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 designed to address unmet needs in oncology,
life-threatening infectious diseases, organ transplantation and other disease states in which extracellular vesicles (EVs) contribute
to disease progression. The Hemopurifier utilizes a proprietary lectin-based technology to bind and remove enveloped viruses and EVs from
biological fluids. EVs have been associated with immune suppression, metastasis, and resistance to therapy in cancer, as well as progression
of severe infectious diseases. In pre-clinical studies, the Hemopurifier has also demonstrated the ability to bind disease-associated
extracellular vesicles (“EVs”) and a panel of enveloped viruses. The Hemopurifier has been evaluated in human studies, involving
173 treatment sessions in 44 patients with either viral infections or cancer. The device has been well tolerated with an adverse event
profile that is consistent with extracorporeal therapy. In certain human studies designed to evaluate viral clearance from biological
fluids, findings demonstrated the removal of enveloped viruses. The U.S. Food and Drug Administration (“FDA”) has granted
the Hemopurifier “Breakthrough Device” designation for two independent indications:
Oncology
We believe the Hemopurifier may
be a potential treatment for patients with advanced and metastatic cancer through its ability to bind to and remove extracellular vesicles
(“EVs”) particles that may promote tumor growth and metastasis. In October 2022, we formed a wholly-owned subsidiary in Australia
to conduct oncology-related clinical research and pursue regulatory approval and commercialization opportunities for the Hemopurifier
in Australia.
We previously completed an in
vitro binding study of utilizing cancer patient samples, to evaluate the Hemopurifier’s ability to remove EVs from plasma. Results
from this translational study provided pre-clinical evidence supporting the design of our oncology clinical trial involving patients with
solid tumors who have stable or progressive disease during anti-PD-1 monotherapy treatment, such as Keytruda® (pembrolizumab) or Opdivo®
(nivolumab).
We are currently conducting a
safety, feasibility and dose-finding clinical trial in Australia evaluating the Hemopurifier in patients with solid tumors who have stable
or progressive disease during anti-PD-1 monotherapy treatment. The trial is designed to enroll approximately 9 to 18 participants. The
primary endpoint of the trial is safety, while 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.
Three clinical sites in Australia—
Royal Adelaide Hospital in Adelaide, and Pindara Private Hospital on the Gold Coast and GenesisCare North Shore Hospital in Sydney—
are currently open for patient enrollment. During fiscal year 2026, we completed enrollment and treatment of the first cohort of three
participants, each of whom received a single 4-hour Hemopurifier treatment. Following review of the first cohort data, independent Data
Safety Monitoring Board (DSMB) reported no safety concerns and recommended progression to the second cohort. Following the DSMB review
of the first cohort, enrollment commenced in the second cohort, in which participants received two Hemopurifier treatments during a one-week
treatment period. In March 2026, the Company completed the second cohort and the DSMB subsequently approved advancement to the third cohort
of the study. To date, no serious adverse events (“SAEs”) or dose-limiting toxicities ((“DLTs”) related to the
Hemopurifier have been reported.
We previously pursued approval
of a similar oncology clinical trial in India and received formal approval from the Central Drugs Standard Control Organization (“CDSCO”)
on July 7, 2025. Following evaluation of anticipated site activation timelines and trial execution requirements, the Company elected to
not proceed with the India trial in order to conserve resources and focus efforts on the Australian oncology clinical trial.
Life-Threatening Viral Infections
We believe the Hemopurifier may
be applicable in the treatment of life-threatening viral infections involving highly glycosylated, or carbohydrate coated, viruses for
which no approved therapies exist. In small-scale or early feasibility human studies conducted under FDA and international regulatory
frameworks, the Hemopurifier has been used to treat individuals infected with Ebola, human immunodeficiency virus, HIV, and hepatitis-C
and SARS-CoV-2.
In vitro studies have demonstrated
the ability of the Hemopurifier to capture multiple enveloped viruses, including 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.
While we terminated our U.S. and
India-based COVID-19 studies due to low ICU patient volume and shifting priorities, these programs demonstrated provided clinical experience
with the Hemopurifier in critically ill patients. We continue to maintain an open IDE for viral indications, preserving the ability to
evaluate the Hemopurifier in response to 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. 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.
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 COVID-19 and Long COVID.
In this study, donated healthy
human plasma was circulated through the Hemopurifier (HP) to simulate a clinical HP session. The study demonstrated approximately 98.5%
removal of platelet-derived EVs at a timepoint equivalent to a four-hour HP treatment. We believe the results support the ongoing Australian
oncology clinical trial and may support investigation of the Hemopurifier in additional disease indications.
In November 2025, we publicly
released a separate pre-clinical preprint entitled “Increased mannosylation of extracellular vesicles in Long COVID plasma provides
a potential therapeutic target for Galanthus nivalis agglutinin (GNA) affinity resin,” describing exploratory ex vivo laboratory
research conducted in collaboration with the University of California, San Francisco Long COVID Clinic examining extracellular vesicle
characteristics in plasma samples from individuals with Long COVID. The findings described in these preprints have not been peer reviewed
and are based on laboratory analyses rather than clinical studies. These activities are intended to inform potential future research directions
and evaluate the broader applicability of the Hemopurifier platform and may not be indicative of clinical outcomes.
Successful clinical development
and regulatory approvals will be required before the Hemopurifier may be marketed in the United States or foreign jurisdictions. Some
of our patents may expire before regulatory approval is obtained; however, the Company believes that its existing patent portfolio and
more recently issued patents and patent applications will continue to support protection of the proprietary nature of our Hemopurifier
treatment technology.
We continue to monitor the impact
of inflation, global economic conditions, geopolitical conflicts, capital market volatility and other macroeconomic factors on its business,
operations, clinical development programs and future access to capital. The extent to which these factors may affect the Company’s
business, financial condition and results of operations remains uncertain and will depend on future developments beyond the Company’s
control.
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, 2026 and 2025
Results of Operations
Operating Costs and Expenses
Consolidated operating expenses
were $7,293,632 for the fiscal year ended March 31, 2026, compared to $9,341,365 for the fiscal year ended March 31, 2025, a decrease
of $2,047,733. The decrease for fiscal year ended March 31, 2026 was primarily attributable to lower payroll and related expenses of $1,086,087,
lower professional fees of $414,910 and lower general and administrative expenses of $546,736.
Payroll and related expenses decreased
by $1,086,087 for the fiscal year ended March 31, 2026, compared to the prior year. The decrease was primarily driven by a $949,401 reduction
in salaries and related expenses and a $136,686 decrease in stock-based compensation. The reduction in salary expense primarily reflects
that fiscal year 2025 included partial-year salary and severance expense associated with two executives terminated in July 2024 and October
2024, respectively, as well as costs associated with non-executive employees affected by a workforce reduction implemented in August 2024,
whereas such costs were not incurred in fiscal year 2026.
Professional fees decreased by
$414,910 for the fiscal year ended March 31, 2026, compared to the prior year. The decrease was primarily attributable to lower investor
relations expenses due to reduced investor relations activities during fiscal year 2026, as well as lower accounting fees resulting from
the transition to new accounting service providers and certain non-recurring accounting and audit related matters.
General and administrative expenses
decreased by $546,736 for the fiscal year ended March 31, 2026, compared to the prior year. The decrease was primarily attributable to
lower clinical trial expenses related to reduced COVID-19 and oncology trial activities in India, the impact of the Australian research
and development tax credit of $218,000, lower manufacturing supply costs related to Hemopurifier raw materials, lower insurance expense,
reduced and software subscription costs. These decreases were partially offset by higher licenses and permits expense associated with
Nasdaq delisting appeal costs and a nonrecurring charge related to the forfeiture of a deposit associated with a previously rented mobile
clean room.
As a result of the above factors,
our operating loss decreased to $7,293,632 for the fiscal year ended March 31, 2026, from $9,341,365 for the fiscal year ended March 31,
2025.
Other Income (Expense)
Other income (expense), net changed
significantly for the fiscal year ended March 31, 2026 compared to the prior year primarily due to the absence of the non-cash warrant
inducement expense and Employee Retention Tax Credit income recognized during fiscal year 2025. Other income (expense), net for fiscal
year 2026 primarily consisted of interest income earned on cash and cash equivalents and interest expense related to the financing of
directors’ and officers’ insurance premiums.
Liquidity and Capital Resources
As of March 31, 2026, we had a
cash balance of $5,026,458 and working capital of $4,122,702. This compares to a cash balance of $5,501,261 and working capital of $4,050,514
at March 31, 2025.
During the fiscal year ended March
31, 2026, we raised capital through a warrant inducement offer, a PIPE financing and a registered direct offering. In addition, during
fiscal year 2026, we filed a registration statement on Form S-3 and amended our At The Market Offering Agreement, or ATM Agreement, with
H.C. Wainwright & Co., LLC. No sales were made under the ATM Agreement during fiscal year 2026. In October 2024, the registration
statement underlying our prior ATM program expired, and no additional sales could be made thereunder until the new registration statement
on Form S-3 became effective.
On February 19, 2026, stockholders
approved an amendment to the Company’s Articles of Incorporation increasing the authorized shares of common stock from 6,000,000 to 100,000,000
shares, which increased the Company’s flexibility to pursue future equity financings and other corporate purposes.
We
have incurred recurring losses from operations and expect to continue to incur significant operating losses for the foreseeable future
as we continue our research and development activities and clinical trial programs. While we continue to evaluate potential expense reduction
opportunities, such opportunities may not materialize, and patient recruitment may occur more rapidly than expected, resulting in increased
operating expenses. Based on our current operating plan and existing cash and cash equivalents, we expect that additional capital will
be required to fund operations. Accordingly, substantial doubt exists regarding our ability to continue as a going concern for a period
of at least one year from the date these financial statements are issued. We are actively evaluating additional financing alternatives;
however, there can be no assurance that additional financing will be available on acceptable terms, or at all.
Financings During the Fiscal Year Ended March 31, 2026:
Net cash provided by financing
activities for the year ended March 31, 2026 was approximately $6.5 million. Financing activities primarily consisted of proceeds from
equity offerings and warrant exercises totaling approximately $7.8 million, offset by $1.2 million in offering costs and placement agent
commissions. The proceeds were used primarily for working capital and general corporate purposes.
Financings During the Fiscal Year Ended March 31,
2025:
During the fiscal year ended March
31, 2025, the Company raised aggregate net proceeds of approximately $7.7 million from equity financing transactions, including a public
offering completed in May 2024, subsequent warrant exercises and a warrant inducement transaction completed in March 2025. Net proceeds
were used primarily for working capital and general corporate purposes.
Material Cash Requirements
We expect our clinical trial expenses
related to our oncology studies in Australia to continue for the foreseeable future. These expenses primarily relate to trial activities
and manufacturing of additional Hemopurifiers to support the studies.
In addition, we maintain leases
for our headquarters, laboratory and manufacturing facilities. We are currently evaluating certain lease arrangements as we continue to
assess our operational and facility requirements.
Future capital requirements will
depend upon many factors, including progress and results of our clinical trials, the number and scope of development programs, the costs
of manufacturing Hemopurifier devices, the timing and costs associated with regulatory approvals, the costs involved in protecting and
maintaining our intellectual property portfolio, and our ability to establish strategic collaborations or other financing arrangements.
We have incurred recurring losses
from operations and negative cash flows from operating activities and expect such conditions to continue for the foreseeable future. Accordingly,
we will require additional capital to fund our operations and clinical programs. We expect to seek additional financing through equity
offerings, debt financings and/or strategic transactions; however, there can be no assurance that such financing will be available on
acceptable terms, if at all.
Because of the numerous risks
and uncertainties associated with the development of the Company’s therapeutic technologies, the Company cannot predict the timing
or amount of future operating expenditures and may never achieve profitability or positive cash flows from operations
Global economic and geopolitical
conditions, including inflationary pressures, interest rate volatility, geopolitical conflicts and uncertainty in the capital markets,
may adversely impact the Company’s ability to obtain additional financing on acceptable terms, or at all. Continued volatility in
the equity and credit markets could make future financings more difficult, more costly and/or more dilutive to stockholders.
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):
Operating activities $ (6,998 ) $ (7,646 )
Investing activities (4 ) –
Effect of exchange rate on cash 7 (12 )
Net increase (decrease) in cash $ (474 ) $ 69
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 $7.0 million in fiscal 2026, compared
to approximately $7.6 million in fiscal 2025, a decrease of approximately $600,000. The decrease in cash used in operating activities
was primarily attributable to a lower net loss in fiscal 2026, partially offset by lower non-cash charges, including the absence of warrant
inducement expense recorded in fiscal 2025. Changes in working capital also contributed to the change in operating cash flows, primarily
due to decreases in accounts payable and other current liabilities and amounts due to related parties.
Net Cash Used in Investing Activities
During fiscal 2026, the Company
purchased approximately $4,000 of equipment. The Company did not purchase any equipment during fiscal 2025.
Net Cash from Financing Activities
Net cash provided by financing
activities decreased from approximately $7.7 million during the fiscal year ended March 31, 2025 to approximately $6.5 million during
the fiscal year ended March 31, 2026.
Financing activities during fiscal
2026 primarily consisted of proceeds from the issuance of common stock and exercises of warrants. These proceeds were partially offset
by commissions, offering-related expenses and tax withholding payments associated with the vesting of restricted stock units (“RSUs”).
Financing activities during fiscal
2025 primarily consisted of proceeds from the issuance of common stock and warrant-related financing transactions, partially offset by
tax withholding payments associated with the vesting of 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 amounts reported in our consolidated financial statements and accompanying
notes. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances.
Actual results could differ from these estimates under different future assumptions or conditions.
We believe that the following
accounting policies and estimates involve significant judgments and assumptions used in the preparation of our consolidated financial
statements and are important to the portrayal of our financial condition and results of operations.
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 23, 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. In April 2026 the four eligible directors were each granted an RSU in the amount of 21,815 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, 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.
There were no
unissued vested RSUs outstanding as of March 31, 2026.
Recent Events
Subsequent
to March 31, 2026, the Company sold an aggregate of 800,111 shares of common stock under its ATM facility, resulting in gross proceeds
of approximately $1,904,212. Net proceeds, after sales commissions of approximately $47,000 and SEC, settlement and delivery fees of approximately
$5,900, were approximately $1,851,000. The Company has not reflected additional offering-related costs, including legal and accounting
fees, in the net proceeds amount, as such costs will be recorded as a reduction of additional paid-in capital upon final determination.
The Company intends to use the proceeds for working capital
and general corporate purposes, including clinical development activities and research and development. On June 4, 2026, the Company filed
Amendment No. 1 to its prospectus supplement relating to its at-the-market offering program. The amendment updated the amount of securities
eligible for sale pursuant to General Instruction I.B.6 of Form S-3. Following the filing of the amendment, the Company may offer and
sell shares of its common stock having an aggregate offering price of up to approximately $542,716 pursuant to its at-the-market offering
program.
On June
4, 2026, we completed treatment of the first participant in Cohort 3 of our Australian oncology trial at Pindara Private Hospital
on the Gold Coast of Australia. The participant received three Hemopurifier treatments over a one-week period, each treatment lasting
four hours. The participant tolerated the procedures without reported complications. The participant will now undergo a seven-day safety
follow-up period during which the participant will be monitored for dose limiting toxicities (“DLTs”) and device-related serious
adverse events (SAEs) occurs. Two additional patients must be enrolled and treated to complete this Cohort 3.
RSU Grants
Subsequent to March 31, 2026,
on April 17, 2026, the Board of Directors approved annual restricted stock unit (“RSU”) awards to each of the Company’s
four non-employee directors pursuant to the Company’s Director Compensation Policy and the Company’s 2020 Equity Incentive
Plan. The awards had an aggregate grant date value of approximately $200,000 and covered an aggregate of 87,260 shares of common stock.
The awards vest in four equal quarterly installments through March 31, 2027, subject to continued service on the applicable vesting dates.
The RSUs and the shares issuable upon settlement thereof were granted in reliance upon exemptions from registration under the Securities
Act of 1933, as amended.
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) 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 Chief Executive
Officer who also serves as our Chief Financial Officer (who is our principal executive officer and principal financial officer), to allow
timely decisions regarding required disclosures.
Under the supervision and with
the participation of our management, including our Chief Executive Officer, who also serves as our Chief Financial Officer, we carried
out an evaluation 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, 2026. 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, management concluded that our internal control over financial
reporting was effective as of March 31, 2026.
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 regarding
the achievement of control objectives 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 were no changes in our internal
control over financial reporting during the last fiscal quarter ended March 31, 2026 that materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
During the three months ended
March 31, 2026, 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 8, 2026 are listed below:
NAMES TITLE OR POSITION(1) AGE
James B. Frakes Chief Executive Officer, Chief Financial Officer and Director 69
Edward G. Broenniman Chairman and Director 89
Angela Rossetti Director 73
Chetan S. Shah, M.D. Director 57
Nicolas Gikakis Director 60
Steven P. LaRosa, M.D. Chief Medical Officer 59
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 the Company’s
Chief Executive Officer and Chief Financial Officer since October 3, 2024, after serving as Interim Chief Executive Officer beginning
in November 2023. He has been a director of the Company since November 2023 and Chief Financial Officer since September 2010. From January
2008 to September 2010, he served as the Company’s Senior Vice President, Finance. Prior to joining the Company, Mr. Frakes was
Chief Financial Officer for Left Behind Games Inc., a video game company, and previously served as Chief Financial Officer of NTN Buzztime,
Inc., an interactive entertainment company. Mr. Frakes earned 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 companies. He previously served on the boards of several nonprofit
organizations, including the Dingman Center for Entrepreneurship Board of Advisors at the University of Maryland from 1989 to 2020, the
National Capital Chapter of Corporate Directors, where he was Founder, Chair from 2003 to 2005 and director from 2001 to 2018 and t the
Association for Corporate Growth, National Capital Chapter, where he was Founder, Chair from 2000 to 2018. Mr. Broenniman earned an 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 Head of Commercial for WearOptimo
Pty Ltd, a private Australian medical device and digital health company. From 2017 to 2019, he served as Vice President of Strategy and
Corporate Development at Oventus Medical Limited, where he supported the commercial expansion of the company’s sleep apnea device
platform. From 2012 to 2021, Mr. Gikakis has held various leadership and independent strategic advisor positions in the healthcare industry
focused on sales, marketing, product development, and corporate development, including for companies working with blood filtration and
purification technologies. Mr. Gikakis holds a B.S. in Bioengineering from the University of Pennsylvania and an MBA from George Mason
University. Earlier in his career, he worked in bench and clinical research, and gained clinical experience at the University of Pennsylvania.
Angela Rossetti, Director
Dr. Angela Rossetti has served
as a director of the Company since April 2022. Since March 2018, Dr. Rossetti has served as an independent consultant to companies in
the biotechnology and pharmaceutical industries, including Kala Pharmaceuticals, Inc. and Celgene Corporation. From June 2015 through
July 2017, Dr. Rossetti served as Vice President of Cell Machines, Inc., an early-stage biopharmaceutical company developing novel protein
therapies, where she supported commercialization activities for therapies targeting hemophilia and other diseases. Dr. Rossetti has held
various positions within pharmaceutical commercial development, marketing, communications and finance, including serving as Vice President
of a Global Commercial Medicine Team at Pfizer Inc. from 2007 to 2012, where she led a global smoking cessation initiative. Dr. Rossetti
previously served on the board of directors of Palatin Technologies, Inc., a public biopharmaceutical company, from June 2013 to December
2020. Dr. Rossetti currently serves as an adjunct Assistant Professor of Medical and Pharmaceutical Ethics at New York Medical College
and as an Adjunct Associate at Albert Einstein College of Medicine. Dr. Rossetti holds a Doctorate in Bioethics from Loyola University
Chicago, where her studies focused on research ethics and rare disease ethics, an M.B.E from Montefiore Einstein, and an M.B.A. from Columbia
University 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 and is a partner and board member of the Surgery Center
at Hamilton, Physician Management Systems and Princeton Eye & Ear, which he founded in 2009. He also serves on the board of directors
of another private company. Dr. Shah holds teaching positions, serves on multiple hospital committees and serves on the Audiology and
Speech Language Pathology Committee for the State of New Jersey. He previously served as 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. 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 served as an Attending Physician in the Division of Infectious Disease at Beverly Hospital, a member of
Beth Israel Lahey Health. From September 2012 to March 2020, Dr. LaRosa served as an Attending Physician in the Division of Infectious
Diseases at Rhode Island Hospital. Prior to that, he served as an Associate Staff Physician in the Department of Infectious Disease at
the Cleveland Clinic Foundation and as Clinical Research Physician for Eli Lilly and Company. Throughout his career, Dr. LaRosa has had
several academic appointments. Dr. LaRosa received 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 in Internal Medicine and Infectious Disease by the American Board of Internal
Medicine.
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 Chief Executive Officer and Chief Financial Officer, and we have not designated a lead independent
director. We believe that having the offices of Chairman of our Board and 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 Compensation and Nominating
and Corporate Governance Committees, and Mr. Gikakis serves as an independent director on the Audit and 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
that sound governance practices and policies provide an important framework to assist them in fulfilling their duty to stockholders. Our
Board of Directors has implemented separate committees for the areas of audit, compensation and nomination of directors, annual review
of the independence of our Audit and Compensation Committee members, maintenance of a majority of independent directors and written expectations
of management and directors, among other best practices.
Our Board of Directors has determined
that four of our five current directors meet the independence requirements of the Nasdaq Capital Market, on which our common stock is
listed. In the judgment of our Board of Directors, Mr. Frakes does not meet such independence standards, as he serves as an executive
officer of the Company. In reaching its conclusions, our Board of Directors considered all relevant facts and circumstances with respect
to any direct or indirect relationships between our Company and each of the directors, including those discussed under the caption “Certain
Relationships and Related Transactions,” below. Our Board of Directors determined that any relationships that exist or existed in
the past between our Company and each of the independent directors were immaterial on the basis of the information set forth in the above-referenced
sections.
Audit Committee and Audit Committee Financial Expert
Our Board of Directors formed
an Audit Committee in May 1999. Our Board of Directors has determined that Mr. Broenniman, due to his professional experience business
acumen and independence, meets the definition of an “audit committee financial expert” as defined in Item 407(d)(5)(ii) under
Regulation S-K, promulgated under the Exchange Act.
Each of the members of the Audit
Committee has a basic understanding of finance and accounting and is able to read and understand fundamental financial statements. Our
Board of Directors has determined that each of the members of the Audit Committee meets the independence requirements applicable to audit
committee members of Nasdaq Capital Market companies. The Audit Committee has the authority to appoint, review and discharge our independent
registered public accounting firm. The Audit Committee reviews the results and scope of the audit and other services provided by our independent
registered public accounting firm, as well as our accounting principles and our system of internal controls, reports the results of their
review to the full Board of Directors and to management and recommends to the full Board of Directors that our audited consolidated financial
statements be included in our Annual Report on Form 10-K.
The Audit Committee has adopted
a charter, which can be found on our website under “Investors – Governance – Governance Documents.” The reference
to or inclusion of our website address in this Amendment No. Annual Report does not include or incorporate by reference the information
on our website into this Amendment No. Annual Report.
Compensation Committee
The Compensation Committee approves
or makes recommendations to our Board of Directors on decisions concerning compensation of the executive management team and non-employee
directors and administers our stock-based incentive compensation plans. The Chair establishes meeting agendas after consultation with
other committee members. Our Interim Chief Executive Officer and other members of management regularly discuss our compensation issues
with Compensation Committee members. Subject to Compensation Committee review, modification and approval, our Chief Executive Officer
typically makes recommendations respecting bonuses and equity incentive awards for the other members of the executive management team.
The Compensation Committee establishes all bonus and equity incentive awards for all executive members of the management team. Our Board
of Directors has determined that all members of the Compensation Committee meet the independence requirements applicable to Nasdaq Capital
Market companies.
With respect to calendar year
2025, our Compensation Committee considered compensation information provided by Anderson Pay Advisors LLC (“Anderson”), a
compensation consultant, in determining executive compensation. Anderson provided competitive compensation data showing that our cash
compensation generally was and made cash compensation recommendations designed to compensate our officers in line with the 50% range for
similarly situated companies.
The Compensation Committee has
adopted a charter, which can be found on our website at “Investors –Governance – Governance Documents.” The reference
to or inclusion of our website address in this Amendment No. Annual Report does not include or incorporate by reference the information
on our website into this Amendment No. Annual Report.
Nominating and Corporate Governance Committee
The responsibilities of the Nominating
and Corporate Governance Committee include:
· reviewing and evaluating the performance of our Board of Directors.
The Nominating
and Corporate Governance Committee has adopted a charter, which can be found on our website at “Investors – Governance –
Governance Documents.” The reference to or inclusion of our website address in this Amendment No. Annual Report does not include
or incorporate by reference the information on our website into this Amendment No. 1. Annual Report.
Stockholder Nominees for Director
There
have been no material changes to the procedures by which stockholders may recommend nominees to the Board of Directors.
Code of Ethics
In February 2005, our Board of
Directors approved a “Code of Business Conduct and Ethics” (as amended from time to time, the “Code”), which applies
to our principal executive officer, our principal financial officer, our principal accounting officer and persons performing similar tasks.
In February 2020, the Board of Directors adopted an amended Code, which is applicable to all of our directors, officers and other employees
and which is available on our website at www.aethlonmedical.com. If we make any substantive amendments to, or grant any waivers from,
the Code for any officer or director, we will disclose the nature of such amendment or waiver on our website or in a Current Report on
Form 8-K. The inclusion of our website address in this Amendment No. Annual Report does not include or incorporate by reference the information
on our website into this Amendment No. Annual Report.
Incentive Compensation Recoupment Policy
We have
adopted an incentive compensation recovery policy (the “Compensation Recovery Policy”) that is designed to comply with, and
will be interpreted in a manner consistent with, Section 10D and Rule 10D-1 of the Exchange Act and the applicable rules of the Nasdaq
Stock Market, including any interpretive guidance provided by Nasdaq. Under our Compensation Recovery Policy, in the event of an accounting
restatement due to the Company’s material noncompliance with any financial reporting requirement under the securities laws, including
any required accounting restatement to correct a material error in previously issued financial statements, or that would result in a material
misstatement if the error were corrected in the current period or left uncorrected in the current period, the Company must recover erroneously
awarded incentive-based compensation previously paid to the Company’s executive officers in accordance with the terms of such Compensation
Recovery Policy. Furthermore, under the Compensation Recovery Policy, the Company is prohibited from indemnifying any executive officer
or former executive officer against the loss of erroneously awarded incentive-based compensation and from paying or reimbursing an executive
officer for purchasing insurance to cover any such loss.
A copy
of our Compensation Recovery Policy is attached as Exhibit 97.1 to this Amendment No. 1. Annual Report.
Delinquent Section 16(a)
Reports
Section
16(a) of the Exchange Act requires the Company’s directors and executive officers and persons who beneficially own more than ten
percent of a registered class of the Company’s equity securities to file with the Commission initial reports of ownership and reports
of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than ten percent beneficial
stockholders are required by Commission regulations to furnish us with copies of all Section 16(a) forms they file. To the best of the
Company’s knowledge based solely on a review of Forms 3, 4, and 5 (and any amendments thereof) received by us during or with respect
to the year ended March 31, 2026 and written representations that no other reports were required, there were no late Section 16 filings
during the year ended March 31, 2026.
ITEM 11. EXECUTIVE COMPENSATION
We are a “smaller reporting
company” under Item 10 of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and the following compensation disclosure is intended to comply with the requirements applicable to smaller reporting companies.
Although the rules allow us to provide less detail about our executive compensation program, the Compensation Committee of our Board of
Directors (the “Compensation Committee”) is committed to providing the information necessary to help stockholders understand
its executive compensation-related decisions. Accordingly, this section includes supplemental narratives that describe the 2026 fiscal
year executive compensation program for our named executive officers.
Our named executive officers for
the fiscal year ended March 31, 2026, consist of our Chief Executive Officer, who also serves as our Principal Financial Officer and our
Chief Medical Officer. These individuals represented our principal executive officer, principal financial officer and the next highly
compensated executive officer. serving as of March 31, 2026.
· James B. Frakes, our Chief Executive Officer and Chief Financial Officer; and
· Steven P. LaRosa, M.D., our Chief Medical Officer
The table also includes
compensation for Guy F. Cipriani, our former Chief Operating Officer, who served during a portion of fiscal year 2025 and received severance
during fiscal year 2026.
SUMMARY COMPENSATION TABLE FOR 2026 AND 2025 FISCAL
YEARS
The following table summarizes
all compensation earned by our named executive officers for the fiscal years ended March 31, 2026 and 2025.
Narrative Disclosure to Executive Summary
Generally, the three principal
components of our executive compensation program for our named executive officers are base salary, executive cash bonus and long-term
incentive equity compensation. We do not have any formal policies for allocating compensation among salary, performance bonus awards and
equity grants, short-term and long-term compensation or among cash and non-cash compensation. Instead, the Compensation Committee considered
compensation information provided by Anderson Pay Advisors LLC, or Anderson, our compensation consultant, in determining the compensation
to recommend to the Board of Directors for its approval, that it believes appropriate to achieve the goals of our executive compensation
program and our corporate objectives. We generally target providing total executive and director compensation at the 50% range for comparable
companies.
Base Salary
Base salary provides financial
stability and security to our named executive officers through a fixed amount of cash for performing job responsibilities. Each of our
named executive officers’ 2026 and 2025 calendar year base salaries are listed in the table below, which reflects the Compensation
Committees’ review of the data provided by Anderson and the Compensation Committee’s goal of setting salaries to be at the
50% range for comparable companies.
Executive Cash Bonuses and Annual Cash Incentives
With respect to the fiscal year
ended March 31, 2026, we approved cash bonuses of $250,000 to our Chief Executive Officer and Chief Financial Officer and $75,000 to our
Chief Medical Officer.
Equity-Based Incentive Awards
Individual stock option grants
are determined based on a number of factors, including current corporate and individual performance, outstanding equity holdings and their
retention value and total ownership, historical value of our stock, internal equity amongst executives and market data provided by Anderson.
In the fiscal year ended March 31, 2026, we did not approve any equity-based incentive awards for our named executive officers.
Granting of Certain Equity Awards Close in Time
to the Release of Material Nonpublic Information
We do not grant equity awards
in anticipation of the release of material nonpublic information that is likely to result in changes to the price of our common stock,
and do not time the public release of such information based on award grant dates. Other than our RSU grants in every April annual grants
to our independent directors in April to our independent directors, we have not made any awards to any named executive officer or employee
during the past two fiscal years.