10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 14, 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from _____to_____
COMMISSION FILE NUMBER
Aethlon Medical, Inc.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
TITLE OF EACH CLASS |
TRADING SYMBOL |
NAME OF EACH EXCHANGE ON WHICH REGISTERED |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated Filer ☐ | Accelerated Filer ☐ |
| Smaller reporting company |
|
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of August 14, 2024, the registrant had outstanding shares of common stock, $0.001 par value.
TABLE OF CONTENTS
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CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, or Quarterly Report, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the safe harbor created by those sections.
We may, in some cases, use words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of these terms, and similar expressions that convey uncertainty of future events or outcomes to identify these forward-looking statements. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Such statements, include, but are not limited to, statements contained in this Quarterly Report relating to our business, business strategy, products and services we may offer in the future, the timing and results of future clinical trials, and capital outlook, successful completion of our clinical trials, our ability to raise additional capital, our ability to maintain our Nasdaq listing, U.S. Food and Drug Administration, or FDA, approval of our products candidates, our ability to comply with changing government regulations, patent protection of our proprietary technology, product liability exposure, uncertainty of market acceptance, competition, technological change, and other risk factors detailed herein and in other of our filings with the Securities and Exchange Commission, or the SEC. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statement of historical fact nor guarantees of assurance of future performance. We caution you therefore against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward looking statements include, but are not limited to, a decline in general economic conditions nationally and internationally, the ability to protect our intellectual property rights, competition from other providers and products, risks in product development, inability to raise capital to fund continuing operations, changes in government regulation, and other factors (including the risks contained in Item 1A of our most recent Annual Report on Form 10-K under the heading “Risk Factors”) relating to our industry, our operations and results of operations and any businesses that may be acquired by us. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.
Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, we undertake no obligation to and do not intend to update any of the forward-looking statements to conform these statements to actual results.
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AETHLON MEDICAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2024 |
March 31, 2024 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Deferred Offering Cost | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use asset | ||||||||
| Patents, net | ||||||||
| Restricted cash | ||||||||
| Deposits | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Due to related parties | ||||||||
| Operating lease liability, current portion | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Operating lease liability, less current portion | ||||||||
| Total liabilities | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock, par value $ per share; shares authorized as of June 30, 2024 and March 31, 2024; and shares issued and outstanding as of June 30, 2024 and March 31, 2024, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( |
) | ( |
) | ||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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AETHLON MEDICAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Month Periods Ended June 30, 2024 and 2023
(Unaudited)
| Three Months Ended June 30, 2024 |
Three Months Ended June 30, 2023 |
|||||||
| OPERATING EXPENSES | ||||||||
| Professional fees | $ | $ | ||||||
| Payroll and related expenses | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| OPERATING LOSS | ( |
) | ( |
) | ||||
| OTHER INCOME | ||||||||
| Interest income | ||||||||
| NET LOSS | ( |
) | ( |
) | ||||
| NET LOSS ATTRIBUTABLE TO AETHLON MEDICAL, INC. | ( |
) | ( |
) | ||||
| OTHER COMPREHENSIVE LOSS | ( |
) | ( |
) | ||||
| COMPREHENSIVE LOSS | $ | ( |
) | $ | ( |
) | ||
| Basic and diluted net loss per share attributable to common stockholders | $ | ) | $ | ) | ||||
| Weighted average number of common shares outstanding – basic and diluted | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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AETHLON MEDICAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Three Months Ended June 30, 2024 and 2023
(Unaudited)
| ATTRIBUTABLE TO AETHLON MEDICAL, INC. | ||||||||||||||||||||||||||||
| COMMON STOCK | ADDITIONAL PAID IN |
ACCUMULATED | ACCUMULATED COMPREHENSIVE |
NON- CONTROLLING |
TOTAL | |||||||||||||||||||||||
| SHARES | AMOUNT | CAPITAL | DEFICIT | LOSS | INTERESTS | EQUITY | ||||||||||||||||||||||
| BALANCE – MARCH 31, 2024 | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
| Issuances of common stock for public offering | ||||||||||||||||||||||||||||
| Issuances of common stock for Class A and Class B warrant exercises | ||||||||||||||||||||||||||||
| Issuance of common shares upon vesting of restricted stock units and net stock option exercises | ( |
) | ( |
) | ||||||||||||||||||||||||
| Stock-based compensation expense | – | |||||||||||||||||||||||||||
| Net loss | – | ( |
) | ( |
) | |||||||||||||||||||||||
| Other comprehensive loss | – | ( |
) | ( |
) | |||||||||||||||||||||||
| BALANCE – JUNE 30, 2024 | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
| COMMON STOCK | ADDITIONAL PAID IN |
ACCUMULATED | ACCUMULATED COMPREHENSIVE |
NON- CONTROLLING |
TOTAL | |||||||||||||||||||||||
| SHARES | AMOUNT | CAPITAL | DEFICIT | LOSS | INTERESTS | EQUITY | ||||||||||||||||||||||
| BALANCE – MARCH 31, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
| Issuances of common stock for cash under at the market program | ||||||||||||||||||||||||||||
| Issuance of common shares upon vesting of restricted stock units and net stock option exercises | ( |
) | ( |
) | ||||||||||||||||||||||||
| Stock-based compensation expense | – | |||||||||||||||||||||||||||
| Net loss | – | ( |
) | ( |
) | |||||||||||||||||||||||
| Other comprehensive loss | – | ( |
) | ( |
) | |||||||||||||||||||||||
| BALANCE – JUNE 30, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
AETHLON MEDICAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 2024 and 2023
(Unaudited)
| Three months Ended June 30, 2024 |
Three months Ended June 30, 2023 |
|||||||
| Cash flows used in operating activities: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock based compensation | ||||||||
| Accretion of right-of-use operating lease asset | ( |
) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable and other current liabilities | ||||||||
| Deferred revenue | ||||||||
| Due to related parties | ( |
) | ||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| Cash flows used in investing activities: | ||||||||
| Purchases of property and equipment | ( |
) | ||||||
| Net cash used in investing activities | ( |
) | ||||||
| Cash flows provided by financing activities: | ||||||||
| Proceeds from the issuance of common stock, net | ||||||||
| Proceeds from the issuance of common stock upon Class A and Class B warrant exercises | ||||||||
| Tax withholding payments or tax equivalent payments for net share settlement of restricted stock units and net stock option expense | ( |
) | ( |
) | ||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate on changes on cash | ( |
) | ( |
) | ||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( |
) | ||||||
| Cash, cash equivalents and restricted cash at beginning of period | ||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Supplemental disclosures of non-cash investing and financing activities: | ||||||||
| Par value of shares issued for vested restricted stock units and net stock option exercise | $ | $ | ||||||
| Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Cash, cash equivalents and restricted cash | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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AETHLON MEDICAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2024
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION ORGANIZATION
Aethlon Medical, Inc., or Aethlon, the Company, we or us, is a medical therapeutic company focused on developing the Hemopurifier, a clinical-stage immunotherapeutic device designed to combat cancer and life-threatening viral infections and for use in organ transplantation. In human studies, 164 sessions with 38 patients, the Hemopurifier was safely utilized and demonstrated the potential to remove life-threatening viruses. In pre-clinical studies, the Hemopurifier has demonstrated the potential to remove harmful exosomes and exosomal particles from biological fluids, utilizing its proprietary lectin-based technology. This action has potential applications in cancer, where exosomes and exosomal particles may promote immune suppression and metastasis, and in life-threatening infectious diseases. 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 or exosomal particles 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 may be a substantial advancement in the treatment of patients with advanced and metastatic cancer through its design to bind to and remove harmful exosomes and exosomal particles that promote the growth and spread of tumors. In October 2022, we formed a wholly-owned subsidiary in Australia to initially conduct oncology-related clinical research, then seek regulatory approval and commercialize our Hemopurifier in Australia. We are currently working with our contract research organization, or CRO, on preparations to conduct a clinical trial in Australia in patients with solid tumors, including head and neck cancer, and gastrointestinal cancers.
In January 2023, we entered into an agreement with North American Science Associates, LLC, or NAMSA, a world leading medical technology CRO offering global end-to-end development services, to oversee our planned clinical trials investigating the Hemopurifier for oncology indications. Pursuant to the agreement, NAMSA agreed to manage our planned clinical trials of the Hemopurifier for patients in the United States and Australia with various types of cancer tumors.
We recently completed an in vitro binding study of relevant oncology targets, to provide pre-clinical evidence to support our trial design and translational endpoints. Our study indicated positive results, providing evidence that our Hemopurifier removes extracellular vesicles, or EVs, from plasma. This translational study provides pre-clinical evidence to support our planned phase 1 safety, feasibility and dose-finding clinical trials of our Hemopurifier in patients with solid tumors who have stable or progressive disease during anti-PD-1 monotherapy treatment, such as Keytruda® or Opdivo®. In addition to an interested initial trial site in India, we had three interested sites in Australia that were awaiting our completion of this in vitro binding study. We added the data from this study to our Clinical Investigator Brochure and submitted that brochure to the Ethics Committee of Royal Adelaide Hospital in Australia and in June 2024, we received approval for our proposed phase 1 oncology trial from the Ethics Committee from Royal Adelaide Hospital. We are currently in the process of applying to the Ethics Committees of the two additional interested clinical trial sites in Australia and the site in India.
We also believe that 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.
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Additionally, in vitro, the Hemopurifier has been demonstrated to capture H5N1 bird flu virus, H1N1 swine flu virus, Zika virus, Lassa virus, MERS-CoV, cytomegalovirus, Epstein-Barr virus, Herpes simplex virus, Chikungunya virus, Dengue virus, West Nile virus, smallpox-related viruses, 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 Investigational Device Exemption, or IDE, for the Hemopurifier in viral disease to allow for the testing of the Hemopurifier in patients with SARS-CoV-2/COVID-19, or COVID-19, in a new feasibility study. That study was designed to enroll up to 40 subjects at up to 20 centers in the United States. Subjects were to have established laboratory diagnosis of COVID-19, be admitted to an ICU and have acute lung injury and/or severe or life-threatening disease, among other criteria. Endpoints for this study, in addition to safety, included reduction in circulating virus, as well as clinical outcomes (NCT # 04595903). In January 2021, the Hemopurifier was used to treat a viremic patient, under our emergency use approval, with a predicted risk of mortality of 80% and the Hemopurifier was able to reduce the patient’s SARS-CoV-2 plasma viral load by 58.4%. In June 2022, the first patient in this study was enrolled and completed the Hemopurifier treatment phase of the protocol. Due to the lack of COVID-19 patients in the ICUs of our trial sites, we terminated this study in 2022. However, our IDE for this indication remains open, as we have an active COVID-19 trial in India and wish to preserve the option of enrolling patients if the situation with COVID-19 changes.
Under Single Patient Emergency Use regulations, Aethlon has treated two patients with COVID-19 with the Hemopurifier, in addition to the COVID-19 patient treated with our Hemopurifier in our COVID-19 clinical trial discussed above.
In October 2022, we launched a wholly owned subsidiary in Australia, formed to conduct clinical research, seek regulatory approval and commercialize our Hemopurifier in that country. The subsidiary will initially focus on the planned oncology trials in Australia.
In August 2024, the Bellberry Human Research Ethics Committee granted full ethics approval to the Pindara Private Hospital for a safety, feasibility and dose-finding clinical trial of the Hemopurifier® in patients with solid tumors who have stable or progressive disease during anti-PD-1 monotherapy treatment (AEMD-2022-06 Hemopurifier Study). The approval is valid for one year, until August 6, 2025. The trial will be conducted by Dr. Marco Matos and his staff at the Pindara Private Hospital, located in Queensland, Australia.
In June 2024, the Human Research Ethics Committee (HREC) of the Central Adelaide Local Health Network (CALHN) granted full ethics approval for the same safety, feasibility and dose-finding clinical trial of the Hemopurifier in cancer patients with solid tumors who have stable or progressive disease during anti-PD-1 monotherapy treatment, such as Keytruda® (pembrolizumab) or Opdivo® (nivolumab) (AEMD-2022-06 Hemopurifier Study). The approval is valid for three years, until June 13, 2027. The trial will be conducted by Prof. Michael Brown and his staff at the Cancer Clinical Trials Unit, CALHN, Royal Adelaide Hospital, located in Adelaide, Australia.
We also obtained ethics review board, or ERB, approval from 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.
In May 2023, we received ERB approval from the MAMC, for a second site for our clinical trial in India to treat severe COVID-19. MAMC was established in 1958 and is located in New Delhi, India. MAMC is affiliated with the University of Delhi and is operated by the Delhi government.
We now have two sites in India for this trial with the Medanta Medicity Hospital and Maulana Azad Medical College, or MAMC. One patient has been treated to date; however, we have been informed by our CRO that a new COVID-19 subvariant was detected in India recently. Our COVID-19 trial in India remains open in the event that there are COVID-19 admissions to the ICUs at our sites in India.
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Additionally, based on preclinical data with acellular kidney perfusates, we believe that the Hemopurifier has potential applications in organ transplantation. We are investigating whether the Hemopurifier, when incorporated into a machine perfusion organ preservation circuit, can remove harmful viruses, exosomes, RNA molecules, cytokines, chemokines and other inflammatory molecules from recovered organs. We initially are focused on recovered kidneys from deceased donors. We have previously demonstrated the removal of multiple viruses and exosomes and exosomal particles from buffer solutions, in vitro, utilizing a scaled-down version of our Hemopurifier and believe this process could reduce transplantation complications by improving graft function, reducing graft rejection, maintaining or improving organ viability prior to transplantation, and potentially reducing the number of kidneys rejected for transplant.
Successful outcomes of human trials will also be required by the regulatory agencies of certain foreign countries where we plan to market and 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 to us more recently will help protect the proprietary nature of our Hemopurifier treatment technology.
In addition to the foregoing, we are monitoring closely the impact of inflation, recent bank failures and the war between Russia and Ukraine and the military conflicts in Israel and the surrounding areas, as well as related political and economic responses and counter-responses by various global factors on our business. Given the level of uncertainty regarding the duration and impact of these events on capital markets and the U.S. economy, we are unable to assess the impact on our timelines and future access to capital. The full extent to which inflation, recent bank failures and the ongoing military conflicts will impact our business, results of operations, financial condition, clinical trials and preclinical research will depend on future developments, as well as the economic impact on national and international markets that are highly uncertain.
We incorporated in Nevada 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.”
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
During the three months ended June 30, 2024, 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, 2024.
REVERSE STOCK SPLIT
On October 4, 2023, we effected a
| 10 |
Basis of Presentation and Use of Estimates
Our accompanying unaudited condensed consolidated financial statements 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, 2024, included in our Annual Report on Form 10-K filed with the SEC on June 27, 2024. The accompanying unaudited condensed consolidated financial statements include the accounts of Aethlon Medical, Inc. and its wholly owned subsidiary, Aethlon Medical Australia Pty Ltd, as well as its previously majority-owned subsidiary, Exosome Sciences, Inc., which dissolved in September 2022. All significant inter-company transactions and balances have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements, taken as a whole, contain all adjustments that are of a normal recurring nature necessary to present fairly our operating results, cash flows, and financial position as of and for the period ended June 30, 2024. 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, 2024 has been derived from the audited consolidated balance sheet at March 31, 2024, contained in the above referenced 10-K. The results of operations for the three months ended June 30, 2024 are not necessarily indicative of the results to be expected for the full year or any future interim periods.
Reclassifications
Certain prior year balances within the unaudited condensed consolidated financial statements have been reclassified to conform to the current year presentation, including the impact of the reverse stock split.
LIQUIDITY AND GOING CONCERN
Management expects existing cash as of June
30, 2024 to be sufficient to fund the Company’s operations for at least twelve months from the issuance date of these
condensed consolidated financial statements. In previous filings, we disclosed substantial doubt about our ability to continue as a
going concern due to recurring losses and negative cash flows. We have addressed these concerns by raising $
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the ordinary course of business.
Restricted Cash
To comply with the terms of our laboratory and
office lease and our lease for our manufacturing space (see Note 10), we caused our bank to issue two standby letters of credit, or L/Cs,
in the aggregate amount of $
| 11 |
Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period of computation. Diluted loss per share is computed similar to basic loss per share, except that the denominator is increased to include the number of additional dilutive common shares that would have been outstanding if potential common shares had been issued, if such additional common shares were dilutive. Since we had net losses for all periods presented, basic and diluted loss per share are the same, and additional potential common shares have been excluded, as their effect would be antidilutive.
As of June 30, 2024 and 2023, an aggregate of and potential common shares, respectively, consisting of shares underlying outstanding stock options, warrants, and 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-month periods ended June 30, 2024 and 2023, 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:
| June 30, | June 30, | |||||||
| 2024 | 2023 | |||||||
| Three months ended | $ | $ | ||||||
4. RECENT ACCOUNTING PRONOUNCEMENTS
In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 intends to improve reportable segment disclosure requirements, enhance interim disclosure requirements and provide new segment disclosure requirements for entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods with fiscal years beginning after December 15, 2024. ASU 2023-07 is to be adopted retrospectively to all prior periods presented. We are currently assessing the impact this guidance will have on our consolidated financial statements; however, we do not expect a material impact.
In December 2023, the FASB issued Accounting Standards Update 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires enhanced annual disclosures for specific categories in the rate reconciliation and income taxes paid disaggregated by federal, state and foreign taxes. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024. The Company is evaluating if the adoption of this new standard will have a material effect on our disclosures.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The adoption of ASU No. 2016-13 for smaller reporting companies that did not previously early adopt was January 1, 2023. The Company maintained US Treasury bills with maturities of less than three months and expects zero credit losses from these securities. As a result, the Company did not record an allowance for expected credit losses.
| 12 |
5. EQUITY TRANSACTIONS IN THE THREE MONTHS ENDED JUNE 30, 2024
2022 At The Market Offering Agreement with H.C. Wainwright & Co., LLC
On March 24, 2022, we entered into an At The Market Offering Agreement, or the 2022 ATM Agreement, with H.C. Wainwright & Co., LLC, or Wainwright, which established an at-the-market equity program pursuant to which we may offer and sell shares of our common stock from time to time, as set forth in the 2022 ATM Agreement.
The offering was registered under the Securities
Act of 1933, as amended, or the Securities Act, pursuant to our shelf registration statement on Form S-3 (Registration Statement No.
333-259909), as previously filed with the SEC and declared effective on October 21, 2021. We filed a prospectus supplement, dated March
24, 2022, with the SEC that provides for the sale of shares of our common stock having an aggregate offering price of up to $
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.
During the three months ended June 30, 2024,
we did
May 2024 Public Offering
On May 17, 2024, we closed a public offering pursuant
to which we sold an aggregate of: (i) shares of our common stock and accompanying Class A warrants to purchase up to
All pre-funded warrants issued in the offering were
exercised in the quarter ended June 30, 2024. The Class A and Class B warrants each have an exercise
price of $
Maxim Group LLC (“Maxim”),
served as the exclusive placement agent in connection with the offering. We paid Maxim a cash fee of 6.5% of the aggregate gross proceeds
raised at the closing of the offering, and reimbursement of certain expenses and legal fees in the amount of $
| 13 |
The gross proceeds from
the offering, before deducting the placement agent’s fees and other offering expenses, were approximately $
The shares of Common Stock, the Class A and Class B warrants, the pre-funded warrants and the Placement Agent Warrants described above and the underlying shares of Common Stock were offered pursuant to a Registration Statement on Form S-1, as amended (File No. 333-278188) (the “Registration Statement”), which was declared effective by the Securities and Exchange Commission (the “SEC”) on May 15, 2024.
Restricted Stock Unit Grants
On April 16, 2024, our Board of Directors approved, pursuant to the terms of the Director Compensation Policy, the grant of the annual RSUs under the Director Compensation Policy to each of the four non-employee directors of the Company then serving on the Board of Directors. The Director Compensation Policy provides for a grant of stock options or $50,000 worth of RSUs at the beginning of each fiscal year for current non-employee directors then serving on the Board of Directors, and for a grant of stock options or $75,000 worth of RSUs for a newly elected non-employee director, with each RSU priced at the average of the closing prices for the five trading days preceding and including the date of grant, or $1.52 per share for the RSUs granted in April 2024. As a result, in April 2024, the four eligible directors were each granted RSUs under the Company’s 2020 Equity Incentive Plan, as amended, or the 2020 Plan.
During the three-months ended June 30, 2024, shares were issued upon settlement of RSUs.
6. RELATED PARTY TRANSACTIONS
During the three months ended June 30, 2024,
we accrued unpaid fees of $
As a result of entering
into a Separation Agreement effective July 1, 2024 with a former employee, we paid out accrued vacation of $
Amounts due to related parties were comprised of the following items:
| June 30, 2024 |
March 31, 2024 |
|||||||
| Accrued Board fees | $ | $ | ||||||
| Accrued vacation to all employees | ||||||||
| Accrued separation expenses | ||||||||
| Total due to related parties | $ | $ | ||||||
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7. OTHER CURRENT LIABILITIES
Other current liabilities were comprised of the following items:
| June 30, | March 31, | |||||||
| 2024 | 2024 | |||||||
| Accrued professional fees | $ | $ | ||||||
| Total other current liabilities | $ | $ | ||||||
The following tables summarize share-based compensation expenses relating to RSUs and stock options and the effect on basic and diluted loss per common share during the three month periods ended June 30, 2024 and 2023:
| June 30, 2024 |
June 30, 2023 |
|||||||
| Vesting of stock options and restricted stock units | $ | $ | ||||||
| Total stock-based compensation expense | $ | $ | ||||||
| Weighted average number of common shares outstanding – basic and diluted | ||||||||
| Basic and diluted loss per common share attributable to stock-based compensation expense | $ | ) | $ | ) | ||||
All of the stock-based compensation expense recorded during the three months ended June 30, 2024 and 2023, an aggregate of $ and $, respectively, is included in payroll and related expense in the accompanying condensed consolidated statements of operations. Stock-based compensation expense recorded during each of the three months ended June 30, 2024 and 2023 represented an impact on basic and diluted loss per common share of $) and $), respectively.
Stock Option Activity
We did t issue any stock options during the three months ended June 30, 2024 and 2023.
Stock options outstanding that have vested as of June 30, 2024 and stock options that are expected to vest subsequent to June 30, 2024 are as follows:
| Number of Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term in Years |
||||||||||
| Vested | $ | |||||||||||
| Expected to vest | $ | |||||||||||
| Total | ||||||||||||
| 15 |
A summary of stock option activity during the three months ended June 30, 2024 is presented below:
| Amount | Range of Exercise Price |
Weighted Average Exercise Price |
||||||||||
| Outstanding at beginning of year | $ | $ | ||||||||||
| Granted | $ | $ | ||||||||||
| Cancelled/Expired | $ | $ | ||||||||||
| Outstanding June 30, 2024 | $ | $ | ||||||||||
| Exercisable, June 30, 2024 | $ | $ | ||||||||||
There were stock option grants during the three months ended June 30, 2024 and 2023. There were RSUs granted during the three months June 30, 2024. The weighted average grant date fair value of RSUs granted during the three months ended June 30, 2024 was $. There were stock option exercises during the three months ended June 30, 2024 and 2023. On June 30, 2024, our outstanding stock options had intrinsic value, since the closing share price on that date of $per share was below the exercise price of our outstanding stock options.
The table below summarizes nonvested stock options as of June 30, 2024 and changes during the three months ended June 30, 2024.
| Shares | Weighted Average Grant Date Fair Value | |||||||
| Nonvested stock options at April 1, 2024 | $ | |||||||
| Vested | ( |
) | $ | |||||
| Forfeited | ||||||||
| Nonvested stock options at June 30, 2024 | ||||||||
The detail of the options outstanding and exercisable as of June 30, 2024 is as follows:
| Options Outstanding | Options Exercisable | |||||||||||||||||||||
| Exercise Prices | Number
Outstanding |
Weighted
Average Remaining Life (Years) |
Weighted
Average Exercise Price |
Number
Outstanding |
Weighted
Average Exercise Price |
|||||||||||||||||
| $ | 6.90 - 16.80 | years | $ | $ | ||||||||||||||||||
| $ | 25.20 | years | $ | $ | ||||||||||||||||||
We recorded stock-based compensation expense related to RSU issuances and to options granted totaling $139,328 and $250,114 for the three months ended June 30, 2024 and 2023, respectively. These expenses were recorded as stock compensation included in payroll and related expenses in the accompanying consolidated statement of operations for the three months ended June 30, 2024 and 2023.
| 16 |
The table below summarizes restricted stock units as of June 30, 2024 and changes during the three months ended June 30, 2024.
| Shares | ||||
| Nonvested RSUs at April 1, 2024 | ||||
| Granted | ||||
| Vested | ( |
) | ||
| Tax withholding payments or tax equivalent payments for net share settlement of restricted stock units | ( |
) | ||
| Nonvested RSUs at June 31, 2024 | ||||
Our total stock-based compensation for the three months ended June 30, 2024 and 2023 included the following:
| Three Months Ended | ||||||||
| June 30, 2024 | June 30, 2023 | |||||||
| Vesting of restricted stock units | $ | $ | ||||||
| Vesting of stock options | ||||||||
| Total Stock-Based Compensation | $ | $ | ||||||
We review share-based compensation on a quarterly basis for changes to the estimate of expected award forfeitures based on actual forfeiture experience. The cumulative effect of adjusting the forfeiture rate for all expense amortization is recognized in the period the forfeiture estimate is changed. The effect of forfeiture adjustments for the three months ended June 30, 2024 was insignificant.
On June 30, 2024, our outstanding stock options had no intrinsic value since the closing price on that date of $ per share was below the weighted average exercise price of our outstanding stock options.
At June 30, 2024, there was approximately $ of unrecognized compensation cost related to share-based payments, which is expected to be recognized over a weighted average period of years.
9. WARRANTS
During the three-months ended June 30, 2024, we issued 16,524,000 warrants in connection with the May 17, 2024 public offering. We did not issue any warrants in the three-months ended June 2023.
A summary of warrant activity during the three months ended June 30, 2024 is presented below:
| Amount | Range of Exercise Price |
Weighted Average Exercise Price |
||||||||||
| Warrants outstanding at March 31, 2024 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Exercised | ( |
) | $ | $ | ||||||||
| Cancelled/Expired | $ | $ | ||||||||||
| Warrants outstanding at June 30, 2024 | $ | $ | ||||||||||
| Warrants exercisable at June 30, 2024 | $ | $ | ||||||||||
| 17 |
10. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
Office, Lab and Manufacturing Space Leases
The office, lab and manufacturing leases are
coterminous with a remaining term of
As of our June 30, 2024 balance sheet, we have
an operating lease right-of-use asset of $
In addition, the lease agreements for the new
office, lab and manufacturing space required us to post a standby L/C in favor of the landlord in the aggregate amount of $
Overall, our rent expense, which is included
in general and administrative expenses, approximated $
LEGAL MATTERS
We may be involved from time to time in various claims, lawsuits, and/or disputes with third parties or breach of contract actions incidental to the normal course of our business operations. We are currently not involved in any litigation or any pending legal proceedings.
11. SUBSEQUENT EVENTS
Management has evaluated events subsequent to June 30, 2024 through the date that the accompanying 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.
In August 2024, the Bellberry Human Research Ethics Committee granted full ethics approval to the Pindara Private Hospital for a safety, feasibility and dose-finding clinical trial of the Hemopurifier® in patients with solid tumors who have stable or progressive disease during anti-PD-1 monotherapy treatment (AEMD-2022-06 Hemopurifier Study). The approval is valid for one year, until August 6, 2025. The trial will be conducted by Dr. Marco Matos and his staff at the Pindara Private Hospital, located in Queensland, Australia.
| 18 |
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. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. For a complete discussion of forward-looking statements, see the section above entitled “Cautionary Notice Regarding Forward Looking Statements.”
Overview
Aethlon Medical, Inc., or Aethlon, the Company, we or us, is a medical therapeutic company focused on developing products to 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 its design to bind to and remove harmful exosomes that promote the growth and spread of tumors through multiple mechanisms. We are currently working with our contract research organization, or CRO, on preparations to conduct a planned clinical trial in Australia in patients with solid tumors, including head and neck cancer, gastrointestinal cancers and other cancers.
In January 2023, we entered into an agreement with North American Science Associates, LLC, or NAMSA, a world leading MedTech CRO offering global end-to-end development services, to oversee our planned clinical trials investigating the Hemopurifier for oncology indications. Pursuant to the agreement, NAMSA agreed to manage our planned clinical trials of the Hemopurifier for patients in the United States and Australia with various types of cancer tumors. We anticipate that the initial clinical trials will begin in Australia.
In August 2024, the Bellberry Human Research Ethics Committee granted full ethics approval to the Pindara Private Hospital for a safety, feasibility and dose-finding clinical trial of the Hemopurifier® in patients with solid tumors who have stable or progressive disease during anti-PD-1 monotherapy treatment (AEMD-2022-06 Hemopurifier Study). The approval is valid for one year, until August 6, 2025. The trial will be conducted by Dr. Marco Matos and his staff at the Pindara Private Hospital, located in Queensland, Australia.
In June 2024, the Human Research Ethics Committee (HREC) of the Central Adelaide Local Health Network (CALHN) granted full ethics approval for the same safety, feasibility and dose-finding clinical trial of the Hemopurifier in cancer patients with solid tumors who have stable or progressive disease during anti-PD-1 monotherapy treatment, such as Keytruda® (pembrolizumab) or Opdivo® (nivolumab) (AEMD-2022-06 Hemopurifier Study). The approval is valid for three years, until June 13, 2027. The trial will be conducted by Prof. Michael Brown and his staff at the Cancer Clinical Trials Unit, CALHN, Royal Adelaide Hospital, located in Adelaide, Australia.
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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 Investigational Device Exemption, or IDE, for the Hemopurifier in viral disease to allow for the testing of the Hemopurifier in patients with SARS-CoV-2/COVID-19, or COVID-19, in a New Feasibility Study. That study was designed to enroll up to 40 subjects at up to 20 centers in the United States. Subjects were to have established laboratory diagnosis of COVID-19, be admitted to an intensive care unit, or ICU, and have acute lung injury and/or severe or life-threatening disease, among other criteria. Endpoints for this study, in addition to safety, included reduction in circulating virus as well as clinical outcomes (NCT # 04595903). In June 2022, the first patient in this study was enrolled and completed the Hemopurifier treatment phase of the protocol. Due to lack of COVID-19 patients in the ICUs of our trial sites, we terminated this study in 2022.
Under Single Patient Emergency Use regulations, the Company has treated two patients with COVID-19 with the Hemopurifier, in addition to the COVID-19 patient treated with our Hemopurifier in our COVID-19 clinical trial discussed above.
We previously reported a disruption in our Hemopurifier supply, as our then existing supply of Hemopurifiers expired on September 30, 2022 and, also as previously disclosed, we are dependent on FDA approval of qualified suppliers to manufacture our Hemopurifier. Our intended transition to a new supplier for galanthus nivalis agglutinin, or GNA, a component of our Hemopurifier, continues to be delayed as we work with the FDA for approval of our supplement to our IDE, which is required to make this manufacturing change. We are working with the FDA to qualify this second supplier of our GNA. We also are in the process of completing final testing in order to begin manufacturing Hemopurifiers at our new manufacturing facility in San Diego, California for use in planned U.S. clinical trials, using GNA from our current supplier. The first manufacturing lot that incorporates the GNA from our original supplier was approved and released at the end of December 2023. We also have sufficient Hemopurifiers on hand for use in our planned Australia and India oncology trials.
In October 2022, we launched a wholly owned subsidiary in Australia, formed to conduct clinical research, seek regulatory approval and commercialize our Hemopurifier in that country. The subsidiary will initially focus on the planned oncology trials in Australia.
We also obtained ethics review board, or ERB, approval from 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 our Hemopurifiers made with the GNA from our new supplier.
In May 2023, we also received ERB approval from the Maulana Azad Medical College, or MAMC, for a second site for our clinical trial in India to treat severe COVID-19. MAMC was established in 1958 and is located in New Delhi, India. MAMC is affiliated with the University of Delhi and is operated by the Delhi government.
In October 2023, we announced that we received clearance from the Drug Controller General of India, the central drug authority in India, to conduct a Phase 1 safety, feasibility and dose-finding trial of the Company’s Hemopurifier in patients with solid tumors who have stable or progressive disease during anti-PD-1 monotherapy treatment, such as Keytruda® or Opdivo®. The trial is expected to begin following completion of an internal in vitro binding study of relevant targets, and subsequent approval by the respective Ethics Boards of interested sites in India.
| 20 |
Additionally, we announced that we have begun investigating the use of our Hemopurifier in the organ transplant setting. Our objective is to confirm that the Hemopurifier, in our translational studies, when incorporated into a machine perfusion organ preservation circuit, can remove harmful viruses and exosomes from recovered organs. We initially are focused on recovered kidneys, in a research collaboration with 34 Lives, PBC. We have previously demonstrated the removal of multiple viruses and exosomes from buffer solutions, in vitro, utilizing a scaled-down version of our Hemopurifier. This process potentially may reduce complications following transplantation of the recovered organ, which can include viral infection, delayed graft function and rejection. We believe this new approach could be additive to existing technologies that currently are in place to increase the number of viable kidneys for transplant.
Successful outcomes of human trials will also be required by the regulatory agencies of certain foreign countries where we plan to market and 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 to us more recently will help protect the proprietary nature of our Hemopurifier treatment technology.
In addition to the foregoing, we are monitoring closely the impact of inflation, recent bank failures and the war between Russia and Ukraine and the military conflicts in Israel and the surrounding areas, as well as related political and economic responses and counter-responses by various global factors on our business. Given the level of uncertainty regarding the duration and impact of these events on capital markets and the U.S. economy, we are unable to assess the impact on our timelines and future access to capital. The full extent to which inflation, recent bank failures and the ongoing military conflicts will impact our business, results of operations, financial condition, clinical trials and preclinical research will depend on future developments, as well as the economic impact on national and international markets that are highly uncertain.
We incorporated in Nevada 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.”
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act, and must file reports, proxy statements and other information with the SEC. The SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, like us, which file electronically with the SEC.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2024 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2023
Operating Expenses
Consolidated operating expenses for the three months ended June 30, 2024 were $2,620,858 compared to $3,408,7160 for the three months ended June 30, 2023. This decrease of $787,302, or 23.1%, in the 2024 period was due to a decrease of $556,309 in general and administrative expenses and a decrease of $362,556 in professional fees, partially offset by an increase in payroll and related expenses of $131,563.
The $556,309 decrease in general and administrative expenses in the three months ended June 30, 2024 was due to a $447,393 decrease in supplies related to the purchase of raw materials for manufacturing of the Hemopurifier and for lab supplies, a $39,017 decrease in repairs and maintenance associated with the certification of the cleanroom, a $29,092 decrease in travel related to former employee and consultant, $11,226 in insurance expense, a $7,572 decrease in clinical trial expense and $22,000 in various other general operating expenses.
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The decrease in professional fees of $362,556 was related to a $136,481 decrease in consulting expenses primarily related to termination of services with a contract manufacturing organization, a $110,418 decrease in scientific consulting, an $83,865 decrease in investor relations expenses associated with more widespread awareness and dissemination of Company news, a $77,920 decrease in legal fees relating to general corporate matters and a decrease of $16,063 associated with a reduction in website services. These decreases were partially offset by a $50,940 increase in audit and accounting expense, and $11,250 increase in board of director fees associated with the addition of a new board member.
Payroll expenses increased by $131,563 due to an increase in separation expenses of $320,604 related to the termination of an employee and a $16,172 increase in payroll expense associated with an increase in manufacturing headcount. These increases were offset by a decrease of $110,786 in stock based compensation and an $89,152 decrease in general and administration headcount.
Net Loss
As a result of the changes in expenses noted above, our net loss decreased to $2,571,440 in the three months ended June 30, 2024 from $3,282,179 in the three months ended June 30, 2023.
Basic and diluted loss attributable to common stockholders was ($0.34) for the three months ended June 30, 2024, compared to ($1.35) for the three-month period ended June 30, 2023.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2024, we had a cash balance of $9,072,379 and working capital of $7,421,489. This compares to a cash balance of $5,441,978 and working capital of $4,395,889 at March 31, 2024.
On May 17, 2024, we closed a public offering of our equity, pursuant to which we sold an aggregate of: (i) 2,450,000 shares of our common stock and accompanying Class A warrants to purchase up to 2,450,000 shares of common stock and Class B warrants to purchase up to 2,450,000 shares of common stock, at a combined public offering price of $0.58 per share and accompanying warrants; and (ii) in lieu of common stock, pre-funded warrants to purchase 5,650,000 shares of common stock and accompanying Class A warrants to purchase up to 5,650,000 shares of common stock and Class B warrants to purchase up to 5,650,000 shares of common stock, at a combined public offering price of $0.579 per pre-funded warrant and accompanying warrants, which is equal to the public offering price per share of common stock, and accompanying warrants less the $0.001 per share exercise price of each such pre-funded warrant. The gross proceeds from the offering, before deducting the placement agent’s fees and other offering expenses, were approximately $4.7 million. Net proceeds, of the offering, after deducting the placement agent fees and expenses and other offering expenses payable by us, were are approximately $3.5 million. In June 2024, holders of Class A and Class B warrants exercised 300,000 shares and 2,880,000 shares, respectively, for additional total proceeds of $1,844,400. See the section entitled “May 2024 Public Offering,” below, for additional information regarding this offering.
We expect our existing cash as of June 30, 2024 to be sufficient to fund our operations for at least twelve months from the issuance date of these financial statements. In previous filings, we disclosed substantial doubt about our ability to continue as a going concern due to recurring losses and negative cash flows. We have addressed these concerns by raising $5,379,229, net, through a combination of a equity offering and warrant exercises, combined with our recent financial performance which has shown a significant decrease in expenses and use of cash. For the three-month period ended June 30,2024, expenses decreased by approximately $787,000 compared to June 30, 2023 accompanied by an approximate $964,000 decrease in cash used in operating and investing activities. As a result of these actions, management believes that the substantial doubt regarding our ability to continue as a going concern has been alleviated.
As we expand our activities, our overhead costs to support personnel, laboratory materials and infrastructure will increase and significant additional financing must be obtained to provide a sufficient source of operating capital. Should the financing we require to sustain our working capital needs be unavailable to us on reasonable terms, if at all, when we require it, we may be unable to support our research and our planned clinical trials. The failure to implement our research and clinical trials would have a material adverse effect on our ability to conduct planned clinical trials and commercialize our products.
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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.
2022 At The Market Offering Agreement with H.C. Wainwright & Co., LLC
On March 24, 2022, we entered into the 2022 ATM Agreement with 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 Form S-3 (Registration Statement No. 333-259909), as previously filed with the SEC and declared effective on October 21, 2021. We filed a prospectus supplement, dated March 24, 2022, with the SEC that provides for the sale of shares of our common stock, or the 2022 ATM Shares, having an aggregate offering price of up to $15,000,000, which was subsequently and most recently updated pursuant to our prospectus supplement, dated September 29, 2022, filed with the SEC that provides for the sale of 2022 ATM Shares having an aggregate offering price of up to $6,625,000. As of June 30, 2024, $5,302,617 of 2022 ATM Shares remained available for sale under the 2022 ATM Agreement.
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 further 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
During the three months ended June 30, 2024, we did not sell shares of our common stock under the 2022 ATM Agreement.
May 2024 Public Offering
On May 17, 2024, we closed a public offering pursuant to which we sold an aggregate of: (i) 2,450,000 shares of our common stock and accompanying Class A warrants to purchase up to 2,450,000 shares of common stock and Class B warrants to purchase up to 2,450,000 shares of common stock, at a combined public offering price of $0.58 per share and accompanying warrants; and (ii) in lieu of common stock, pre-funded warrants to purchase 5,650,000 shares of common stock and accompanying Class A warrants to purchase up to 5,650,000 shares of common stock and Class B warrants to purchase up to 5,650,000 shares of common stock, at a combined public offering price of $0.579 per pre-funded warrant and accompanying warrants, which is equal to the public offering price per share of common stock, and accompanying warrants less the $0.001 per share exercise price of each such pre-funded warrant.
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All pre-funded warrants issued in the offering were exercised in the quarter ended June 30, 2024. The Class A and Class B warrants each have an exercise price of $0.58 per share, are immediately exercisable, and, in the case of Class A warrants, will expire on May 17, 2029, and in the case of Class B warrants, will expire on May 19, 2025. The exercise price of the Class A and Class B warrants is also subject to adjustment for stock splits, reverse splits, and similar capital transactions as described in such warrants.
Maxim Group LLC (“Maxim”), served as the exclusive placement agent in connection with the offering. We paid Maxim a cash fee of 6.5% of the aggregate gross proceeds raised at the closing of the offering, and reimbursement of certain expenses and legal fees in the amount of $100,000. We also issued to designees of Maxim warrants to purchase up to an aggregate of 324,000 shares of common stock (the “Placement Agent Warrants”). The Placement Agent Warrants have an exercise price of $0.58 per share and have substantially the same terms as the Class A warrants, except the Placement Agent Warrants are not subject to an exercise price reset, are non-exercisable until November 15, 2024, and will expire on May 15, 2029.
The gross proceeds from the offering, before deducting the placement agent’s fees and other offering expenses, were approximately $4.7 million. Net proceeds, of the offering, after deducting the placement agent fees and expenses and other offering expenses payable by us, were are approximately $3.5 million. In June 2024, and holders of Class A and Class B warrants exercised 300,000 shares and 2,880,000 shares, respectively, for additional proceeds of $1,844,400.
The shares of Common Stock, the Class A and Class B warrants, the pre-funded warrants and the Placement Agent Warrants described above and the underlying shares of Common Stock were offered pursuant to a Registration Statement on Form S-1, as amended (File No. 333-278188) (the “Registration Statement”), which was declared effective by the Securities and Exchange Commission (the “SEC”) on May 15, 2024.
Cash Flows
Cash flows from operating, investing and financing activities, as reflected in the accompanying Condensed Consolidated Statements of Cash Flows, are summarized as follows:
| (In thousands) For the three months ended |
||||||||
| June 30, 2024 |
June 30, 2023 |
|||||||
| Cash (used in) provided by: | ||||||||
| Operating activities | $ | (1,748 | ) | $ | (2,482 | ) | ||
| Investing activities | – | (230 | ) | |||||
| Financing activities | 5,379 | 1,077 | ||||||
| Effect of exchange rate changes on cash | (1 | ) | – | |||||
| Net decrease in cash and restricted cash | $ | 3,630 | $ | (1,635 | ) | |||
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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 $1,748,000 in the three months ended June 30, 2024, compared to approximately $2,482,000 in the three months ended June 30, 2023. The primary components in the $734,000 decrease in cash used in our operating activities in the 2024 period was a decrease in our net loss of approximately $711,000 offset by a decrease in non-cash components of approximately $118,000 and a positive net change in other working capital components of $141,000.
NET CASH USED IN INVESTING ACTIVITIES. We did not use cash for investing activities in the three months ended June 30, 2024, compared to approximately $230,000 in the three months ended June 30, 2023. The $230,000 decrease in the 2024 period was primarily a result of equipment purchase for our laboratory incurred in the three months ended June 2023.
NET CASH PROVIDED BY FINANCING ACTIVITIES. During the three months ended June 30, 2024, we raised approximately $5,384,000, net of placement agent fees and offering costs, from the sale and issuance of our common stock and warrants in connection with a public offering and the exercise of 300,000 and 1,880,000 Class A and Class B warrants, respectively, by holders thereof. The source of cash from our financing activities was partially offset by the use of approximately $5,000 to pay for the tax withholding upon settlement of on restricted stock units, for a net aggregate amount of cash provided by financing activities of approximately $5,379,000.
Material Cash Requirements
We expect our clinical trial expenses for the planned oncology trials in Australia and India to increase for the foreseeable future. Those increases in clinical trial expenses include the cost of manufacturing additional Hemopurifiers.
In addition, we have entered into leases for our headquarters, laboratory and manufacturing facilities. We expect our rent payments to continue to increase for the foreseeable future.
Future capital requirements will depend upon many factors, including progress with pre-clinical testing and clinical trials, 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.
We do plan to access the equity markets for additional capital, however, there can be no assurance that we will be able to access such additional capital on favorable terms, or at all.
Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and disruptions to and volatility in the credit and financial markets in the United States, including due to bank failures, actual or perceived changes in interest rates and economic inflation, and worldwide resulting from macroeconomic factors. Because of the numerous risks and uncertainties associated with product development, we cannot predict the timing or amount of increased expenses and we may never be profitable or generate positive cash flow from operating activities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s discussion and analysis of financial condition and results of operations is based on our interim condensed consolidated financial statements, that we prepared in accordance with accounting principles generally accepted in the United States, or GAAP. Preparing these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, and related disclosures. We base our estimates on historical experience and on various assumptions we believe to be reasonable under the circumstances. We believe our judgment is applied consistently and produces financial information that fairly depicts our results of operations for all periods. Actual results may differ materially from these estimates.
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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 long lived assets, stock compensation, deferred tax asset valuation allowance, contingencies and clinical trial accruals.
There were no accounting estimates in the three months ended June 30, 2024 with a high degree of uncertainty or amounts that are with a high likelihood to change from period to period that would materially impact the presentation of our financial statements for the three months ended June 30, 2024.
There have been no changes to our critical accounting policies and estimates as disclosed in our Form 10-K for the year ended March 31, 2024.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, as defined by Item 10(f)(1) of Regulation S-K, we are not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES.
DISCLOSURE CONTROLS AND PROCEDURES
We maintain “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed, in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Interim Chief Executive Officer and Chief Financial Officer (who is our principal executive officer and principal financial officer), to allow timely decisions regarding required disclosures.
Under the supervision and with the participation of our management, including our Interim Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report.
Based on such evaluation, our Interim 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 Interim Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
As previously reported in our Annual Report on Form 10-K for the year ended March 31, 2024, we identified a material weakness in our internal control over financial reporting related to segregation of duties within our financial systems. Specifically, user access controls were not sufficiently maintained to properly restrict both user and privileged access to financial applications within our accounting software system to initiate, record and approve entries. Also noted that check stock was secured in an authorized signatory’s office.
Since identifying the material weakness, we have been actively engaged in implementing measures to remediate the weakness and enhance our internal control over financial reporting. These measures include but are not limited to updating the accounting software and creating distinct user roles. Transactions are recorded by personnel who are independent of those who initiate them and are approved by separate personnel who are independent of those who record them. Additionally, check stock had been relocated in November 2023.
We believe that these measures, once fully implemented and operational for a sufficient period of time, will effectively remediate the material weakness. We are committed to maintaining a strong internal control environment and will continue to monitor the effectiveness of these controls and procedures.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
Other than the changes to remediate the material weakness noted above, there were not changes in our internal control over financial reporting during the quarter ending June 30, 2024 that have materially affected, or 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 under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, filed with the SEC on June 27, 2024, or Annual Report, 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 losses and expect to continue to incur losses for the foreseeable future. | |
| · | We will require additional financing to sustain our operations, achieve our business objectives and satisfy our cash obligations, which may dilute the ownership of our existing stockholders. | |
| · | We have limited experience in identifying and working with large-scale contracts with medical device manufacturers; manufacture of our devices must comply with good manufacturing practices in the United States. | |
| · | Delays, interruptions or the cessation of production by our third-party suppliers of important materials or delays in qualifying new materials, has and may continue to prevent or delay our ability to manufacture our Hemopurifier. | |
| · | Our Hemopurifier technology may become obsolete. | |
| · | If we fail to comply with extensive regulations of U.S. and foreign regulatory agencies, the commercialization of our products could be delayed or prevented entirely. | |
| · | If we are unable to regain compliance with the listing requirements of the Nasdaq Capital Market, our common stock may be delisted from the Nasdaq Capital Market, which could have a material adverse effect on our financial condition and could make it more difficult for you to sell your shares. | |
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As a public company with limited financial resources undertaking the launch of new medical technologies, we may have difficulty attracting and retaining executive management and directors.
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We plan to expand our operations, which may strain our resources; our inability to manage our growth could delay or derail implementation of our business objectives.
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Our success is dependent in part on our executive officers.
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| · | Delays in successfully commencing or completing our planned clinical trials could jeopardize our ability to obtain regulatory approval and sustain our operations. |
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There have been no material changes to the risk factors previously disclosed under the heading “Risk Factors” in our Annual Report. The risks described in our Annual Report are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
We did not issue or sell any unregistered securities during the three months ended June 30, 2024.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
Rule 10b5-1 Trading Plans
During the three months ended June 30, 2024,
none of our directors or officers entered into,
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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, as amended. | 8-K | 001-37487 | 3.1 | September 19, 2022 | |||||||
| 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 to Purchase Common Stock. | S-1/A | 333-234712 | 4.14 | December 11, 2019 | |||||||
| 4.3 | Form of Underwriter Warrant. | S-1/A | 333-234712 | 4.15 | December 11, 2019 | |||||||
| 4.4 | Form of Common Stock Purchase Warrant. | 8-K | 001-37487 | 4.1 | January 17, 2020 | |||||||
| 4.5 | Form of Class A Warrant to Purchase Common Stock, issued on May 17, 2024. | 8-K | 001-37487 | 4.1 | May 17, 2024 | |||||||
| 4.6 | Form of Class B Warrant to Purchase Common Stock, issued on May 17, 2024. | 8-K | 001-37487 | 4.2 | May 17, 2024 | |||||||
| 4.7 | Form of Pre-Funded Warrant to Purchase Common Stock, issued on May 17, 2024. | 8-K | 001-37487 | 4.3 | May 17, 2024 | |||||||
| 10.1 | Form of Securities Purchase Agreement. | S-1/A | 333-278188 | 10.20 | May 13, 2024 | |||||||
| 31.1 | Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. | X | ||||||||||
| 32.1^ | Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350. | X | ||||||||||
| 101.INS | Inline XBRL Instance Document with Embeded Linkbase Documents | X | ||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | ||||||||||
| 104 | Cover Page Interactive Data File (formatted in XBRL, and included in exhibit 101) | |||||||||||
| ^ | The information in Exhibit 32.1 shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act (including this Quarterly Report), unless the Registrant specifically incorporates the foregoing information into those documents by reference. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| AETHLON MEDICAL, INC. | |||
| Date: August 14, 2024 | By: | /s/ JAMES B. FRAKES | |
| JAMES B. FRAKES | |||
| INTERIM CHIEF EXECUTIVE OFFICER | |||
| CHIEF FINANCIAL OFFICER | |||
| (PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER) | |||
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