The following discussion of our financial condition and results of operations
should be read in conjunction with, and is qualified in its entirety by, the
condensed consolidated financial statements and notes thereto included in Item 1
in this Quarterly Report on Form 10-Q. This item contains forward-looking
statements that involve risks and uncertainties. Actual results may differ
materially from those indicated in such forward-looking statements.
FORWARD LOOKING STATEMENTS
All statements, other than statements of historical fact, included in this Form
10-Q are, or may be deemed to be, "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Exchange Act. Such forward-looking
statements involve assumptions, known and unknown risks, uncertainties and other
factors which may cause 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, U.S. Food and Drug Administration, 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 (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
Aethlon Medical, Inc., and its subsidiary, is a medical technology company
focused on addressing unmet needs in global health and biodefense. The Aethlon
Hemopurifier® is a clinical-stage immunotherapeutic device designed to combat
cancer and life-threatening viral infections. In cancer, the Hemopurifier
depletes 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 (FDA) has designated the
Hemopurifier as a "Breakthrough Device" related to the following two
• the treatment of life-threatening viruses that are not addressed with approved
• 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.
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 preparing for the initiation of clinical trials in patients with
advanced and metastatic cancers. We are initially focused on the treatment of
solid tumors, including head and neck cancer, gastrointestinal cancers and other
cancers. We are in active communication with FDA in preparation for the
initiation of an early clinical trial in one of these areas.
In addition, we believe the Hemopurifier can be part of the treatment of
life-threatening viruses that are not addressed with an already approved
treatment. In small-scale or early feasibility human studies, the Hemopurifier
has been administered to individuals infected with HIV, hepatitis-C, and Ebola.
Additionally, the Hemopurifier has been validated 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. Domestically, we are
focused on the clinical advancement of the Hemopurifier through an
investigational device exemption ("IDE") approved by the FDA. We recently
concluded a feasibility study to demonstrate the safety of our device in
health-compromised individuals infected with a viral pathogen.
We also recently announced the execution of a cross-licensing and development
agreement with SeaStar Medical, Inc., which will be focused on co-development of
our Hemopurifier cartridge with SeaStar's proprietary cartridges and the
development of a closed system for the Hemopurifier using the SeaStar pump and
cassettes. This collaboration may allow the deployment of the Hemopurifier into
settings that lack dialysis infrastructure, such as chemotherapy infusion
centers and field operations for life threatening viral epidemics.
We are also the majority owner of Exosome Sciences, Inc., or ESI, a company
focused on the discovery of exosomal biomarkers to diagnose and monitor
life-threatening diseases. Included among ESI's endeavors is the advancement of
a TauSomeTM biomarker candidate to diagnose chronic traumatic encephalopathy, or
CTE, in the living. ESI previously documented TauSome levels in former NFL
players to be nine times higher than same age-group control subjects. At Exosome
Sciences we are also investigating diagnostic and prognostic exosomal biomarkers
in cancer. We consolidate ESI's activities in our consolidated financial
Successful outcomes of human trials will also be required by the regulatory
agencies of certain foreign countries where we intend 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.
Our common stock is listed on the Nasdaq Capital Market under the symbol "AEMD."
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act
of 1934, as amended, 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 9635 Granite Ridge Drive, Suite
100, San Diego, CA 92123. Our phone number at that address is (858) 459-7800.
Our Web site is http://www.aethlonmedical.com.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2019 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
Government Contract Revenues
We recorded government contract revenue in the three months ended June 30, 2019
and 2018. This revenue resulted from work performed under our two government
contracts with the NIH as follows:
Three Months Three Months Change in
Ended 6/30/19 Ended 6/30/18 Dollars
Melanoma Cancer Contract $ - $ 149,625$ (149,625 )
Breast Cancer Grant 30,000 - 30,000
Total Government Contract and Grant Revenue $ 30,000$ 149,625$ (119,625 )
We have entered into the following two contracts/grants with the National Cancer
Institute (NCI), part of the National Institutes of Health (NIH) over the past
Breast Cancer Grant
In September 2018, the NCI awarded us a government grant (number
1R43CA232977-01). The title of this Small Business Innovation Research, or SBIR
Phase I grant is "The Hemopurifier Device for Targeted Removal of Breast Cancer
Exosomes from the Blood Circulation."
This NCI Phase I grant period runs from September 14, 2018 through August 31,
2019. The total amount of the firm grant is $298,444. The grant calls for two
subcontractors to work with us. Those subcontractors are University of
Pittsburgh and Massachusetts General Hospital.
During the three months ended June 30, 2019, we recognized $30,000 in government
contract revenue under this grant as a result of the work involved in one of the
three technical objectives of the contract: Aim 2. "Elution of a population of
breast cancer exosomes from Hemopurifier cartridges that bear the signatures of
malignancy based on expression of CSPG4 and HER2, for triple-negative or
HER2-overexpressing cancers, respectively".
Melanoma Cancer Contract
We entered into a contract with the NCI in September 2017. This award was under
the NIH's SBIR program. The title of the award is "SBIR Topic 359 Phase 1 Device
Strategy for Selective Isolation of Oncosomes and Non-Malignant Exosomes."
The award from NIH was a firm, fixed-price contract with potential total
payments to us of $299,250 over the course of nine months.
Fixed price contracts require the achievement of multiple, incremental
milestones to receive the full award during each period of the contract. The NIH
also had the unilateral right to require us to perform additional work under an
option period for an additional fixed amount of $49,800.
Under the terms of the contract, we were required to perform certain incremental
work towards the achievement of specific milestones against which we will
invoice the government for fixed payment amounts.
In the three months ended June 30, 2018, we performed work under the contract
covering the remainder of the technical objectives of the contract: Aim 1: To
validate the Hemopurifier as a device for capture and recovery of melanoma
exosomes from plasma; Aim 2: To validate a method of melanoma exosome isolation
consisting of the Hemopurifier followed by mab-based immunocapture to select out
the tumor-derived exosomes from non-malignant exosomes; and Aim 3: To evaluate
the functional integrity of melanoma exosomes purified by the Hemopurifier and
immunocapture isolation steps. As a result we invoiced NIH for $149,625 during
the three months ended June 30, 2018. The Melanoma Cancer Contract is now
Consolidated operating expenses for the three months ended June 30, 2019 were
$1,596,188, in comparison with $1,246,897 for the comparable period ended June
30, 2018. This increase of $349,291, or 28%, in 2019 was due to increases in
general and administrative expenses of $187,718, professional fees of $158,143
and payroll and related expenses of $3,430.
The $187,718 increase in general and administrative expenses in 2019 was
primarily due to the combination of a $119,528 increase in our clinical trial
expense, primarily costs associated with the manufacturing of Hemopurifiers for
an expected clinical trial in the cancer space, a $38,983 increase in our lab
supplies expense, primarily related to our breast cancer grant and a $38,814
increase in travel expense.
The $158,143 increase in our professional fees in 2019 was primarily due to a
$152,534 increase in our legal fees.
The $3,430 increase in payroll and related expenses was primarily due to a
$63,374 increase in stock-based compensation, which was partially offset by a
$59,944 reduction in our cash-based compensation expense.
Other expense during the three months ended June 30, 2019 consisted of interest
expense and a loss on debt extinguishment and during the three months ended June
30, 2018, consisted of interest expense only. Other expense for the three months
ended June 30, 2019 was $501,096, in comparison with other expense of $55,104
for the three months ended June 30, 2018.
The following table breaks out the various components of our other expense for
Three Months Three Months
6/30/19 6/30/18 Change
Loss on Debt Extinguishment $ 447,011 $ - $ 447,011
Interest Expense 54,085 55,104 (1,019 )
Total Other Expense $ 501,096$ 55,104$ 445,992
Loss on Debt Extinguishment
During the three months ended June 30, 2019, we reduced the conversion price on
our outstanding convertible notes from $3.00 per share to $0.68 per share. The
modification of the convertible notes was evaluated under ASC 470-50-40 and the
instruments were determined to be substantially different, and the transaction
qualified for extinguishment accounting. Under the extinguishment accounting we
recorded a loss on debt extinguishment of $447,011.
Interest expense was $54,085 for the three months ended June 30, 2019, and
$55,104 for the three months ended June 30, 2018, a decrease of $1,019 in 2019.
The various components of our interest expense are shown in the following table:
Three Months Three Months
6/30/19 6/30/18 Change
Interest Expense $ 23,798$ 24,817$ (1,019 )
Amortization of Note Discounts 30,287 30,287 -
Total Interest Expense $ 54,085$ 55,104$ (1,019 )
As noted in the above table, the $1,019 decrease in our interest expense was due
to the decrease in our contractual interest expense due to a reduced principal
balance in the June 2019 period compared to the June 2018 period as result of a
partial principal payment in the June 2019 period.
As a result of the changes in revenues and expenses noted above, our net loss
increased from approximately $1,146,000 in the three month period ended June 30,
2018 to $2,066,000 in the three month period ended June 30, 2018.
Basic and diluted loss attributable to common stockholders were ($0.11) for the
three month period ended June 30, 2019, compared to ($0.06) for the three month
period ended June 30, 2018.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2019, we had a cash balance of $2,492,354 and working capital of
$846,614. This compares to a cash balance of $3,828,074 and working capital of
$2,004,188 at March 31, 2019. Significant additional financing must be obtained
in order to provide a sufficient source of operating capital and to allow us to
continue to operate as a going concern. In addition, we will need to raise
capital to complete anticipated future human clinical trials in the U.S. We
anticipate the primary sources of this additional financing will be from
proceeds of our at-the-market offering program, debt financing and other forms
of equity placements.
Our primary source of capital during the three months ended June 30, 2019 was
our Common Stock Sales Agreement with H.C. Wainwright & Co., LLC, or H.C.
Wainwright. The cash raised from that activity is noted below:
Common Stock Sales Agreement with H.C. Wainwright
On June 28, 2016, we entered into a Common Stock Sales Agreement, or the
Agreement, with H.C. Wainwright, which established an at-the-market equity
program pursuant to which we may offer and sell shares of our common stock from
time to time as set forth in the Agreement. The Agreement provides for the sale
of shares of our common stock having an aggregate offering price of up to
$12,500,000, referred to as the "Shares".
Subject to the terms and conditions set forth in the Agreement, H.C. Wainwright
will use its commercially reasonable efforts consistent with its normal trading
and sales practices to sell the Shares from time to time, based upon our
instructions. We have provided H.C. Wainwright with customary indemnification
rights, and H.C. Wainwright will be entitled to a commission at a fixed rate
equal to three percent (3.0%) of the gross proceeds per Share sold. In addition,
we have agreed to pay certain expenses incurred by H.C. Wainwright in connection
with the Agreement, including up to $50,000 of the fees and disbursements of
their counsel. The Agreement will terminate upon the sale of all of the Shares
under the Agreement unless terminated earlier by either party as permitted under
Sales of the Shares, if any, under the Agreement shall be made in transactions
that are deemed to be "at the market offerings" as defined in Rule 415 under the
Securities Act of 1933, as amended, including sales made by means of ordinary
brokers' transactions, including on the Nasdaq Capital Market, at market prices
or as otherwise agreed with H.C. Wainwright. We have no obligation to sell any
of the Shares, and, at any time, we may suspend offers under the Agreement or
terminate the Agreement.
In the three months ended June 30, 2019, we raised aggregate net proceeds of
$36,622, net of $1,141 in commissions to H.C. Wainwright and $266 in other
offering expenses, under this Agreement through the sale of 46,300 shares at an
average price of $0.79 per share of net proceeds.
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 from operating, investing and financing activities, as reflected in
the accompanying Condensed Consolidated Statements of Cash Flows, are summarized
For the three months ended
June 30, June 30,
Cash used in:
Operating activities $ (1,248 )$ (818 )
Investing activities (1 ) -
Financing activities (87 ) (33 )
Net decrease in cash $ (1,336 )$ (851 )
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 $1,248,000 in the three month period ended June 30, 2019 compared
to approximately $818,000 in the three month period ended June 30, 2018. The
primary driver in this increase of approximately $430,000 in 2019 in cash used
in operating activities was the $915,000 increase in our net loss which was
partially offset by the non-cash debt extinguishment expense of approximately
$447,000 and an increase in our non-cash stock-based compensation of
NET CASH USED IN INVESTING ACTIVITIES. We used approximately $1,000 of cash to
purchase laboratory and office equipment in the three months ended June 30,
2019. We had no investing activities in the three months ended June 30, 2018.
NET CASH USED IN FINANCING ACTIVITIES. During the three months ended June 30,
2019, we raised approximately $37,000 from the issuance of common stock. That
source of cash from our financing activities was more than offset by the use of
$100,000 to partially pay down our convertible notes and the use of
approximately $24,000 to pay for the tax withholding on restricted stock units
for an aggregate use of cash in financing activities of approximately $87,000.
During the three months ended June 30, 2018, we used approximately $33,000 to
pay for the tax withholding on restricted stock units.
As of the date of this filing, we plan to invest significantly into purchases of
our raw materials and into our contract manufacturing arrangement subject to
successfully raising additional capital.
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, 2019 , except for the leases policy
disclosed in Note 4 to the accompanying unaudited condensed consolidated
financial statements included in Item 1 of this Quarterly Report on Form 10-Q.
OFF-BALANCE SHEET ARRANGEMENTS
We have no obligations required to be disclosed herein as off-balance sheet
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