10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 9, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from _____to_____
COMMISSION FILE NUMBER
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered |
| The |
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated Filer ☐ | Accelerated Filer ☐ |
| Smaller reporting company |
|
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of August 8, 2022, the registrant had outstanding shares of common stock, $0.001 par value.
TABLE OF CONTENTS
| 2 |
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AETHLON MEDICAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2022 |
March 31, 2022 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use lease asset | ||||||||
| Patents, net | ||||||||
| Restricted cash | ||||||||
| Deposits | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Due to related parties | ||||||||
| Deferred revenue | ||||||||
| Lease liability, current portion | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Lease liability, less current portion | ||||||||
| Total liabilities | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock, par value $ per share; shares authorized; and shares issued and outstanding as of June 30, 2022 and March 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total Aethlon Medical, Inc. stockholders’ equity before noncontrolling interests | ||||||||
| Noncontrolling interests | ( |
) | ( |
) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes.
| 3 |
AETHLON MEDICAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Month Periods Ended June 30, 2022 and 2021
(Unaudited)
| Three Months Ended June 30, 2022 |
Three Months Ended June 30, 2021 |
|||||||
| REVENUES | ||||||||
| Government contract revenue | $ | $ | ||||||
| Total revenues | ||||||||
| OPERATING EXPENSES | ||||||||
| Professional fees | ||||||||
| Payroll and related expenses | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| OPERATING LOSS | ( |
) | ( |
) | ||||
| NET LOSS | ( |
) | ( |
) | ||||
| LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS | ( |
) | ( |
) | ||||
| NET LOSS ATTRIBUTABLE TO AETHLON MEDICAL | $ | ( |
) | $ | ( |
) | ||
| BASIC LOSS PER SHARE | $ | ( |
) | $ | ( |
) | ||
| DILUTED LOSS PER SHARE | $ | ( |
) | $ | ( |
) | ||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC | ||||||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – DILUTED | ||||||||
See accompanying notes.
| 4 |
AETHLON MEDICAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Three Months Ended June 30, 2022 and 2021
(Unaudited)
| Common Stock |
Additional Paid In |
Accumulated |
Non- Controlling |
Total | ||||||||||||||||
| Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||
| BALANCE - MARCH 31, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||
| Issuances of common stock for cash under at the market program | ||||||||||||||||||||
| Stock-based compensation expense | – | |||||||||||||||||||
| Net loss | – | ( |
) | ( |
) | ( |
) | |||||||||||||
| BALANCE - JUNE 30, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||
| Common Stock |
Additional Paid In |
Accumulated | Non- Controlling |
Total | ||||||||||||||||
| Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||
| BALANCE - MARCH 31, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||
| Issuances of common stock for cash under at the market program | ||||||||||||||||||||
| Issuances of common stock for cash in registered direct financing | ||||||||||||||||||||
| Issuances of common stock for cash under warrant exercises | ||||||||||||||||||||
| Issuances of common stock for cash under stock option exercises | ||||||||||||||||||||
| Issuances of common stock under cashless warrant exercises | ( |
) | ||||||||||||||||||
| Issuance of common shares upon vesting of restricted stock units | ( |
) | ( |
) | ||||||||||||||||
| Stock-based compensation expense | – | |||||||||||||||||||
| Net loss | – | ( |
) | ( |
) | ( |
) | |||||||||||||
| BALANCE - JUNE 30, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||
See accompanying notes.
| 5 |
AETHLON MEDICAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 2022 and 2021
(Unaudited)
| Three Months Ended June 30, 2022 |
Three Months Ended June 30, 2021 |
|||||||
| Cash flows used in operating activities: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock based compensation | ||||||||
| Accretion of right-of-use lease asset | ( |
) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts receivable | ||||||||
| Accounts payable and other current liabilities | ( |
) | ( |
) | ||||
| Deferred revenue | ||||||||
| Due to related parties | ||||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| Cash flows used in investing activities: | ||||||||
| Purchases of property and equipment | ( |
) | ( |
) | ||||
| Net cash used in investing activities | ( |
) | ( |
) | ||||
| Cash flows provided by financing activities: | ||||||||
| Proceeds from the issuance of common stock, net | ||||||||
| Tax withholding payments or tax equivalent payments for net share settlement of restricted stock units and net stock option expense | ( |
) | ||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) increase in cash and restricted cash | ( |
) | ||||||
| Cash and restricted cash at beginning of period | ||||||||
| Cash and restricted cash at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Supplemental disclosures of non-cash investing and financing activities: | ||||||||
| Issuance of common stock under cashless warrant exercises | $ | $ | ||||||
| Par value of shares issued for vested restricted stock units and net stock option exercise | $ | $ | ||||||
| Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Cash and restricted cash | $ | $ | ||||||
See accompanying notes.
| 6 |
AETHLON MEDICAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 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, which is 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 is being conducted at the UPMC Hillman Cancer Center in Pittsburgh, PA, has treated two patients and is in the process of recruiting additional patients. We are also 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.
| 7 |
In September 2021, we entered into an agreement with PPD, Inc., or PPD, a leading global contract research organization, or CRO, to oversee our U.S. clinical studies investigating the Hemopurifier for critically ill COVID-19 patients. We now have eight fully activated hospitals that are actively screening patients for the trial, including Louisiana State University (LSU) Shreveport, Valley Baptist Medical Center in Texas, Hoag Irvine and Newport Beach in Southern California, University of California Davis, University of Miami Medical Center, Cooper Medical and Thomas Jefferson Medical Center. We are in the site activation process with additional U.S. medical centers.
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.
We are also 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. We consolidate ESI in our consolidated financial statements.
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 on our business and have taken steps designed to protect the health and safety of our employees while continuing our operations. Given the level of uncertainty regarding the duration and impact of the COVID-19 pandemic on capital markets and the U.S. economy, we are unable to assess the impact of the worldwide spread of SARS-CoV-2 and the resulting COVID-19 pandemic on our timelines and future access to capital. We are continuing to monitor the spread of COVID-19 and its potential impact on our operations. The full extent to which the COVID-19 pandemic will impact our business, results of operations, financial condition, clinical trials, and preclinical research will depend on future developments that are highly uncertain, including actions taken to contain or treat COVID-19 and their effectiveness, as well as the economic impact on national and international markets.
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 June 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.
| 8 |
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 majority-owned subsidiary. 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 three months ended June 30, 2022, and the condensed consolidated statement of cash flows for the three months ended June 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 three months ended June 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 June 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 12, we caused our bank to issue two standby letters of credit, or
the L/Cs, in the aggregate amount of $
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 June 30, 2022 and 2021, an aggregate of and potential common shares, respectively, consisting of shares underlying outstanding stock options and warrants were excluded, as their inclusion would be antidilutive.
| 9 |
3. RESEARCH AND DEVELOPMENT EXPENSES
Our research and development costs are expensed as incurred. We incurred research and development expenses during the three month periods ended June 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 | ||||||||
| June 30, | June 30, | |||||||
| 2022 | 2021 | |||||||
| Three months ended | $ | $ | ||||||
4. RECENT ACCOUNTING PRONOUNCEMENTS
None.
5. EQUITY TRANSACTIONS IN THE THREE MONTHS ENDED JUNE 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 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 June 2022, we raised net proceeds of $
| 10 |
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, with each such grant subject to stockholder approval of an increase of shares of common stock in the number of authorized shares of common stock, or the 2022 Plan Increase, available for issuance under the Company’s 2020 Equity Incentive Plan, or the 2020 Plan, at the Company’s 2022 annual meeting of stockholders, or the 2022 Annual Meeting. The Directors Compensation Policy provides for a grant of stock options or $ 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 $ 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 $ per share as of April 1, 2022. The two then-current eligible directors each was granted a contingent RSU in the amount of shares under the 2020 Plan and the then newly appointed director received a contingent RSU grant for shares under the 2020 Plan. The contingent 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 stockholder approval of the 2022 Plan Increase at the 2022 Annual Meeting and subject to the recipient's continued service with the Company on each such vesting date.
6. RELATED PARTY TRANSACTIONS
During the three months ended June 30, 2022,
we accrued unpaid fees of $
| Due to related parties | ||||||||
| June 30, 2022 |
March 31, 2022 |
|||||||
| Accrued Board fees | $ | $ | ||||||
| Accrued vacation to all employees | ||||||||
| Total due to related parties | $ | $ | ||||||
7. OTHER CURRENT LIABILITIES
Other current liabilities were comprised of the following items:
| Other Current Liabilities | ||||||||
| June 30, | March 31, | |||||||
| 2022 | 2022 | |||||||
| Accrued professional fees | $ | $ | ||||||
| Total other current liabilities | $ | $ | ||||||
| 11 |
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 month periods ended June 30, 2022 and 2021:
| Share-based compensation expense relating to RSUs | ||||||||
| Three Months Ended June 30, 2022 |
Three Months Ended June 30, 2021 |
|||||||
| Vesting of stock options and restricted stock units | $ | $ | ||||||
| Total stock-based compensation expense | $ | $ | ||||||
| Weighted average number of common shares outstanding – basic and diluted | ||||||||
| Basic and diluted loss per common share attributable to stock-based compensation expense | $ | ( |
) | $ | ( |
) | ||
All of the stock-based compensation expense recorded during the three months ended June 30, 2022 and 2021, an aggregate of $ and $, 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 three months ended June 30, 2022 and 2021 represented an impact on basic and diluted loss per common share of $(0.01).
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 three months ended June 30, 2022 was insignificant.
Stock Option Activity
We did not issue any stock options during the three months ended June 30, 2022.
During the three months ended June 30, 2021, we issued a stock option grant to our Chief Executive Officer, or CEO, for the purchase of shares of our common stock under our 2020 Plan. The purchase price for the shares subject to the option is $ 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 June 30, 2022 and stock options that are expected to vest subsequent to June 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 | $ | |||||||||||
| Expected to vest | $ | |||||||||||
| Total | ||||||||||||
| 12 |
A summary of stock option activity during the three months ended June 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 | $ | $ | ||||||||||
| Exercised | $ | – | $ | |||||||||
| Granted | $ | – | $ | |||||||||
| Cancelled/Expired | ( |
) | $ | $ | ||||||||
| Stock options outstanding at June 30, 2022 | $ | $ | ||||||||||
| Stock options exercisable at June 30, 2022 | $ | $ | ||||||||||
On June 30, 2022, our outstanding stock options had no intrinsic value since the closing share price on that date of $ per share was below the weighted average exercise price of our outstanding stock options.
At June 30, 2022, there was approximately $ of unrecognized compensation cost related to share-based payments, which is expected to be recognized over a weighted average period of years.
9. WARRANTS
During the three months ended June 30, 2022 and 2021, we did not issue any warrants.
A summary of warrant activity during the three months ended June 30, 2022 is presented below:
| Schedule of Warrant Activity | ||||||||||||
| Amount | Range of Exercise Price |
Weighted Average Exercise Price |
||||||||||
| Warrants outstanding at March 31, 2022 | $ | $ | ||||||||||
| Exercised | $ | – | $ | |||||||||
| Cancelled/Expired | $ | – | $ | |||||||||
| Warrants outstanding at June 30, 2022 | $ | $ | ||||||||||
| Warrants exercisable at June 30, 2022 | $ | $ | ||||||||||
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, over the past two years:
| 13 |
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 $
The work to be performed pursuant to this Award Contract is focused on melanoma exosomes. This work follows 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 involve 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 months ended June 30, 2022. We recorded $
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 is $
11. SEGMENTS
We operate our businesses principally through two reportable segments: Aethlon, which represents our therapeutic business activities, and ESI, which represents our diagnostic subsidiary. Our reportable segments have been determined based on the nature of the potential products being developed. We record discrete financial information for ESI, consisting of patent maintenance costs.
Aethlon’s revenue is generated primarily from government contracts to date and ESI does not have any revenues or activities other than patent maintenance. We have not included any allocation of corporate overhead to the ESI segment.
| 14 |
The following tables set forth certain information regarding our segments:
| Schedule of segment activity | ||||||||
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenues: | ||||||||
| Aethlon | $ | $ | ||||||
| ESI | ||||||||
| Total Revenues | $ | $ | ||||||
| Operating Losses: | ||||||||
| Aethlon | $ | ( |
) | $ | ( |
) | ||
| ESI | ( |
) | ( |
) | ||||
| Total Operating Loss | $ | ( |
) | $ | ( |
) | ||
| Net Losses: | ||||||||
| Aethlon | $ | ( |
) | $ | ( |
) | ||
| ESI | ( |
) | ( |
) | ||||
| Net Loss Before Non-Controlling Interests | $ | ( |
) | $ | ( |
) | ||
| Depreciation and Amortization: | ||||||||
| Aethlon | $ | $ | ||||||
| ESI | ||||||||
| Total Depreciation and Amortization | $ | $ | ||||||
| Capital Expenditures: | ||||||||
| Aethlon | $ | $ | ||||||
| ESI | ||||||||
| Capital Expenditures | $ | $ | ||||||
| June 30, 2022 | June 30, 2021 | |||||||
| Cash: | ||||||||
| Aethlon | $ | $ | ||||||
| ESI | ||||||||
| Total Cash | $ | $ | ||||||
| Total Assets: | ||||||||
| Aethlon | $ | $ | ||||||
| ESI | ||||||||
| Total Assets | $ | $ |
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12. COMMITMENTS AND CONTINGENCIES
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
On September 29, 2021, we entered into an agreement with PPD, Inc., a leading global contract research organization, for PPD to oversee our clinical studies investigating the Hemopurifier (the PPD Agreement). Pursuant to the PPD Agreement, PPD 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 PPD Agreement. The agreement has a five year term, but may be extended by mutual agreement. The PPD 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.
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 and Lab 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 11585 Sorrento Valley Road, Suite 109, 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.
On October 1, 2021, we recorded a $
During the three months ended March 31, 2022,
we recorded a $
As of our June 30, 2022 consolidated balance sheet,
we have a right-of-use lease asset of $
In addition, the new lease agreement for the new
office and lab required us to post a standby letter of credit in favor of the landlord in the amount of $
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Manufacturing Space Lease
In October 2021, we entered into another lease for an initial period of 58 months 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. That manufacturing space is located at 11588 Sorrento Valley Road, San Diego, California 92121 and it is near our new lab and office locations. We anticipate that the landlord will complete construction on this new space in the third calendar quarter of 2022 and we will take occupancy at that time. The initial base rent for the manufacturing space will be $12,080 per month.
Based on the assumptions that we used to calculate the right-of-use lease asset for the new office and lab spaces, we estimate that we will record a right- of- use lease asset of $614,240 and associated lease liability for the manufacturing space lease when we take possession of that space.
The lease for the manufacturing space also required
us to post a standby letter of credit in favor of the landlord in the amount of $
Mobile Clean Room
In addition, we rent a mobile clean room on a
short term, month-to-month basis, where we will house our manufacturing operations until our permanent manufacturing space is completed.
The mobile clean room is located on leased land near our office and lab and we pay $
Overall, our rent expense, which is included in
general and administrative expenses, approximated $
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.
13. SUBSEQUENT EVENTS
Management has evaluated events subsequent to June 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.
Sales Under 2022 ATM Agreement
Subsequent to June 30, 2022, we raised net proceeds of $8,307,769, net of $213,625 in commissions to Wainwright and $23,164 in other offering expense, through the sale of 6,906,276 shares of our common stock at an average price of $1.20 per share under the 2022 ATM Agreement.
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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, 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, 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 Commission. 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
We are a medical therapeutic company focused on developing products to diagnose and treat cancer and life threatening infectious diseases. The Aethlon Hemopurifier®, or 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, which is designed to enroll 10-12 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 will be conducted at the UPMC Hillman Cancer Center in Pittsburgh, PA, has treated two patients and is in the process of recruiting additional patients. We are also in the process of designing other clinical trials in oncology.
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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 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 validations 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.
In July 2022, the FDA approved an amendment to the protocol of our ongoing clinical trial investigating the Hemopurifier® for patients with severe COVID-19. The newly approved protocol amendment eliminates the inclusion criteria that patients must have a dialysis catheter in place and have tolerated dialysis at the time of screening.
In September 2021, we entered into an agreement with PPD, Inc., a leading global contract research organization, or CRO, to oversee our U.S. clinical studies investigating the Hemopurifier for critically ill COVID-19 patients. We now have eight fully activated hospitals that are actively screening patients for the trial, including Louisiana State University (LSU) Shreveport, Valley Baptist Medical Center in Texas, Hoag Irvine and Newport Beach in Southern California, University of California Davis, University of Miami Medical Center, Cooper Medical and Thomas Jefferson Medical Center. We are in the site activation process with additional U.S. medical centers.
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.
We are also the majority owner of ESI, a company formed to focus on the discovery of exosomal biomarkers to diagnose and monitor life-threatening diseases. We consolidate ESI’s activities in our consolidated financial statements.
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.”
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COVID-19 Update
In March 2020, the World Health Organization declared COVID-19 a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets.
We are monitoring closely the impact of the COVID-19 global pandemic on our business and have taken steps designed to protect the health and safety of our employees while continuing our operations, including clinical trials. Given the level of uncertainty regarding the duration and impact of the COVID-19 pandemic and inflationary environment on capital markets and the U.S. economy, we are unable to assess the impact of the worldwide spread of SARS-CoV-2 and the resulting COVID-19 pandemic, political change, and general economic uncertainty, 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 this pandemic 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 and inflation on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, 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 Commission. The Commission maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, like us, which file electronically with the Commission. Our headquarters are located at 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 JUNE 30, 2022 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2021
Government Contract Revenues
We did not record government contract revenue in the three months ended June 30, 2022. We recorded $131,966 in government contract revenue in the three months ended June 30, 2021. This revenue resulted from work performed under our government contracts with NIH as follows:
|
Three Months Ended 06/30/22 |
Three Months Ended 06/30/21 |
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 | ) | |||||
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We have recognized revenue under the following contracts/grants:
Phase 2 Melanoma Cancer Contract
On September 12, 2019, the National Cancer Institute 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, runs for the period from September 16, 2019 through September 15, 2022.
The work to be performed pursuant to this Award Contract is focused on melanoma exosomes. This work follows 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 involve the design and testing of a pre-commercial prototype of a more advanced version of the exosome isolation platform.
During the three months ended June 30, 2022, we did not complete the milestones relevant to that time period. As a result, we did not record any government contract revenue on the Phase 2 Melanoma Cancer Contract in the three months ended June 30, 2022. We recorded the invoice related to the June 30, 2022 period as deferred revenue.
During the three months ended June 30, 2021, we completed the milestones relevant to March 31, 2021 time period. As a result, we recorded $114,849 of government contract revenue on the Phase 2 Melanoma Cancer Contract, revenue which had previously been recognized as deferred revenue.
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 is $256,750. We did not record revenue related to this subaward in the three months ended June 30, 2022. We recorded $17,117 of revenue related to this subaward in the three months ended June 30, 2021.
Operating Expenses
Consolidated operating expenses for the three months ended June 30, 2022 were $2,906,081, compared to $2,230,404 for the three months ended June 30, 2021. This increase of $675,677, or 30.3%, in the 2022 period was due to increases in our general and administrative expenses of $402,174, in our professional fees of $260,559 and in our payroll and related expenses of $12,944.
The $402,174 increase in our general and administrative expenses was primarily due to the combination of a $161,262 increase in our clinical trial expenses, a $97,229 increase in supplies, a $91,448 increase in our rent expense and a $26,504 increase in our insurance expense.
The $260,559 increase in our professional fees was primarily due to the combination of a $154,289 increase in our contract labor expense associated with product development and analytical services and a $95,162 increase in professional fees associated with regulatory strategy services.
The $12,944 increase in our payroll and related expenses was due to an increase in our stock-based compensation expense of $95,283. Our cash-based compensation expense decreased by $82,339 because our CEO received a $215,000 bonus in the June 2021 period for achieving certain contractual milestones in his employment agreement and there were no bonuses paid out in the June 2022 period.
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Net Loss
As a result of the changes in revenues and expenses noted above, our net loss increased to approximately $2,906,000 in the three months ended June 30, 2022, from approximately $2,098,000 in the three months ended June 30, 2021.
Basic and diluted loss attributable to common stockholders were ($0.19) for the three months ended June 30, 2022, compared to ($0.16) for the three month period ended June 30, 2021.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2022, we had a cash balance of $14,921,775 and working capital of $14,249,212. 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 June 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 June 2022, we raised net proceeds of $619,442, net of $15,985 in commissions to Wainwright and $3,988 in other offering expense, through the sale of, 574,560 shares of our common stock at an average price of $1.08 per share under the 2022 ATM Agreement.
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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 three months ended |
||||||||
| June 30, 2022 |
June 30, 2021 |
|||||||
| Cash provided by (used in): | ||||||||
| Operating activities | $ | (2,729 | ) | $ | (2,072 | ) | ||
| Investing activities | (41 | ) | (38 | ) | ||||
| Financing activities | 619 | 17,420 | ||||||
| Net increase (decrease) in cash and restricted cash | $ | (2,151) | $ | 15,310 | ||||
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 $2,729,000 in the three months ended June 30, 2022, compared to approximately $2,072,000 in the three months ended June 30, 2021. The primary components in the $657,000 increase in cash used in our operating activities were a $808,000 increase in our net losses.
NET CASH USED IN INVESTING ACTIVITIES. We used approximately $41,000 of cash to purchase laboratory and office equipment in the three months ended June 30, 2022, compared to approximately $38,000 in the three months ended June 30, 2021.
NET CASH PROVIDED BY FINANCING ACTIVITIES. During the three months ended June 30, 2022, we raised approximately $619,000 from the issuance of common stock.
During the three months ended June 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 $36,000 to pay for the tax withholding on restricted stock units, for an aggregate increase of cash provided by financing activities of approximately $17,420,000.
Material Cash Requirements
As noted above in the results of operations, our clinical trial expense increased by $161,262 in the three months ended June 30, 2022. We expect our clinical trial expenses to continue to increase for the foreseeable future. Those increases in clinical trial expenses include the cost of manufacturing additional Hemopurifiers for the 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 $91,448 in the three months ended June 30, 2022, compared to the three months ended June 30, 2021. We expect our rent expense to continue to increase for the foreseeable future.
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.
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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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this item.
ITEM 4. CONTROLS AND PROCEDURES.
DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report.
Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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.
ITEM 1A. RISK FACTORS.
RISK FACTOR SUMMARY
Below is a summary of the principal factors that make an investment in our securities speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Quarterly Report on Form 10-Q and our other filings with the SEC before making investment decisions regarding our securities.
| · | We have incurred significant operating losses since our inception and have not generated any revenue. We expect to incur continued losses for the foreseeable future and may never achieve or maintain profitability. |
| · | We will require substantial additional funding to sustain our operations. If we are unable to raise capital on favorable terms when needed, we could be forced to delay, reduce or eliminate our research or device development programs or any future commercialization efforts. |
| · | To achieve the levels of production necessary to commercialize our Hemopurifier and any other future products, we will need to secure large-scale manufacturing agreements with contract manufacturers which comply with good manufacturing practice standards and other standards prescribed by various federal, state and local regulatory agencies in the U.S. and any other country of use. We have limited experience coordinating and overseeing the manufacture of medical device products on a large-scale. |
| · | Our Hemopurifier product candidate may be made unmarketable prior to commercialization by us as a result of new scientific or technological developments by others with new treatment modalities that are more efficacious and/or more economical than our products. Any one of our competitors could develop a more effective product which would render our technology obsolete. |
| · | Our Hemopurifier product candidate is subject to extensive government regulations related to development, testing, manufacturing and commercialization in the U.S. and other countries. If we fail to comply with these extensive regulations of the U.S. and foreign agencies, the commercialization of our products could be delayed or prevented entirely. |
| · | As a public company with limited financial resources undertaking the launch of new medical technologies, we may have difficulty attracting and retaining executive management and directors. |
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| · | We will need to significantly expand our operations to implement our longer-term business plan and growth strategies. We will also be required to manage multiple relationships with various strategic partners, technology licensors, customers, manufacturers and suppliers, consultants and other third parties. The time and costs to effectuate these steps may place a significant strain on our management personnel, systems and resources, particularly given the limited amount of financial resources and skilled employees that may be available at the time. |
| · | Our business prospects and the successful commercial development of our Hemopurifier product candidate depends on our ability to complete studies, clinical trials, obtain satisfactory results, obtain required regulatory approvals. Delays in successfully completing the clinical trials could jeopardize our ability to obtain regulatory approval. |
| · | If we are unable to adequately address these and other risks we face, our business, financial condition, operating results and prospects may be adversely affected. |
| · | Our business could be adversely affected by the effects of health pandemics or epidemics, including the COVID-19 pandemic. |
As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this item. For a discussion of our potential risks and uncertainties, please see the information listed in the item captioned “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
We did not issue or sell any unregistered securities during the three months ended June 30, 2022.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
We have no disclosure applicable to this item.
ITEM 4. MINE SAFETY DISCLOSURES.
We have no disclosure applicable to this item.
ITEM 5. OTHER INFORMATION.
We have no disclosure applicable to this item.
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ITEM 6. EXHIBITS.
(a) Exhibits. The following documents are filed as part of this report:
Incorporated by Reference |
||||||||||||
Exhibit |
Exhibit Description |
Form |
SEC File No. |
Exhibit |
Date |
Filed |
||||||
| 3.1 | Articles of Incorporation | S-3 | 333-211151 | 3.1 | May 5, 2016 | |||||||
| 3.2 | Amended and Restated Bylaws of the Company | 8-K | 001-37487 | 3.1 | September 12, 2019 | |||||||
| 4.1 | Form of Common Stock Certificate | S-1 | 333-201334 | 4.1 | December 31, 2014 | |||||||
| 4.2 | Form of Warrant Agreement dated March 27, 2017 | 8-K | 001-37487 | 4.1 | March 22, 2017 | |||||||
| 4.3 | Form of Warrant dated 2017 | S-1/A | 333-219589 | 4.29 | September 18, 2017 | |||||||
| 4.4 | Form of Placement Agent Warrant dated 2017 | S-1/A | 333-219589 | 4.30 | September 22, 2017 | |||||||
| 4.5 | Form of Warrant to Purchase Common Stock | S-1/A | 333-234712 | 4.14 | December 11, 2019 | |||||||
| 4.6 | Form of Underwriter Warrant | S-1/A | 333-234712 | 4.15 | December 11, 2019 | |||||||
| 4.7 | Form of Common Stock Purchase Warrant | 8-K | 001-37487 | 4.1 | January 17, 2020 | |||||||
| 31.1 | Certification of our Chief Executive Officer, pursuant to Securities Exchange Act rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002 | X | ||||||||||
| 31.2 | Certification of our Chief Financial Officer, pursuant to Securities Exchange Act rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002 | X | ||||||||||
| 32.1 | Statement of our Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) | X | ||||||||||
| 32.2 | Statement of our Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) | X | ||||||||||
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | X | ||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | ||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||
| 104 | Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101) | |||||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| AETHLON MEDICAL, INC. | |||
| Date: August 9, 2022 | By: | /s/ JAMES B. FRAKES | |
| JAMES B. FRAKES | |||
| CHIEF FINANCIAL OFFICER | |||
| CHIEF ACCOUNTING OFFICER | |||
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