Aethlon Medical, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2018; filed February 11, 2019. Amounts are in U.S. dollars.
Business context
Aethlon is a clinical-stage medical technology company developing the Hemopurifier for life-threatening viral infections and cancer, and majority-owns Exosome Sciences, which develops diagnostic biomarkers. The FDA has designated the Hemopurifier a Breakthrough Device for specified virus and cancer indications; this designation is not product approval. Aethlon reported no commercial product revenue.
Financial results and position
| Metric | Three months ended Dec. 31, 2018 | Nine months ended Dec. 31, 2018 |
|---|---|---|
| Revenue | $0 | $149,625 |
| Operating expenses | $1,963,873 | $4,557,724 |
| Operating loss | $1,963,873 | $4,408,099 |
| Net loss | $2,018,980 | $4,573,416 |
| Net loss attributable to Aethlon | $2,013,040 | $4,552,613 |
| Loss per share, basic and diluted | $0.11 | $0.25 |
- Year-to-date comparison: Revenue rose from $74,813 to $149,625, entirely from an NCI melanoma contract that is now complete. Operating expenses increased 25.4%; net loss increased about 4.6%. Per-share loss narrowed from $0.40 to $0.25, with a higher weighted-average share count.
- Quarterly comparison: Revenue fell from $74,813 to zero. Operating expenses increased 58.6%, and net loss attributable to Aethlon increased from $1,215,007 to $2,013,040. The company attributed much of the expense increase to former-executive separation costs, higher payroll and scientific consulting fees.
- Cash flow: Operating cash use was $2,895,960 for the nine months, broadly unchanged from $2,892,751 a year earlier. Financing provided $746,791; cash declined $2,149,169 to $4,824,901. There were no investing cash flows in the period.
- Liquidity: Working capital was $3,079,243, down from $6,752,293 at March 31, 2018. Current assets were $4,859,968 and current liabilities $1,780,725.
- Debt: Convertible notes had $992,591 principal, $932,014 net carrying value and $34,758 accrued interest at December 31, 2018. The notes bear 10% interest and mature July 1, 2019; they were classified as current. Nine-month interest and other debt expense was $165,317.
- Other metrics: Research and development expense was $655,760 for nine months, versus $462,640. Stock-based compensation was $944,512. Total assets were $4,950,755 and total stockholders’ equity $3,170,030.
Outlook, risks and notable items
- Management expected available cash at December 31, 2018 to fund operations for at least 12 months from the financial statements’ issuance. It also stated that additional financing would be needed beyond that period and to complete anticipated U.S. human clinical trials. Potential sources include the ATM program, debt and equity offerings; if financing is insufficient, the company may slow or stop trials or reduce headcount.
- About $8.3 million remained available under the $12.5 million ATM program as of the filing date. During the nine months, the company raised approximately $749,804 net through ATM sales and $142,230 from warrant exercises. After quarter-end, it raised $290,954 net through ATM sales and received $169,400 from warrant exercises.
- A September 2018 NCI breast-cancer SBIR Phase I grant totals $298,444 and runs through August 2019; no revenue had been recognized under it by December 31. NCI disbursed $50,000 after quarter-end.
- Accrued former-executive separation costs were $505,609 at quarter-end. The former CEO’s agreement provides for $385,000 plus medical insurance over 12 months, and consulting compensation of $5,000 per month during 2019.
- Key risks include clinical and regulatory uncertainty, need for further financing, patent protection and product acceptance, dependence on key executives, and possible Nasdaq delisting if listing requirements are not met. The company reported no pending or threatened legal proceedings, and management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether the company can secure financing after the stated 12-month cash runway, and the effect of ATM and other equity issuance on dilution.
- The July 1, 2019 maturity and repayment, conversion or refinancing status of the $992,591 principal balance of convertible notes.
- Clinical-trial milestones and regulatory progress for the Hemopurifier, distinguishing Breakthrough Device designation from approval or demonstrated efficacy.
- Milestone completion, funding and revenue recognition under the breast-cancer grant, and any replacement for the completed melanoma contract.
- Full cash cost and timing of former-executive obligations, alongside operating cash use and planned manufacturing or clinical spending.