Register Now
Why register?
Login
 The leading web portal for pharmacy resources, news, education and careers February 15, 2019
Pharmacy Choice - Pharmaceutical News - AETHLON MEDICAL INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - February 15, 2019

Pharmacy News Article

 2/11/19 - AETHLON MEDICAL INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of our financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by, the condensed consolidated financial statements and notes thereto included in Item 1 in this Quarterly Report on Form 10-Q. This item contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements.



FORWARD LOOKING STATEMENTS


All statements, other than statements of historical fact, included in this Form 10-Q are, or may be deemed to be, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Exchange Act. Such forward-looking statements involve assumptions, known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of Aethlon Medical, Inc. ("we" or "us") to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements contained in this Form 10-Q. Such potential risks and uncertainties include, without limitation, completion of our capital-raising activities, U.S. Food and Drug Administration (FDA), approval of our products, other regulations, patent protection of our proprietary technology, product liability exposure, uncertainty of market acceptance, competition, technological change, and other risk factors detailed herein and in other of our filings with the Securities and Exchange Commission (the "Commission"). The forward-looking statements are made as of the date of this Form 10-Q, and we assume no obligation to update the forward-looking statements, or to update the reasons actual results could differ from those projected in such forward-looking statements.



Overview


Aethlon Medical, Inc. and its subsidiary (collectively, "Aethlon", the "Company", "we" or "us") is a medical technology company focused on addressing unmet needs in global health and biodefense. The Aethlon Hemopurifier is a clinical-stage immunotherapeutic device designed to combat cancer and life-threatening viral infections. In cancer, the Hemopurifier depletes the presence of circulating tumor-derived exosomes that promote immune suppression, seed the spread of metastasis and inhibit the benefit of leading cancer therapies. The FDA has designated the Hemopurifier as a "Breakthrough Device" related to the following two indications:

to the treatment of life-threatening viruses that are not addressed with

approved therapies, and

the treatment of individuals with advanced or metastatic cancer who are either

unresponsive to or intolerant of standard of care therapy, and with cancer

types in which exosomes have been shown to participate in the development or

   severity of the disease.





We believe the Hemopurifier can be a part of the broad-spectrum treatment of life-threatening highly glycosylated viruses that are not addressed with an already approved treatment countermeasure objective set forth by the U.S. Government to protect citizens from bioterror and pandemic threats. In small-scale or early feasibility human studies, the Hemopurifier has been administered to individuals infected with HIV, hepatitis-C, and Ebola. Additionally, the Hemopurifier has been validated to capture Zika virus, Lassa virus, MERS-CoV, cytomegalovirus, Epstein-Barr virus, Herpes simplex virus, Chikungunya virus, Dengue virus, West Nile virus, smallpox-related viruses, H1N1 swine flu virus, H5N1 bird flu virus, and the reconstructed Spanish flu virus of 1918. In several cases, these validations were conducted in collaboration with leading government or non-government research institutes. Domestically, we are focused on the clinical advancement of the Hemopurifier through investigational device exemptions (IDEs) approved by the FDA. We recently concluded a feasibility study to demonstrate the safety of our device in health-compromised individuals infected with a viral pathogen.

We are also the majority owner of Exosome Sciences, Inc. (ESI), a company focused on the discovery of exosomal biomarkers to diagnose and monitor life-threatening diseases. Included among ESI's endeavors is the advancement of a TauSomeTM biomarker candidate to diagnose Chronic Traumatic Encephalopathy (CTE) in the living. ESI previously documented that TauSome levels in former NFL players to be nine times higher than same age-group control subjects. We consolidate Exosome's activities in our consolidated financial statements.

Successful outcomes of human trials will also be required by the regulatory agencies of certain foreign countries where we intend to sell this device. Some of our patents may expire before FDA approval or approval in a foreign country, if any, is obtained. However, we believe that certain patent applications and/or other patents issued more recently will help protect the proprietary nature of the Hemopurifier treatment technology.







  18





Our common stock is listed on the Nasdaq Capital Market under the symbol "AEMD."

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and must file reports, proxy statements and other information with the Commission. The Commission maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, like us, which file electronically with the Commission. Our headquarters are located at 9635 Granite Ridge Drive, Suite 100, San Diego, CA 92123. Our phone number at that address is (858) 459-7800. Our Web site is http://www.aethlonmedical.com.



RESULTS OF OPERATIONS


THREE MONTHS ENDED DECEMBER 31, 2018 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 2017




Government Contract Revenues



We did not record any government contract revenue in the three month period ended December 31, 2018 and we recorded $74,813 of government contract revenue in the three month period ended December 31, 2017.



Operating Expenses


Consolidated operating expenses for the three months ended December 31, 2018 were $1,963,873 in comparison with $1,238,440 for the comparable period a year ago. This increase of $725,433, or 58.6%, was due to increases in payroll and related expenses of $498,286, in professional fees of $148,075 and in general and administrative expenses of $79,072.

The $498,286 increase in payroll and related expenses was primarily due to the combination of a $472,639 accrual for the separation payments over calendar 2019 for our former CEO and President and a $21,692 increase in stock-based compensation.

The $148,075 increase in our professional fees was due to a $34,900 increase in our Board fees due to the recent expansion of our Board, a $7,273 increase in ESI's professional fees and a $197,426 increase in scientific consulting fees. Those increases were partially offset by a $71,749 decrease in our legal fees, a $9,890 decrease in our marketing costs and a $9,885 decrease in our accounting fees.

The $79,072 increase in general and administrative expenses was primarily due to the combination of a $44,592 accrual for the health insurance payments over calendar 2019 for our former CEO and President, a $26,086 increase in our insurance costs and an $18,791 increase in rent expense under our renewed leases.




Other Expense



Other expense during the three months ended December 31, 2018 and 2017 consisted of interest expense.



Interest Expense


Interest expense was $55,107 for the three months ended December 31, 2018 and was $55,912 for the three months ended December 31, 2017, a decrease of $805. The various components of our interest expense are shown in the following table:



                                  Three Months       Three Months
                                     Ended              Ended
                                    12/31/18           12/31/17        Change
Interest Expense                 $       24,820     $       25,625     $  (805 )
Amortization of Note Discounts           30,287             30,287           -
Total Interest Expense           $       55,107     $       55,912     $  (805 )



As noted in the above table, since the amortization of note discounts was the same in both periods, the $805 decrease in our interest expense was due to a reduction in our contractual interest expense.







  19






Net Loss


As a result of the changes in revenues and expenses noted above, our net loss increased from approximately $1,215,000 in the three month period ended December 31, 2017 to $2,013,000 in the three month period ended December 31, 2018.

Basic and diluted loss attributable to common stockholders were ($0.11) for the three month period ended December 31, 2018 compared to ($0.08) for the period ended December 31, 2017.

NINE MONTHS ENDED DECEMBER 31, 2018 COMPARED TO THE NINE MONTHS ENDED DECEMBER 31, 2017




Government Contract Revenues



We recorded $149,625 in government contract revenue in the nine months ended December 31, 2018 and we recorded $74,813 in government contract revenue in the nine months ended December 31, 2017. This revenue arose from work performed under our government contract with National Cancer Institute, part of the National Institutes of Health ("NIH") as follows:



                                      Nine Months          Nine Months        Change in
                                     Ended 12/31/18      Ended 12/31/17        Dollars
NIH Contract                        $        149,625     $        74,813     $    74,812

Total Government Contract Revenue $ 149,625 $ 74,813 $ 74,812

We have entered into the following two contracts/grants with the National Cancer Institute (NCI), part of the National Institutes of Health (NIH) over the past two years:




Breast Cancer Grant



In September 2018, the NCI awarded us a government grant (number 1R43CA232977-01). The title of this Small Business Innovation Research (SBIR) Phase I grant is "The Hemopurifier Device for Targeted Removal of Breast Cancer Exosomes from the Blood Circulation."

This NCI Phase I grant period runs from September 14, 2018 through August 31, 2019. The total amount of the firm grant is $298,444. The grant calls for two subcontractors to work with us. Those subcontractors are University of Pittsburgh and Massachusetts General Hospital.

As of December 31, 2018, we have not recognized any revenue under this grant.



Melanoma Cancer Contract


We entered into a contract with the NCI in September 2017. This award was under the NIH's SBIR program. The title of the award is "SBIR Topic 359 Phase 1 Device Strategy for Selective Isolation of Oncosomes and Non-Malignant Exosomes."

The award from NIH was a firm, fixed-price contract with potential total payments to us of $299,250 over the course of nine months.

Fixed price contracts require the achievement of multiple, incremental milestones to receive the full award during each period of the contract. The NIH also had the unilateral right to require us to perform additional work under an option period for an additional fixed amount of $49,800.

Under the terms of the contract, we were required to perform certain incremental work towards the achievement of specific milestones against which we will invoice the government for fixed payment amounts.







  20





In the nine months ended December 31, 2018, we performed work under the contract covering the remainder of the technical objectives of the contract (Aim 1: To validate the Hemopurifier as a device for capture and recovery of melanoma exosomes from plasma, and Aim 2: To validate a method of melanoma exosome isolation consisting of the Hemopurifier followed by mab-based immunocapture to select out the tumor-derived exosomes from non-malignant exosomes, and Aim 3: To evaluate the functional integrity of melanoma exosomes purified by the Hemopurifier and immunocapture isolation steps). As a result we invoiced NIH for $149,625 during the nine months ended December 31, 2018.

All of the revenue noted above related to the Melanoma Cancer Contract, which is now completed.




Operating Expenses



Consolidated operating expenses for the nine months ended December 31, 2018 were $4,557,724 in comparison with $3,634,862 for the comparable period a year ago. This increase of $922,862, or 25.4%, was due to increases in in payroll and related expenses of $515,275, professional fees of $283,900 and in general and administrative expenses of $123,687.

The $515,275 increase in payroll and related expenses was primarily due to the combination of a $472,639 accrual for the separation payments over calendar 2019 for our former CEO and President and a $56,905 increase in stock-based compensation.

The $283,900 increase in our professional fees was due to a $126,400 increase in our Board fees due to the recent expansion of our Board, a $253,262 increase in scientific consulting fees, a $53,494 increase in our marketing and investor relations fees and a $40,290 increase in ESI's professional fees. Those increases were partially offset by a $149,235 decrease in our legal fees, a $29,529 decrease in our accounting fees and a $10,782 decrease in website service fees.

The $123,687 increase in general and administrative expenses was primarily due to the combination of a $44,592 accrual for the health insurance payments over calendar 2019 for our former CEO and President and $79,484 of clinical trial expenses associated with the exosome trial at University of California Irvine, which was partially offset by reductions in a number of additional expenses.



Other Expense


Other expense during the nine months ended December 31, 2018 consisted of interest expense and during the nine months ended December 31, 2017 consisted of losses on debt extinguishment, losses on share for warrant exchanges and interest expense. Other expense for the nine months ended December 31, 2018 was $165,317 in comparison with other expense of $813,618 for the nine months ended December 31, 2017.




The following table breaks out the various components of our other expense for
both periods:



                                       Nine Months       Nine Months
                                          Ended             Ended
                                        12/31/18          12/30/17          Change
Loss on Debt Extinguishment           $           -     $     376,909     $ (376,909 )
Loss on Share for Warrant Exchanges               -           130,214       (130,214 )
Interest Expense                            165,317           306,495       (141,178 )
Total Other Expense                   $     165,317     $     813,618     $ (648,301 )




Loss on Debt Extinguishment


Our loss on debt extinguishment for the nine months ended December 31, 2017 resulted from a $376,909 loss associated with the June 2017 amendments to our convertible notes. There was no loss on debt extinguishment for the nine months ended December 31, 2018 - see below for additional information.

June 2017 Amendments - The $376,909 loss on debt extinguishment in the nine months ended December 31, 2017 resulted from an Exchange Agreement with two institutional investors under which we issued 57,844 restricted shares of common stock in exchange for the cancellation of 77,125 warrants held by those investors (see Loss on Share for Warrant Exchanges below). Additionally, the investors agreed to extend the expiration dates of the convertible notes held by them from July 1, 2018 to July 1, 2019 in exchange for the reduction of the conversion price of those notes from $4.00 per share to $3.00 per share. The modification of the notes was evaluated under FASB Accounting Standards Codification ("ASC") Topic No. 470-50-40, "Debt Modification and Extinguishments". Therefore, according to the guidance, the instruments were determined to be substantially different, and the transaction qualified for extinguishment accounting.







  21





This modification of the notes was also evaluated under ASC Topic No. 470-50-40, "Debt Modification and Extinguishments". Therefore, according to the guidance, the instruments were determined to be substantially different, and the transaction qualified for extinguishment accounting.

Loss on Share for Warrant Exchanges

During the nine months ended December 31, 2017, we agreed with two individual investors to exchange 11,497 restricted shares for the cancellation of 22,993 warrants. Additionally, during the period, we entered into an Exchange Agreement with two institutional investors under which we issued 57,844 restricted shares of common stock in exchange for the cancellation of 77,125 warrants held by those investors. We measured the fair value of the shares issued and the fair value of the warrants exchanged for those shares and recorded losses for each of those exchanges based on the changes in fair value between the instruments exchanged. There was no loss on share for warrant exchanges for the nine months ended December 31, 2018.



Interest Expense



Interest expense was $165,317 for the nine months ended December 31, 2018 and
was $306,495 for the nine months ended December 31, 2017, a decrease of
$141,178. The various components of our interest expense are shown in the
following table:



                                  Nine Months       Nine Months
                                     Ended             Ended
                                   12/31/18          12/31/17          Change
Interest Expense                 $      74,456     $      91,119     $  (16,663 )
Amortization of Note Discounts          90,861           215,376       (124,515 )
Total Interest Expense           $     165,317     $     306,495     $ (141,178 )



As noted in the above table, the most significant factor in the $141,178 decrease in our interest expense was the $124,515 decrease in the amortization of note discounts, which related to the amortization against the discount on our convertible notes. An additional factor in the change in our total interest was a $16,663 decrease in our contractual interest expense.



Net Loss


As a result of the changes in revenues and expenses noted above, our net loss increased from approximately $4,361,000 in the nine month period ended December 31, 2017 to $4,553,000 in the nine month period ended December 31, 2018.

Basic and diluted loss attributable to common stockholders were ($0.25) for the nine month period ended December 31, 2018 compared to ($0.40) for the nine month period ended December 31, 2017.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2018, we had a cash balance of $4,824,901 and working capital of $3,079,243. This compares to a cash balance of $6,974,070 and working capital of $6,752,293 at March 31, 2018. While we expect our current cash levels to support our operations for at least twelve months from the issuance date of these interim financial statements, beyond that timeframe, significant additional financing must be obtained in order to provide a sufficient source of operating capital and to allow us to continue to operate as a going concern. In addition, we will need to raise capital to complete anticipated future human clinical trials in the U.S. We anticipate the primary sources of this additional financing will be from proceeds of our at-the-market offering program, debt financing and other forms of equity placements. If we are unable to raise sufficient capital through the above noted sources of financing, we may elect to reduce our expenditures in order preserve cash. Those expenditure reductions may include stopping or slowing any clinical trials and/or reducing our headcount.

Our primary sources of capital during the nine months ended December 31, 2018 were our Common Stock Sales Agreement with H.C. Wainwright & Co., LLC ("H.C. Wainwright") and exercises of certain of the warrants from our October 2017 Public Offering for cash. The cash raised from those activities is noted below:







  22





Common Stock Sales Agreement with H.C. Wainwright

On June 28, 2016, we entered into a Common Stock Sales Agreement (the "Agreement") with H.C. Wainwright which established an at-the-market equity program pursuant to which we may offer and sell shares of our common stock from time to time as set forth in the Agreement. The Agreement provides for the sale of shares of our common stock having an aggregate offering price of up to $12,500,000 (the "Shares").

Subject to the terms and conditions set forth in the Agreement, H.C. Wainwright will use its commercially reasonable efforts consistent with its normal trading and sales practices to sell the Shares from time to time, based upon our instructions. We have provided H.C. Wainwright with customary indemnification rights, and H.C. Wainwright will be entitled to a commission at a fixed rate equal to three percent (3.0%) of the gross proceeds per Share sold. In addition, we have agreed to pay certain expenses incurred by H.C. Wainwright in connection with the Agreement, including up to $50,000 of the fees and disbursements of their counsel. The Agreement will terminate upon the sale of all of the Shares under the Agreement unless terminated earlier by either party as permitted under the Agreement.

Sales of the Shares, if any, under the Agreement shall be made in transactions that are deemed to be "at the market offerings" as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made by means of ordinary brokers' transactions, including on the Nasdaq Capital Market, at market prices or as otherwise agreed with H.C. Wainwright. We have no obligation to sell any of the Shares, and, at any time, we may suspend offers under the Agreement or terminate the Agreement.

In the nine months ended December 31, 2018, we raised aggregate net proceeds of $749,804 (net of $23,289 in commissions to H.C. Wainwright and $2,395 in other offering expenses) under the Agreement through the sale of 555,000 shares at an average price of $1.35 per share of net proceeds. As of the date of the filing of this Form 10-Q, we had approximately $8.3 million available under the Agreement.




Warrant Exercises



In the nine months ended December 31, 2018, investors that participated in the October 2017 public offering exercised 129,300 warrants for aggregate cash proceeds to us of $142,230 before expenses.

Future capital requirements will depend upon many factors, including progress with pre-clinical testing and clinical trials, the number and breadth of our clinical programs, the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other proprietary rights, the time and costs involved in obtaining regulatory approvals, competing technological and market developments, as well as our ability to establish collaborative arrangements, effective commercialization, marketing activities and other arrangements. We expect to continue to incur increasing negative cash flows and net losses for the foreseeable future.



Cash Flows



Cash flows from operating, investing and financing activities, as reflected in
the accompanying Condensed Consolidated Statements of Cash Flows, are summarized
as follows:



                                           (In thousands)
                                      For the nine months ended
                                  December 31,        December 31,
                                      2018                2017
Cash provided by (used in):
Operating activities              $      (2,896 )     $      (2,893 )
Investing activities                          -                 (24 )
Financing activities                        747               6,968

Net (decrease) increase in cash $ (2,149 ) $ 4,051








  23





NET CASH USED IN OPERATING ACTIVITIES. We used cash in our operating activities due to our losses from operations. Net cash used in operating activities was approximately $2,896,000 in both of the nine month periods ended December 31, 2018 and 2017.

NET CASH USED IN INVESTING ACTIVITIES. We used approximately $24,000 of cash to purchase laboratory and office equipment in the nine months ended December 31, 2017. We had no investing activities in the nine months ended December 31, 2018.

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES. In the nine months ended December 31, 2018 we raised approximately $884,000 from the sale of common stock, which was partially offset by the payment of approximately $137,000 for tax withholding on vested rights while in the nine months ended December 31, 2017 we raised approximately $7,166,000 from the sale of common stock, which was partially offset by the payment of approximately $199,000 for tax withholding on vested rights.

As of the date of this filing, we plan to invest significantly into purchases of our raw materials and into our contract manufacturing arrangement subject to successfully raising additional capital.



CRITICAL ACCOUNTING POLICIES


The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of expenses during the reporting period. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.

We believe that the estimates and assumptions that are most important to the portrayal of our financial condition and results of operations, in that they require the most difficult, subjective or complex judgments, form the basis for the accounting policies deemed to be most critical to us. These critical accounting policies relate to revenue recognition, measurement of stock purchase warrants issued with notes payable, beneficial conversion feature of convertible notes payable, impairment of intangible assets and long lived assets, stock compensation, and the classification of warrant obligations, and evaluation of contingencies. We believe estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial condition or results of operations.

There have been no changes to our critical accounting policies as disclosed in our Form 10-K for the year ended March 31, 2018.

OFF-BALANCE SHEET ARRANGEMENTS

We have no obligations required to be disclosed herein as off-balance sheet arrangements.




Pharmacy News Index
  Drug Delivery Systems
  Drugstores
  FDA Final Approvals
  Front Page Healthcare News
  Generic Drugs
  Hospital Industry
  Internet Pharmacy
  IT in Healthcare
  Medicare & Medicaid
  Over-the-Counter Drugs
  Pharm Industry Trends and Policy
  Pharmaceutical Development
  Pharmaceutical Industry

LIVE ONLINE CE

Feb 18: Management of Schizophrenia & Acute Agitation
Feb 19: Treatment of Atopic Dermatitis (Eczema) & Xerosis (Dry Skin)
Feb 20: Know Your Value, Know Your Worth: Provider Status in Pharmacy
Feb 21: Type II Diabetes: Case Studies and Management Options
Feb 22: Medical Marijuana: The Basic and Clinical Pharmacology, Not The Politics
Click for entire Webinar Calendar

Special Announcement

Free Membership
Enjoy Drug Search, industry newsletters and more...

Nursing Jobs
Are you a nurse looking for a job?

Check out the Nursing Job Source.

Your number one choice for nursing jobs.



Websites » RxCareerCenter.comRxSchool.comClubStaffing.comNursingJobSource.comRN.com
Copyright © 2019 Pharmacy Choice - All rights reserved.
Terms and Conditions | Privacy Statement
888-682-4415