ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion and
analysis should be read in conjunction with the consolidated Financial Statements and Notes thereto appearing elsewhere in this Annual
Report.
We are a medical therapeutic
company focused on developing the Hemopurifier® (HP), a clinical-stage immunotherapeutic device intended for applications in cancer,
life-threatening viral infections, and organ transplantation and other areas of significant unmet needs. In human studies (164 sessions
with 38 patients), the Hemopurifier was used safely and demonstrated the potential to remove enveloped viruses. In pre-clinical studies,
the Hemopurifier has exhibited the capacity to remove harmful extracellular vesicles (EVs) and enveloped viruses from biological fluids,
utilizing its proprietary lectin-based mechanism. These extracellular vesicles have been implicated in disease processes such as immune
suppression and metastasis in cancer as well as in the progression of severe life-threatening infectious diseases. The U.S. Food and Drug
Administration (“FDA”) has designated the Hemopurifier as a “Breakthrough Device” for two independent indications:
We
are also evaluating the Hemopurifier’s potential in additional clinical contexts based on its mechanism of action and preclinical
findings.
Oncology
We believe that the Hemopurifier
may be a substantial advancement in the treatment of patients with advanced and metastatic cancer through its design to bind to and remove
harmful remove harmful extracellular vesicles particles that promote the growth and spread of tumors. In October 2022, we formed a wholly-owned
subsidiary in Australia to initially conduct oncology-related clinical research, then seek regulatory approval and commercialize our Hemopurifier
in Australia.
We completed an in vitro
binding study of extracellular vesicles from cancer patient samples, to provide pre-clinical evidence to support our trial design and
translational endpoints. Our study indicated positive results from this study, providing evidence that our Hemopurifier removes extracellular
vesicles, or EVs, from plasma. This translational study provides pre-clinical evidence to support our phase 1 safety, feasibility and
dose-finding clinical trials of our Hemopurifier in patients with solid tumors who have stable or progressive disease during anti-PD-1
monotherapy treatment, such as Keytruda® or Opdivo®.
We have launched in an Australia
safety, feasibility and dose-finding clinical trials of the Hemopurifier in cancer patients with solid tumors who have stable or progressive
disease during anti-PD-1 monotherapy treatment, such as Keytruda® (pembrolizumab) or Opdivo® (nivolumab). The primary endpoint
of the approximately nine to 18-patients, is safety. Exploratory analyses will be conducted to explore the number of HP treatments required
to produce sustained reductions of EVs as well as improve anti-tumor T cell activity. We plan to open a similarly designed trial in India.
The following three hospitals
in Australia have received ethics committee approval, have gone through training on our device and are open for patient enrollment: Royal
Adelaide Hospital in Adelaide, Australia and Pindara Private Hospital in the Gold Coast section of Australia and GenesisCare North Shore
Hospital in Sydney, Australia. As of 16JUN2025 we have treated three participants in the first of the three treatment cohorts. Once these
patients have completed the pre-specified 7-day safety follow-up period, the data will be presented to an independent Data Safety Monitoring
Board (DSMB). The DSMB will provide a recommendation to Aethlon senior leadership on advancing to the next cohort where participants will
receive 2 HP treatments during the one week treatment period.
The Company continues to pursue
approval of a similar clinical trial in India. HREC approval has previously been obtained at Medanta Medicity Hospital. Following this
a meeting with Subject Expert Committee (SEC) of the India Regulatory Agency CDSCO was held 5JUN2025. We are awaiting the formal approval
letter of the CDSCO. The clinical trial at Medanta can commence following a Site Initiation Visit (SIV) by the company’s India CRO,
Qualtran.
Life-Threatening Viral Infections
We also believe that the Hemopurifier
can be part of the broad-spectrum treatment of life-threatening highly glycosylated, or carbohydrate coated, viruses that are not addressed
with an already approved treatment. In small-scale or early feasibility human studies, the Hemopurifier has been used in the past to treat
individuals infected with human immunodeficiency virus, or HIV, hepatitis-C and Ebola.
Additionally, in vitro, the
Hemopurifier has been demonstrated to capture Ebola, Marburg virus, Zika, Lassa, MERS-CoV, Cytomegalovirus, Epstein-Barr, Herpes simplex,
Chikungunya, Dengue, West Nile, H1N1 swine flu, H5N1 bird flu, and the reconstructed 1918 Spanish flu virus. In several cases, these studies
were conducted in collaboration with leading government or non-government research institutes.
The
Hemopurifier has previously been studied under FDA and international regulatory frameworks for the treatment of severe SARS-CoV-2 infection.
While we terminated our U.S. and India-based COVID-19 studies due to low ICU patient volume and shifting priorities, these programs demonstrated
real-world use of the Hemopurifier in critically ill patients. We maintain an open IDE for viral indications to preserve optionality for
future outbreaks or emergent pathogens.
We have sufficient inventory
of Hemopurifiers to support our ongoing oncology trial in Australia as well as any near-term expansion of that study or potential trial
activity in India. While we have received FDA approval to begin manufacturing at our San Diego facility under our IDE supplement, we are
still awaiting FDA approval of a separate supplement to qualify an additional supplier of a key Hemopurifier component. We continue to
work with the FDA on this process.
Pre-Clinical Exploration of Additional Clinical
Uses for the Hemopurifier
The
Aethlon R&D laboratory continues to explore potential new indications for the Hemopurifier. We have published in the peer-reviewed
journal Transplant Immunology the ability of the device to remove extracellular vesicles and their microRNA cargo from acellular
perfusates of discarded kidneys that had undergone normothermic machine perfusion.
On
May 12, 2025, the results of our pre-clinical ex vivo study entitled “Ex Vivo Removal of CD41 positive platelet microparticles from
Plasma by a Medical Device containing a Galanthus nivalis agglutinin (GNA) affinity resin” were published in the pre-print vehicle
bioRxiv. This manuscript has been submitted to a peer-reviewed publication for review.
Platelet
-derived extracellular vesicles (PD-EVs) are the most numerous EV population in the body and are released by platelets in response to
a variety of stimuli. The cargo contained within these EVs have been noted to take part in damage to blood vessels, activation of immune
cells and spread of tumor cells. Excessive levels of PD-EVs have been implicated in a myriad of diseases including cancer, lupus, systemic
sclerosis, multiple sclerosis, Alzheimer’s disease, sepsis, acute and Long COVID.
We
hypothesized that the Aethlon Hemopurifier which contains a propriety GNA affinity resin would remove platelet derived EVs from plasma.
In this experiment two hundred milliliters on donated healthy human plasma were circulated over the Aethlon Hemoupurifier (HP) to simulate
a clinical HP session. The study results showed a 98.5% removal of platelet -derived EVs at a timepoint equivalent to a 4-hour HP treatment.
The results of this study support the current Australian Clinical Trial in Oncology as well as open the investigation of the Hemopurifier
in many indications.
Extracellular
vesicles have been implicated in the pathogenesis of Long COVID.As we had previously demonstrated removal of extracellular vesicles
by the Hemopurifier in a patient with severe acute COVID-19 infection, we hypothesized that patients with Long COVID would have
extracellular vesicles with the mannose sugar on their surface that would bind to the affinity resin in our device. We partnered
with investigators at the Univ of California San Francisco Medical Center Long COVID clinic to obtain samples from participants with
Long COVID as well as controls that had had COVID -10 infection but had recovered. The data to be presented will review the binding
of larger and smaller extracellular vesicles to the GNA lectin and the lectin affinity resin, respectively. We believe the data from
this pre-clinical study calls for additional study of the Hemopurifier and look forward to receiving feedback from the Long COVID
scientific community at the Keystone Symposium.
Successful
outcomes of human trials will also be required by the regulatory agencies of certain foreign countries where we plan to market and sell
the Hemopurifier. 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 to us more recently will help protect the proprietary nature of our
Hemopurifier treatment technology.
In
addition to the foregoing, we are monitoring closely the impact of inflation, recent bank failures and the war between Russia and Ukraine
and the military conflicts in Israel and the surrounding areas, as well as related political and economic responses and counter-responses
by various global factors on our business. Given the level of uncertainty regarding the duration and impact of these events on capital
markets and the U.S. economy, we are unable to assess the impact on our timelines and future access to capital. The full extent to which
inflation, recent bank failures and the ongoing military conflicts will impact our business, results of operations, financial condition,
clinical trials and preclinical research will depend on future developments, as well as the economic impact on national and international
markets that are highly uncertain.
Our executive offices are
located at 11555 Sorrento Valley Road, Suite 203, San Diego, California 92121. Our telephone number is (619) 941-0360. Our website address
is www.aethlonmedical.com. The information contained on, or that can be accessed through, our website is not part of, and is not incorporated
into, this Annual Report.
Our common stock is listed
on the Nasdaq Capital Market under the symbol “AEMD.”
Fiscal Years Ended March 31, 2025 and 2024
Results of Operations
Government Contract Revenues
For the fiscal years ended March 31, 2025
and 2024, we did not have any active revenue-generating government contracts and, consequently, did not record any government contract
revenue for that period.
Operating Costs and Expenses
Consolidated operating expenses
were $9,341,364 for the fiscal year ended March 31, 2025, compared to $12,636,568 for the fiscal year ended March 31, 2024, a decrease
of $3,295,203. The $3,295,203 decrease in the fiscal year ended March 31, 2025 was due to a decrease in payroll and related expenses of
$1,332,359, a decrease of $1,302,834 in professional fees and a decrease of $660,010 in general and administrative expenses.
Payroll and related expenses
decreased by $1,332,359 for the fiscal year ended March 31, 2025, compared to the prior year. The decrease was driven by a $876,511 reduction
in salaries and related expenses and a $804,136 decrease in stock-based compensation. The reduction in salary expense reflects the termination
of three executives—one in the prior year, one in July 2024, and one in October 2024—as well as a workforce reduction of non-executive
employees implemented in August 2024. The decrease in stock-based compensation was primarily due to the absence of accelerated vesting
charges recognized in the prior year in connection with the termination of our former Chief Executive Officer, as well as lower stock-based
compensation expense associated with the departure of executives and non-executive staff. The overall decrease was partially offset by
an increase of $348,287 in severance expenses mostly related to the termination of two former executives.
Professional
fees decreased by $1,302,834 for the fiscal year ended March 31, 2025, compared to the prior year. The decrease was primarily driven by
a $553,377 reduction in legal fees related to the transition to a new legal firm, a $462,154 decrease primarily attributable to the termination
of services with a contract manufacturing organization and the completion of a project involving outside laboratory services. In
addition, consulting fees related to scientific projects and regulatory projects decreased by $239,640 and $125,478 respectively. These
decreases were partially offset by $84,900 increase in accounting fees associated with obtaining consents from prior audit firm for various
SEC filings.
General and administrative
expenses decreased by $660,010 for the fiscal year ended March 31, 2025, compared to the prior year. The decrease was primarily driven
by a $534,069 reduction in costs related to lower purchases of raw materials for the production of Hemopurifiers, reduced cleanroom certification
expenses, and fewer outside services for maintenance of the manufacturing facility. Laboratory supplies and testing costs also declined
by $337,109 following the completion of oncology and transplant-related projects. Insurance expenses decreased by $141,453, including
reductions in medical and workers’ compensation premiums due to lower headcount, as well as overall decrease in business insurance
costs. Additional decreases included $44,122 in travel and entertainment expenses, $24,356 decrease in office supplies and $19,498 in
depreciation expense related to the disposal of certain equipment. These decreases were partially offset by a $466,661 increase in clinical
trial expenses related to our ongoing oncology study in Australia.
As a result of the above factors,
our operating loss decreased to $9,341,364 for the fiscal year ended March 31, 2025, from $12,636,568 for the fiscal year ended March
31, 2024.
Other Income (Expense)
Other
expense for the year ended March 31, 2025, included a non-cash charge of $4,612,862 related to a warrant inducement offer. In March 2025,
the Company offered certain warrant holders the opportunity to exercise existing warrants at a temporarily reduced exercise price in exchange
for the issuance of new warrants. The inducement expense recognized represents the combined fair value of the new warrants issued and
the incremental fair value resulting from the modification of the exercise price of the existing warrants. This
transaction did not impact cash flows from operating activities.
During the fiscal year ended
March 31, 2025, we recognized $324,450 in other income related to the Employee Retention Tax Credit (“ERTC”)
under the CARES Act and subsequent legislation. We recorded the ERTC as other income in the periods in which the payments were received.
In addition, we recognized $36,339 in interest income related to the ERTC during fiscal 2025. As of March 31, 2025, the remaining expected
credit was recorded as another receivable within other current assets on our consolidated balance sheet. No amounts were recorded in the
prior fiscal year.
Liquidity and Capital Resources
As of March 31, 2025, we had
a cash balance of $5,501,261 and working capital of $4,050,514. This compares to a cash balance of $5,441,978 and working capital of $4,395,889
at March 31, 2024.
While the Company has been
carrying out certain expense reductions since November 2023; our planned additional expense reductions may not materialize and/or our
patient recruitment may occur more rapidly than expected along with the concomitant increases in expenses, therefore there is substantial
doubt that our cash on hand will carry the company for 12 months beyond the filing date of the financial statements included in this Annual
Report.
During the fiscal year ended
March 31, 2025 we raised capital through a warrant inducement offer and a public offering. In the fiscal year ended March 31, 2024 we
raised money through our then existing At The Market Offering Agreement, or the 2022 ATM Agreement, with H.C. Wainwright & Co., LLC,
or Wainwright. In October 2024, the S-3 registration underlying our At The Market Offering Agreement expired and the ATM was cancelled.
Financings During the Fiscal Year Ended March
31, 2025:
During the fiscal year
ended March 31, 2025, we raised aggregate net proceeds of $7,746,311, net of $405,002 in commission and legal expenses to Maxim and
$753,090 in direct legal and accounting fees. This total included $3,539,907 from a public offering in May 2024 and $2,054,940 from
subsequent exercise of Class A and Class B warrants and $2,151,464 in net proceeds from a warrant inducement offering in March 2025.
In connection with that transaction, we paid the placement agent fees totaling $153,979, consisting of a 6% commission on gross
proceeds of $138,979 and $15,000 for legal and out-of-pocket expenses to Maxim and $10,877 in direct legal fees.
On
March 16, 2025, Aethlon Medical, Inc. (the “Company”) entered into a
inducement offer to exercise existing Class A and Class B Warrants (the “Agreement”) with a certain accredited and
institutional holder (the “Holder”) of the Company’s outstanding Class A and Class B Warrants issued on May 17,
2024 (the “Existing Warrants”). Pursuant to the Agreement, the Holder, upon exercise, will receive a new unregistered
Common Stock Purchase Warrant (“New Warrant”) pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended
(“Securities Act”), to purchase up to a number of shares equal to 200% of the number of Warrant Shares issued pursuant
to the exercise of Existing Warrants pursuant to this Agreement (the “New Warrant Shares”), which New Warrant shall have
an exercise price per share equal to $0.3736, subject to adjustment as provided in the New Warrant, will be exercisable at any time
on or after six (6) months from the date of issuance and have a term of exercise of five and one-half (5.5) years from the date of
issuance and a reduction of the exercise price of the Existing Warrants to $0.3736 per share, representing the closing price on
March 14, 2025, but only with respect to a cash exercise under the Existing Warrants (as reduced from the current respective
exercise price per share as set forth in the Existing Warrants).
The
closing took place on March 17, 2025. Gross proceeds to the Company from the exercise of the Existing Warrants was $2,316,320,
prior to deducting closing costs and placement agent fees as further described below. The Company intends to use the net proceeds from
the offering for working capital and general corporate purposes.
As
a result of the Holder exercising the Existing Warrants, the Company issued an aggregate of 775,000 shares of its common stock. The shares
underlying the Existing Warrants have all been registered on Form S-1 registration statement (Registration Number 333-278188).
The
Company agreed to file a resale registration statement registering the shares underlying the Replacement Warrants (“Resale Registration
Statement”) within ninety (90) days of the date of the Agreement and to use commercially reasonable best efforts to cause the Resale
Registration Statement to be effective on or prior to the 150th calendar day after the date of the Agreement.
Subject to the terms
of the Agreement, the Company will be required to pay certain liquidated damages if the shares underlying the New Warrants are not filed
within the ninety (90) period, as more fully described in the Agreement.
The
Company further agreed that until sixty (60) days after the closing date of the warrant exercise, it will not (other than in connection
with limited enumerated exceptions) issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares
of common stock or common stock equivalents or file any registration statement or any amendment or supplement (other than the registration
statement registering the shares underlying the Replacement Warrants).
In
connection with the transactions contemplated in the Agreement, the Company agreed to pay its placement agent, Maxim Group, LLC (the “Agent”)
the following compensation, (i) a cash fee equal to 6.0% of the gross proceeds received by the Company in the transactions contemplated
by the Agreement, and (ii) legal fees and out-of-pocket expenses of $15,000.
On May 17, 2024, we
closed a public offering pursuant to which we sold an aggregate of: (i) 306,250 shares of our common stock and accompanying Class A
warrants to purchase up to 306,250 shares of common stock and Class B warrants to purchase up to 306,250 shares of common stock, at
a combined public offering price of $4.64 per share and accompanying warrants; and (ii) in lieu of common stock, pre-funded warrants
to purchase 706,250 shares of common stock and accompanying Class A warrants to purchase up to 706,250 shares of common stock and
Class B warrants to purchase up to 706,250 shares of common stock, at a combined public offering price of $4.63 per pre-funded
warrant and accompanying warrants, which is equal to the public offering price per share of common stock, and accompanying warrants
less the $0.001 per share exercise price of each such pre-funded warrant. The gross proceeds from the offering, before deducting the
placement agent’s fees and other offering expenses, were approximately $4.7 million.
Financings During the Fiscal Year Ended March
31, 2024:
During the fiscal year
ended March 31, 2024, we raised aggregate net proceeds of $1,322,383, net of $34,118 in commissions to Wainwright and $8,202 in
other offering expense, through the sale of 37,011 shares of our common stock at an average price of $35.76 per share under the 2022
ATM Agreement.
2022 At The Market Offering Agreement with
H.C. Wainwright & Co., LLC
On
March 24, 2022, we entered into the 2022 ATM Agreement with 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 2022 ATM Agreement. This agreement was terminated in October 2024.
The
offering was registered under the Securities Act pursuant to our shelf registration statement on Form S-3 (Registration Statement No.
333-259909), as previously filed with the SEC and declared effective on October 21, 2021. We filed a prospectus supplement, dated March
24, 2022, with the SEC that provides for the sale of shares of our common stock, or the 2022 ATM Shares, having an aggregate offering
price of up to $15,000,000, which was subsequently and most recently updated pursuant to our prospectus supplement, dated September 29,
2022, filed with the SEC that provides for the sale of 2022 ATM Shares having an aggregate offering price of up to $6,625,000. As of March
31, 2024, $5,302,617 of 2022 ATM Shares remained available for sale under the 2022 ATM Agreement.
Under
the 2022 ATM Agreement, Wainwright may sell the 2022 ATM Shares by any method permitted by law and deemed to be an “at the market
offering” as defined in Rule 415 promulgated under the Securities Act, including sales made directly on the Nasdaq Capital Market,
or on any other existing trading market for the 2022 ATM Shares. In addition, under the 2022 ATM Agreement, Wainwright may sell the 2022
ATM Shares in privately negotiated transactions with our consent and in block transactions. Under certain circumstances, we may instruct
Wainwright not to sell the 2022 ATM Shares if the sales cannot be effected at or above the price designated by us from time to time.
We
are not obligated to make any further sales of the 2022 ATM Shares under the 2022 ATM Agreement. The offering of the 2022 ATM Shares pursuant
to the 2022 ATM Agreement will terminate upon the termination of the 2022 ATM Agreement by Wainwright or us, as permitted therein.
The
2022 ATM Agreement contains customary representations, warranties and agreements by us, and customary indemnification and contribution
rights and obligations of the parties. We agreed to pay Wainwright a placement fee of up to 3.0% of the aggregate gross proceeds from
each sale of the 2022 ATM Shares. We also agreed to reimburse Wainwright for certain specified expenses in connection with entering into
the 2022 ATM Agreement.
Material Cash Requirements
We expect our clinical trial
expenses for the planned oncology trials in Australia and India to increase for the foreseeable future. While these increases are primarily
related to trial activities, additional Hemopurifiers may also be manufactured to support the studies.
In addition, we have entered
into leases for our headquarters, laboratory and manufacturing facilities. We expect our rent payments to continue to increase for the
foreseeable future.
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. We will continue to need to raise additional
capital either through equity and/or debt financing for the foreseeable future.
As a result of global events,
political changes, bank failures, actual or perceived changes in interest rates and economic inflation, the global credit and financial
markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence,
declines in economic growth, increases in inflation and uncertainty about economic stability. There can be no assurance that further deterioration
in credit and financial markets and confidence in economic conditions will not occur. If equity and credit markets deteriorate, it may
make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive. Any of these actions could materially
harm our business, results of operations and future prospects.
While we currently has been
carrying out certain expense reductions since November 2023; our planned additional expense reductions may not materialize and/or our
patient recruitment may occur more rapidly than expected along with the concomitant increases in expenses; therefore there is substantial
doubt that our cash on hand will carry the company for 12 months beyond the filing date of the financial statements included in this Annual
Report.
We do plan to access the equity
markets for additional capital, however, there can be no assurance that we will be able to access such additional capital.
Our ability to raise additional
funds may be adversely impacted by potential worsening global economic conditions and disruptions to and volatility in the credit and
financial markets in the United States, including due to bank failures, actual or perceived changes
in interest rates and economic inflation, and worldwide resulting from macroeconomic factors. Because of the numerous risks and
uncertainties associated with product development, we cannot predict the timing or amount of increased expenses and we may never be profitable
or generate positive cash flow from operating activities.
Cash Flows
Cash flows from operating,
investing and financing activities, as reflected in the accompanying Consolidated Statements of Cash Flows, are summarized as follows
(in thousands):
For the year ended
Cash provided by (used in):
Investing activities – (251 )
Effect of exchange rate on cash (12 ) 2
Net increase (decrease) in cash $ 69 $ (9,091 )
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 $7,646,000 in fiscal 2025, compared
to net cash used in operating activities of approximately $10,130,000 in fiscal 2024, a decrease of approximately $2,484,000. The decrease
in cash flows was primarily driven by a decrease of $2,869,000 in net loss after non-cash charges partially offset by a negative change
in our working capital items of $385,000 mainly from the approximately $210,000 decrease in accounts payable and other current liabilities
and approximately $299,000 decrease in due to related parties. These decreases were partially offset by a decrease of approximately $124,000
in prepaids.
Net Cash Used in Investing Activities
During the fiscal year ended
March 31, 2025 we did not purchase equipment. For the year ended March 31, 2024, we purchased approximately $251,000 of equipment, respectively.
Net Cash from Financing Activities
Net cash generated from financing
activities increased from approximately $1,288,000 in the fiscal year ended March 31, 2024 to approximately $7,277,000 in the fiscal year
ended March 31, 2025.
In the fiscal year ended March
31, 2025, we raised approximately $3,540,000 from the issuance of common stock. We also raised approximately $2,055,000 from the exercise
of warrants under standard terms and approximately $2,316,000 from the exercise of warrants under induced terms. These proceeds were partially
offset by $154,000 in commissions and $11,000 in legal fees related to the induced warrant exercises. Additionally, we used approximately
$19,000 used to satisfy tax withholding obligations associated with the issuance of restricted stock units (RSUs).
During the fiscal year ended
March 31, 2024, we raised $1,322,383 from the issuance of common stock, which was partially offset by the use of approximately
$35,000 to pay for the tax withholding on the issuance of restricted stock units, or RSUs.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of consolidated
financial statements in conformity with accounting principles generally accepted in the United States of America, or GAAP, 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. These 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.
There were no accounting estimates
in the year ended March 31, 2025 with a high degree of uncertainty or amounts that are with a high likelihood to change from period to
period that would materially impact the presentation of our financial statements for the year ended March 31, 2025.
Warrant Inducement Transactions
From
time to time, the Company may enter into warrant inducement arrangements, in which modifications to the terms of outstanding equity-classified
warrants—such as reductions in exercise price or the issuance of additional warrants—are offered to incentivize early exercise.
These transactions require significant judgment in determining whether the arrangement constitutes a routine equity modification or a
substantive inducement that should be accounted for as an expense. In making this determination, the Company evaluates the structure and
purpose of the transaction, including whether incremental value was transferred to the holder to accelerate capital inflows. In cases
where the substance of the arrangement reflects an inducement, the Company records the incremental value as an expense in the period the
transaction occurs. Determining the fair value of such inducements and the appropriate timing of recognition involves complex estimates
and careful consideration of the facts and circumstances of each arrangement.
Share-based Compensation
We account for share-based
compensation awards using the fair-value method and record such expense based on the grant date fair value in the consolidated financial
statements over the requisite service period. This requires management to make estimates and assumptions regarding the fair value of the
awards, including the expected term, volatility, risk-free interest rate, and forfeiture rates. These assumptions are inherently subjective
and involve significant judgment. The fair value of stock options is typically determined using the Black-Scholes option pricing model.
Compensation expense is recognized over the vesting period of the awards in a manner that reflects the service period or any applicable
performance conditions.
RSU Grants to Non-Employee Directors
The Company maintains the
Amended and Restated Non-Employee Director Compensation Policy, or the Director Compensation Policy, which provides for cash and equity
compensation for persons serving as non-employee directors of the Company. Under this policy, each new director receives either stock
options or a grant of RSUs upon appointment/election, as well as either an annual grant of stock options or of RSUs at the beginning of
each fiscal year. The (i) stock options are subject to vesting and (ii) RSUs are subject to vesting and represent the right to be issued
on a future date shares of our common stock upon vesting.
On
April 16, 2024, our Board of Directors approved, pursuant to the terms of the Director Compensation Policy, the grant of the annual RSUs
under the Director Compensation Policy to each of the four non-employee directors of the Company then serving on the Board of Directors.
The Director Compensation Policy provides for a grant of stock options or $50,000 worth of RSUs at the beginning of each fiscal year for
current non-employee directors then serving on the Board of Directors, and for a grant of stock options or $75,000 worth of RSUs for a
newly elected non-employee director, with each RSU priced at the average for the closing prices for the five days preceding and including
the date of grant, or $12.16 per share for the RSUs granted in April 2024. As a result, in April 2024 the four eligible directors were
each granted an RSU in the amount of 4,112 shares under the Company’s 2020 Equity Incentive Plan, or the 2020 Plan. The
RSUs are subject to vesting in four equal installments, with 25% of the restricted stock units vesting on each of June 30, 2024, September
30, 2024, December 31, 2024, and March 31, 2025, subject in each case to the director’s Continuous Service (as defined in the 2020
Plan), through such dates. Vesting will terminate upon the director’s termination of Continuous Service prior to any vesting date.
There were no vested RSUs
outstanding as of March 31, 2025.
Recent Events
Reverse
Split – Following the approval of a reverse stock split at a Special Meeting of Stockholders on May 13, 2025, our Board of Directors
approved a 1-for-8 reverse stock split or our outstanding shares of Common Stock, effective as of the close of business on June 6, 2023.
Accordingly, each 8 shares of outstanding common stock held by stockholders were combined into one share of common stock. Our authorized
common stock remained at 60,000,000 shares following the stock split. We issued 77 additional shares shares as a result of rounding up
fractional shares related to the reverse stock split.
On
June 2, 2025, a second patient was treated with the Hemopurifier at GenesisCare North Shore Hospital in Sydney, Australia. The
patient was treated with the Aethlon Hemopurifier for 4 hours in a single day and tolerated the procedure without complications. The patient
will have follow-up safety visits, EV and T cell measurements as well as imaging for clinical response.
RSU Grants
In April 2025, our Board of
Directors approved, pursuant to the terms of the Director Compensation Policy, the grant of the annual RSUs under the Director Compensation
Policy to each of the four non-employee directors of the Company then serving on the Board of Directors. The Director Compensation Policy
provides for a grant of stock options or $50,000 worth of RSUs at the beginning of each fiscal year for current non-employee directors
then serving on the Board of Directors, and for a grant of stock options or $75,000 worth of RSUs for a newly elected non-employee director,
with each RSU priced at the average for the closing prices for the five days preceding and including the date of grant, or $2.80 per share
for the April 2024 RSU grants. As a result, in April 2025 the four eligible directors were each granted an RSU in the amount of 17,858
shares under the 2020 Plan. The RSUs are subject to vesting in four equal installments, with 25% of the restricted stock units vesting
on each of June 30, 2025, September 30, 2025, December 31, 2025, and March 31, 2026, subject in each case to the director’s Continuous
Service (as defined in the 2020 Plan), through such dates. Vesting will terminate upon the director’s termination of Continuous
Service prior to any vesting date.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to a “smaller
reporting company” as defined under Item 10(f)(1) of Regulation S-K of the Securities Act.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages
Consolidated Balance Sheets F-5
Consolidated Statements of Operations F-6
Consolidated Statements of Equity F-7
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-9
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain “disclosure
controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information
required to be disclosed, in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified
in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Interim
Chief Executive Officer and Chief Financial Officer (who is our principal executive officer and principal financial officer), to allow
timely decisions regarding required disclosures.
In designing and evaluating
the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation as of the end of the period
covered by this Annual Report under the supervision and with the participation of our management, including our Chief Executive Officer,
who also serves as our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.
Internal Control over Financial Reporting
(a) Management’s Report on Internal Control Over Financial Reporting
Our management is responsible
for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles.
Under the supervision and
with the participation of our management, including our Chief Executive Officer, who also serves as our Chief Financial Officer, we conducted
an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2025. The evaluation was conducted
in accordance with the guidelines established by the Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this evaluation, and the successful implementation of remediation measures addressing
the previously identified material weaknesses, management concluded that our internal control over financial reporting was effective as
of March 31, 2025.
Remediation of Previously
Reported Material Weaknesses
Segregation of Duties and
User Access Controls
As previously disclosed, management
identified a material weakness in internal control over financial reporting related to segregation of duties and user access controls
within our financial systems. Specifically, the Company had not adequately maintained user access controls to restrict both user and privileged
access to financial applications, allowing the same individual to initiate, record, and approve accounting entries. Additionally, check
stock was stored in the office of an authorized signatory, representing a weakness in physical access control.
This control deficiency was
due in part to our limited accounting and finance staff, which hindered the design and implementation of effective segregation of duties.
The lack of adequate user access controls and the absence of sufficient compensating controls could have resulted in a material misstatement
of the financial statements.
To remediate this material
weakness, the Company implemented the following measures:
Accounting for Accrued Commission Liabilities
The Company also previously
identified a material weakness in internal control over financial reporting related to the accounting for accrued commission liabilities.
From fiscal 2017 through fiscal 2020, the Company incorrectly recorded commission accruals totaling approximately $404,000. This error
arose due to the incorrect application of U.S. GAAP and the absence of adequate review controls, and it was not identified and corrected
in a timely manner.
The Company reversed the erroneous
accrued commission liability during the year ended March 31, 2024, with the correction reflected as a reclassification to equity. To prevent
recurrence, the Company implemented quarterly controls during fiscal 2025 for the review and validation of accruals, including those related
to commissions. These controls include formal procedures for the assessment of accrual balances, with overall oversight provided by the
Audit Committee in connection with its review of the Company’s financial reporting.
Management has evaluated the design and operating
effectiveness of these controls and concluded that the material weakness was remediated as of March 31, 2025.
Limitations on Internal Control Over Financial
Reporting
Management recognizes that
a system of internal control over financial reporting, no matter how well designed and operated, can provide only reasonable assurance
and may not prevent or detect all material misstatements. Internal control over financial reporting has inherent limitations, including
the possibility of human error, the circumvention or overriding of controls, or changes in conditions that may render controls inadequate.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions or because the degree of compliance with the policies or procedures may deteriorate.
(b) Changes in Internal Control Over Financial Reporting
There was no change in our
internal control over financial reporting during the last fiscal quarter ended March 31, 2025 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
During the three
months ended March 31, 2025, none of our directors or officers entered into, modified or terminated a
“Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” that were intended to satisfy the
affirmative defense conditions of Rule 10b5-1, in each case as defined in Item 408 of Regulation S-K.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The names, ages and positions
of our directors and executive officers as of June 26, 2025 are listed below:
NAMES TITLE OR POSITION(1) AGE
James B. Frakes Chief Executive Officer, Chief Financial Officer and Director 68
Edward G. Broenniman Chairman and Director 88
Angela Rossetti Director 71
Chetan S. Shah, M.D. Director 55
Nicolas Gikakis Director 58
Steven P. LaRosa, M.D. Chief Medical Officer 58
Certain additional information
concerning the individuals named above is set forth below. This information is based on information furnished to us by each individual
noted.
James B. Frakes Chief Executive Officer,
Chief Financial Officer and Director
Mr. Frakes has served as Chief
Executive Officer and Chief Financial Officer since October 3, 2024, having previously served as Interim Chief Executive Officer beginning
in November 2023. He has also served as a director of the Company since November 2023, and has held the role of Chief Financial Officer
of the Company since September 2010. Prior to being appointed as Chief Financial Officer, Mr. Frakes served as Senior Vice President,
Finance of the Company from January 2008 to September 2010. He previously served as the Chief Financial Officer for Left Behind Games
Inc., a start-up video game company. Prior to 2006, he served as Chief Financial Officer of NTN Buzztime, Inc., an interactive entertainment
company. Mr. Frakes received an MBA from the University of Southern California and a B.A. with Honors from Stanford University.
Edward G. Broenniman, Chairman and Director
Mr. Broenniman has served
as a director of the Company since March 1999. He has been the managing director of The Piedmont Group, LLC, a venture advisory firm,
since 1978. Mr. Broenniman currently serves on the boards of two privately held firms. He previously served on the boards of the nonprofit
entities, the Dingman Center for Entrepreneurship’s Board of Advisors at the University of Maryland (1989 to 2020), the National
Capital Chapter of Corporate Directors (Founder, Chair from 2003 to 2005 and director from 2001 to 2018) and the Board of the Association
for Corporate Growth, National Capital Chapter (Founder, Chair from 2000 to 2018). Mr. Broenniman received his MBA from Stanford Graduate
School of Business and his B.A. from Yale University.
Nicolas Gikakis, Director
Mr.
Gikakis has served as a director of the Company since July 2023. From 2021 to May 2023, Mr. Gikakis served as the Head of Commercial for
WearOptimo Pty Ltd, a private Australian medical device and digital health company. Previously, from 2017 to 2019, Mr. Gikakis served
as Vice President of Strategy and Corporate Development at Oventus Medical Limited, a private medical device company, during which time
he assisted with the commercial expansion of its sleep apnea device. From 2012 to 2021, Mr. Gikakis held various leadership and independent
strategic advisor positions in the healthcare industry in sales, marketing, product development, and corporate development and transactions,
including for companies working with blood filtration and purification. Mr. Gikakis earned a B.S. in bioengineering from the University
of Pennsylvania and holds an MBA from George Mason University, with earlier work in bench and clinical research, and clinical experience
at the University of Pennsylvania.
Angela Rossetti, Director
Ms. Rossetti has served as
a director of the Company since April 2022. As an active consultant since March 2018, her client list has included Kala Pharmaceuticals,
Inc. and Celgene Corporation, among others. From June 2015 through July 2017, Ms. Rossetti served as Vice President of Cell Machines,
Inc., an early-stage biopharmaceutical company developing novel protein therapies, where she assisted with the commercialization of technology
for hemophilia and other diseases. Ms. Rossetti has held a number of positions within pharmaceutical commercial development, marketing,
communications and finance, including Vice President of a Global Commercial Medicine Team at Pfizer Inc. from 2007 to 2012, where she
led a global smoking cessation campaign. Ms. Rossetti previously served on the board of directors of Palatin Technologies, Inc., a public
biopharmaceutical company, from June 2013 to December 2020. Ms. Rossetti currently holds positions as an adjunct Assistant Professor of
Medical and Pharmaceutical Ethics at New York Medical College and an Adjunct Associate at Albert Einstein College of Medicine. Ms. Rossetti
graduated from a joint program of the Albert Einstein College of Medicine and Benjamin N. Cardozo School of Law with an M.S. in Bioethics,
has an M.B.A. from Columbia University Graduate School of Business and a B.A. in Biology and English from the University of Pennsylvania.
Chetan S. Shah, M.D., Director
Dr. Shah has served as a director
of the Company since June 2013. Dr. Shah is a board certified Otolaryngologist. He is a partner and board member of the Surgery Center
at Hamilton, as well as Physician Management Systems and Princeton Eye & Ear, which he founded in 2009. Dr. Shah serves on the board
of one other private company. He holds teaching positions and serves on multiple hospital committees in the area and is on the Audiology
and Speech Language Pathology Committee for the State of New Jersey. Dr. Shah also was a member of the Board of Medical Examiners for
the State of New Jersey. Dr. Shah received his Bachelor’s degree and Medical Degree from Rutgers University and Robert Wood Johnson
Medical School, respectively.
Steven P. LaRosa, M.D., Chief Medical Officer
Dr. LaRosa has served as our
Chief Medical Officer since January 2021 and served as our Chief Scientific Officer from May 2021 until February 2023. Dr. LaRosa has
over 20 years of experience as a practicing physician and infectious disease specialist. Prior to joining the Company, Dr. LaRosa served
as the Vice President of Clinical Development of Entasis Therapeutics, a spin-out of AstraZeneca focused on pathogen-targeted small molecules
to treat serious multidrug-resistant Gram-negative infections, from March 2020 to December 2020. Prior to joining Entasis, Dr. LaRosa
was an Attending Physician in the Division of Infectious Disease at Beverly Hospital, a member of Beth Israel Lahey Health. Prior to Beverly
Hospital from September 2012 to March 2020, he was an Attending Physician in the Division of Infectious Diseases at Rhode Island Hospital.
Prior to that, Dr. LaRosa was an Associate Staff Physician in the Department of Infectious Disease at the Cleveland Clinic Foundation.
He also served as a Clinical Research Physician for Eli Lilly and Company. Throughout his career, Dr. LaRosa has had several academic
appointments. Dr. LaRosa holds his M.D. from Boston University School of Medicine and his B.S. in Biology from Boston College. He completed
an Internal Medicine Residency and Chief Residency at the Cleveland Clinic Foundation and Infectious Disease Fellowship at Massachusetts
General Hospital. He is Board Certified by the ABIM in Internal Medicine and Infectious Disease.
Family Relationships
There are no family relationships
between or among the directors or executive officers.
There are no arrangements
or understandings between any two or more of our directors or executive officers or between any of our directors or executive officers
and any other person pursuant to which any director or officer was or is to be selected as a director or officer, and there is no arrangement,
plan or understanding as to whether non-management stockholders will exercise their voting rights to continue to elect the current Board
of Directors. There are also no arrangements, agreements or understandings between non-management stockholders that may directly or indirectly
participate in or influence the management of our affairs.
Legal Proceedings
To
our knowledge, (i) no director or executive officer has been a director or executive officer of any business that has filed a bankruptcy
petition or had a bankruptcy petition filed against it during the past ten years; (ii) no director or executive officer has been convicted
of a criminal offense or is the subject of a pending criminal proceeding during the past ten years; (iii) no director or executive officer
has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities or banking activities during the past ten years; and (iv) no director or
officer has been found by a court to have violated a federal or state securities or commodities law during the past ten years.
Board of Directors
Our Board of Directors has
the responsibility for establishing broad corporate policies and for overseeing our overall performance. Members of our Board of Directors
are kept informed of our business activities through discussions with our Interim Chief Executive Officer and other executive officers,
by reviewing analyses and reports sent to them and by participating in Board and committee meetings. Mr. Broenniman serves as Chairman
of our Board and Mr. Frakes as our Interim Chief Executive Officer, and we have not designated a lead independent director. We believe
that having the offices of Chairman of our Board and Interim Chief Executive Officer held by two different people is appropriate for
a company of our size and stage of development in order to maximize efficiencies of our limited available personnel resources. Nevada
law provides that each director holds office after the expiration of his or her term until a successor is elected and qualified, or until
the director resigns or is removed, resulting in a term that extends to our next annual meeting of stockholders. Our Board of Directors
presently has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee, on which each of Mr.
Broenniman and Ms. Rossetti serve as independent directors. In addition, Dr. Shah serves as an independent director on the Audit, Compensation
and Nominating and Corporate Governance Committees, and Mr. Gikakis serves as an independent director on the Nominating and Corporate
Governance Committees. Mr. Broenniman is Chair of the Audit Committee, Dr. Shah is Chair of the Compensation Committee and Ms. Rossetti
is Chair of the Nominating and Corporate Governance Committee.
Our Board of Directors believes