM Agreement. The offering of the 2022 ATM Shares pursuant to the 2022 ATM Agreement will terminate upon
the termination of the 2022 ATM Agreement by Wainwright or us, as permitted therein.
The 2022 ATM Agreement contains customary representations,
warranties and agreements by us, and customary indemnification and contribution rights and obligations of the parties. We agreed to pay
Wainwright a placement fee of up to 3.0% of the aggregate gross proceeds from each sale of the 2022 ATM Shares. We also agreed to reimburse
Wainwright for certain specified expenses in connection with entering into the 2022 ATM Agreement.
In the six months ended September 30, 2022, we
raised net proceeds of $8,927,211, net of $229,610 in commissions to Wainwright and $27,153 in other offering expense, through the sale
of 7,480,836 shares of our common stock at an average price of $1.19 per share under the 2022 ATM Agreement.
Cash Flows
Cash flows from operating, investing and financing
activities, as reflected in the accompanying Condensed Consolidated Statements of Cash Flows, are summarized as follows:
| |
(In thousands) For the six months ended | |
| |
September 30, 2022 | | |
September 30, 2021 | |
Cash provided by (used in): | |
| | | |
| | |
Operating activities | |
$ | (5,607 | ) | |
$ | (3,950 | ) |
Investing activities | |
| (780 | ) | |
| (79 | ) |
Financing activities | |
| 8,919 | | |
| 17,392 | |
Net increase (decrease) in cash and restricted cash | |
$ | (2,532 | ) | |
$ | 13,363 | |
NET CASH USED IN OPERATING ACTIVITIES. We
used cash in our operating activities due to our losses from operations. Net cash used in operating activities was approximately
$5,607,000 in the six months ended September 30, 2022, compared to approximately $3,950,000 in the six months ended September 30,
2021. The primary components in the $1,657,000 increase in cash used in our operating activities in the 2022 period were a
$2,608,000 increase in our net losses partially offset by a decrease of $279,483 in the change in accounts payable and other current
liabilities, an increase in deferred revenue of $229,698, an increased non-cash charge from stock-based compensation of $207,760 and
a $142,121 non-cash charge for the loss on dissolution of subsidiary.
NET CASH USED IN INVESTING ACTIVITIES. We used
approximately $780,000 of cash to purchase laboratory and office equipment in the six months ended September 30, 2022, compared to approximately
$79,000 in the six months ended September 30, 2021. The increase in the 2022 period was primarily a result of furnishing our new office
and manufacturing space and purchasing additional laboratory equipment.
NET CASH PROVIDED BY FINANCING ACTIVITIES. During
the six months ended September 30, 2022, we raised approximately $8,927,000 from the issuance of common stock. That source of cash from
our financing activities was partially offset by the use of approximately $8,000 to pay for the tax withholding on restricted stock units,
for an aggregate amount of cash provided by financing activities of approximately $8,919,000.
During the six months ended September 30, 2021,
we raised approximately $17,456,000 from the issuance of common stock. That source of cash from our financing activities was partially
offset by the use of approximately $64,000 to pay for the tax withholding on restricted stock units, for an aggregate amount of cash provided
by financing activities of approximately $17,392,000.
Material Cash Requirements
As noted above in the results of operations, our
clinical trial expense increased by $544,916 in the six months ended September 30, 2022, compared to the six month period ended September
30, 2021. We expect our clinical trial expenses to continue to increase for the foreseeable future as we continue to expand our clinical
trials.
In addition, we have entered into leases for our
new headquarters, laboratory and manufacturing facilities. As noted above in the results of operations, our rent expense increased by
$141,826 in the six months ended September 30, 2022, compared to the six months ended September 30, 2021.
Future capital requirements will depend upon many
factors, including progress with pre-clinical testing and clinical trials for our Hemopurifier, 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 obtaining regulatory approvals, competing technological and market developments, as well as our
ability to establish collaborative arrangements, effective commercialization, marketing activities and other arrangements. We expect to
continue to incur increasing negative cash flows and net losses for the foreseeable future. We will continue to need to raise additional
capital either through equity and/or debt financing for the foreseeable future.
CRITICAL ACCOUNTING ESTIMATES
Use of Estimates
The preparation of consolidated financial statements
in conformity with accounting principles generally accepted in the United States of America, or GAAP, requires us to make a number of
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements. These estimates and assumptions affect the reported amounts of expenses during the reporting
period. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances.
We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates
under different future conditions.
We believe that the estimates and assumptions
that are most important to the portrayal of our financial condition and results of operations, in that they require the most difficult,
subjective or complex judgments, form the basis for the accounting policies deemed to be most critical to us. These critical accounting
estimates relate to revenue recognition, stock purchase warrants issued with notes payable, beneficial conversion feature of convertible
notes payable, impairment of intangible assets and long lived assets, stock compensation, deferred tax asset valuation allowance, and
contingencies.
There have been no changes to our critical accounting
estimates as disclosed in our Form 10-K for the year ended March 31, 2022.