Aethlon Medical, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2019; filed November 1, 2019. Aethlon is a clinical-stage medical-device company developing the Hemopurifier for cancer and life-threatening viral infections, and exosome-based diagnostic biomarkers through its majority-owned subsidiary, Exosome Sciences.
Financial performance and position
| Metric | Three months ended Sep. 30, 2019 | Six months ended Sep. 30, 2019 | Comparable 2018 period |
|---|---|---|---|
| Revenue | $0 | $30,000 | $0 for three months; $149,625 for six months |
| Operating expenses | $1.70 million | $3.30 million | $1.35 million; $2.59 million |
| Operating loss | $1.70 million | $3.27 million | $1.35 million; $2.44 million |
| Net loss | $1.71 million | $3.77 million | $1.40 million; $2.55 million |
| Loss per share | $1.29 | $2.91 | $1.17; $2.14 |
- Revenue was government-contract revenue; no revenue was recorded in the September quarter. The company recognized $30,000 under a breast-cancer grant in the six-month period and recorded an additional $100,000 invoiced under that grant as deferred revenue.
- Six-month operating cash use was $2.32 million, investing cash use $120,000, and financing cash use $602,000. Cash fell by $3.04 million, from $3.83 million at March 31 to $786,000 at September 30.
- At September 30, current assets were $900,000, current liabilities $1.17 million, and working capital was negative $269,000. Total liabilities were $1.26 million and total stockholders’ equity was only $21,000. Lease liabilities totaled $187,485.
- Convertible notes were paid off in July: $892,591 principal and $11,352 accrued interest. The company recorded a $447,011 extinguishment loss after modifying the notes’ conversion price before payoff. No convertible notes remained at September 30.
- Revenue is too limited for meaningful margin analysis; the filing does not provide a useful margin measure.
Changes and notable items
- Compared with the prior-year periods, six-month operating expenses increased 27%, chiefly from higher professional fees and general and administrative costs. The six-month net loss increased to $3.77 million from $2.55 million, including the debt-extinguishment loss and lower government-contract revenue.
- In the six-month period, the company raised $423,234 net through its at-the-market (ATM) program, selling 62,427 shares. Shares outstanding increased from 1,266,979 at March 31 to 1,337,259 at September 30. A 1-for-15 reverse split completed October 14 was reflected retroactively in the statements.
- The NCI awarded a $1,860,561 Phase II melanoma contract covering September 2019 through September 2021; no revenue had been recognized on it by September 30. In October, Aethlon billed $206,729 after achieving its first milestone.
Outlook, risks and contingencies
- Management disclosed substantial doubt about the company’s ability to continue as a going concern for the twelve months following issuance. It expects to need significant additional capital for operations and U.S. clinical trials, relying on ATM sales, debt or equity financing, and contract receipts; funding is not assured.
- On October 4, 2019, the FDA approved an IDE for a 10–12-subject early feasibility study of the Hemopurifier with pembrolizumab in head and neck cancer. The study remains subject to FDA approval of the trial site’s informed-consent documents.
- October subsequent events included net ATM proceeds of $472,798 from 98,722 shares, at an average net price of $4.79 per share, and an extension of the laboratory lease through November 2020.
- Nasdaq had notified the company of deficiencies in minimum bid price and stockholders’ equity requirements. The filing says the company was then in compliance with the bid-price requirement, but warned that future noncompliance could lead to delisting.
- Management expects continued negative cash flows and net losses. Key risks include financing availability, clinical and regulatory outcomes, Nasdaq listing compliance, patent protection, product liability, competition, and market acceptance. The company reported no pending or threatened legal proceedings and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Current cash, subsequent ATM proceeds, remaining ATM capacity, and the timing and sufficiency of future financing.
- Nasdaq compliance status, especially stockholders’ equity and minimum bid-price requirements after the reverse split.
- Whether required informed-consent approval is obtained and whether the cancer study begins as planned.
- Milestone progress, cash receipts, and allowable spending under the NCI contracts and breast-cancer grant.
- Share count and potential dilution from future equity financing, outstanding options and warrants, and the post-period reverse split.