Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

November 9, 2021

10-Q: Quarterly report pursuant to Section 13 or 15(d)

Published on November 9, 2021

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

OR

 

     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____to_____

 

COMMISSION FILE NUMBER 001-37487

 

AETHLON MEDICAL, INC.

(Exact name of registrant as specified in its charter)

 

nevada   13-3632859
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
11555 SORRENTO VALLEY ROAD, SUITE 203, SAN DIEGO, CA   92121
(Address of principal executive office10s)   (Zip Code)

 

(619) 941-0360

(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
Common Stock AEMD The Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ NO ☐

 

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). Yes   ☒ NO  ☐

 

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 ☐
Non-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 ☐ NO

 

As of November 5, 2021, the registrant had outstanding 15,397,299 shares of common stock, $0.001 par value.

 

 

     

 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION 3
     
ITEM 1. FINANCIAL STATEMENTS 3
     
  CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 2021 (UNAUDITED) AND MARCH 31, 2021 3
     
  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (UNAUDITED) 4
     
  CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (UNAUDITED) 5
     
  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (UNAUDITED) 7
     
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 8
     
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19
     
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 25
     
ITEM 4. CONTROLS AND PROCEDURES 25
     
PART II. OTHER INFORMATION 27
     
ITEM 1. LEGAL PROCEEDINGS 27
     
ITEM 1A. RISK FACTORS 27
     
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 28
     
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 28
     
ITEM 4. MINE SAFETY DISCLOSURES 28
     
ITEM 5. OTHER INFORMATION 28
     
ITEM 6. EXHIBITS 29

 

 

 

 

  2  

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

AETHLON MEDICAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

             
    September 30,
2021
    March 31,
2021
 
    (Unaudited)        
ASSETS                
Current assets                
Cash   $ 23,224,925     $ 9,861,575  
Accounts receivable     131,966       149,082  
Prepaid expenses and other current assets     212,308       341,081  
Total current assets     23,569,199       10,351,738  
                 
Property and equipment, net     213,625       160,976  
Right-of-use lease asset           40,363  
Patents, net     2,476       56,954  
Restricted cash     46,726       46,726  
Deposits     42,159       12,159  
Total assets   $ 23,874,185     $ 10,668,916  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
Current liabilities                
Accounts payable   $ 254,176     $ 337,678  
Due to related parties     134,207       118,520  
Deferred revenue     114,849       114,849  
Lease liability, current portion           42,543  
Other current liabilities     471,117       761,636  
Total current liabilities     974,349       1,375,226  
                 
Commitments and Contingencies (Note 12)            
                 
Stockholders’ Equity                
Common stock, par value $0.001 per share; 30,000,000 shares authorized; 15,397,299 and 12,150,597 shares issued and outstanding as of September 30, 2021 and March 31, 2021, respectively     15,399       12,152  
Additional paid-in capital     147,041,683       129,331,542  
Accumulated deficit     (124,018,372 )     (119,913,090 )
Total Aethlon Medical, Inc. stockholders’ equity before noncontrolling interests     23,038,710       9,430,604  
                 
Noncontrolling interests     (138,874 )     (136,914 )
                 
Total stockholders’ equity     22,899,836       9,293,690  
                 
Total liabilities and stockholders’ equity   $ 23,874,185     $ 10,668,916  

 

See accompanying notes.

 

 

 

  3  

 

 

AETHLON MEDICAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Six Month Periods Ended September 30, 2021 and 2020

(Unaudited)

 

                                 
    Three Months
Ended
September 30,
2021
    Three Months
Ended
September 30,
2020
    Six Months
Ended
September 30,
2021
    Six Months
Ended
September 30,
2020
 
                         
REVENUES                                
                                 
Government contract revenue   $ 131,966     $     $ 263,932     $  
                                 
OPERATING EXPENSES                                
                                 
Professional fees     649,460       656,396       1,232,929       1,220,680  
Payroll and related expenses     805,608       560,244       1,822,350       997,155  
General and administrative     685,702       554,749       1,315,895       964,700  
Total operating expenses     2,140,770       1,771,389       4,371,174       3,182,535  
OPERATING LOSS     (2,008,804 )     (1,771,389 )     (4,107,242 )     (3,182,535 )
                                 
NET LOSS     (2,008,804 )     (1,771,389 )     (4,107,242 )     (3,182,535 )
                                 
LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS     (825 )     (825 )     (1,960 )     (1,688 )
                                 
NET LOSS ATTRIBUTABLE TO AETHLON MEDICAL, INC.   $ (2,007,979 )   $ (1,770,564 )   $ (4,105,282 )   $ (3,180,847 )
                                 
BASIC AND DILUTED LOSS PER COMMON SHARE   $ (0.13 )   $ (0.15 )   $ (0.29 )   $ (0.29 )
                                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC AND DILUTED     15,386,486       12,070,592       14,114,639       10,845,049  

 

 

See accompanying notes.

 

 

 

  4  

 

 

AETHLON MEDICAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Six Months Ended September 30, 2021 and 2020

(Unaudited)

                                     
    COMMON STOCK     ADDITIONAL PAID IN     ACCUMULATED     NON-
CONTROLLING
    TOTAL STOCKHOLDERS’  
    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 shares 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  
                                                 
Issuance of common shares 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  

 

Continued on following page

 

 

 

  5  

 

 

    ATTRIBUTABLE TO AETHLON MEDICAL, INC.              
    COMMON STOCK     ADDITIONAL PAID IN     ACCUMULATED     NON-
CONTROLLING
    TOTAL  
    SHARES     AMOUNT     CAPITAL     DEFICIT     INTERESTS     EQUITY  
BALANCE - MARCH 31, 2020     9,366,873     $ 9,368     $ 121,426,563     $ (112,026,381 )   $ (132,124 )   $ 9,277,426  
                                                 
Issuances of common stock for cash under at the market program     2,685,600       2,686       7,258,183                   7,260,869  
                                                 
Issuance of common shares upon vesting of restricted stock units     17,920       18       (24,269 )                 (24,251 )
                                                 
Stock-based compensation expense                 84,207                   84,207  
                                                 
Net loss                       (1,410,283 )     (863 )     (1,411,146 )
                                                 
BALANCE JUNE 30, 2020     12,070,393       12,072       128,744,684       (113,436,664 )     (132,987 )     15,187,105  
                                                 
Issuance of common shares upon vesting of restricted stock units     17,920       17       (16,145 )                 (16,128 )
                                                 
Stock-based compensation expense                 167,042         _           167,042  
                                                 
Net loss                       (1,770,564 )     (825 )     (1,771,389 )
                                                 
BALANCE SEPTEMBER 30, 2020     12,088,313     $ 12,089     $ 128,895,581     $ (115,207,228 )   $ (133,812 )   $ 13,566,630  

 

See accompanying notes.

 

 

 

  6  

 

 

 

AETHLON MEDICAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended September 30, 2021 and 2020

(Unaudited)

 

             
    Six Months
Ended
September 30, 2021
    Six Months
Ended
September 30, 2020
 
             
Cash flows used in operating activities:                
Net loss   $ (4,107,242 )   $ (3,182,535 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     80,690       18,041  
Stock based compensation     321,216       251,249  
Accretion of right-of-use lease asset     (2,180 )     (956 )
Changes in operating assets and liabilities:                
Prepaid expenses and other current assets     98,772       62,426  
Accounts receivable     17,116       94,880  
Accounts payable and other current liabilities     (374,020 )     (24,230 )
Deferred revenue           407,022  
Due to related parties     15,687       45,202  
Net cash used in operating activities     (3,949,961 )     (2,328,901 )
                 
Cash flows used in investing activities:                
Purchases of property and equipment     (78,861 )     (23,137 )
Net cash used in investing activities     (78,861 )     (23,137 )
                 
Cash flows provided by financing activities:                
Proceeds from the issuance of common stock, net     17,456,092       7,260,869  
Tax withholding payments or tax equivalent payments for net share settlement of restricted stock units     (63,920 )     (40,379 )
Net cash provided by financing activities     17,392,172       7,220,490  
                 
Net increase in cash     13,363,350       4,868,452  
                 
Cash at beginning of period     9,861,575       9,604,780  
                 
Cash at end of period   $ 23,224,925     $ 14,473,232  
                 
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   $ 22     $ 35  

 

See accompanying notes.

 

 

 

  7  

 

 

 

AETHLON MEDICAL, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2021

 

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION ORGANIZATION

 

Aethlon Medical, Inc. and its subsidiary (collectively, “Aethlon”, the “Company”, “we” or “us”), is a medical technology company focused on developing products to diagnose and treat life and organ threatening 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 one patient and is in the process of recruiting additional patients.

 

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 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, 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). Under Single Patient Emergency Use regulations, the Company has also treated two patients with COVID-19 with the Hemopurifier.

 

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. Together with PPD, we are currently advancing site readiness for Cooper Medical Center, Loma Linda Medical Center, Hoag Hospitals in Southern California, University of California Davis, Virginia Commonwealth University Medical Center, University of Miami Medical Center, and Thomas Jefferson Medical Center. Additionally, we obtained institutional research board approval and have entered into a clinical trial agreement with Stanford Hospital and we are in discussions to bring on board other key U.S. medical centers.

 

 

 

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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.

 

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’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. 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 September 30, 2021, 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, 2021.

 

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, 2021, included in the Company’s Annual Report on Form 10-K filed with the SEC on June 24, 2021. 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 six months ended September 30, 2021, and the condensed consolidated statement of cash flows for the six months ended September 30, 2021. 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, 2021 has been derived from the audited consolidated balance sheet at March 31, 2021, contained in the above referenced 10-K. The results of operations for the six months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year or any future interim periods.

 

 

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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, 2021 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, we caused our bank to issue a standby letter of credit, or the L/C, in the amount of $46,726 in favor of the landlord. The L/C is in lieu of a security deposit. In order to support the L/C, we agreed to have our bank withdraw $46,726 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, 2021 and 2020, an aggregate of 1,616,866 and 2,620,567 potential common shares, respectively, consisting of shares underlying outstanding stock options, warrants and unvested restricted stock units, 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, 2021 and 2020, 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: 

 

               
    September 30,     September 30,  
    2021     2020  
Three months ended   $ 478,201     $ 508,897  
Six months ended   $ 1,045,539     $ 884,985  

 

4. RECENT ACCOUNTING PRONOUNCEMENTS

 

 

None.

 

 

 

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5. EQUITY TRANSACTIONS IN THE SIX MONTHS ENDED SEPTEMBER 30, 2021

 

Common Stock Sales Agreement with H.C. Wainwright & Co., LLC

 

On March 22, 2021, we entered into an At the Market Offering Agreement, or the Offering Agreement, with H.C. Wainwright & Co., LLC, or Wainwright, as sales agent, pursuant to which we may offer and sell shares of our common stock, from time to time as set forth in the Offering Agreement.

 

The offering was registered under the Securities Act of 1933, as amended, or Securities Act, pursuant to our shelf registration statement on Form S-3 (Registration Statement No. 333-237269), as previously filed with the SEC and declared effective on March 30, 2020. We filed a prospectus supplement with the SEC, dated March 22, 2021, in connection with the offer and sale of the shares of common stock, pursuant to which we may offer and sell shares of common stock having an aggregate offering price of up to $5,080,000 from time to time.

 

Subject to the terms and conditions set forth in the Offering Agreement, Wainwright agreed to use its commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares under the Offering Agreement from time to time, based upon our instructions. We provided Wainwright with customary indemnification rights under the Offering Agreement, and Wainwright is entitled to a commission at a fixed rate equal to three percent of the gross proceeds per share sold. In addition, we agreed to reimburse Wainwright for certain specified expenses in connection with entering into the Offering Agreement. The Offering Agreement will terminate upon the written termination by either party as permitted thereunder.

 

Sales of the shares, if any, under the Offering Agreement will be made in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act, including sales made by means of ordinary brokers’ transactions, including on the Nasdaq Capital Market, at market prices or as otherwise agreed with Wainwright. We have no obligation under the Offering Agreement to sell any of the shares, and, at any time, we may suspend offers under the Offering Agreement or terminate the agreement.

 

In the six months ended September 30, 2021, we raised aggregate net proceeds under the Offering Agreement described above of $4,947,785, net of $126,922 in commissions to Wainwright and $2,154 in other offering expense through the sale of 626,000 shares of our common stock at an average price of $7.90 per share of net proceeds. No further sales can be made under the Offering Agreement.

 

Registered Direct Financing

 

In the six months ended September 30, 2021, we sold an aggregate of 1,380,555 shares of our common stock at a purchase price per share of $9.00, for aggregate net proceeds to us of $11,659,044 after deducting fees payable to Maxim Group LLC, the placement agent and other offering expenses. These shares were sold through a securities purchase agreement with certain institutional investors. The shares were issued pursuant to an effective shelf registration statement on Form S-3, which was originally filed with the SEC on March 19, 2020, and was declared effective on March 30, 2020 (File No. 333-237269) and a prospectus supplement thereunder.

 

Warrant Exercises

 

In the six months ended September 30, 2021, pursuant to the exercise of outstanding warrants to purchase 531,167 shares of our common stock, we received proceeds in the amount of $820,938 from institutional investors.

 

Also in the six months ended September 30, 2021, pursuant to the exercise of 874,664 outstanding warrants on a cashless basis, we issued 675,554 shares of our common stock. The difference of 199,110 shares of common stock issuable pursuant to the warrants were cancelled.

 

Stock Option Exercises

 

In the six months ended September 30, 2021, former employees paid us an aggregate of $28,325 for the exercise of outstanding options to purchase 11,562 shares of our common stock.

 

 

 

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Restricted Stock Unit Grants

 

In 2012, as amended through October 30, 2020, our Board of Directors established the Non-Employee Directors Compensation Program, to provide for cash and equity compensation for persons serving as non-employee directors of the Company. Under this program, each new director receives either stock options or a grant of restricted stock units, or RSUs, as well as an annual grant of RSUs at the beginning of each fiscal year. The RSUs are subject to vesting and represent the right to be issued on a future date shares of our common stock upon vesting.

 

On April 1, 2021, pursuant to the terms of the Company’s 2012 Non-Employee Directors Compensation Program, as amended, or the Directors Plan, the Compensation Committee of the Board granted RSUs under the Company’s 2020 Equity Incentive Plan, or the 2020 Plan, to each non-employee director of the Company. The Director’s Plan provides for a grant of $50,000 worth of RSUs at the beginning of each fiscal year, priced at the average for the closing prices for the five days preceding and including the date of grant, or $2.06 per share as of April 1, 2021. Each eligible director was granted an RSU in the amount of 24,295 shares under the 2020 Plan. The RSU’s are subject to vesting in four equal quarterly installments on June 30, September 30, December 31, 2021, and March 31, 2022, subject to the recipient’s continued service with the Company on each such vesting date.

 

In June 2021, 18,221 vested RSUs held by our non-employee directors were exchanged into the same number of shares of our common stock. All three non-employee directors elected to return 40% of their vested RSUs in exchange for cash, in order to pay their withholding taxes on the share issuances, resulting in 7,289 of the vested RSUs being cancelled in exchange for $35,786 in aggregate cash proceeds to those independent directors.

 

In September 2021, 18,221 vested RSUs held by our non-employee directors were exchanged into the same number of shares of our common stock. All three non-employee directors elected to return 40% of their vested RSUs in exchange for cash, in order to pay their withholding taxes on the share issuances, resulting in 7,289 of the vested RSUs being cancelled in exchange for $28,134 in aggregate cash proceeds to those independent directors.

 

RSUs outstanding that have vested as of, and are expected to vest subsequent to, September 30, 2021 are as follows: 

 

     
    Number of RSUs  
Vested      
Expected to vest     36,443  
Total     36,443  

 

6. RELATED PARTY TRANSACTIONS

 

During the three months ended September 30, 2021, we accrued unpaid fees of $52,000 owed to our non-employee directors as of September 30, 2021. Amounts due to related parties were comprised of the following items: 

 

           
    September 30,
2021
    March 31,
2021
 
Accrued Board fees   $ 52,000     $ 52,000  
Accrued vacation to all employees     82,207       66,520  
Total due to related parties   $ 134,207     $ 118,520  

 

 

 

 

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7. OTHER CURRENT LIABILITIES

 

Other current liabilities were comprised of the following items:

           
    September 30,     March 31,  
    2021     2021  
Accrued separation expenses for former executive (see Note 12)   $ 50,249     $ 284,270  
Accrued professional fees     420,868       477,366  
Total other current liabilities   $ 471,117     $ 761,636  

 

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, 2021 and 2020: 

 

                               
    Three Months
Ended
September 30,
2021
    Three Months
Ended
September 30,
2020
    Six Months
Ended
September 30,
2021
    Six Months
Ended
September 30,
2020
 
Vesting of stock options and restricted stock units   $ 201,061     $ 167,042     $ 321,216     $ 251,249  
Total stock-based compensation expense   $ 201,061     $ 167,042     $ 321,216     $ 251,249  
                                 
Weighted average number of common shares outstanding – basic and diluted     15,386,486       12,070,592       14,114,639       10,845,049  
                                 
Basic and diluted loss per common share attributable to stock-based compensation expense   $ (0.01 )   $ (0.01 )   $ (0.02 )   $ (0.02 )

  

 

All of the stock-based compensation expense recorded during the six months ended September 30, 2021 and 2020, an aggregate of $321,216 and $251,249, respectively, is included in payroll and related expense in the accompanying condensed consolidated statements of operations. Stock-based compensation expense recorded during the six months ended September 30, 2021 and 2020 represented an impact on basic and diluted loss per common share of $(0.02) 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, 2021 was insignificant.

 

Stock Option Activity

 

During the six months ended September 30, 2021, we issued a stock option grant to 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.

 

 

 

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From February 2020 through May 2020, our compensation committee granted 521,476 stock options that were contingent upon stockholder approval of the 2020 Plan at the Aethlon 2020 Annual Meeting of Stockholders. Upon approval of the 2020 Plan at that meeting, these option grants were considered effective and no longer contingent as of that date.

 

Under the 2020 Plan, up to 1,842,556 shares of common stock are authorized for issuance, pursuant to the grant of stock options, RSUs or other forms of stock-based compensation.

 

Stock options outstanding that have vested as of September 30, 2021 and stock options that are expected to vest subsequent to September 30, 2021 are as follows: 

 

                 
    Number of
Shares
    Weighted
Average
Exercise
Price
    Weighted
Average
Remaining
Contractual
Term in
Years
 
Vested     87,685     $ 8.10       7.98  
Expected to vest     908,896     $ 2.78       9.19  
Total     996,581                  

  

A summary of stock option activity during the six months ended September 30, 2021 is presented below: 

 

                 
    Amount     Range of
Exercise Price
    Weighted
Average
Exercise
Price
 
Stock options outstanding at March 31, 2021     844,089     $ 1.28 - 142.50     $ 3.07  
Exercised     (11,562 )   $ 2.45     $ 2.45  
Granted     266,888     $ 5.17     $ 5.17  
Cancelled/Expired     (102,834 )   $ 2.45 – 25.20     $ 6.83  
Stock options outstanding at September 30, 2021     996,581     $ 1.28 - 142.50     $ 3.25  
Stock options exercisable at September 30, 2021     87,685     $ 1.28 - 142.50     $ 7.98  

 

On September 30, 2021, our outstanding stock options had an intrinsic value of approximately $610,000 based on our closing share price of $3.86 on that date.

 

At September 30, 2021, there was approximately $3,521,000 of unrecognized compensation cost related to share-based payments, which is expected to be recognized over a weighted average period of 4.4 years.

 

9. WARRANTS

 

During the six months ended September 30, 2021 and 2020, we did not issue any warrants.

 

A summary of warrant activity during the six months ended September 30, 2021 is presented below: 

 

                 
    Amount     Range of
Exercise
Price
    Weighted
Average
Exercise
Price
 
Warrants outstanding at March 31, 2021     1,991,973     $ 1.50 – 99.00     $ 5.23  
Exercised     (1,206,721 )   $ 1.50 – 2.50     $ 2.21  
Cancelled/Expired     (201,410 )   $ 2.50 – 99.00     $ 3.73  
Warrants outstanding at September 30, 2021     583,842     $ 1.50 – 91.50     $ 11.97  
Warrants exercisable at September 30, 2021     583,842     $ 1.50 – 91.50     $ 11.97  

 

 

 

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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:

 

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, runs for the period from September 16, 2019 through September 15, 2022.

 

The work to be performed pursuant to this Award Contract will focus 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 recorded $229,698 of government contract revenue on the Phase 2 Melanoma Cancer Contract in the six months ended September 30, 2021. That revenue related to work performed in the three months ended March 31, 2021 and June 30, 2021 that had previously been recorded as deferred revenue as a result of falling short on certain milestones. We then achieved those March period milestones in the June quarter and the June period milestones in the September quarter and therefore recorded the previously deferred revenue as government contract revenue in the quarter ended September 30, 2021. We recorded the invoice related to the September 30, 2021 period as deferred revenue, since we fell short of certain milestones related to that period.

 

We did not record any government contract revenue during the six months ended September 30, 2020 as we did not achieve certain milestones for that period.

 

Subaward with University of Pittsburgh

 

In 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 recorded $34,234 of revenue related to this subaward in the six months ended September 30, 2021.

 

11. SEGMENTS

 

We operate our businesses principally through two reportable segments: Aethlon, which represents our therapeutic business activities, and ESI, which represents our diagnostic business activities. Our reportable segments have been determined based on the nature of the potential products being developed. We record discrete financial information for ESI and our chief operating decision maker reviews ESI’s operating results in order to make decisions about resources to be allocated to the ESI segment and to assess its performance.

 

Aethlon’s revenue is generated primarily from government contracts to date and ESI does not have any revenues. We have not included any allocation of corporate overhead to the ESI segment.

 

 

 

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The following tables set forth certain information regarding our segments:

           
    Six Months Ended September 30,  
    2021     2020  
Revenues:            
Aethlon   $ 263,932     $  
ESI            
Total Revenues   $ 263,932     $  
                 
Operating Losses:                
Aethlon   $ (4,097,441 )   $ (3,174,095 )
ESI     (9,801 )     (8,440 )
Total Operating Loss   $ (4,107,242 )   $ (3,182,535 )
                 
Net Losses:                
Aethlon   $ (4,097,441 )   $ (3,174,095 )
ESI     (9,801 )     (8,440 )
Net Loss Before Non-Controlling Interests   $ (4,107,242 )   $ (3,182,535 )
                 
Cash:                
Aethlon   $ 23,224,728     $ 14,473,035  
ESI     197       197  
Total Cash   $ 23,224,925     $ 14,473,232  
                 
Total Assets:                
Aethlon   $ 23,873,988     $ 15,056,193  
ESI     197       197  
Total Assets   $ 23,874,185     $ 15,056,390  
                 
Capital Expenditures:                
Aethlon   $ 78,861     $ 23,137  
ESI            
Capital Expenditures   $ 78,861     $ 23,137  
                 
Depreciation and Amortization:                
Aethlon   $ 80,690     $ 18,041  
ESI            
Total Depreciation and Amortization   $ 80,690     $ 18,041  

 

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.

 

 

 

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SEPARATION AGREEMENT

 

On October 30, 2020, we entered into a Separation Agreement with Timothy Rodell, M.D., our former Chief Executive Officer, or the Separation Agreement. Under the Separation Agreement, we agreed to pay Dr. Rodell a total of $444,729 and to cover his medical insurance costs over a twelve-month period that began on November 1, 2020, all in accordance with the terms of his employment agreement with the Company.

 

The total expense accrued at September 30, 2021 relating to the Separation Agreement, was $50,249 (see Note 7).

 

LEASE COMMITMENTS

 

In September 2021, our lease of approximately 2,600 square feet of executive office space at 9635 Granite Ridge Drive, Suite 100, San Diego, California 92123 expired.

 

We rent 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 current laboratory and is expected to be completed in the December 2021 quarter.

 

In addition, we rent a mobile clean room on a short term basis where we will house our manufacturing operations until our permanent manufacturing space is completed. We paid approximately $59,000 in rent expense to lease the mobile clean room during the three months ended September 30, 2021.

 

Overall, our rent expense, which is included in general and administrative expenses, approximated $167,000 and $94,000 for the six month periods ended September 30, 2021 and 2020, respectively.

 

During the fiscal year ended March 31, 2020, we adopted ASU Topic 842 on April 1, 2019 utilizing the alternative transition method allowed for under this guidance. As a result, we recorded lease liabilities and right-of-use lease assets of $228,694 on our balance sheet as of April 1, 2019 related to our former office located at 9635 Granite Ridge Drive, Suite 100, San Diego, California 92123. The lease liabilities represent the present value of the remaining lease payments of our corporate headquarters lease, discounted using our incremental borrowing rate as of April 1, 2019. The corresponding right-of-use lease assets are recorded based on the lease liabilities and the cumulative difference between rent expense and amounts paid under our corporate headquarters lease.

 

We also elected the short-term lease recognition exemption for our laboratory lease and therefore, we did not recognize right-of-use assets or lease liabilities at adoption.

 

As the corporate office lease has ended, as of September 30, 2021, we no longer carried any right-of-use lease assets or lease liabilities.

 

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. The agreement carries a term of 63 months and we will commence paying rent when we take occupancy of those spaces, which is expected to occur in the fourth quarter of 2021. We are currently operating out of the office space located at 11555 Sorrento Valley Road, Suite 203, San Diego, CA 92121, while construction is being completed.

 

Upon taking occupancy of the new lab and office spaces, we will record lease liabilities and right-of-use lease assets related to this agreement on our balance sheet. We estimate that the present value of the contractual payments under the lease agreement to be approximately $806,000.

 

In addition, the new lease agreement required us to post a standby letter of credit in favor of the landlord in the amount of $46,726 in lieu of a security deposit. We arranged for our bank to issue the standby letter of credit in the fiscal year ended March 31, 2021 and transferred a like amount to a restricted certificate of deposit which secured the bank’s risk in issuing that letter of credit. We have classified that restricted certificate of deposit on our balance sheet as restricted cash.

 

 

 

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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 (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 (see Note 13). 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 second or third 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.

 

The lease for the manufacturing space required us to post a standby letter of credit in favor of the landlord in the amount of $40,780 in lieu of a security deposit. We arranged for our bank to issue the standby letter of credit in October 2021 and transferred a like amount to a restricted certificate of deposit which secured the bank’s risk in issuing that letter of credit. We will classify that restricted certificate of deposit on our balance sheet as restricted cash.

 

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 September 30, 2021 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.

 

New Lease Arrangement

 

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 (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 (see Note 12). That manufacturing space is located near our new lab and office locations. We anticipate that the landlord will complete construction on this new space in the second or third 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.

 

The lease for the manufacturing space required us to post a standby letter of credit in favor of the landlord in the amount of $40,780 in lieu of a security deposit. We arranged for our bank to issue the standby letter of credit in October 2021 and transferred a like amount to a restricted certificate of deposit which secured the bank’s risk in issuing that letter of credit. We will classify that restricted certificate of deposit on our balance sheet as restricted cash.

 

Clinical Trial in India

 

In October 2021, we 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.

 

 

 

 

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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, completion of our capital-raising activities, our ability to maintain our Nasdaq listing, FDA, approval of our products, other 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 technology company focused on developing products to diagnose and treat life and organ threatening 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 one patient and is in the process of recruiting additional patients.

 

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 to treat individuals infected with HIV, hepatitis-C, and Ebola.

 

 

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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, 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). Under Single Patient Emergency Use regulations, the Company has also treated two patients with COVID-19 with the Hemopurifier.

 

In September 2021, we entered into an agreement with PPD, Inc., a leading global contract research organization (CRO), to oversee our US clinical studies investigating the Hemopurifier for critically ill COVID-19 patients. Together with PPD, we are currently advancing site readiness for Cooper Medical Center, Loma Linda Medical Center, Hoag Hospitals in Southern California, University of California Davis, Virginia Commonwealth University Medical Center, University of Miami Medical Center, and Thomas Jefferson Medical Center. Additionally, we obtained institutional research board approval and have entered into a clinical trial agreement with Stanford Hospital and we are in discussions to bring on board other key 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. 

 

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. 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 Update

 

In March 2020, the World Health Organization declared COVID-19 a 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 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 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.

 

 

 

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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 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, CA 92121. Our phone number at that address is (858) 459-7800. Our website is http://www.aethlonmedical.com.

 

RESULTS OF OPERATIONS

 

THREE MONTHS ENDED SEPTEMBER 30, 2021 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2020

 

Government Contract Revenues

 

We entered into the following contract with the NCI, part of the NIH, over the past two years:

 

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, runs for the period from September 16, 2019 through September 15, 2022.

 

The work to be performed pursuant to this Award Contract will focus 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 recorded $114,849 of government contract revenue on the Phase 2 Melanoma Cancer Contract in the three months ended September 30, 2021. That revenue related to work performed in the three months ended June 30, 2021 that had previously been recorded as deferred revenue as a result of falling short on certain milestones. We then achieved those June period milestones during the three months ended September 30, 2021 and therefore recorded the previously deferred revenue as government contract revenue in the quarter ended September 30, 2021. We recorded the invoice related to the September 30, 2021 period as deferred revenue, since we fell short of certain milestones related to that period.

 

We did not record any government contract revenue during the three months ended September 30, 2020 as we did not achieve certain milestones for that period.

 

Subaward with University of Pittsburgh

 

In 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 recorded $17,117 of revenue related to this subaward in the six months ended September 30, 2021.

 

 

 

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Operating Expenses

 

Consolidated operating expenses for the three months ended September 30, 2021 were $2,140,770, compared to $1,771,389 for the three months ended September 30, 2020. This increase of $369,381, or 20.9%, in the 2021 period was due to increases in payroll and related expenses of $245,364 and in general and administrative expenses of $130,953, which were partially offset by a decrease in professional fees of $6,936.

 

The $245,364 increase in payroll and related expenses was primarily due to the combination of a $101,089 increase in our research and development payroll as the result of hiring additional scientists, a $92,537 increase in general and administrative payroll expense as the result of additional headcount and approximately $18,000 in relocation expenses coupled with a $34,019 increase in our stock-based compensation.

 

The $130,953 increase in general and administrative expenses was primarily due to a $72,075 increase in our rent expense, a $54,203 increase in our amortization expense and a $45,621 increase in our insurance expenses, which were partially offset by a $57,260 decrease in our clinical trial expenses.

 

The $6,936 decrease in our professional fees was primarily due to $61,774 decrease in our scientific consulting expenses and a $34,375 decrease in our directors’ compensation, which were partially offset by a $38,993 increase in our legal fees, a $31,875 increase in recruiting fees and a $14,802 increase in contract labor costs.

 

Net Loss

 

As a result of the changes in revenues and expenses noted above, our net loss increased to approximately $2,008,000 in the three months ended September 30, 2021, from approximately $1,771,000 in the three months ended September 30, 2020.

 

Basic and diluted loss attributable to common stockholders were ($0.13) for the three months ended September 30, 2021, compared to ($0.15) for the three month period ended September 30, 2020.

 

SIX MONTHS ENDED SEPTEMBER 30, 2021 COMPARED TO THE SIX MONTHS ENDED SEPTEMBER 30, 2020

 

Government Contract Revenues

 

We entered into the following contract with the NCI, part of the NIH, over the past two years:

 

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, runs for the period from September 16, 2019 through September 15, 2022.

 

The work to be performed pursuant to this Award Contract will focus 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 recorded $229,698 of government contract revenue on the Phase 2 Melanoma Cancer Contract in the six months ended September 30, 2021. That revenue related to work performed in the three months ended March 31, 2021 and June 30, 2021 that had previously been recorded as deferred revenue as a result of falling short on certain milestones. We then achieved those March period milestones in the June quarter and the June period milestones in the September quarter and therefore recorded the previously deferred revenue as government contract revenue in the quarter ended September 30, 2021. We recorded the invoice related to the September 30, 2021 period as deferred revenue, since we fell short of certain milestones related to that period.

 

 

 

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We did not record any government contract revenue during the six months ended September 30, 2020 as we did not achieve certain milestones for that period.

 

Subaward with University of Pittsburgh

 

In 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 recorded $34,234 of revenue related to this subaward in the six months ended September 30, 2021.

 

Operating Expenses

 

Consolidated operating expenses for the six months ended September 30, 2021 were $4,371,174, compared to $3,182,535 for the six months ended September 30, 2020. This increase of $1,188,639, or 37.3%, in the 2021 period was due to increases in payroll and related expenses of $825,195, in general and administrative expenses of $351,182, and in professional fees of $12,249.

 

The $825,195 increase in payroll and related expenses was primarily due to the combination of a $334,947 increase in our research and development payroll as the result of hiring additional scientists, a $210,216 bonus payment to our CEO as the result of achieving certain milestones in his employment contract, a $156,422 increase in general and administrative payroll expense as the result of additional headcount and a $69,966 increase in our stock-based compensation.

 

The $351,182 increase in general and administrative expenses was primarily due to a $132,542 increase in our subcontractor expenses related to our government contracts, a $119,431 increase in our insurance expenses, a $72,737 increase in our rent expense and a $54,203 increase in our amortization expense.

 

The $12,249 increase in our professional fees was primarily due to a $89,298 increase in our legal fees, a $31,875 increase in recruiting fees, a $21,788 increase in marketing and investor relations expenses and a $10,898 increase in contract labor costs, which were partially offset by a $83,736 decrease in our scientific consulting expenses, a $52,125 decrease in directors’ fees and a $6,614 decrease in our accounting expenses.

 

Net Loss

 

As a result of the changes in revenues and expenses noted above, our net loss increased to approximately $4,107,000 in the six months ended September 30, 2021, from approximately $3,183,000 in the six months ended September 30, 2020.

 

Basic and diluted loss attributable to common stockholders were ($0.29) for both six month periods ended September 30, 2021 and 2020.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of September 30, 2021, we had a cash balance of $23,224,925 and working capital of $22,594,850. This compares to a cash balance of $9,861,575 and working capital of $8,976,512 at March 31, 2021. We expect our existing cash as of September 30, 2021 to be sufficient to fund the Company’s operations for at least twelve months from the issuance date of these financial statements.

 

The primary sources of our increase in cash during the six months ended September 30, 2021 resulted from our Common Stock Sales Agreement with Wainwright and our registered direct financing through Maxim Group LLC. The cash raised from those activities is noted below:

 

Common Stock Sales Agreement with H.C. Wainwright & Co., LLC

 

On March 22, 2021, we entered into the Offering Agreement, with Wainwright as sales agent, pursuant to which we may offer and sell shares of our common stock, from time to time as set forth in the Offering Agreement.

 

 

 

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The offering has been registered under the Securities Act pursuant to our shelf registration statement on Form S-3 (Registration Statement No. 333-237269), as previously filed with the SEC and declared effective on March 30, 2020. We filed a prospectus supplement, dated March 22, 2021, with the SEC in connection with the offer and sale of the shares of common stock, pursuant to which we may offer and sell shares of common stock having an aggregate offering price of up to $5,080,000 from time to time.

 

Subject to the terms and conditions set forth in the Offering Agreement, Wainwright agreed to use its commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares under the Offering Agreement from time to time, based upon our instructions. We provided Wainwright with customary indemnification rights under the Offering Agreement, and Wainwright is entitled to a commission at a fixed rate equal to three percent of the gross proceeds per share sold. In addition, we agreed to reimburse Wainwright for certain specified expenses in connection with entering into the Offering Agreement. The Offering Agreement will terminate upon the written termination by either party as permitted thereunder.

 

Sales of the shares, if any, under the Offering Agreement will be made in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act, including sales made by means of ordinary brokers’ transactions, including on the Nasdaq Capital Market, at market prices or as otherwise agreed with Wainwright. We have no obligation to sell any of the shares, and, at any time, we may suspend offers under the Offering Agreement or terminate the agreement.

 

In the six months ended September 30, 2021, we raised aggregate net proceeds under the Offering Agreement described above of $4,947,785, net of $126,922 in commissions to Wainwright and $2,154 in other offering expense through the sale of 626,000 shares of our common stock at an average price of $7.90 per share of net proceeds. No further sales may be made under the agreement.

 

Registered Direct Financing

 

In the six months ended September 30, 2021, we sold an aggregate of 1,380,555 shares of our common stock at a purchase price per share of $9.00, for aggregate net proceeds to us of $11,659,044 after deducting fees payable to Maxim Group LLC, the placement agent and other offering expenses. These shares were sold through a securities purchase agreement with certain institutional investors, The shares were issued pursuant to an effective shelf registration statement on Form S-3, which was originally filed with the SEC on March 19, 2020, and was declared effective on March 30, 2020 (File No. 333-237269) and a prospectus supplement thereunder.

 

Future capital requirements will depend upon many factors, including progress with pre-clinical testing and clinical trials, the number and breadth of our clinical programs, the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other proprietary rights, the time and costs involved in 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.

 

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
 
    September 30,
2021
    September 30,
2020
 
Cash provided by (used in):                
Operating activities   $ (3,950 )   $ (2,329 )
Investing activities     (79 )     (23 )
Financing activities     17,392       7,220  
Net increase (decrease) in cash   $ 13,363     $ 4,868  

 

 

 

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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 $3,950,000 in the six months ended September 30, 2021, compared to approximately $2,329,000 in the six months ended September 30, 2020.

 

NET CASH USED IN INVESTING ACTIVITIES. We used approximately $79,000 of cash to purchase laboratory and office equipment in the six months ended September 30, 2021, compared to approximately $23,000 in the six months ended September 30, 2020.

 

NET CASH PROVIDED BY FINANCING ACTIVITIES. 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 increase of cash provided by financing activities of approximately $17,392,000.

 

During the six months ended September 30, 2020, we raised approximately $7,261,000 from the issuance of common stock. That source of cash from our financing activities was partially offset by the use of approximately $41,000 to pay for the tax withholding on restricted stock units, for an aggregate increase of cash provided by financing activities of approximately $7,220,000.

 

As of the date of this filing, we plan to invest significantly into purchases of our raw materials and in our internal manufacturing facility for our clinical trials.

 

CRITICAL ACCOUNTING POLICIES

 

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 policies as disclosed in our Form 10-K for the year ended March 31, 2021.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

As of September 30, 2021, we did not have any off-balance sheet arrangements.

 

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.

 

 

 

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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 may be made unmarketable prior to commercialization by us by 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 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.

 

  · 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.

 

 

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  · Our business prospects will depend on our ability to complete studies, clinical trials, obtain satisfactory results, obtain required regulatory approvals and successfully commercialize our Hemopurifier product candidate. 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.

 

*Should any of our potential products, including the Hemopurifier, be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability to market and sell our products.

 

Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and third-party payors to decrease costs. Third-party payors are increasingly challenging the prices charged for medical products and services and instituting cost containment measures to control or significantly influence the purchase of medical products and services.

 

For example, in the U.S., the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limited Medicare reimbursement to certain providers. However, on December 14, 2018, a Texas U.S. District Court Judge ruled that the Affordable Care Act is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act of 2017. Additionally, on June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Thus, the ACA will remain in effect in its current form. Further, prior to the U.S. Supreme Court ruling, on January 28, 2021, President Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health insurance coverage through the ACA marketplace, which began on February 15, 2021 and remained open through August 15, 2021. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is possible that the ACA will be subject to judicial or Congressional challenges in the future. It is unclear how any such challenges and litigation, and the healthcare reform measures of the Biden administration will impact the ACA and our business. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments to providers by two percent through fiscal year 2030. However, COVID-19 relief legislation suspended the two percent Medicare sequester from May 1, 2020 through December 31, 2021. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase new technologies. Furthermore, the healthcare industry in the U.S. has experienced a trend toward cost containment as government and private insurers seek to control healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the future that limits payments for our products from governmental payors. In addition, Congress is considering additional health reform measures as part of the current budget reconciliation process. It is also possible that additional governmental action is taken to address the COVID-19 pandemic. In addition, commercial payors such as insurance companies, could adopt similar policies that limit reimbursement for medical device manufacturers’ products. Therefore, it is possible that our product or the procedures or patient care performed using our product will not be reimbursed at a cost-effective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countries where we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtain international reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell our products and have a material adverse effect on our business and financial condition.

 

 

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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 September 30, 2021.

 

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
Number
  Exhibit Description   Form   SEC File No.   Exhibit
Number
  Date   Filed
Herewith
                         
  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    
                           
  10.1¥   Lease between Aethlon Medical, Inc. and San Diego Inspire 5, LLC, effective as of October 27, 2021.                   X

 

 

 

 

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            Incorporated by Reference
Exhibit
Number
  Exhibit Description   Form   SEC File No.   Exhibit
Number
  Date   Filed
Herewith
                           
  10.2   Amendment to SBIR Phase II Award Contract, effective as of July 1, 2020, by and among Aethlon Medical, Inc., the National Institutes of Health and the National Cancer Institute.                   X
                           
  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).                   X

 

 

¥ Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant undertakes to furnish supplemental copies of any of the omitted schedules upon request by the SEC.

 

 


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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: November 9, 2021 By: /s/ JAMES B. FRAKES  
    JAMES B. FRAKES  
    CHIEF FINANCIAL OFFICER  
    CHIEF ACCOUNTING OFFICER  

 

 

 

 

 

 

 

 

 

 

 

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