AETHLON MEDICAL, INC. The following discussion of our financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by, the condensed consolidated financial statements and notes thereto included in Item 1 in this Quarterly Report on Form 10-Q. This item contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements. FORWARD LOOKING STATEMENTS
All statements, other than statements of historical fact, included in this Form 10-Q are, or may be deemed to be, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Such forward-looking statements involve assumptions, known and unknown risks, uncertainties and other factors which may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements contained in this Form 10-Q. Such potential risks and uncertainties include, without limitation, successful completion of our clinical trials, our ability to raise additional capital, our ability to maintain our Nasdaq listing,U.S. Food and Drug Administration , or FDA, approval of our products candidates, our ability to comply with changing government regulations, patent protection of our proprietary technology, product liability exposure, uncertainty of market acceptance, competition, technological change, and other risk factors detailed herein and in other of our filings with theSecurities and Exchange Commission , or theSEC . 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. OverviewAethlon Medical, Inc. ("Aethlon", "we" or "us") is a medical therapeutic company focused on developing products to diagnose and treat cancer and life threatening infectious diseases. The Aethlon Hemopurifier is a clinical-stage immunotherapeutic device designed to combat cancer and life-threatening viral infections. In cancer, the Hemopurifier is designed to deplete the presence of circulating tumor-derived exosomes that promote immune suppression, seed the spread of metastasis and inhibit the benefit of leading cancer therapies. The FDA has designated the Hemopurifier as a "Breakthrough Device" for two independent indications:
· the treatment of individuals with advanced or metastatic cancer who are
either unresponsive to or intolerant of standard of care therapy, and with
cancer types in which exosomes have been shown to participate in the
development or severity of the disease; and
· the treatment of life-threatening viruses that are not addressed with
approved therapies.
We believe the Hemopurifier can be a substantial advance in the treatment of
patients with advanced and metastatic cancer through the clearance of exosomes
that promote the growth and spread of tumors through multiple mechanisms. We are
currently conducting a clinical trial in patients with advanced and metastatic
head and neck cancer. We are initially focused on the treatment of solid tumors,
including head and neck cancer, gastrointestinal cancers and other cancers. As
we advance our clinical trials, we are in close contact with our clinical sites
to navigate and assess the impact of the global COVID-19 pandemic on our
clinical trials and current timelines.
On October 4, 2019 , the FDA approved our Investigational Device Exemption, or
IDE, application to initiate an Early Feasibility Study, or EFS, of the
Hemopurifier in patients with head and neck cancer in combination with standard
of care pembrolizumab (Keytruda). The primary endpoint for the EFS, designed to
enroll 10 to 12 subjects at a single center, is safety, with secondary endpoints
including measures of exosome clearance and characterization, as well as
response and survival rates. This study, which was initially being conducted at
the UPMC Hillman Cancer Center in Pittsburgh, PA , or UPMC , has treated two
patients to date. Due to lack of further patient enrollment, we and UPMC have
terminated this study at UPMC . We are considering adding one or more alternative
sites to this trial to accelerate recruitment. We also are in the process of
designing other clinical trials in oncology.
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We also believe the Hemopurifier can be part of the broad-spectrum treatment of
life-threatening highly glycosylated, or carbohydrate coated, viruses that are
not addressed with an already approved treatment. In small-scale or early
feasibility human studies, the Hemopurifier has been used in the past to treat
individuals infected with human immunodeficiency virus, or HIV, hepatitis-C, and
Ebola.
Additionally, in vitro, the Hemopurifier has been demonstrated to capture Zika
virus, Lassa virus, MERS-CoV, cytomegalovirus, Epstein-Barr virus, Herpes
simplex virus, Chikungunya virus, Dengue virus, West Nile virus,
smallpox-related viruses, H1N1 swine flu virus, H5N1 bird flu virus, Monkeypox
virus, and the reconstructed Spanish flu virus of 1918. In several cases, these
studies were conducted in collaboration with leading government or
non-government research institutes.
On June 17, 2020 , the FDA approved a supplement to our open IDE for the
Hemopurifier in viral disease to allow for the testing of the Hemopurifier in
patients with SARS-CoV-2/COVID-19 in a New Feasibility Study. That study is
designed to enroll up to 40 subjects at up to 20 centers in the U.S. Subjects
will have established laboratory diagnosis of COVID-19, be admitted to an
intensive care unit, or ICU, and will have acute lung injury and/or severe or
life-threatening disease, among other criteria. Endpoints for this study, in
addition to safety, will include reduction in circulating virus as well as
clinical outcomes (NCT # 04595903). In June 2022 , the first patient in this
study was enrolled and has completed the Hemopurifier treatment phase of the
protocol. Under Single Patient Emergency Use regulations, we have also treated
two patients with COVID-19 with the Hemopurifier.
We currently are experiencing a short-term disruption in our Hemopurifier supply
as our existing supply of Hemopurifiers expired on September 30, 2022 . As
previously disclosed, we are dependent on the FDA approval of qualified
suppliers to manufacture our Hemopurifier. Our intended transition to a new
supplier for Galanthus nivalis agglutinin, or GNA, is delayed as we work with
the FDA for approval of our supplement to our Investigational Device Exemption,
which is required to make this manufacturing change.
We also obtained ethics review board approval and entered into a clinical trial
agreement with Medanta Medicity Hospital , a multi-specialty hospital in Delhi
NCR, India , for a COVID-19 clinical trial at that location. One patient has
completed participation in the Indian COVID-19 study. The relevant authorities
in India have accepted the use of the Hemopurifiers made with the GNA fromour new supplier.
Previously we were the majority owner ofExosome Sciences, Inc. , or ESI, a company formed to focus on the discovery of exosomal biomarkers to diagnose and monitor life-threatening diseases, and thus consolidated ESI in our consolidated financial statements. For more than four years, the primary activities of ESI were limited to the payment patent of maintenance fees and applications. InSeptember 2022 , the Board of Directors of ESI and Aethlon, as the majority stockholder of ESI, approved the dissolution of ESI. Accordingly, ESI is eliminated from ourSeptember 30, 2022 balance sheet. Successful outcomes of human trials will also be required by the regulatory agencies of certain foreign countries where we plan to sell the Hemopurifier, if successfully developed. Some of our patents may expire before FDA approval or approval in a foreign country, if any, is obtained. However, we believe that certain patent applications and/or other patents issued more recently will help protect the proprietary nature of the Hemopurifier treatment technology.
We were formed on
Our common stock is listed on the Nasdaq Capital Market under the symbol "AEMD."
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COVID-19, Inflation and International Conflicts
The COVID-19 pandemic, the conflict inUkraine , and inflation has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. Given the level of uncertainty regarding the COVID-19 pandemic,Ukraine conflict, and inflationary environment on capital markets and theU.S. economy, we are unable to assess the impact of these events on our future access to capital. Further, while we have not experienced significant disruptions to our manufacturing supply chain, business, results of operations, financial condition, clinical trials, or preclinical research to date, we are unable to assess the potential impact these events could have on our manufacturing supply chain, business, results of operations, financial condition, clinical trials, or preclinical research in the future.
As we continue to actively advance our clinical trials, we remain in close contact with our clinical sites and are assessing the impact of COVID-19 on our trials, expected timelines and costs on an ongoing basis. We will assess any potential delays in our ability to timely ship clinical trial materials, including internationally, due to transportation interruptions. The extent of the impact of COVID-19, theUkraine conflict, and inflation on our operational and financial performance will depend on certain developments, including the impact on our clinical trials, employees and vendors, all of which are uncertain and cannot be predicted. Given these uncertainties, we cannot reasonably estimate the related impact to our business, operating results and financial condition, if any.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act, and must file reports, proxy statements and other information with theSEC . TheSEC 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 theSEC . Our headquarters are located at11555 Sorrento Valley Road , Suite 203,San Diego, California 92121. Our phone number at that address is (619) 941-0360. Our website is http://www.aethlonmedical.com. RESULTS OF OPERATIONS
THREE MONTHS ENDED
Government Contract Revenues We did not record government contract revenue in the three months endedSeptember 30, 2022 . We recorded$131,966 in government contract revenue in the three months endedSeptember 30, 2021 . This revenue resulted from work performed under our government contracts withNIH as follows: Three Months Three Months Ended Ended Change in 09/30/22 09/30/21 Dollars
Phase 2 Melanoma Cancer Contract $ -$ 114,849 $ (114,849 ) Subaward with University of Pittsburgh - 17,117 (17,117 ) Total Government Contract and Grant Revenue $ - $
131,966$ (131,966 )
We have recognized revenue under the following contracts/grants:
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Phase 2 Melanoma Cancer Contract
OnSeptember 12, 2019 , the NCI awarded to us an SBIR Phase II Award Contract, forNIH /NCI Topic 359, entitled "A Device Prototype for Isolation of Melanoma Exosomes for Diagnostics and Treatment Monitoring", or the Award Contract. The Award Contract amount was$1,860,561 and, as amended, ran for the period fromSeptember 16, 2019 throughSeptember 15, 2022 . The work performed pursuant to this Award Contract was focused on melanoma exosomes. This work followed from our completion of a Phase I contract for the Topic 359 solicitation that ran fromSeptember 2017 throughJune 2018 , as described below. Following on the Phase I work, the deliverables in the Phase II program involved the design and testing of a pre-commercial prototype of a more advanced version of the exosome isolation platform. We did not record government contract revenue on the Award Contract in the three months endedSeptember 30, 2022 . We recorded$114,849 of government contract revenue on the Award Contract in the three months endedSeptember 30, 2021 . We recorded the invoices related to theSeptember 30, 2022 period as deferred revenue, since we fell short of certain milestones related to those periods. The Award Contract ended onSeptember 15, 2022 and we presented the required final report to the NCI. Once the NCI completes the close out review of the contract, we expect to recognize as revenue the$574,245 currently recorded as deferred revenue on ourSeptember 30, 2022 balance sheet.
Subaward with
InDecember 2020 , we entered into a cost reimbursable subaward arrangement with theUniversity of Pittsburgh in connection with anNIH contract entitled "Depleting Exosomes to Improve Responses to Immune Therapy in HNNCC." Our share of the award was$256,750 . We did not record revenue related to this subaward in the three months endedSeptember 30, 2022 . We recorded$17,117 of revenue related to this subaward in the three months endedSeptember 30, 2021 . InOctober 2022 , we agreed with theUniversity of Pittsburgh to terminate the subaward arrangement, effective as ofNovember 10, 2022 , since it related to our clinical trial in head and neck cancer in which theUniversity of Pittsburgh was unable to recruit patients. Operating Expenses Consolidated operating expenses for the three months endedSeptember 30, 2022 were$3,665,309 , compared to$2,140,770 for the three months endedSeptember 30, 2021 . This increase of$1,524,539 , or 71.2%, in the 2022 period was due to increases in our general and administrative expenses of$862,782 , in our professional fees of$354,410 and in our payroll and related expenses of$307,347 . The$862,782 increase in our general and administrative expenses was primarily due to the combination of a$383,654 increase in our clinical trial expenses, a$258,246 increase in supplies, primarily for manufacturing Hemopurifiers, a$139,752 increase in subcontract expenses related to our government contracts, a$50,377 increase in our rent expense and a$32,424 increase in our insurance expense. The$354,410 increase in our professional fees was primarily due to the combination of a$151,792 increase in our contract labor expense associated with product development and analytical services, a$136,265 increase in our legal fees and a$60,885 increase in our investor relations expenses, primarily related to solicitation expenses associated with our 2022 annual meeting of stockholders. The$307,347 increase in our payroll and related expenses was due to an increase in our stock-based compensation expense of$112,476 . Our cash-based compensation expense increased by$194,871 due to our increased headcount. 20 Other Expense InSeptember 2022 , the Board of Directors of ESI and Aethlon as the majority stockholder of ESI approved the dissolution of ESI. As a result of this dissolution, we recorded a non-cash charge of$142,121 as other expense in the three months endedSeptember 30, 2022 . Net Loss As a result of the changes in revenues and expenses noted above, our net loss increased to approximately$3,807,000 in the three months endedSeptember 30, 2022 , from approximately$2,009,000 in the three months endedSeptember 30, 2021 . Basic and diluted loss attributable to common stockholders were ($0.18 ) for the three months endedSeptember 30, 2022 , compared to ($0.13 ) for the three month period endedSeptember 30, 2021 .
SIX MONTHS ENDED
Government Contract Revenues
We did not record government contract revenue in the six months endedSeptember 30, 2022 . We recorded$263,932 in government contract revenue in the six months endedSeptember 30, 2021 . This revenue resulted from work performed under our government contracts withNIH as follows: Six Months Six Months Ended Ended Change in 09/30/22 09/30/21 Dollars
Phase 2 Melanoma Cancer Contract $ -$ 229,698 $ (229,698 ) Subaward with University of Pittsburgh - 34,234 (34,234 ) Total Government Contract and Grant Revenue $ -$ 263,932
$ (263,932 )
We have recognized revenue under the following contracts/grants:
Phase 2 Melanoma Cancer Contract
On
The work performed pursuant to this Award Contract was focused on melanoma exosomes. This work followed from our completion of a Phase I contract for the Topic 359 solicitation that ran fromSeptember 2017 throughJune 2018 , as described below. Following on the Phase I work, the deliverables in the Phase II program involved the design and testing of a pre-commercial prototype of a more advanced version of the exosome isolation platform. 21
We did not record government contract revenue on the Award Contract in the six months endedSeptember 30, 2022 . We recorded$229,698 of government contract revenue on the Award Contract in the six months endedSeptember 30, 2021 . We recorded the invoices related to theSeptember 30, 2022 period as deferred revenue, since we fell short of certain milestones related to those periods. The Award Contract ended onSeptember 15, 2022 and we presented the required final report to the NCI. Once the NCI completes the close out review of the contract, we expect to recognize as revenue the$574,245 currently recorded as deferred revenue on ourSeptember 30, 2022 balance sheet.
Subaward with
InDecember 2020 , we entered into a cost reimbursable subaward arrangement with theUniversity of Pittsburgh in connection with anNIH contract entitled "Depleting Exosomes to Improve Responses to Immune Therapy in HNNCC." Our share of the award was$256,750 . We did not record revenue related to this subaward in the six months endedSeptember 30, 2022 . We recorded$34,234 of revenue related to this subaward in the six months endedSeptember 30, 2021 . InOctober 2022 , we agreed with theUniversity of Pittsburgh to terminate the subaward arrangement, effective as ofNovember 10, 2022 , since it related to our clinical trial in head and neck cancer in which theUniversity of Pittsburgh was unable to recruit patients. Operating Expenses
Consolidated operating expenses for the six months endedSeptember 30, 2022 were$6,573,045 , compared to$4,371,174 for the six months endedSeptember 30, 2021 . This increase of$2,201,871 , or 50.4%, in the 2022 period was due to increases in our general and administrative expenses of$1,266,610 , in our professional fees of$614,970 and in our payroll and related expenses of$320,291 . The$1,266,610 increase in our general and administrative expenses was primarily due to the combination of a$544,916 increase in our clinical trial expenses, a$355,475 increase in supplies, primarily for manufacturing Hemopurifiers, a$147,962 increase in subcontract expenses related to our government contracts, a$141,826 increase in our rent expense and a$58,928 increase in our insurance expense. The$614,970 increase in our professional fees was primarily due to the combination of a$306,082 increase in our contract labor expense associated with product development and analytical services, a$135,983 increase in our legal fees, a$120,303 increase in professional fees associated with regulatory strategy services and a$73,292 increase in our investor relations expenses, primarily related to solicitation expenses associated with our 2022 annual meeting of stockholders. The$320,291 increase in our payroll and related expenses was due to an increase in our stock-based compensation expense of$207,760 . Our cash-based compensation expense increased by$112,531 due to our increased headcount. Other Expense InSeptember 2022 , the Board of Directors of ESI and Aethlon as the majority stockholder of ESI approved the dissolution of ESI. As a result of this dissolution, we recorded a non-cash charge of$142,121 as other expense in the six months endedSeptember 30, 2022 . 22 Net Loss
As a result of the changes in revenues and expenses noted above, our net loss
increased to approximately
Basic and diluted loss attributable to common stockholders were (
LIQUIDITY AND CAPITAL RESOURCES
As of
2022 At The Market Offering Agreement with
OnMarch 24, 2022 , we entered into an At The Market Offering Agreement, or the 2022 ATM Agreement, withH.C. Wainwright & Co., LLC , or Wainwright, which established an at-the-market equity program pursuant to which we may offer and sell shares of our common stock from time to time as set forth in the 2022
ATM Agreement.
The offering was registered under the Securities Act pursuant to our shelf registration statement on S-3 (Registration Statement No. 333-259909), as previously filed with theSEC and declared effective onOctober 21, 2021 . We filed a prospectus supplement, datedMarch 24, 2022 , with theSEC that provides for the sale of shares of our common stock having an aggregate offering price of up to$15,000,000 , or the 2022 ATM Shares. Under the 2022 ATM Agreement, Wainwright may sell the 2022 ATM Shares by any method permitted by law and deemed to be an "at the market offering" as defined in Rule 415 promulgated under the Securities Act, including sales made directly on the Nasdaq Capital Market, or on any other existing trading market for the 2022 ATM Shares. In addition, under the 2022 ATM Agreement, Wainwright may sell the 2022 ATM Shares in privately negotiated transactions with our consent and in block transactions. Under certain circumstances, we may instruct Wainwright not to sell the 2022 ATM Shares if the sales cannot be effected at or above the price designated by us from time to time.
We are not obligated to make any sales of the 2022 ATM Shares under the 2022 ATM Agreement. The offering of the 2022 ATM Shares pursuant to the 2022 ATM Agreement will terminate upon the termination of the 2022 ATM Agreement by Wainwright or us, as permitted therein.
The 2022 ATM Agreement contains customary representations, warranties and agreements by us, and customary indemnification and contribution rights and obligations of the parties. We agreed to pay Wainwright a placement fee of up to 3.0% of the aggregate gross proceeds from each sale of the 2022 ATM Shares. We also agreed to reimburse Wainwright for certain specified expenses in connection with entering into the 2022 ATM Agreement. In the six months endedSeptember 30, 2022 , we raised net proceeds of$8,927,211 , net of$229,610 in commissions to Wainwright and$27,153 in other offering expense, through the sale of 7,480,836 shares of our common stock at an average price of$1.19 per share under the 2022 ATM Agreement. 23 Cash Flows
Cash flows from operating, investing and financing activities, as reflected in
the accompanying Condensed Consolidated Statements of Cash Flows, are summarized
as follows:
(In thousands)
For the six months ended
September 30, September 30,
2022 2021
Cash provided by (used in):
Operating activities $ (5,607 ) $ (3,950 )
Investing activities (780 ) (79 )
Financing activities 8,919 17,392
Net increase (decrease) in cash and restricted cash
$ 13,363 NET CASH USED IN OPERATING ACTIVITIES. We used cash in our operating activities due to our losses from operations. Net cash used in operating activities was approximately$5,607,000 in the six months endedSeptember 30, 2022 , compared to approximately$3,950,000 in the six months endedSeptember 30, 2021 . The primary components in the$1,657,000 increase in cash used in our operating activities in the 2022 period were a$2,608,000 increase in our net losses partially offset by a decrease of$279,483 in the change in accounts payable and other current liabilities, an increase in deferred revenue of$229,698 , an increased non-cash charge from stock-based compensation of$207,760 and a$142,121 non-cash charge for the loss on dissolution of subsidiary.NET CASH USED IN INVESTING ACTIVITIES. We used approximately$780,000 of cash to purchase laboratory and office equipment in the six months endedSeptember 30, 2022 , compared to approximately$79,000 in the six months endedSeptember 30, 2021 . The increase in the 2022 period was primarily a result of furnishing our new office and manufacturing space and purchasing additional laboratory equipment. NET CASH PROVIDED BY FINANCING ACTIVITIES. During the six months endedSeptember 30, 2022 , we raised approximately$8,927,000 from the issuance of common stock. That source of cash from our financing activities was partially offset by the use of approximately$8,000 to pay for the tax withholding on restricted stock units, for an aggregate amount of cash provided by financing activities of approximately$8,919,000 . During the six months endedSeptember 30, 2021 , we raised approximately$17,456,000 from the issuance of common stock. That source of cash from our financing activities was partially offset by the use of approximately$64,000 to pay for the tax withholding on restricted stock units, for an aggregate amount of cash provided by financing activities of approximately$17,392,000 . Material Cash Requirements As noted above in the results of operations, our clinical trial expense increased by$544,916 in the six months endedSeptember 30, 2022 , compared to the six month period endedSeptember 30, 2021 . We expect our clinical trial expenses to continue to increase for the foreseeable future as we continue
to expand our clinical trials. In addition, we have entered into leases for our new headquarters, laboratory and manufacturing facilities. As noted above in the results of operations, our rent expense increased by$141,826 in the six months endedSeptember 30, 2022 , compared to the six months endedSeptember 30, 2021 . Future capital requirements will depend upon many factors, including progress with pre-clinical testing and clinical trials for our Hemopurifier, the number and breadth of our clinical programs, the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other proprietary rights, the time and costs involved in obtaining regulatory approvals, competing technological and market developments, as well as our ability to establish collaborative arrangements, effective commercialization, marketing activities and other arrangements. We expect to continue to incur increasing negative cash flows and net losses for the foreseeable future. We will continue to need to raise additional capital either through equity and/or debt financing for the foreseeable future. 24 CRITICAL ACCOUNTING ESTIMATES Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted inthe United States of America , or GAAP, requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions affect the reported amounts of expenses during the reporting period. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions. We believe that the estimates and assumptions that are most important to the portrayal of our financial condition and results of operations, in that they require the most difficult, subjective or complex judgments, form the basis for the accounting policies deemed to be most critical to us. These critical accounting estimates relate to revenue recognition, stock purchase warrants issued with notes payable, beneficial conversion feature of convertible notes payable, impairment of intangible assets and long lived assets, stock compensation, deferred tax asset valuation allowance, and contingencies.
There have been no changes to our critical accounting estimates as disclosed in
our Form 10-K for the year ended
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