Aethlon Medical, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended September 30, 2018; filed November 6, 2018. The filing describes Aethlon as a clinical-stage medical technology company developing the Hemopurifier, and its majority-owned Exosome Sciences subsidiary as pursuing diagnostic biomarkers.
Financial results and liquidity
| Metric | Three months ended September 30, 2018 | Six months ended September 30, 2018 |
|---|---|---|
| Revenue | $0 | $149,625 |
| Operating expenses | $1,346,954 | $2,593,851 |
| Operating loss | $1,346,954 | $2,444,226 |
| Net loss | $1,402,060 | $2,554,436 |
| Net loss attributable to Aethlon | $1,393,345 | $2,539,572 |
| Basic and diluted loss per share | $0.08 | $0.14 |
There is no reported gross profit or gross margin; the filing does not provide a clear basis for calculating one. Six-month operating cash use was $1,809,696, compared with $2,103,077 in the prior-year period. Investing cash flow was zero, and financing cash flow was negative $85,769, primarily from tax withholding on vested awards. Cash fell to $5,078,605 from $6,974,070 at March 31, 2018.
At September 30, working capital was $3,907,120 and total liabilities were $1,260,828. Convertible notes had $992,591 principal outstanding and a $901,727 net carrying amount, classified as current; the notes bear 10% interest and are due July 1, 2019. Management expected cash on hand to fund operations for at least 12 months from the financial statement issuance date, but said additional financing would be needed thereafter and to complete anticipated U.S. clinical trials. No capital was raised in the six-month period.
Changes versus the prior comparable period
- Second-quarter revenue remained zero. Six-month revenue was $149,625, versus none a year earlier, from NIH contract work.
- Operating expenses rose 9.0% for the quarter to $1.35 million and 8.2% for six months to $2.59 million. Increases included professional fees, payroll and clinical-trial expenses.
- Six-month net loss improved to $2.55 million from $3.15 million, largely because prior-year debt-extinguishment and warrant-exchange losses were not repeated and note-discount amortization and interest expense declined. Quarterly net loss increased to $1.40 million from $1.31 million.
- Six-month loss per share improved to $0.14 from $0.35. Weighted-average shares increased to 17.8 million from 8.9 million, so the per-share comparison also reflects a substantially larger share count.
Outlook, commentary, risks, and unusual items
- The NIH fixed-price SBIR contract had potential payments of $299,250 over nine months, with an additional $49,800 option at NIH’s discretion. Aethlon invoiced $149,625 for completed milestone work during the six months.
- No formal revenue, earnings, or cash-flow guidance is provided. Management expects continued net losses and negative cash flows and anticipates seeking financing through an at-the-market program, debt, or equity placements. Planned investment in raw materials and contract manufacturing is subject to raising additional capital.
- The Hemopurifier remains investigational: FDA authorization for a limited Hepatitis C feasibility trial does not constitute marketing approval. Further successful human trials and regulatory approvals are required for commercialization. The company also cites financing, regulatory, patent, product-liability, market-acceptance, competition, and technology risks.
- Outstanding potential common shares excluded from diluted loss per share as antidilutive totaled 6,556,699. At quarter-end, 5,459,425 warrants were outstanding; convertible debt, warrants, options, and unvested awards may create dilution.
- The company reported no pending or threatened legal proceedings, no off-balance-sheet arrangements, and no material changes in internal control over financial reporting. Management concluded disclosure controls were effective.
- Subsequent to quarter-end, Aethlon extended its laboratory lease for 12 months at $4,700 per month and issued net shares upon RSU settlements.
Important facts for investors to verify
- Funding needs and cash runway, including whether financing is secured before the stated 12-month runway expires.
- Clinical-trial progress, FDA requirements, and the commercial path for the Hemopurifier and Exosome Sciences programs.
- Repayment, conversion terms, and potential dilution from the $992,591 principal amount of 10% convertible notes due July 2019, plus outstanding warrants and equity awards.
- The filing’s segment table reports total six-month revenue of $149,624, while the income statement and contract disclosures report $149,625; confirm the correct amount.
- Whether NIH milestone work or other government contracts can provide recurring revenue; the filing reports no second-quarter revenue and no revenue from ESI.