Aethlon Medical, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2019. The filing was signed February 10, 2020. Aethlon is a clinical-stage medical-device company developing the Hemopurifier for cancer and life-threatening viral infections, and owns a majority interest in diagnostic-focused Exosome Sciences, Inc. Financial statements are unaudited.
Financial performance and position
| Metric | Three months ended Dec. 31, 2019 | Nine months ended Dec. 31, 2019 |
|---|---|---|
| Revenue | $413,458 | $443,458 |
| Operating expenses | $1,289,864 | $4,588,255 |
| Operating loss | $876,406 | $4,144,797 |
| Net loss attributable to Aethlon | $819,581 | $4,591,042 |
| Basic and diluted loss per share | $0.28 | $2.52 |
| Net cash used in operating activities | $3,577,253 for nine months |
- Revenue came from government contracts and grants; ESI reported no revenue. Nine-month revenue rose $293,833 from the prior-year period.
- Gross profit and gross margin are not separately presented; the filing does not provide a clear value for either.
- At December 31, cash was $4.06 million, working capital was $3.50 million, current assets were $4.31 million, and current liabilities were $811,000. Total liabilities were $878,000.
- Cash increased $231,000 during the nine months: operating cash use of $3.58 million and investing cash use of $148,000 were offset by $3.96 million of financing cash inflows. Cash at March 31, 2019 was $3.83 million.
- The company paid off its convertible notes in July 2019. No convertible notes remained at December 31; lease liabilities totaled approximately $164,000.
Changes versus prior comparable periods
- Quarterly revenue increased from zero to $413,458. Quarterly operating expenses fell 34%, primarily because the prior-year quarter included $505,609 of severance accrual and stock-based compensation was lower. Quarterly net loss improved from $2.02 million to $821,000.
- Nine-month operating expenses were nearly flat, up 0.7%. Higher professional fees and general and administrative costs were mostly offset by lower payroll expense. Nine-month net loss increased slightly, from $4.57 million to $4.59 million, reflecting a $447,011 debt-extinguishment loss.
- Nine-month operating cash use increased from $2.90 million to $3.58 million. Financing proceeds rose to $3.96 million from $747,000.
- On October 14, 2019, the company completed a 1-for-15 reverse stock split; share and per-share amounts in the statements were retrospectively adjusted.
Outlook, management commentary and risks
- The FDA approved an IDE on October 4, 2019 for a 10–12-patient early feasibility study of the Hemopurifier in head and neck cancer alongside pembrolizumab. The primary endpoint is safety; secondary endpoints include exosome clearance and measures of response and survival. Breakthrough Device designation is not FDA approval and does not guarantee faster review or eventual clearance.
- A Phase II NCI melanoma contract totals $1.86 million for work through September 2021. A breast-cancer grant was extended through August 2020; $100,000 invoiced for subcontractor costs remained deferred because related technical objectives had not yet been completed.
- Management expected December 31 cash, together with funds raised in January 2020, to fund operations for at least 12 months from issuance of the financial statements. The company also expected continuing losses and negative cash flows and said future capital needs depend on clinical, regulatory, manufacturing and other factors. No specific earnings or revenue guidance was provided.
- The December 2019 public offering generated approximately $4.09 million net and included common warrants for up to 3,333,334 shares at $1.50 per share. The company also raised $896,031 net through its at-the-market program during the nine months. In January 2020 it closed a further offering of approximately $3.77 million gross; subsequent warrant exercises brought in a further $3.89 million gross before expenses. These financings and warrants add potential dilution.
- On February 7, 2020, the SEC temporarily suspended trading in Aethlon stock for ten days, citing concerns about the accuracy and adequacy of market information apparently disseminated by third-party promoters and unusual trading activity. The company said it could not predict the outcome or any further SEC action.
- Other disclosed risks include reliance on specialty suppliers for key Hemopurifier components, clinical and regulatory uncertainty, patent protection, and the need for additional capital. The company reported no pending or threatened legal proceedings and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Current liquidity and cash runway, including actual net proceeds from January financing and subsequent warrant exercises, and whether further capital is required.
- Status, timing, costs and enrollment of the FDA-authorized cancer study, and progress against milestones in the NCI contracts and grants.
- Shares outstanding, warrant terms and exercises, and the resulting dilution; the filing reported 9,256,249 common shares outstanding as of February 7, 2020.
- Developments concerning the SEC trading suspension, any subsequent investigation or action, and the company’s ability to maintain its Nasdaq listing.
- Availability of critical manufacturing inputs and evidence supporting product safety and efficacy; Breakthrough Device designation alone does not establish approval or commercial success.