Aethlon Medical, Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2018, the first quarter of fiscal 2019; filed August 8, 2018. Comparisons are with the three months ended June 30, 2017. The company develops the Hemopurifier, an investigational therapeutic device, and diagnostic technologies through majority-owned Exosome Sciences, Inc. (ESI).
Financial performance and position
| Metric | Quarter ended June 30, 2018 | Prior-year quarter |
|---|---|---|
| Revenue | $149,625 | $0 |
| Operating expenses | $1,246,897 | $1,160,249 |
| Operating loss | $1,097,272 | $1,160,249 |
| Net loss before noncontrolling interests | $1,152,376 | $1,845,551 |
| Net loss attributable to common stockholders | $1,146,228 | $1,841,782 |
| Basic and diluted loss per share | $0.06 | $0.21 |
| Net cash used in operating activities | $818,431 | $1,074,564 |
Revenue was government-contract revenue; the filing reports no product-sales revenue. No gross margin is presented. Operating expenses rose 7.5%, including higher professional fees, partly offset by lower payroll expense. Net loss improved substantially, primarily reflecting the absence of prior-year debt-extinguishment and warrant-exchange losses and lower interest expense; operating loss also narrowed modestly.
Cash was $6.12 million at June 30, down from $6.97 million at March 31, 2018. Working capital was $5.87 million, versus $6.75 million at March 31. Total assets were $6.45 million and total liabilities were $1.34 million. Convertible notes had a net carrying value of $871,440, against $992,591 principal, with $80,514 accrued interest disclosed in the debt note; the notes bear 10% interest and mature July 1, 2019. Cash used in investing activities was zero; financing activities used $32,737, principally for tax withholding on vested equity awards.
Business developments, outlook, and risks
- The company invoiced NIH $149,625 for work under a fixed-price SBIR contract to develop methods for isolating melanoma exosomes. The award provides for potential payments of $299,250 over nine months, with a possible additional $49,800 option period.
- The Hemopurifier remains investigational. U.S. commercialization requires successful clinical trials and FDA approval; foreign markets may also require human trials. The filing notes patent, regulatory, product-liability, market-acceptance, competition, and financing risks.
- Management expects cash on hand to fund operations for at least 12 months from issuance of the financial statements. It also states that additional financing will be needed beyond that period and to fund anticipated U.S. clinical trials. Expected sources include an at-the-market program, debt, and other equity placements. The company expects continued losses and negative cash flows; it plans additional raw-material and contract-manufacturing investment subject to raising capital. No specific financial guidance is provided.
- Equity compensation and potential dilution are material: 7,145,647 potential common shares were excluded from diluted loss per share as antidilutive; 5,922,571 warrants were outstanding at quarter-end. The company issued 15,000 restricted shares to an investor-relations provider in July 2018.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. The company reported no pending or threatened legal proceedings.
Items to verify: The filing’s segment table reports total revenue of $149,624, while the statements and MD&A report $149,625. Verify the correct amount. Also verify progress and remaining milestones under the NIH contract; the cash runway assumptions and timing/terms of future financing; clinical-trial plans, regulatory requirements, and manufacturing investment needs; and the potential dilution and repayment or conversion terms of the convertible notes and outstanding equity awards.