UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2019~~2020

o☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to_____

COMMISSION FILE NUMBER 001-37487

AETHLON MEDICAL, INC.

(Exact name of registrant as specified in its charter)

NEVADA		13-3632859
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

9635 GRANITE RIDGE DRIVE, SUITE 100, SAN DIEGO, CA 92123

(Address of principal executive ~~offices) (Zip~~offices, including Zip Code)

(858) 459-7800

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock	AEMD	The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

As of October ~~31, 2019,~~27, 2020, the registrant had outstanding ~~1,441,275~~12,088,313 shares of common stock, $0.001 par value.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	3

ITEM 1.	FINANCIAL STATEMENTS	3

	CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, ~~2019~~2020 (UNAUDITED) AND MARCH 31, ~~2019~~2020	3

	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX ~~MONTH PERIODS~~MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 ~~AND 2018~~ (UNAUDITED)	4

	CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 ~~AND 2018~~ (UNAUDITED)	5

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 ~~AND 2018~~ (UNAUDITED)	67

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	78

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2120

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3230

ITEM 4.	CONTROLS AND PROCEDURES	3230

PART II.	OTHER INFORMATION	3331

ITEM 1.	LEGAL PROCEEDINGS	3331

ITEM 1A.	RISK FACTORS	3331

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	3431
		��
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	3431

ITEM 4.	MINE SAFETY DISCLOSURES	3431

ITEM 5.	OTHER INFORMATION	3431

ITEM 6.	EXHIBITS	3532

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AETHLON MEDICAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,
2019 March 31,
2019
(Unaudited)
ASSETS
Current assets
Cash $ 785,658 $ 3,828,074
Prepaid expenses and other current assets 114,036 210,042
Total current assets 899,694 4,038,116

Property and equipment, net 124,833 6,021
Right-of-use lease asset 183,018 –
Patents, net 62,086 66,668
Deposits 12,159 12,159
Total assets $ 1,281,790 $ 4,122,964

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable $ 586,960 $ 131,931
Due to related parties 101,462 83,654
Convertible notes payable, net – 962,301
Deferred revenue 100,000 –
Lease liability, current portion 94,885 –
Other current liabilities 285,211 646,000
Total current liabilities 1,168,518 1,823,886

Lease liability, less current portion 92,600 –
Total liabilities 1,261,118 1,823,886

Commitments and Contingencies (Note 13)

Stockholders’ Equity
Common stock, par value $0.001 per share; 30,000,000 shares authorized; 1,337,259 and 1,266,979 shares issued and outstanding as of September 30, 2019 and March 31, 2019, respectively 1,338 1,267
Additional paid-in capital 109,571,708 108,076,275
Accumulated deficit (109,423,894 ) (105,652,433 )
Total Aethlon Medical, Inc. stockholders’ equity before noncontrolling interests 149,152 2,425,109

Noncontrolling interests (128,480 ) (126,031 )

Total stockholders’ equity 20,672 2,299,078

Total liabilities and stockholders’ equity $ 1,281,790 $ 4,122,964

	September 30, 2020			March 31, 2020
		(Unaudited)
ASSETS
Current assets
Cash	$	14,473,232		$	9,604,780
Accounts receivable		111,849			206,729
Prepaid expenses and other current assets		167,178			229,604
Total current assets		14,752,259			10,041,113

Property and equipment, net		145,855			140,484
Right-of-use lease asset		88,888			136,426
Patents, net		57,229			57,504
Deposits		12,159			12,159
Total assets	$	15,056,390		$	10,387,686

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable	$	311,724		$	285,036
Due to related parties		156,909			111,707
Deferred revenue		507,022			100,000
Lease liability, current portion		92,603			98,557
Other current liabilities		421,502			472,420
Total current liabilities		1,489,760			1,067,720

Lease liability, less current portion		–			42,540
Total liabilities		1,489,760			1,110,260

Commitments and Contingencies (Note 13)

Stockholders’ Equity
Common stock, par value $0.001 per share; 30,000,000 shares authorized; 12,088,313 and 9,366,873 shares issued and outstanding as of September 30, 2020 and March 31, 2020, respectively		12,089			9,368
Additional paid-in capital		128,895,581			121,426,563
Accumulated deficit		(115,207,228	)		(112,026,381	)
Total Aethlon Medical, Inc. stockholders’ equity before noncontrolling interests		13,700,442			9,409,550

Noncontrolling interests		(133,812	)		(132,124	)

Total stockholders’ equity		13,566,630			9,277,426

Total liabilities and stockholders’ equity	$	15,056,390		$	10,387,686

See accompanying notes.

AETHLON MEDICAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Six Month Periods Ended September 30, ~~2019~~2020 and ~~2018~~2019

(Unaudited)

Three Months
Ended
September 30,
2019 Three Months
Ended
September 30,
2018 Six Months
Ended
September 30,
2019 Six Months
Ended
September 30,
2018

REVENUES

Government contract revenue $ – $ – $ 30,000 $ 149,625

OPERATING EXPENSES

Professional fees 762,337 403,044 1,369,915 852,479
Payroll and related expenses 597,526 672,279 1,203,521 1,274,844
General and administrative 342,339 271,631 724,955 466,528
Total operating expenses 1,702,202 1,346,954 3,298,391 2,593,851
OPERATING LOSS (1,702,202 ) (1,346,954 ) (3,268,391 ) (2,444,226 )

OTHER EXPENSE
Interest and other debt expenses 21 55,106 54,106 110,210
Loss on share for warrant exchanges 4,403 – 4,403 –
Loss on debt extinguishment – – 447,011 –
Total other expense 4,424 55,106 505,520 110,210
NET LOSS (1,706,626 ) (1,402,060 ) (3,773,911 ) (2,554,436 )

LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS (1,589 ) (8,715 ) (2,450 ) (14,864 )

NET LOSS ATTRIBUTABLE TO AETHLON MEDICAL, INC. $ (1,705,037 ) $ (1,393,345 ) $ (3,771,461 ) $ (2,539,572 )

BASIC AND DILUTED LOSS PER COMMON SHARE $ (1.29 ) $ (1.17 ) $ (2.91 ) $ (2.14 )

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC AND DILUTED 1,317,418 1,185,949 1,294,206 1,184,795

	Three Months Ended September 30, 2020			Three Months Ended September 30, 2019			Six Months Ended September 30, 2020			Six Months Ended September 30, 2019

REVENUES

Government contract revenue	$	–		$	–		$	–		$	30,000

OPERATING EXPENSES

Professional fees		656,396			762,337			1,220,680			1,369,915
Payroll and related expenses		560,244			597,526			997,155			1,203,521
General and administrative		554,749			342,339			963,972			724,955
Total operating expenses		1,771,389			1,702,202			3,181,807			3,298,391
OPERATING LOSS		(1,771,389	)		(1,702,202	)		(3,181,807	)		(3,268,391	)

OTHER EXPENSE
Interest and other debt expenses		–			21			728			54,106
Loss on share for warrant exchanges		–			4,403			–			4,403
Loss on debt extinguishment		–			–			–			447,011
Total other expense		–			4,424			728			505,520
NET LOSS		(1,771,389	)		(1,706,626	)		(3,182,535	)		(3,773,911	)

LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS		(825	)		(1,589	)		(1,688	)		(2,450	)

NET LOSS ATTRIBUTABLE TO AETHLON MEDICAL, INC.	$	(1,770,564	)	$	(1,705,037	)	$	(3,180,847	)	$	(3,771,461	)

BASIC AND DILUTED LOSS PER COMMON SHARE	$	(0.15	)	$	(1.29	)	$	(0.29	)	$	(2.91	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC AND DILUTED		12,070,592			1,317,418			10,845,049			1,294,206

See accompanying notes.

AETHLON MEDICAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three and Six Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

(Unaudited)

	ATTRIBUTABLE TO AETHLON MEDICAL, INC.																ATTRIBUTABLE TO AETHLON MEDICAL, INC.
	COMMON STOCK				ADDITIONAL PAID IN			ACCUMULATED			NON- CONTROLLING			TOTAL			COMMON STOCK				ADDITIONAL PAID IN			ACCUMULATED			NON- CONTROLLING			TOTAL
	SHARES		AMOUNT		CAPITAL			DEFICIT			INTERESTS			EQUITY			SHARES		AMOUNT		CAPITAL			DEFICIT			INTERESTS			EQUITY

BALANCE - MARCH 31, 2019		1,266,979	$	1,267	$	108,076,275		$	(105,652,433	)	$	(126,031	)	$	2,299,078
BALANCE - MARCH 31, 2020																		9,366,873	$	9,368	$	121,426,563		$	(112,026,381	)	$	(132,124	)	$	9,277,426

Issuances of common stock for cash under at the market program		3,087		3		36,619			–			–			36,622			2,685,600		2,686		7,258,183			–			–			7,260,869

Loss on debt extinguishment		–		–		447,011			–			–			447,011

Issuance of common shares upon vesting of restricted stock units		3,539		4		(23,775	)		–			–			(23,771	)		17,920		18		(24,269	)		–			–			(24,251	)

Stock-based compensation expense		–		–		326,536			–			–			326,536			–		–		84,207			–			–			84,207

Net loss		–		–		–			(2,066,424	)		(860	)		(2,067,284	)		–		–		–			(1,410,283	)		(863	)		(1,411,146	)

BALANCE - JUNE 30, 2019		1,273,605	$	1,274	$	108,862,666		$	(107,718,857	)		(126,891	)	$	1,018,192

Issuances of common stock for cash under the market program		59,340		60		386,552			–			–			386,612

Issuance of common shares upon vesting of restricted stock units		3,236		3		(8,448	)		–			–			(8,445	)

Issuances of common stock upon warrant exchanges		1,078		1		4,402			–			–			4,403

Stock-based compensation expense		–		–		326,536			–			–			326,536

Net loss		–		–		–			(1,705,037	)		(1,589	)		(1,706,626	)

BALANCE - SEPTEMBER 30, 2019		1,337,259	$	1,338	$	109,571,708		$	(109,423,894	)	$	(128,480	)	$	20,672


BALANCE - MARCH 31, 2018		1,182,634	$	1,183	$	105,590,571		$	(99,457,714	)	$	(101,246	)	$	6,032,794
BALANCE - JUNE 30, 2020																		12,070,393	$	12,072	$	128,744,684		$	(113,436,664	)	$	(132,987	)	$	15,187,105

Issuance of common shares upon vesting of restricted stock units		1,446		1		(32,738	)		–			–			(32,737	)		17,920		17		(16,145	)		–			–			(16,128	)

Stock-based compensation expense		–		–		263,162			–			–			263,162			–		–		167,042						–			167,042

Net loss		–		–		–			(1,146,228	)		(6,148	)		(1,152,376	)		–		–		–			(1,770,564	)		(825	)		(1,771,389	)

BALANCE - JUNE 30, 2018		1,184,080	$	1,184	$	105,820,995		$	(100,603,942	)	$	(107,394	)	$	5,110,843

Issuance of common shares upon vesting of restricted stock units		3,897		4		(53,036	)		–			–			(53,032	)

Common stock issued for services		1,000		1		19,349			–			–			19,350

Stock-based compensation expense		–		–		336,496			–			–			336,496

Net loss		–		–		–			(1,393,345	)		(8,715	)		(1,402,060	)

BALANCE - SEPTEMBER 30, 2018		1,188,977	$	1,189	$	106,123,804		$	(101,997,287	)	$	(116,109	)	$	4,011,597
BALANCE - SEPTEMBER 30, 2020																		12,088,313	$	12,089	$	128,895,581		$	(115,207,228	)	$	(133,812	)	$	13,566,630

Continued on following page

	ATTRIBUTABLE TO AETHLON MEDICAL, INC.
	COMMON STOCK				ADDITIONAL PAID IN			ACCUMULATED			NON- CONTROLLING			TOTAL
	SHARES		AMOUNT		CAPITAL			DEFICIT			INTERESTS			EQUITY
BALANCE - MARCH 31, 2019		1,266,979	$	1,267	$	108,076,275		$	(105,652,433	)	$	(126,031	)	$	2,299,078

Issuances of common stock for cash under at the market program		3,087		3		36,619			–			–			36,622

Loss on debt extinguishment		–		–		447,011			–			–			447,011

Issuance of common shares upon vesting of restricted stock units		3,539		4		(23,775	)		–			–			(23,771	)

Stock-based compensation expense		–		–		326,536			–			–			326,536

Net loss		–		–		–			(2,066,424	)		(860	)		(2,067,284	)

BALANCE - JUNE 30, 2019		1,273,605	$	1,274	$	108,862,666		$	(107,718,857	)	$	(126,891	)	$	1,018,192

Issuances of common stock for cash under at the market program		59,340		60		386,552			–			–			386,612

Issuance of common shares upon vesting of restricted stock units		3,236		3		(8,448	)		–			–			(8,445	)

Issuance of common shares upon warrant exchanges		1,078		1		4,402			--			--			4,403

Stock-based compensation expense		–		–		326,536			–			–			326,536

Net loss		–		–		–			(1,705,037	)		(1,589	)		(1,706,626	)

BALANCE - SEPTEMBER 30, 2019		1,337,259	$	1,338	$	109,571,708		$	(109,423,894	)	$	(128,480	)	$	20,672

See accompanying notes.

AETHLON MEDICAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

(Unaudited)

Six Months
Ended
September 30, 2019 Six Months
Ended
September 30, 2018

Cash flows used in operating activities:
Net loss $ (3,773,911 ) $ (2,554,436 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 5,751 16,040
Stock based compensation 653,072 599,658
Loss on debt extinguishment 447,011 –
Loss on share for warrant exchanges 4,403 –
Amortization of debt discount 30,287 60,574
Common stock issued for services – 19,350
Noncash lease expense 45,676 –
Changes in operating assets and liabilities:
Accounts receivable – 74,813
Prepaid expenses and other current assets 96,006 93,163
Accounts payable and other current liabilities 97,947 (127,358 )
Change in lease liability (44,916 ) –
Deferred revenue 100,000 –
Due to related parties 17,808 8,500
Net cash used in operating activities (2,320,866 ) (1,809,696 )

Cash flows used in investing activities:
Purchases of property and equipment (119,981 ) –
Net cash used in investing activities (119,981 ) –

Cash flows (used in) provided by financing activities:
Proceeds from the issuance of common stock, net 423,234 –
Principal payments on convertible notes (992,591 ) –
Tax withholding payments or tax equivalent payments for net share settlement of restricted stock units (32,212 ) (85,769 )
Net cash used in financing activities (601,569 ) (85,769 )

Net decrease in cash (3,042,416 ) (1,895,465 )

Cash at beginning of period 3,828,074 6,974,070

Cash at end of period $ 785,658 $ 5,078,605

Supplemental disclosures of cash flow information:

Cash paid during the period for:

Interest $ 83,332 $ 95,388

Supplemental disclosures of non-cash investing and financing activities:
Initial recognition of right-of-use lease asset and lease liability $ 228,694 $ –
Par value of shares issued for vested restricted stock units $ 7 $ 4

	Six Months Ended September 30, 2020			Six Months Ended September 30, 2019

Cash flows used in operating activities:
Net loss	$	(3,182,535	)	$	(3,773,911	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		18,041			5,751
Stock based compensation		251,249			653,072
Loss on debt extinguishment		–			447,011
Loss on share for warrant exchanges		–			4,403
Accretion of right-of-use lease asset		(956	)		760
Amortization of debt discount		–			30,287
Changes in operating assets and liabilities:
Accounts receivable		94,880			–
Prepaid expenses and other current assets		62,426			96,006
Accounts payable and other current liabilities		(24,230	)		97,947
Deferred revenue		407,022			100,000
Due to related parties		45,202			17,808
Net cash used in operating activities		(2,328,901	)		(2,320,866	)

Cash flows used in investing activities:
Purchases of property and equipment		(23,137	)		(119,981	)
Net cash used in investing activities		(23,137	)		(119,981	)

Cash flows provided by (used in) financing activities:
Proceeds from the issuance of common stock, net		7,260,869			423,234
Principal payments on convertible notes		–			(992,591	)
Tax withholding payments or tax equivalent payments for net share settlement of restricted stock units		(40,379	)		(32,212	)
Net cash provided by (used in) financing activities		7,220,490			(601,569	)

Net increase (decrease) in cash		4,868,452			(3,042,416	)

Cash at beginning of period		9,604,780			3,828,074

Cash at end of period	$	14,473,232		$	785,658

Supplemental disclosures of cash flow information:

Cash paid during the period for:

Interest	$	–		$	83,332

Supplemental disclosures of non-cash investing and financing activities:
Initial recognition of right-of-use lease asset and lease liability	$	–		$	228,694
Par value of shares issued for vested restricted stock units	$	35		$	7

See accompanying notes.

AETHLON MEDICAL, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, ~~2019~~

2020

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

ORGANIZATION

Aethlon Medical, Inc. and its subsidiary (collectively, “Aethlon”, the “Company”, “we” or “us”), is a medical ~~device~~ technology company focused on developing products to diagnose and treat life and organ threatening diseases. The Aethlon Hemopurifier®, or Hemopurifier, is a clinical-stage immunotherapeutic device designed to combat cancer and life-threatening viral infections. In cancer, the Hemopurifier ~~depletes~~is designed to deplete the presence of circulating tumor-derived exosomes that promote immune suppression, seed the spread of metastasis and inhibit the benefit of leading cancer therapies. The U.S. Food and Drug Administration, or FDA, has designated the Hemopurifier as a “Breakthrough Device” for two independent indications:

the treatment of individuals with advanced or metastatic cancer who are either unresponsive to or intolerant of standard of care therapy, and with cancer types in which exosomes have been shown to participate in the development or severity of the disease; and

the treatment of life-threatening viruses that are not addressed with approved therapies.

We believe the Hemopurifier can be a substantial advance in the treatment of patients with advanced and metastatic cancer through the clearance of exosomes that promote the growth and spread of tumors through multiple mechanisms. We are currently preparing for the initiation of clinical trials in patients with advanced and metastatic cancers. We are initially focused on the treatment of solid tumors, including head and neck cancer, gastrointestinal cancers and other cancers. As we advance our clinical trials, we are in close contact with our clinical sites to navigate and assess the impact of the COVID-19 global pandemic on our clinical trials and current timelines.

On October 4, 2019, the FDA approved our Investigational Device Exemption, or IDE, application to initiate an Early Feasibility Study, or EFS, of the Hemopurifier in patients with head and neck cancer in combination with standard of care pembrolizumab (Keytruda) (NCT # 04453046). The primary endpoint for the EFS, which ~~will~~is designed to enroll 10-12 subjects at a single center, will be safety, with secondary endpoints including measures of exosome clearance and characterization, as well as response and survival rates. ~~The IDE approval~~This study, which will be conducted at the UPMC Hillman Cancer Center in Pittsburgh, PA, has been approved by the Institutional Review Board, or IRB, and is ~~subject to FDA approval of Informed Consent documents from the trial site.~~now open for patient enrollment.

We also believe the Hemopurifier can be a 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 to treat individuals infected with human immunodeficiency virus, or HIV, ~~hepatitis-C,~~Hepatitis C, and Ebola.

Additionally,in vitro, the Hemopurifier has been demonstrated to capture Zika virus, Lassa virus, MERS-CoV, cytomegalovirus, Epstein-Barr virus, Herpes simplex virus, Chikungunya virus, Dengue virus, West Nile virus, smallpox-related viruses, H1N1 swine flu virus, H5N1 bird flu virus, and the reconstructed Spanish flu virus of 1918. In several cases, these studies were conducted in collaboration with leading government or non-government research institutes.

On June 17, 2020, the FDA approved a supplement to the Company’s open IDE for the Hemopurifier in viral disease to allow for the testing of the Hemopurifier in patients with SARS-CoV-2/COVID-19 in a New Feasibility Study. That study’s plan is to enroll up to 40 subjects at up to 20 centers in the U.S. Subjects will have established laboratory diagnosis of COVID-19, be admitted to an intensive care unit, or ICU and will have acute lung injury and/or severe or life threatening disease, among other criteria. Endpoints for this study, in addition to safety, will include reduction in circulating virus as well as clinical outcomes (NCT # 04595903). The first sites for this trial, Hoag Memorial Hospital Presbyterian in Newport Beach, CA and Hoag Hospital – Irvine in Irvine, CA now have IRB approval and are preparing to open for patient enrollment. Under Single Patient Emergency Use regulations, the Company has also recently treated a patient with COVID-19 who successfully completed eight daily treatments with the Hemopurifier.

We are also the majority owner of Exosome Sciences, Inc., or ESI, a company focused on the discovery of exosomal biomarkers to diagnose and monitor life-threatening diseases. Included among ESI’s activities is the advancement of a TauSome™ biomarker candidate to diagnose chronic traumatic encephalopathy, or CTE, in the living. ESI previously documented TauSome levels in former NFL players to be nine times higher than same age-group control subjects. Through ESI, we are also developing exosome based biomarkers in patients with, or at risk for, a number of cancers. We consolidate ESI’s activities in our consolidated financial statements.

We also recently announced the execution of a cross-licensing and development agreement with SeaStar Medical, Inc., which will be focused on co-development of our Hemopurifier cartridge with SeaStar’s proprietary cartridges and the development of a closed system for the Hemopurifier using the SeaStar pump and cassettes. This collaboration may allow the deployment of the Hemopurifier into settings that lack dialysis infrastructure, such as chemotherapy infusion centers and field operations for life threatening viral epidemics.

Successful outcomes of human trials will also be required by the regulatory agencies of certain foreign countries where we plan to 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 more recently will help protect the proprietary nature of the Hemopurifier treatment technology.

In addition to the foregoing, we are monitoring closely the impact of the COVID-19 global pandemic on our business and have taken steps designed to protect the health and safety of our employees while continuing our operations. Given the level of uncertainty regarding the duration and impact of the COVID-19 pandemic on capital markets and the U.S. economy, we are unable to assess the impact of the worldwide spread of SARS-CoV-2 and the resulting COVID-19 pandemic on our timelines and future access to capital. We are continuing to monitor the spread of COVID-19 and its potential impact on our operations. The full extent to which the COVID-19 pandemic will impact our business, results of operations, financial condition, clinical trials, and preclinical research will depend on future developments that are highly uncertain, including actions taken to contain or treat COVID-19 and their effectiveness, as well as the economic impact on national and international markets.

Our executive offices are located at 9635 Granite Ridge Drive, Suite 100, San Diego, California 92123. Our telephone number is (858) 459-7800. Our website address is www.aethlonmedical.com.

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

REVERSE STOCK SPLIT

OnFollowing the approval of a reverse stock split at our 2019 Annual Meeting of Stockholders’ held on October 14, 2019, ~~the Company completed~~our Board of Directors approved a 1-for-15 reverse stock split. Accordingly, 15 shares of outstanding common stock then held by stockholders were combined into one share of common stock. Any fractional shares resulting from the reverse split were rounded up to the next whole share. Authorized common stock remained at 30,000,000 shares (see Note 14). The accompanying unaudited condensed consolidated financial statements and accompanying notes have been retroactively revised to reflect such reverse stock split as if it had occurred on April 1, ~~2018.~~2019. All shares and per share amounts have been revised accordingly.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

During the six months ended September 30, ~~2019,~~2020, there ~~have been~~were no changes to our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2019 except as described below.~~

~~Leases~~

At lease commencement, the Company records a lease liability based on the present value of lease payments over the expected lease term. The Company calculates the present value of lease payments using the discount rate implicit in the lease, unless that rate cannot be readily determined. In that case, the Company uses its incremental borrowing rate, which is the rate of interest that the Company would have to pay to borrow on a collateralized basis an amount equal to the lease payments over the expected lease term. The Company records a corresponding right-of-use lease asset based on the lease liability, adjusted for any lease incentives received and any initial direct costs paid to the lessor prior to the lease commencement date.

After lease commencement, the Company measures its leases as follows: (i) the lease liability based on the present value of the remaining lease payments using the discount rate determined at lease commencement; and (ii) the right-of-use lease asset based on the remeasured lease liability, adjusted for any unamortized lease incentives received, any unamortized initial direct costs and the cumulative difference between rent expense and amounts paid under the lease agreement. Rent expense is recorded on a straight-line basis over the expected lease term (See Note 4).2020.

Basis of Presentation and Use of Estimates

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles, ~~(GAAP)~~or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 8 of the Securities and Exchange Commission, ~~(SEC)~~or SEC Regulation S-X. Accordingly, they should be read in conjunction with the audited financial statements and notes thereto for the fiscal year ended March 31, ~~2019,~~2020, included in the Company's Annual Report on Form 10-K filed with the SEC on ~~July 1, 2019.~~June 25, 2020. The accompanying unaudited condensed consolidated financial statements include the accounts of Aethlon Medical, Inc. and its majority-owned subsidiary. All significant inter-company transactions and balances have been eliminated in consolidation. The unaudited condensed consolidated financial statements contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the condensed consolidated financial statements as of and for the three and six months ended September 30, ~~2019,~~2020, and the condensed consolidated statement of cash flows for the six months ended September 30, ~~2019.~~2020. Estimates were made relating to useful lives of fixed assets, impairment of assets, share-based compensation expense and accruals for clinical trial and research and development expenses. Actual results could differ materially from those estimates. The accompanying condensed consolidated balance sheet at March 31, ~~2019~~2020 has been derived from the audited consolidated balance sheet at March 31, ~~2019,~~2020, contained in the above referenced 10-K. The results of operations for the three and six months ended September 30, ~~2019~~2020 are not necessarily indicative of the results to be expected for the full year or any future interim periods.

Reclassifications

Certain prior year balances within the unaudited condensed consolidated financial statements have been reclassified to conform to the current year presentation.

LIQUIDITY AND GOING CONCERN

~~The accompanying condensed consolidated financial statements have been prepared assuming that we will continue~~Management expects existing cash as ~~a going concern, which contemplates, among other things, the realization~~ of ~~assets and satisfaction of liabilities in the ordinary course of business. We have incurred continuing losses from operations and at~~ September 30, ~~2019 had an accumulated deficit of approximately $109,424,000. These factors, among other matters, raise substantial doubt about our ability~~2020 to ~~continue as a going concern for the twelve months from the issuance of these financial statements. A significant amount of additional capital will~~ be ~~necessary to advance the development of our products to the point at which they may become commercially viable. We intend~~sufficient to fund the Company’s operations ~~working capital and other cash requirements through~~for at least twelve months from the issuance date of these condensed consolidated financial ~~statements through equity and/or debt financing arrangements as well as through revenues and related cash receipts under our government contracts (see Note 11).~~statements.

Significant additional financing must be obtained in order to provide a sufficient source of operating capital and to allow us to continue to operate as a going concern and to meet our liquidity needs for a twelve month period from the date of this filing. In addition, we will need to raise capital to complete anticipated future human clinical trials in the U.S. We anticipate the primary sources of this additional financing will be from proceeds of our at-the-market offering program, pursuant to our Form S-3 Registration Statement, debt financing and other forms of equity placements. However, no assurance can be given that we will receive any funds in addition to the funds we have received to date.

The successful outcome of future activities cannot be determined at this time and there is no assurance that, if achieved, we will have sufficient funds to execute our intended business plan or generate positive operating results.

The unaudited condensed consolidated financial statements do not include any adjustments related to this uncertainty and as to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

2. LOSS PER COMMON SHARE

Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period of computation. The weighted average number of common shares outstanding for the three and six months ended September 30, 2019 and 2018 included common shares underlying 2,857 and 3,075 vested restricted stock units, respectively. Diluted loss per share is computed similar to basic loss per share, except that the denominator is increased to include the number of additional dilutive common shares that would have been outstanding if potential common shares had been issued, if such additional common shares were dilutive. Since we had net losses for all periods presented, basic and diluted loss per share are the same, and additional potential common shares have been excluded, as their effect would be antidilutive.

As of September 30, ~~2019~~2020 and ~~2018,~~2019, an aggregate of ~~386,220~~2,620,567 and ~~437,113~~386,220 potential common shares, respectively, consisting of shares underlying outstanding stock options, warrants and unvested restricted stock units, ~~and convertible notes payable,~~ were excluded, as their inclusion would be antidilutive.

3. RESEARCH AND DEVELOPMENT EXPENSES

Our research and development costs are expensed as incurred. We incurred research and development expenses during the three and six month periods ended September 30, ~~2019~~2020 and ~~2018,~~2019, which are included in various operating expense line items in the accompanying condensed consolidated statements of operations. Our research and development expenses in those periods were as follows:

September 30, September 30,
2019 2018
Three months ended $ 222,857 $ 178,800
Six months ended $ 470,882 $ 402,566

4.~~Recent Accounting Pronouncements~~

The Company adopted ASU Topic 842 on April 1, 2019 utilizing the alternative transition method allowed for under this guidance. As a result, the Company recorded lease liabilities and right-of-use lease assets of $228,694 on its balance sheet as of April 1, 2019. The lease liabilities represent the present value of the remaining lease payments of the Company’s corporate headquarters lease (see Note 13), discounted using the Company’s incremental borrowing rate as of April 1, 2019. The corresponding right-of-use lease assets are recorded based on the lease liabilities and the cumulative difference between rent expense and amounts paid under its corporate headquarters lease. The Company also elected the short-term lease recognition exemption for its laboratory lease. For the laboratory lease that qualified as short-term, the Company did not recognize ROU assets or lease liabilities at adoption. The adoption of ASU 2016-02 did not have a material impact on either the statement of operations or statement of cash flows for the six months ended September 30, 2019.

~~Topic 842 also allows lessees and lessors to elect certain practical expedients. The Company elected the following practical expedients:~~

~~Transitional practical expedients, which must be elected as a package and applied consistently to all of the Company’s leases:~~

	°	~~The Company need not reassess whether any expired or existing contracts are or contain leases.~~

	°	The Company need not reassess the lease classification for any expired or existing leases (that is, all existing leases that were classified as operating leases in accordance with the previous guidance will be classified as operating leases, and all existing leases that were classified as capital leases in accordance with the previous guidance will be classified as finance leases).

	°	~~The Company need not reassess initial direct costs for any existing leases.~~

Hindsight practical expedient. The Company elected the hindsight practical expedient in determining the lease term (that is, when considering lessee options to extend or terminate the lease and to purchase the underlying asset) and in assessing impairment of the Company’s right-of-use assets.

	September 30,		September 30,
	2020		2019
Three months ended	$	508,897	$	222,857
Six months ended	$	884,985	$	470,882

4. Recent Accounting Pronouncements

We do not expect the adoption of any recent accounting pronouncement to have a material impact on our financial statements.

5. CONVERTIBLE NOTES PAYABLE, NET

In July 2019, ~~we paid off~~all of our ~~Convertible Notes Payable. We paid the remaining principal balance of $892,591 and accrued interest of $11,352. As a result, we did not incur any interest expense related to the Convertible Notes~~previously outstanding convertible notes, in the ~~three months ended September 30, 2019.~~aggregate amount of $992,591, were paid in full.

For the six months ended September 30, 2019, we recorded interest expense of $23,759 related to the contractual interest rates of our convertible notes and interest expense of $30,287 related to the amortization of the note discount for a total interest expense of $54,046 related to our convertible notes.

~~Convertible Notes Payable, Net consisted of the following at March 31, 2019:~~

Principal Unamortized
Discount Net
Amount Accrued
Interest
Convertible Notes Payable, Net:
November 2014 10% Convertible Notes (due July 1, 2019) $ 612,811 $ (18,701 ) $ 594,110 $ 37,309
December 2016 10% Convertible Notes (due July 1, 2019) 379,780 (11,589 ) 368,191 22,264
Total Convertible Notes Payable, Net $ 992,591 $ (30,290 ) $ 962,301 $ 59,573

During the six months ended September 30, ~~2018,~~2019, prior to paying off the notes, we reduced the conversion price on the convertible notes from $45.00 per share to $10.20 per share. The modification of the convertible notes was evaluated under ASC 470-50-40 and the instruments were determined to be substantially different, and the transaction qualified for extinguishment accounting. Under the extinguishment accounting we recorded ~~interest expense~~a loss on debt extinguishment of $49,630 related to the contractual interest rates of our convertible notes and interest expense of $60,574 related to the amortization of the note discount for a total interest expense of $110,204 related to our convertible notes in the six months ended September 30, 2018. All of the unamortized discount at September 30, 2018 related to the note discount established upon the June 2017 amendment to the November 2014 10% Convertible Notes and to the December 2016 10% Convertible Notes.$447,011.

6. EQUITY TRANSACTIONS IN THE SIX MONTHS ENDED SEPTEMBER 30, ~~2019~~2020

Common Stock Sales Agreement with H.C. Wainwright & Co., LLC

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

On ~~August 6, 2019,~~March 30, 2020, we executed Amendment No. 12 to the Agreement with ~~H.C.~~ Wainwright, effective as of ~~August 5, 2019.~~the same date. The amendment provides that references in the Agreement to the registration statement shall refer to the registration statement on Form S-3 (File No. ~~333-231397)~~333-237269), originally filed with the ~~Securities and Exchange Commission~~SEC on ~~May 10, 2019,~~March 19, 2020, declared effective by the ~~Securities and Exchange Commission~~SEC on ~~August 1, 2019.~~March 30, 2020.

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

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

In the ~~six~~three months ended ~~September~~June 30, ~~2019,~~2020, we raised aggregate net proceeds of ~~$423,234 (net~~$7,260,869, net of ~~$13,213~~$224,825 in commissions to ~~H.C.~~ Wainwright and ~~$3,997~~$8,472 in other offering ~~expenses)~~expenses, under ~~this~~the Agreement, through the sale of ~~62,427~~2,685,600 shares at an average price of ~~$6.78~~$2.70 per share of net proceeds.

Restricted Stock Unit Grants

~~Our~~In 2012, as amended through July 16, 2020, our Board of Directors established the ~~2012~~ Non-Employee Directors Compensation Program, to provide for cash and equity compensation for persons serving as ~~amended through August 2016, or the Non-Employee Directors Plan, pursuant to which, in addition to cash compensation,~~non-employee directors of the ~~Company who are not also employees may be granted stock-based compensation in the form~~Company. Under this program, each new director receives either stock options or a grant of restricted stock units, or ~~RSU’s.~~RSUs, as well as an annual grant of RSUs at the beginning of each fiscal year. The RSUs are subject to vesting and represent the right to be issued on a future date shares of our common stock ~~for RSUs which have then vested.~~upon vesting.

InOn April ~~2019,~~3, 2020, pursuant to the terms of the Company’s Non-Employee Directors ~~Plan, we issued~~Compensation Program, the Compensation Committee of the Board of Directors granted RSUs to each non-employee director of the Company. The Non-Employee Directors Compensation Program provided for a grant of RSUs with a grant date fair value of $35,000, priced at the average of the closing prices for the five trading days ending on the date of grant, which was $1.41 per share, so that the total number of RSUs to be granted to each ~~of our~~ non-employee ~~directors, as the stock-based compensation element of their overall directors’ compensation,~~director for ~~the~~ fiscal year ending March 31, 2020. Those grants were based on the closing price of our common stock on the one business day prior to the grant date, $14.25 per share. Therefore, 2,456 RSUs were issued to each of our five non-employee directors, for a total of 12,280 RSUs. All of the RSUs are subject to vesting in equal quarterly installments on June 30, 2019, September 30, 2019, December 31, 2019 and March 31, 2020.

~~In April 2019, 2,859 vested RSUs held by our current and former executive officers were exchanged for the same number of~~2020 would be 24,822 shares of our common stock. ~~As these executives elected~~On April 3, 2020, each eligible director was granted an RSU for 23,893 shares under the Company’s 2010 Stock Plan, or the 2010 Plan, as the number of shares that remained available for grant under the 2010 Plan was not sufficient for each director’s full RSU grant. The Compensation Committee also granted to ~~net settle~~each eligible director a contingent grant under our 2020 Equity Incentive Plan, or the 2020 Plan, for the remaining portion of ~~their vested RSUs in exchange for~~ the ~~Company paying the related withholding taxes of $18,318 on the share issuance, 1,512~~annual RSU grants, or 929 RSU’s to each eligible director, contingent upon stockholder approval of the ~~vested~~2020 Plan at the Company’s 2020 Annual Meeting of Stockholders, or the Annual Meeting. These grants are subject to vesting as follows: 50% of the RSUs ~~were cancelled and we issued a net 1,347 shares~~subject to the ~~executives~~grants will vest on December 31, 2020 and ~~former executive.~~50% of the RSUs will vest on March 31, 2021, subject in each case to the continuous service of each director, through such vesting dates, as well as approval of the 2020 Plan by the stockholders at the Annual Meeting, which was obtained at the Annual Meeting.

In June ~~2019, 3,075~~2020, 29,866 vested RSUs held by our non-employee directors were exchanged into the same number of shares of our common stock. ~~Four of our~~All five non-employee directors elected to return 40% of their vested RSUs in exchange for cash, in order to pay their withholding taxes on the share issuances, resulting in ~~984~~11,947 of the vested RSUs being cancelled in exchange for ~~$5,453~~$24,251 in aggregate cash proceeds to those independent directors.

In July 2019, 2,861 vested RSUs held by our current and former executive officers were exchanged for the same number of shares of our common stock. As these executives elected to net settle a portion of their vested RSUs in exchange for the Company paying the related withholding taxes of $4,979 on the share issuance, 1,510 of the vested RSUs were cancelled and we issued a net 1,351 shares to the executives and former executive.

In September ~~2019, 3,075~~2020, 29,866 vested RSUs held by our non-employee directors were exchanged into the same number of shares of our common stock. ~~Four of our~~All five non-employee directors elected to return 40% of their vested RSUs in exchange for cash, in order to pay their withholding taxes on the share issuances, resulting in ~~984~~11,947 of the vested RSUs being cancelled in exchange for ~~$3,463~~$16,128 in aggregate cash proceeds to those independent directors.

Also in September 2020, our stockholders approved the 2020 Plan at the Annual Meeting, at which point the grants of 929 RSUs to each of our eligible independent directors for a total of 4,645 RSUs were considered effective and no longer contingent as of that date (See Note 9).

RSUs outstanding that have vested as of, and are expected to vest subsequent to, September 30, ~~2019~~2020 are as follows:

	Number of RSUs
Vested		~~2,857~~–
Expected to vest		~~8,997~~64,378
Total		~~11,854~~64,378

~~Common Stock for Warrant Cancellation~~

During the six months ended September 30, 2019, we agreed with five accredited investors to issue 1,078 shares of our common stock to these investors in exchange for the cancellation of outstanding warrants then held by the investors to purchase 10,759 shares of our common stock. We measured the fair value of the shares issued and the fair value of the warrants exchanged for those shares and recorded a loss of $4,403 on those exchanges based on the changes in fair value between the instruments exchanged.

7. RELATED PARTY TRANSACTIONS

During the three months ended September 30, ~~2019,~~2020, we accrued unpaid fees of ~~$69,750~~$86,375 owed to our non-employee directors as of September 30, ~~2019. For the six months ended September 30, 2019, we recorded $139,500 in fees to our non-employee directors.~~

2020. Amounts due to related parties were comprised of the following items:

	September 30, 2019		March 31, 2019		September 30, 2020		March 31, 2020
Accrued Board fees	$	69,750	$	69,750	$	86,375	$	69,750
Accrued vacation to all employees		31,712		13,904		70,534		41,957
Total due to related parties	$	101,462	$	83,654	$	156,909	$	111,707

8. OTHER CURRENT LIABILITIES

Other current liabilities were comprised of the following items:

September 30, March 31,
2019 2019
Accrued interest $ – $ 59,573
Accrued separation expenses for former executives 109,930 355,189
Accrued professional fees 175,281 231,238
Total other current liabilities $ 285,211 $ 646,000

	September 30,		March 31,
	2020		2020
Accrued professional fees	$	421,502	$	472,420
Total other current liabilities	$	421,502	$	472,420

9. STOCK COMPENSATION

The following tables summarize share-based compensation expenses relating to RSUs and stock options and the effect on basic and diluted loss per common share during the three and six month periods ended September 30, ~~2019~~2020 and ~~2018:~~2019:

	Three Months Ended September 30, 2019			Three Months Ended September 30, 2018			Six Months Ended September 30, 2019			Six Months Ended September 30, 2018			Three Months Ended September 30, 2020			Three Months Ended September 30, 2019			Six Months Ended September 30, 2020			Six Months Ended September 30, 2019
Vesting of stock options and restricted stock units	$	326,536		$	336,496		$	653,072		$	599,658		$	167,042		$	326,536		$	251,249		$	653,072
Total stock-based compensation expense	$	326,536		$	336,496		$	653,072		$	599,658		$	167,042		$	326,536		$	251,249		$	653,072

Weighted average number of common shares outstanding – basic and diluted		1,317,418			1,185,949			1,294,206			1,184,795			12,070,592			1,317,418			10,845,049			1,294,206

Basic and diluted loss per common share attributable to stock-based compensation expense	$	(0.25	)	$	(0.28	)	$	(0.50	)	$	(0.51	)	$	(0.01	)	$	(0.25	)	$	(0.02	)	$	(0.50	)

All of the stock-based compensation expense recorded during the six months ended September 30, ~~2019~~2020 and ~~2018,~~2019, which totaled ~~$653,072~~$251,249 and ~~$599,658,~~$653,072, respectively, is included in payroll and related expense in the accompanying condensed consolidated statements of operations. Stock-based compensation expense recorded during the six months ended September 30, ~~2019~~2020 and ~~2018~~2019 represented an impact on basic and diluted loss per common share of ~~$(0.50)~~$(0.02) and ~~$(0.51)~~$(0.50), respectively.

We review share-based compensation on a quarterly basis for changes to the estimate of expected award forfeitures based on actual forfeiture experience. The cumulative effect of adjusting the forfeiture rate for all expense amortization is recognized in the period the forfeiture estimate is changed. The effect of forfeiture adjustments for the six months ended September 30, ~~2019~~2020 was insignificant.

Stock Option Activity and Approval of 2020 Plan

From February 2020 through May 2020, our compensation committee granted 521,476 stock options that were contingent upon stockholder approval of the 2020 Plan. Upon approval of the 2020 Plan at the Annual Meeting, these option grants were considered effective and no longer contingent as of that date.

The 2020 Plan approved by our stockholders at the Annual Meeting, authorizes up to 1,842,556 shares for issuance under stock option grants, RSUs or other forms of stock-based compensation. No future grants will be made under the 2010 Plan.

We did not issue any stock options during the ~~six~~three months ended September 30, ~~2019 and September 30, 2018.~~2019.

Options outstanding that have vested as of September 30, 2020 and options that are expected to vest ~~as of~~subsequent to September 30, ~~2019~~2020 are as follows:

Number of
Shares Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual
Term in
Years
Vested 13,684 $ 113.27 3.21
Expected to vest 37,440 $ 18.85 8.24
Total 51,124

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years
Vested		26,865	$	44.83		5.62
Expected to vest		521,476	$	2.18		9.42
Total		548,341

A summary of stock option activity during the six months ended September 30, ~~2019~~2020 is presented below:

Amount Range of
Exercise Price Weighted
Average
Exercise
Price
Stock options outstanding at March 31, 2019 59,111 $ 18.75 - 187.50 $ 56.85
Adjustment for reverse split 14 n/a n/a
Exercised – $ – $ –
Granted – $ – $ –
Cancelled/Expired (8,001 ) $ 75.00 - 142.50 $ 138.75
Stock options outstanding at September 30, 2019 51,124 $ 18.75 - 187.50 $ 44.12
Stock options exercisable at September 30, 2019 13,684 $ 25.20 - 187.50 $ 113.27

	Amount		Range of Exercise Price		Weighted Average Exercise Price
Stock options outstanding at March 31, 2020		51,124		$18.75 - $187.50	$	44.12
Exercised		–		–	$	–
Granted		500,752		$1.28 – $2.45	$	1.49
Cancelled/Expired		3,535		$187.50	$	187.50
Stock options outstanding at September 30, 2020		548,341		$1.28 - $187.50	$	4.27
Stock options exercisable at September 30, 2020		26,865		$1.28 - $187.50	$	44.83

On September 30, ~~2019,~~2020, our stock options had no intrinsic value since the closing price on that date of ~~$3.45~~$1.35 per share was below the weighted average exercise price of our outstanding stock options.

At September 30, ~~2019,~~2020, there was approximately ~~$1,520,729~~$1,989,000 of unrecognized compensation cost related to share-based payments, which is expected to be recognized over a weighted average period of ~~1.2~~3.0 years.

10. WARRANTS

During the six months ended September 30, ~~2019~~2020 and ~~2018,~~2019, we did not issue any warrants. During the six months ended September 30, 2019, we agreed with five accredited investors to issue 1,078 shares of our common stock to these investors in exchange for the cancellation of outstanding warrants then held by the investors to purchase 10,759 shares of our common stock. We measured the fair value of the shares issued and the fair value of the warrants exchanged for those shares and recorded a loss of $4,403 on those exchanges based on the changes in fair value between the instruments exchanged.

A summary of warrant activity during the six months ended September 30, ~~2019~~2020 is presented below:

Amount Range of
Exercise
Price Weighted
Average
Exercise
Price
Warrants outstanding at March 31, 2019 342,992 $ 16.50 - 180.75 $ 38.10
Adjustment for reverse split 73 n/a n/a
Cancelled/Expired (19,823 ) $ 64.50 - 180.75 $ 99.85
Warrants outstanding at September 30, 2019 323,242 $ 16.50 - 135.00 $ 38.26
Warrants exercisable at September 30, 2019 323,242 $ 16.50 - 135.00 $ 38.26

	Amount			Range of Exercise Price		Weighted Average Exercise Price
Warrants outstanding at March 31, 2020		2,021,368			$1.50 - $125.25	$	5.21
Cancelled/Expired		(13,520	)		$90.75 – $125.25	$	100.31
Warrants outstanding at September 30, 2020		2,007,848			$1.50 – $125.25	$	5.93
Warrants exercisable at September 30, 2020		2,007,848			$1.50 – $125.25	$	5.93

11. GOVERNMENT CONTRACTS AND RELATED REVENUE RECOGNITION

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

Phase 2 Melanoma Cancer Contract

On September 12, 2019, the NCI awarded to us an SBIR Phase II Award Contract, for NIH/NCI Topic 359, entitled “A Device Prototype for Isolation of Melanoma Exosomes for Diagnostics and Treatment Monitoring”, or the Award Contract. The Award Contract amount is $1,860,561 and runs for the period from September 16, 2019 through September 15, 2021.

The work to be performed pursuant to this Award Contract ~~will focus~~focuses on melanoma exosomes. This work follows from our completion of a ~~Phase~~phase I contract for the Topic 359 solicitation that ran from September 2017 through June 2018, ~~(see Phase 1 Melanoma Cancer Contract below).~~as described below. Following on the ~~Phase~~phase I work, the deliverables in the ~~Phase~~phase II program ~~will~~ involve the design and testing of a pre-commercial prototype of a more advanced version of the exosome isolation platform.

NoWe did not record any government contract revenue ~~was recognized under this contract in~~on the ~~three and six month periods ended September 30, 2019.~~

Phase 12 Melanoma Cancer Contract

We entered into a contract with the NIH on September 15, 2017. This award was under the NIH’s SBIR program which is designed to fund early stage small businesses that are seeking to commercialize innovative biomedical technologies. The title of the award is SBIR Topic 359 Phase 1 Device Strategy for Selective Isolation of Oncosomes and Non-Malignant Exosomes. The award from NIH was a firm, fixed-price contract with potential total payments to us of $299,250 over the course of nine months.

Fixed price contracts require the achievement of multiple, incremental milestones to receive the full award during each period of the contract. The NIH also had the unilateral right to require us to perform additional work under an option period for an additional fixed amount of $49,800. Under the terms of the contract, we were required to perform certain incremental work toward the achievement of specific milestones against which we invoiced the government for fixed payment amounts.

In in the six months ended September 30, ~~2018, we performed work under~~2020. We did invoice the ~~contract covering the remainder of the technical objectives of the contract Aim 1: To validate the Hemopurifier as a device~~NCI for capture and recovery of melanoma exosomes from plasma, and Aim 2: To validate a method of melanoma exosome isolation consisting of the Hemopurifier followed by mab-based immunocapture to select out the tumor-derived exosomes from non-malignant exosomes and Aim 3: To evaluate the functional integrity of melanoma exosomes purified by the Hemopurifier and immunocapture isolation steps. As a result, we invoiced NIH for $149,625$114,849 during the ~~six~~three months ended September 30, ~~2018. The Phase 1 Melanoma Cancer Contract is now completed.~~2020, however we have recorded that amount as deferred revenue since we did not achieve the milestones associated with that quarterly billing cycle.

1615

Breast Cancer Grant

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

This NCI ~~Phase~~phase I grant period originally ran from September 14, 2018 through August 31, 2019. In August 2019, we applied for and received aat no cost, a twelve month extension on this ~~grant, so the~~grant. The expiration date was extended to August 31, 2020. The total amount of the firm grant is $298,444. The grant calls for two subcontractors to work with us. Those subcontractors are University of Pittsburgh and Massachusetts General Hospital. ~~During~~

We did not record any government contract revenue on the Breast Cancer Grant in the six months ended September 30, ~~2019, we recognized $30,000 in government contract revenue under this grant as a result of~~2020. We did invoice the ~~work involved in one of~~NCI for $88,444 during the three technical objectives of the contract (Aim 2. “Elution of a population of breast cancer exosomes from Hemopurifier cartridges that bear the signatures of malignancy based on expression of CSPG4 and HER2, for triple-negative or HER2-overexpressing cancers, respectively”). We also invoiced the NCI an additional $100,000 in the six month periodmonths ended September 30, ~~2019 in order to pay our subcontractors under the contract. As~~2020, and have recorded that amount as deferred revenue since we did not ~~complete any of~~achieve the ~~technical objectives beyond Aim 2 noted above during the September period, we recorded this $100,000 as deferred revenue as~~milestones associated with that quarterly billing cycle.

As of September 30, ~~2019.~~2020, we received all of the funds allocated to the Breast Cancer Grant and are now composing the final reports applicable to this grant.

12. SEGMENTS

We operate our businesses principally through two reportable segments: Aethlon, which represents our therapeutic business activities, and ~~Exosome Sciences, Inc., or~~ ESI, which represents our diagnostic business activities. Our reportable segments have been determined based on the nature of the potential products being developed. We record discrete financial information for ESI and our chief operating decision maker reviews ESI’s operating results in order to make decisions about resources to be allocated to the ESI segment and to assess its performance.

Aethlon’s revenue is generated primarily from government contracts to date and ESI does not yet have any revenues. We have not included any allocation of corporate overhead to the ESI segment.

1716

The following tables set forth certain information regarding our segments:

	Six Months Ended September 30,						Six Months Ended September 30,
	2019			2018			2020			2019
Revenues:
Aethlon	$	30,000		$	149,625		$	–		$	30,000
ESI		–			–			–			–
Total Revenues	$	30,000		$	149,625		$	–		$	30,000

Operating Losses:
Aethlon	$	(3,256,142	)	$	(2,369,907	)	$	(3,173,367	)	$	(3,256,142	)
ESI		(12,249	)		(74,319	)		(8,440	)		(12,249	)
Total Operating Loss	$	(3,268,391	)	$	(2,444,226	)	$	(3,181,807	)	$	(3,268,391	)

Net Losses:
Aethlon	$	(3,761,662	)	$	(2,480,117	)	$	(3,174,095	)	$	(3,761,662	)
ESI		(12,249	)		(74,319	)		(8,440	)		(12,249	)
Net Loss Before Non-Controlling Interests	$	(3,773,911	)	$	(2,554,436	)	$	(3,182,535	)	$	(3,773,911	)

Cash:
Aethlon	$	785,461		$	5,076,872		$	14,473,035		$	785,461
ESI		197			1,733			197			197
Total Cash	$	785,658		$	5,078,605		$	14,473,232		$	785,658

Total Assets:
Aethlon	$	1,281,593		$	5,270,690		$	15,056,193		$	1,281,593
ESI		197			1,733			197			197
Total Assets	$	1,281,790		$	5,272,423		$	15,056,390		$	1,281,790

Capital Expenditures:
Aethlon	$	119,981		$	–		$	23,137		$	119,981
ESI		–			–			–			–
Capital Expenditures	$	119,981		$	–		$	23,137		$	119,981

Depreciation and Amortization:
Aethlon	$	5,751		$	16,040		$	18,041		$	5,751
ESI		–			–			–			–
Total Depreciation and Amortization	$	5,751		$	16,040		$	18,041		$	5,751

Interest Expense:
Aethlon	$	(54,106	)	$	(110,210	)	$	(728	)	$	(54,106	)
ESI		–			–			–			–
Total Interest Expense	$	(54,106	)	$	(110,210	)	$	(728	)	$	(54,106	)

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13. COMMITMENTS AND CONTINGENCIES

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

There have been no material changes to our contractual obligations and commitments outside the ordinary course of business from those disclosed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations and Commitments” as contained in our Annual Report on Form 10-K for the year ended March 31, ~~2019~~2020, filed by us with the SEC on ~~July 1, 2019.~~June 25, 2020.

LEASE COMMITMENTS

We currently lease approximately 2,600 square feet of executive office space at 9635 Granite Ridge Drive, Suite 100, San Diego,California 92123 under a 39-month gross plus utilities lease that commenced on December 1, 2014 and expires on August 31, ~~2021 the “Granite Ridge Lease.”~~2021. The current rental rate under the lease extension is $8,265 per month. ~~We believe this leased facility will be satisfactory for our office needs over the term of the lease.~~

We also rent approximately 1,700 square feet of laboratory space at 11585 Sorrento Valley Road, Suite 109, San Diego, California 92121 at the rate of $4,700 per month on a one-year lease that ~~expires~~originally was to expire on November 30, 2019. In October 2019, we entered into a lease extension for an additional twelve months running from December 1, 2019 through November 30, 2020, at the rate of $5,961 per ~~month (see Note 14).~~month. We are currently evaluating other laboratory space in the San Diego area.

Rent expense, which is included in general and administrative expenses, approximated $47,000 and ~~$34,000~~$45,000 for the three month periods ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. For the six month periods ended September 30, ~~2019~~2020 and ~~2018,~~2019, rent expense approximated ~~$87,000~~$94,000 and ~~$84,000,~~$87,000, respectively.

Future minimum lease payments under the Granite Ridge Lease as of September 30, ~~2019,~~2020, are as follows:

October 1, 2019 through March 31, 2020	$	49,591
April 1, 2020 through March 31, 2021		102,074
July 1, 2020 through March 31, 2021				$	51,326
April 1, 2021 through August 31, 2021		43,670		$	43,670
Total future minimum lease payments		195,335		$	94,996
Less: discount		(7,850	)	$	(2,393	)
Total lease liability	$	187,485		$	92,603

OnDuring the fiscal year ended March 31, 2020, we adopted ASU Topic 842 on April 1, 2019 utilizing the alternative transition method allowed for under this guidance. As a result, we recorded a lease ~~liability~~liabilities and ~~ROU~~right-of-use lease ~~asset for the Granite Ridge Lease based~~assets of $228,694 on our balance sheet as of April 1, 2019. The lease liabilities represent the present value of the remaining lease payments ~~over the expected remaining~~of our corporate headquarters lease, ~~term of 2.2 years,~~ discounted using our ~~estimated~~ incremental borrowing rate as of ~~4%.~~April 1, 2019. The corresponding right-of-use lease assets are recorded based on the lease liabilities and the cumulative difference between rent expense and amounts paid under its corporate headquarters lease. We also elected the short-term lease recognition exemption for its laboratory lease. For the ~~six months ended September 30, 2019, reduction of the~~laboratory lease that qualified as short-term, we did not recognize right-of-use assets or lease ~~asset was $45,676 and reduction of the lease liability was $44,916, which resulted in a net increase in the right-of-use lease asset of $760 during the period (See Note 4).~~liabilities at adoption.

1918

LEGAL MATTERS

From time to time, claims are made against us in the ordinary course of business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur, such as monetary damages, fines, penalties or injunctions prohibiting us from selling one or more products or engaging in other activities.

The occurrence of an unfavorable outcome in any specific period could have a material adverse effect on our results of operations for that period or future periods. We are not presently a party to any pending or threatened legal proceedings.

14. SUBSEQUENT EVENTS

Management has evaluated events subsequent to September 30, ~~2019~~2020 through the date that the accompanying condensed consolidated financial statements were filed with the SEC for transactions and other events which may require adjustment of and/or disclosure in such financial statements.

~~Reverse Split –~~Following the approval of a reverse stock split at our Annual Stockholders’ Meeting held on October 14, 2019, our Board of Directors approved a 1-for-15 reverse stock split. Accordingly, each 15 shares of outstanding common stock held by stockholders were combined into one share of common stock. Our authorized common stock remained at 30,000,000 shares. As the result of the rounding up of fractional shares related to the reverse split, we have issued an additional 3,946 shares to our shareholders in October 2019.

~~FDA Approval of IDE for Oncology Indications –~~On October 4, 2019, the FDA approved our Investigational Device Exemption (IDE) application to initiate an Early Feasibility Study, or EFS of the Hemopurifier in patients with head and neck cancer in combination with standard of care pembrolizumab (Keytruda). The primary endpoint for the EFS, which will enroll 10-12 subjects at a single center, will be safety, with secondary endpoints including measures of exosome clearance and characterization, as well as response and survival rates. The IDE approval is subject to FDA approval of Informed Consent documents from the trial site.

~~Restricted Stock Unit (“RSU”) Issuances~~ – In October 2019, 2,859 RSUs held by our current and former executives were exchanged into the same number of shares of our common stock. As our executives elected to net settle a portion of their RSU’s in exchange for us paying the related withholding taxes on the share issuance, 1,511 of the RSUs were cancelled and we issued a net 1,348 shares of common stock to our executives.

~~ATM Sales~~– In October 2019, we sold 98,722 shares of our common stock under our Common Stock Sales Agreement with H.C. Wainwright (see Note 6) and from those sales raised net proceeds of $472,798 (after deducting $14,682 in commissions to H.C. Wainwright and $1,932 in other offering expenses), at an average price of $4.79 per share of net proceeds.

~~Government Contract Funding – In October 2019, we billed the NCI for $206,729 after achieving the first milestone in our Phase 2 Melanoma Cancer Contract.~~

2019

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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

FORWARD LOOKING STATEMENTS

All statements, other than statements of historical fact, included in this Form 10-Q are, or may be deemed to be, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Such forward-looking statements involve assumptions, known and unknown risks, uncertainties and other factors which may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements contained in this Form 10-Q. ~~Such potential~~Potential risks and uncertainties include, without limitation, completion of our capital-raising activities, our ability to maintain our Nasdaq listing, U.S. Food and Drug Administration, approval of our products, other regulations, patent protection of our proprietary technology, product liability exposure, uncertainty of market acceptance, competition, technological change, and other risk factors detailed herein and in other of our filings with the Securities and Exchange Commission, or the Commission. The forward-looking statements are made as of the date of this Form 10-Q, and we assume no obligation to update the forward-looking statements, or to update the reasons actual results could differ from those projected in such forward-looking statements.

Overview

~~Aethlon Medical, Inc. and its subsidiary (collectively, “Aethlon”, the “Company”, “we” or “us”) is~~We are a medical ~~device~~ technology company focused on developing products to diagnose and treat life and organ threatening diseases. The Aethlon Hemopurifier®, or Hemopurifier, is a clinical-stage immunotherapeutic device designed to combat cancer and life-threatening viral infections. In cancer, the Hemopurifier ~~depletes~~is designed to deplete the presence of circulating tumor-derived exosomes that promote immune suppression, seed the spread of metastasis and inhibit the benefit of leading cancer therapies. The U.S. Food and Drug Administration, or ~~the~~ FDA, has designated the Hemopurifier as a ~~"Breakthrough Device"~~“Breakthrough Device” for two independent indications:

the treatment of life-threatening viruses that are not addressed with approved therapies.

We believe the Hemopurifier can be a substantial advance in the treatment of patients with advanced and metastatic cancer through the clearance of exosomes that promote the growth and spread of tumors through multiple mechanisms. We are currently preparing for the initiation of clinical trials in patients with advanced and metastatic cancers. We are initially focused on the treatment of solid tumors, including head and neck cancer, gastrointestinal cancers and other cancers. As we advance our clinical trials, we are in close contact with our clinical sites to navigate and assess the impact of the global COVID-19 pandemic on our clinical trials and current timelines.

Additionally,~~in vitro,~~in-vitro, the Hemopurifier has been demonstrated to capture Zika virus, Lassa virus, MERS-CoV, cytomegalovirus, Epstein-Barr virus, Herpes simplex virus, Chikungunya virus, Dengue virus, West Nile virus, smallpox-related viruses, H1N1 swine flu virus, H5N1 bird flu virus, and the reconstructed Spanish flu virus of 1918. In several cases, these ~~studies~~validations were conducted in collaboration with leading government or non-government research institutes.

On June 17, 2020, the FDA approved a supplement to the Company’s open IDE for the Company’s Hemopurifier in viral disease to allow for the testing of the Hemopurifier in patients with SARS-CoV-2/COVID-19 in a New Feasibility Study. That study’s plan is to enroll up to 40 subjects at up to 20 centers in the U.S. Subjects will have established laboratory diagnosis of COVID-19, be admitted to an intensive care unit, or ICU and will have acute lung injury and/or severe or life threatening disease among other criteria. Endpoints for this study, in addition to safety, will include reduction in circulating virus as well as clinical outcomes (NCT # 04595903). The first sites for this trial, Hoag Memorial Hospital Presbyterian in Newport Beach, CA and Hoag Hospital – Irvine in Irvine, CA now have IRB approval and are preparing to open for patient enrollment. Under Single Patient Emergency Use regulations, the Company has also recently treated a patient with COVID-19, who successfully completed eight daily treatments with the Hemopurifier.

We were formed on March 10, 1999. Our executive offices are located at 9635 Granite Ridge Drive, Suite 100, San Diego, California 92123. Our telephone number is (858) 459-7800. Our website address is www.aethlonmedical.com.

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

COVID-19 Update

In March 2020, the World Health Organization declared COVID-19 a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets.

We are monitoring closely the impact of the COVID-19 global pandemic on our business and have taken steps designed to protect the health and safety of our employees while continuing our operations, including clinical trials. Given the level of uncertainty regarding the duration and impact of the COVID-19 pandemic on capital markets and the U.S. economy, we are unable to assess the impact of the worldwide spread of SARS-CoV-2 and the resulting COVID-19 pandemic on our future access to capital. Further, while we have not experienced significant disruptions to our manufacturing supply chain, business, results of operations, financial condition, clinical trials, or preclinical research to date, we are unable to assess the potential impact this pandemic could have on our manufacturing supply chain, business, results of operations, financial condition, clinical trials, or preclinical research in the future.

As we continue to actively advance our clinical trials, we remain in close contact with our clinical sites and are assessing the impact of COVID-19 on our trials, expected timelines and costs on an ongoing basis. We will assess any potential delays in our ability to timely ship clinical trial materials, including internationally, due to transportation interruptions. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our clinical trials, employees and vendors, all of which are uncertain and cannot be predicted. Given these uncertainties, we cannot reasonably estimate the related impact to our business, operating results and financial condition, if any.

WHERE YOU CAN FIND MORE INFORMATION

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

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, ~~2019~~2020 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, ~~2018~~2019

Government Contract Revenues

We did not record any government contract revenue in the three months ended September 30, ~~2019 and 2018.~~2020. We did invoice the NCI for an aggregate of $203,293 during the three months ended September 30, 2020, however we recorded that amount as deferred revenue since we did not achieve the milestones associated with that quarterly billing cycle.

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

Phase 2 Melanoma Cancer Contract

NoWe did not record any government contract revenue ~~was recognized under this contract~~on the Phase 2 Melanoma Cancer Contract in the three months ~~and six~~ended September 30, 2020. We did invoice the NCI for $114,849 during the three months ended September 30, ~~2019.~~

~~Phase 1 Melanoma Cancer Contract~~

~~We entered into a contract~~2020, however we have recorded that amount as deferred revenue since we did not achieve the milestones associated with the NCI in September 2017. This award was under the NIH’s SBIR program. The title of the award is “SBIR Topic 359 Phase 1 Device Strategy for Selective Isolation of Oncosomes and Non-Malignant Exosomes.” The award from NIH was a firm, fixed-price contract with potential total payments to us of $299,250 over the course of nine months.

Under the terms of the contract, we were required to perform certain incremental work towards the achievement of specific milestones against which we will invoice the government for fixed payment amounts. The Phase 1 Melanoma Cancer Contract was completed in June 2018. that quarterly billing cycle.

2322

Breast Cancer Grant

This NCI Phase I grant period originally ran from September 14, 2018 through August 31, 2019. In August 2019, we applied for and received a no cost, twelve month extension on this ~~grant, so the expiration date was extended to~~grant; through August 31, 2020. The total amount of the firm grant is $298,444. The grant calls for two subcontractors to work with us. Those subcontractors are University of Pittsburgh and Massachusetts General Hospital.

~~While we~~We did not record any government contract revenue ~~from this grant~~on the Breast Cancer Grant in the three months ended September 30, 2020. We did invoice the NCI for $88,444 during the three months ended September 30, ~~2019, we did invoice the NCI for $100,000 during the period in order to pay our subcontractors under the contract. As~~2020, and have recorded that amount as deferred revenue since we did not ~~complete any~~achieve the milestones associated with that quarterly billing cycle.

As of September 30, 2020, we have received all of the ~~technical objectives during~~funds allocated to this Best Cancer Grant and are now composing the ~~September period, we recorded~~final reports applicable to this ~~$100,000 as deferred revenue.~~grant.

Operating Expenses

Consolidated operating expenses for the three months ended September 30, ~~2019~~2020 were $1,771,389, compared to $1,702,202 ~~in comparison with $1,346,954~~ for the ~~comparable period~~three months ended September 30, ~~2018.~~2019. This increase of ~~$355,248,~~$69,187, or ~~26%~~4.1%, in ~~2019~~the 2020 period was due to ~~increases in professional fees of $359,293 and~~an increase in general and administrative expenses of ~~$70,708,~~$212,410, which was partially offset by decreases in professional fees of $105,941 and in payroll and related expenses of $37,282.

The $212,410 increase in general and administrative expenses was primarily due to a $142,696 increase in lab supplies, in connection with our ongoing effort to continue to build an inventory of Hemopurifiers for our clinical trials, and to a $54,361 increase in our clinical trial expenses.

The $105,941 decrease in our professional fees was primarily due to a $93,640 decrease in our legal fees and a $59,614 decrease in our accounting fees, which were partially offset by a ~~decrease~~$37,986 increase in ~~payroll and related expenses of $74,753.~~scientific consulting expenses.

The $359,293 increase in our professional fees in 2019 was primarily due to a $278,892 increase in our legal fees, a $68,715 increase in our accounting fees and a $65,000 payment to the University of Pittsburgh, a subcontractor on our Breast Cancer grant related to their work on that grant. The increase in legal and accounting fees related to increased activity in our registration statement filings and in intellectual property actions, among other matters.

The $70,708 increase in general and administrative expenses in 2019 was primarily due to the combination of a $21,264 increase in our clinical trial expense, primarily costs associated with the manufacturing of Hemopurifiers for an expected clinical trial in the cancer space and a $44,999 increase in our lab supplies expense, primarily related to our breast cancer grant and lab work related to our IDE application.

~~The $74,753~~$37,282 decrease in payroll and related expenses was due to the combination of a ~~$64,793~~$159,494 reduction in stock-based compensation expense and a $122,212 increase in our cash-based compensation ~~expense~~expense. The cash-based compensation increase was in turn due to additions to our headcount and ~~a $9,960 decrease in stock-based compensation.~~to salary increases.

Other Expense

~~Other~~There was no other expense during the three months ended September 30, 2020. In the three months ended September 30, 2019, other expense consisted of interest expense and a loss on share for warrant exchanges and during the three months ended September 30, 2018, consisted of interest expense only. Other expense for the three months ended September 30, 2019 was $4,424, in comparison with other expense of $55,106 for the three months ended September 30, 2018.exchanges.

2423

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

	Three Months Ended		Three Months Ended					Three Months Ended		Three Months Ended
	9/30/19		9/30/18		Change			9/30/20		9/30/19		Change
Loss on Share for Warrant Exchanges	$	4,403	$	–	$	4,403		$	–	$	4,403	$	(4,403	)
Interest Expense		21		55,106		(55,085	)	$	–	$	21	$	(21	)
Total Other Expense	$	4,424	$	55,106	$	(50,682	)	$	–	$	4,424	$	(4,424	)

Loss on ~~Common Stock~~Share for Warrant ~~Cancellation~~Exchanges

We did not record a loss on share for warrant exchanges in the three months ended September 30, 2020. During the three months ended September 30, 2019, we agreed with five accredited investors to issue 1,078 shares of our common stock to these investors in exchange for the cancellation of outstanding warrants then held by the investors to purchase 10,759 shares of our common stock. We measured the fair value of the shares issued and the fair value of the warrants exchanged for those shares and recorded a loss of $4,403 on those exchanges based on the changes in fair value between the instruments exchanged.

Interest Expense

We did not have any interest expense in the three months ended September 30, 2020. Interest expense was $21 for the three months ended September 30, ~~2019, and $55,106 for the three months ended September 30, 2018, a decrease of $55,085 in~~ 2019. The various components of our interest expense are shown in the following table:

Three Months
Ended Three Months
Ended
9/30/19 9/30/18 Change
Interest Expense $ 21 $ 24,819 $ (24,798 )
Amortization of Note Discounts – 30,287 (30,287 )
Total Interest Expense $ 21 $ 55,106 $ (55,085 )

~~The $55,085 decrease in our interest expense was due to the payoff of our convertible notes in July 2019.~~

	Three Months Ended		Three Months Ended
	9/30/20		9/30/19		Change
Interest Expense	$	–	$	21	$	(21	)

Net Loss

As a result of the changes in revenues and expenses noted above, our net loss increased ~~from~~to approximately ~~$1,402,000~~$1,771,000 in the three month period ended September 30, ~~2018 to~~2020, from approximately $1,707,000 in the three month period ended September 30, 2019.

Basic and diluted loss attributable to common stockholders were ($0.15) for the three month period ended September 30, 2020, compared to ($1.29) for the three month period ended September 30, ~~2019, compared to ($1.17) for the three month period ended September 30, 2018.~~2019.

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~~RESULTS OF OPERATIONS~~

SIX MONTHS ENDED SEPTEMBER 30, ~~2019~~2020 COMPARED TO THE SIX MONTHS ENDED SEPTEMBER 30, ~~2018~~2019

Government Contract Revenues

We ~~recorded~~did not record any government contract revenue in the six months ended September 30, ~~2019 and 2018. This~~2020. We did invoice the NCI for an aggregate of $407,022 during the six months ended September 30, 2020, however we recorded that amount as deferred revenue ~~resulted from work performed under our government contracts~~since we did not achieve the milestones associated with ~~the NIH as follows:~~those quarterly billing cycles.

Six Months
Ended 9/30/19 Six Months
Ended 9/30/18 Change in
Dollars
Melanoma Cancer Contract $ – $ 149,625 $ (149,625 )
Breast Cancer Grant 30,000 – 30,000
Total Government Contract and Grant Revenue $ 30,000 $ 149,625 $ (119,625 )

We have entered into the following ~~three~~two contracts/grants with the NCI, part of the NIH over the past two years:

Phase 2 Melanoma Cancer Contract

NoWe did not record any government contract revenue ~~was recognized under this contract~~on the Phase 2 Melanoma Cancer Contract in the six months ended September 30, ~~2019.~~

~~Phase 1 Melanoma Cancer Contract~~

2020. We ~~entered into a contract with~~did invoice the NIH on September 15, 2017. This award was under the NIH’s SBIR program which is designed to fund early stage small businesses that are seeking to commercialize innovative biomedical technologies. The title of the award is SBIR Topic 359 Phase 1 Device Strategy for Selective Isolation of Oncosomes and Non-Malignant Exosomes. The award from NIH was a firm, fixed-price contract with potential total payments to us of $299,250 over the course of nine months.

Fixed price contracts require the achievement of multiple, incremental milestones to receive the full award during each period of the contract. The NIH also had the unilateral right to require us to perform additional work under an option periodNCI for an ~~additional fixed amount~~aggregate of $49,800. Under the terms of the contract, we were required to perform certain incremental work toward the achievement of specific milestones against which we invoiced the government for fixed payment amounts.

In the six months ended September 30, 2018, we performed work under the contract covering the remainder of the technical objectives of the contract (Aim 1: To validate the Hemopurifier as a device for capture and recovery of melanoma exosomes from plasma and Aim 2: To validate a method of melanoma exosome isolation consisting of the Hemopurifier followed by mab-based immunocapture to select out the tumor-derived exosomes from non-malignant exosomes and Aim 3: To evaluate the functional integrity of melanoma exosomes purified by the Hemopurifier and immunocapture isolation steps). As a result, we invoiced NIH for $149,625$321,578 during the six months ended September 30, ~~2018. The Phase 1 Melanoma Cancer Contract is now completed.~~ 2020, however we have recorded that amount as deferred revenue since we did not achieve the milestones associated with those quarterly billing cycles.

Breast Cancer Grant

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

This NCI ~~Phase~~phase I grant period originally ran from September 14, 2018 through August 31, 2019. In August 2019, we applied for and received a no cost, twelve month extension on this ~~grant,~~grant; so the expiration date was extended to August 31, 2020. The total amount of the firm grant is $298,444. The grant calls for two subcontractors to work with us. Those subcontractors are University of Pittsburgh and Massachusetts General Hospital.

We did not record any government contract revenue on the Breast Cancer Grant in the six months ended September 30, 2020. We did invoice the NCI for $88,444 during the six months ended September 30, 2020, however we have recorded that amount as deferred revenue since we did not achieve the milestones associated with that quarterly billing cycle.

As of September 30, 2020, we have received all of the funds allocated to this grant and are now composing the final reports applicable to this Breast Cancer Grant.

During the six months ended September 30, 2019, we recognized $30,000 in government contract revenue under this grant as a result of the work involved in one of the three technical objectives of the ~~contract (Aim~~contract: Aim 2. “Elution of a population of breast cancer exosomes from Hemopurifier cartridges that bear the signatures of malignancy based on expression of CSPG4 and HER2, for triple-negative or HER2-overexpressing cancers, respectively”). We also invoiced the NCI for an additional $100,000 during the six month period ended September 30, 2019 in order to pay our subcontractors under the contract. As we did not complete any additional technical objectives beyond Aim 2 noted above during the period, we recorded this $100,000 as deferred revenue as of September 30, 2019.

Operating Expenses

Consolidated operating expenses for the six months ended September 30, ~~2019~~2020 were $3,181,807, compared to $3,298,391 ~~in comparison with $2,593,851~~ for the ~~comparable period~~six months ended September 30, ~~2018.~~2019. This ~~increase~~decrease of ~~$704,540,~~$116,584, or ~~27%~~3.5%, in ~~2019~~the 2020 period was due to ~~increases~~a decrease in payroll and related expenses of $206,366 and in professional fees of ~~$517,436 and~~$149,235, which was partially offset by an increase in general and administrative expenses of ~~$258,427, which were partially offset by a reduction in and payroll and related expenses of $71,323.~~$239,017.

The $517,436 increase in our professional fees in 2019 was primarily due to a $421,145 increase in our legal fees, a $125,804 increase in our accounting fees and a $65,000 payment to the University of Pittsburgh, a subcontractor on our Breast Cancer grant related to their work on that grant. The increase in legal and accounting fees related to increased activity in our registration statement filings and in intellectual property actions among other matters.

The $258,427 increase in general and administrative expenses in 2019 was primarily due to the combination of a $140,792 increase in our clinical trial expense, primarily costs associated with the manufacturing of Hemopurifiers for an expected clinical trial in the cancer space, a $83,520 increase in our lab supplies expense, primarily related to our breast cancer grant and lab work related to our IDE application and a $58,520 increase in travel expense.

~~The $71,323~~$206,366 decrease in payroll and related expenses was due to the combination of a ~~$124,737~~$401,823 reduction in stock-based compensation expense and a $195,457 increase in our cash-based compensation ~~expense~~expense. The cash-based compensation increase was in turn due to additions to our headcount and to salary increases.

The $149,235 decrease in our professional fees was primarily due to a $112,285 decrease in our legal fees, a $81,242 decrease in our accounting fees, and a ~~$53,414~~$65,000 decrease in subcontractor fees on our government contracts, which were partially offset by a $62,236 increase in ~~stock-based compensation.~~scientific consulting expenses and a $28,976 increase in investor relations expenses.

The $239,017 increase in general and administrative expenses was primarily due to a $188,081 increase in lab supplies, in connection with our ongoing effort to continue to build an inventory of Hemopurifiers for our clinical trials, and to a $80,544 increase in our clinical trial expenses.

Other Expense

Other expense during the six months ended September 30, 2020 consisted of interest expense and during the three months ended September 30, 2019, consisted of interest expense, a loss on share for warrant exchanges and a loss on debt ~~extinguishment and during the six months ended September 30, 2018, consisted of interest expense only.~~extinguishment. Other expense for the six months ended September 30, ~~2019~~2020 was ~~$505,520, in comparison with~~$728, compared to other expense of ~~$110,210~~$505,520 for the six months ended September 30, ~~2018.~~2019.

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

	Six Months Ended		Six Months Ended					Six Months Ended		Six Months Ended
	9/30/19		9/30/18		Change			9/30/20		9/30/19		Change
Loss on Debt Extinguishment	$	447,011	$	–	$	447,011		$	–	$	447,011	$	(447,011	)
Loss on Share for Warrant Exchanges		4,403		–		4,403		$	–	$	4,403	$	(4,403	)
Interest Expense		54,106		110,210		(56,104	)	$	728	$	54,106	$	(53,378	)
Total Other Expense	$	505,520	$	110,210	$	395,310		$	728	$	505,520	$	(504,792	)

Loss on Debt Extinguishment

We did not record a loss on debt extinguishment in the six months ended September 30, 2020. During the six months ended September 30, 2019, we reduced the conversion price on our then outstanding convertible notes from $45.00 per share to $10.20 per share. The modification of the convertible notes was evaluated under ASC 470-50-40 and the instruments were determined to be substantially different, and the transaction qualified for extinguishment accounting. Under the extinguishment accounting we recorded a loss on debt extinguishment of $447,011.

~~Loss on Common Stock for Warrant Cancellation~~

Loss on Share for Warrant Exchanges

We did not record a loss on share for warrant exchanges in the six months ended September 30, 2020. During the ~~three~~six months ended September 30, 2019, we agreed with five accredited investors to issue 1,078 shares of our common stock to these investors in exchange for the cancellation of outstanding warrants then held by the investors to purchase 10,759 shares of our common stock. We measured the fair value of the shares issued and the fair value of the warrants exchanged for those shares and recorded a loss of $4,403 on those exchanges based on the changes in fair value between the instruments exchanged.

Interest Expense

~~Interest~~Total interest expense was $728 for the six months ended September 30, 2020, and $54,106 for the six months ended September 30, 2019, ~~and $110,210 for the six months ended September 30, 2018,~~ a decrease of ~~$56,104 in 2019.~~$53,378. The various components of our interest expense are shown in the following table:

	Six Months Ended		Six Months Ended					Six Months Ended		Six Months Ended
	9/30/19		9/30/18		Change			9/30/20		9/30/19		Change
Interest Expense	$	23,819	$	49,636	$	(25,817	)	$	728	$	23,819	$	(23,091	)
Amortization of Note Discounts		30,287		60,574		(30,287	)	$	–	$	30,287	$	(30,287	)
Total Interest Expense	$	54,106	$	110,210	$	(56,104	)	$	728	$	54,106	$	(53,378	)

The ~~$56,104~~$53,378 decrease in our total interest expense in the six months ended September 2020 was due to the ~~payoff~~payment in full of our convertible notes in July 2019.

Net Loss

As a result of the changes in revenues and expenses noted above, our net loss ~~increased from~~decreased to approximately ~~$2,554,000~~$3,183,000 in the six month period ended September 30, ~~2018 to~~2020, from approximately $3,774,000 in the six month period ended September 30, 2019.

Basic and diluted loss attributable to common stockholders were ($0.29) for the six month period ended September 30, 2020, compared to ($2.91) for the six month period ended September 30, ~~2019, compared to ($2.14) for the six month period ended September 30, 2018.~~2019.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, ~~2019,~~2020, we had a cash balance of ~~$785,658~~$14,473,232 and ~~negative~~current working capital of ~~$268,824.~~$13,262,499. This compares to a cash balance of ~~$3,828,074~~$9,604,780 and working capital of ~~$2,214,230~~$8,973,393 at March 31, ~~2019. Significant additional financing must~~2020. We expect our existing cash as of September 30, 2020 to be ~~obtained in order~~sufficient to ~~provide a sufficient source~~fund the Company’s operations for at least twelve months from the issuance date of operating capital and to allow us to continue to operate as a going concern. In addition, we will need to raise capital to complete anticipated future human clinical trials in the U.S. We anticipate the primary sources of this additional financing will be from proceeds of our at-the-market offering program, debt financing and other forms of equity placements.these financial statements.

~~Our~~The primary source of ~~capital~~our increase in cash during the six months ended September 30, ~~2019 was the~~2020 resulted from our Common Stock Sales Agreement with H.C. Wainwright & Co., LLC, or ~~H.C.~~ Wainwright. The cash raised from that activity is ~~noted~~described below:

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Common Stock Sales Agreement with ~~H.C.~~ Wainwright

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

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

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

In the six months ended September 30, ~~2019,~~2020, we raised aggregate net proceeds of ~~$423,234 (net~~$7,260,869, net of ~~$13,213~~$224,825 in commissions to ~~H.C.~~ Wainwright and ~~$3,997~~$8,472 in other offering ~~expenses)~~expenses, under ~~this~~the Agreement through the sale of ~~62,427~~2,685,600 shares at an average price of ~~$6.78~~$2.70 per share of net proceeds.

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

Cash Flows

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

	(In thousands) For the six months ended						(In thousands) For the six months ended
	September 30, 2019			September 30, 2018			September 30, 2020			September 30, 2019
Cash used in:
Cash provided by (used in):
Operating activities	$	(2,321	)	$	(1,809	)	$	(2,329	)	$	(2,321	)
Investing activities		(120	)		–		$	(23	)	$	(120	)
Financing activities		(601	)		(86	)	$	7,220		$	(601	)
Net decrease in cash	$	(3,042	)	$	(1,895	)
Net increase (decrease) in cash							$	4,868		$	(3,042	)

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NET CASH USED IN OPERATING ACTIVITIES. We used cash in our operating activities due to our losses from operations. Net cash used in operating activities was approximately $2,329,000 in the six month period ended September 30, 2020, compared to approximately $2,321,000 in the six month period ended September 30, 2019 compared to approximately $1,895,000 in the six month period ended September 30, 2018. The primary driver in this increase of approximately $512,000 in 2019 in cash used in operating activities was the $1,220,000 increase in our net loss which was partially offset by the non-cash debt extinguishment expense of approximately $447,000, an increase in our non-cash stock-based compensation of approximately $53,000, and the receipt of $100,000 under our Breast Cancer Grant that we recorded as deferred revenue.2019.

NET CASH USED IN INVESTING ACTIVITIES. We used approximately ~~$120,000~~$23,000 of cash to purchase laboratory and office equipment in the six months ended September 30, ~~2019. We had no investing activities~~2020, compared to approximately $120,000 in the ~~three~~six month period ended September 30, 2019.

NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES. During the six months ended September 30, ~~2018.~~

~~NET CASH USED IN FINANCING ACTIVITIES.~~2020, we raised approximately $7,261,000 from the issuance of common stock. That source of cash from our financing activities was partially offset by the use of approximately $40,000 to pay for the tax withholding on restricted stock units, for an aggregate increase of cash provided by financing activities of approximately $7,220,000. During the six months ended September 30, 2019, we raised approximately $423,000 from the issuance of common ~~stock. That source of cash from our financing activities~~stock, which was ~~more than~~ offset by the use of approximately $993,000 to ~~partially pay down~~payoff our then outstanding convertible notes and ~~the use of~~ approximately $32,000 to pay for the tax withholding on restricted stock units for an aggregate use of cash in financing activities of approximately $602,000. During the six months ended September 30, 2018, we used approximately $86,000 to pay for the tax withholding on restricted stock units.

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

CRITICAL ACCOUNTING POLICIES

Use of 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. These critical accounting estimates relate to revenue recognition, stock purchase warrants issued with notes payable, beneficial conversion feature of convertible notes payable, impairment of intangible assets and long lived assets, stock compensation, deferred tax asset valuation allowance, and contingencies.

There have been no changes to our critical accounting policies as disclosed in our Form 10-K for the year ended March 31, ~~2019 , except for the leases policy disclosed in Note 4 to the accompanying unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.~~2020.

OFF-BALANCE SHEET ARRANGEMENTS

WeAs of September 30, 2020, we did not have ~~no obligations required to be disclosed herein as~~any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

ITEM 4. CONTROLS AND PROCEDURES.

DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report.

Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in our internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

ITEM 1A. RISK FACTORS.

As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this item. For a discussion of our potential risks and uncertainties, please see the information listed in the item captioned “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019. Except as provided below, there have been no material changes to the risk factors as disclosed in the Form 10-K. You should carefully consider the risk factors discussed below and in our Annual Report on Form 10-K for the year ended March 31, 2019, which could materially affect our business, financial position and results of operations.2020.

*Our failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a de-listing of our common stock.

If we fail to satisfy the continued listing requirements of The Nasdaq Capital Market, or Nasdaq, such as the minimum stockholders’ equity requirement or the minimum closing bid price requirement, Nasdaq may take steps to de-list our common stock. In May 2019, we received a letter from Nasdaq indicating that Nasdaq has determined that we failed to comply with the minimum bid price requirement of Nasdaq Listing Rule 5550(a)(2). Nasdaq Listing Rule 5550(a)(2) requires that companies listed on the Nasdaq Capital Market maintain a minimum closing bid price of at least $1.00 per share. Although we currently are in compliance with the minimum bid price requirement, it is possible that we may not be in the future. In July 2019, we received another letter from Nasdaq indicating that Nasdaq has determined that we failed to comply with the minimum stockholder’s equity requirement of Nasdaq Listing Rule 5550(b)(1). Nasdaq Listing Rule 5550(b)(1) requires that companies listed on the Nasdaq Capital Market maintain a minimum of $2,500,000 in stockholder’s equity. If we fail to regain and maintain compliance with these, or any other of the continued listing requirements of The Nasdaq Capital Market, Nasdaq may take steps to de-list our common stock. A de-listing of our common stock would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a de-listing, we would take actions to restore our compliance with Nasdaq’s listing requirements, but any such action taken by us may not be successful.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

In July, August and September 2019, an aggregate of 844 shares of our common stock were issued to five accredited investors in exchange for the cancellation of outstanding warrants previously held by these investors to purchase an aggregate of 8,442 shares of our common stock.

The offers, sales and issuances of the securities described in paragraphs (1) and (2) were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) in that the issuance of securities to the accredited investorsWe did not ~~involve a public offering. The recipients of~~issue or sell any unregistered securities ~~in each of these transactions acquired~~during the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. No underwriters were involved in these transactions.three months ended September 30, 2020.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

We have no disclosure applicable to this item.

ITEM 4. MINE SAFETY DISCLOSURES.

We have no disclosure applicable to this item.

ITEM 5. OTHER INFORMATION.

We have no disclosure applicable to this item.

3431

ITEM 6. EXHIBITS.

(a) Exhibits. The following documents are filed as part of this report:

Incorporated by Reference
Exhibit
Number Exhibit Description Form SEC File No. Exhibit
Number Date Filed
Herewith

3.1 Articles of Incorporation. S-3 333-211151 3.1 May 5, 2016

3.2 Amended and Restated Bylaws of the Company. 8-K 001-37487 3.1 September 12, 2019

4.1 Form of Common Stock Certificate. S-1 333-201334 4.1 December 31, 2014

4.2 Form of Common Stock Purchase Warrant dated August 29, 2012. 8-K 000-21846 4.1 September 6, 2012

4.3 Form of Common Stock Purchase Warrant dated October, November and December 2012. 10-Q 000-21846 4.1 February 13, 2013

4.4 Form of Common Stock Purchase Warrant dated June 14, 2013. 10-Q 000-21846 4.1 August 13, 2013

4.5 Form of Common Stock Purchase Warrant dated June 24, 2014. 8-K 000-21846 4.1 June 30, 2014

4.6 Form of Common Stock Purchase Warrant dated July 24, 2014. 8-K 000-21846 4.1 July 28, 2014

4.7 Form of Common Stock Purchase Warrant dated August and September 2014. 10-Q 000-21846 4.3 November 10, 2014

4.8 Form of Warrant to Purchase Common Stock dated June 25, 2015. 8-K 000-21846 4.1 June 24, 2015

				Incorporated by Reference
Exhibit Number		Exhibit Description	Form	SEC File No.	Exhibit Number	Date	Filed Herewith

	3.1	Articles of Incorporation.	S-3	333-211151	3.1	May 5, 2016

	3.2	Amended and Restated Bylaws of the Company.	8-K	001-37487	3.1	September 12, 2019

	4.1	Form of Common Stock Certificate.	S-1	333-201334	4.1	December 31, 2014

	4.2	Form of Common Stock Purchase Warrant dated August 29, 2012.	8-K	000-21846	4.1	September 6, 2012

	4.3	Form of Common Stock Purchase Warrant dated October, November and December 2012.	10-Q	000-21846	4.1	February 12, 2013

	4.4	Form of Common Stock Purchase Warrant dated June 14, 2013.	10-Q	000-21846	4.1	August 13, 2013

	4.5	Form of Common Stock Purchase Warrant dated June 24, 2014.	8-K	000-21846	4.1	June 30, 2014

	4.6	Form of Common Stock Purchase Warrant dated July 24, 2014.	8-K	000-21846	4.1	July 28, 2014

	4.7	Form of Common Stock Purchase Warrant dated August and September 2014.	10-Q	000-21846	4.3	November 10, 2014

	4.8	Form of Warrant to Purchase Common Stock dated June 25, 2015.	8-K	000-21846	4.1	June 24, 2015

	4.9	Form of Purchase Agent Warrant dated June 25, 2015.	8-K	000-21846	4.1	June 26, 2015

	4.10	Form of Warrant Agreement dated March 27, 2017.	8-K	001-37487	4.1	March 22, 2017

	4.11	Form of Warrant dated _______, 2017.	S-1/A	333-219589	4.29	September 18, 2017

	4.12	Form of Placement Agent Warrant dated _______, 2017.	S-1/A	333-219589	4.30	September 22, 2017

	4.13	Form of Warrant to Purchase Common Stock.	S-1/A	333-234712	4.14	December 11, 2019

	4.14	Form of Underwriter Warrant.	S-1/A	333-234712	4.15	December 11, 2019

	4.15	Form of Common Stock Purchase Warrant.	8-K	001-37487	4.1	January 17, 2020

3532

4.9 Form of Purchase Agent Warrant dated June 25, 2015. 8-K 000-21846 4.1 June 26, 2015

4.10 Form of Warrant Agreement dated March 27, 2017. 8-K 001-37487 4.1 March 22, 2017

4.11 Form of Warrant dated _______, 2017. S-1/A 333-219589 4.29 September 18, 2017

4.12 Form of Placement Agent Warrant dated _______, 2017. S-1/A 333-219589 4.30 September 22, 2017

10.1 Seventh Amendment to Standard Industrial Net Lease, dated September 9, 2019, between Aethlon Medical Inc. and San Diego Inspire 1, LLC. X

10.2 SBIR Phase II Award Contract, effective as of September 12, 2019, by and among Aethlon Medical, Inc., the National Institutes of Health and the National Cancer Institute. X

31.1 Certification of Principal Executive Officer pursuant to Securities Exchange Act rules 13a- 14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. X

31.2 Certification of Principal Financial Officer pursuant to Securities Exchange Act rules 13a- 14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. X

32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. X

32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. X

101 Interactive Data Files
101.INS XBRL Instance Document
101.SCH XBRL Schema Document
101.CAL XBRL Calculation Linkbase Document
101.DEF XBRL Definition Linkbase Document
101.LAB XBRL Label Linkbase Document
101.PRE XBRL Presentation Linkbase Document

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

SEC File No.

Exhibit
Number

Date

Filed
Herewith

10.1

Aethlon Medical, Inc. 2020 Equity Incentive Plan, Form of Restricted Stock Grant, Form of Option Grant and Agreement.

8-K

001-37487

10.1

September 15, 2020

31.1

Certification of our Chief Executive Officer, pursuant to Securities Exchange Act rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

31.2

Certification of our Chief Financial Officer, pursuant to Securities Exchange Act rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

32.1

Statement of our Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

32.2

Statement of our Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

101.INS

XBRL Instance Document

101.SCH

XBRL Schema Document

101.CAL

XBRL Calculation Linkbase Document

101.DEF

XBRL Definition Linkbase Document

101.LAB

XBRL Label Linkbase Document

101.PRE

XBRL Presentation Linkbase Document

___________________

Indicates management contract or compensatory plan.

3633

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AETHLON MEDICAL, INC.

Date: ~~November 1, 2019~~October 28, 2020	By:	/s/ JAMES B. FRAKES
		JAMES B. FRAKES
		CHIEF FINANCIAL OFFICER
		CHIEF ACCOUNTING OFFICER

3734

	September 30, 2019			March 31, 2019
		(Unaudited)
ASSETS
Current assets
Cash	$	785,658		$	3,828,074
Prepaid expenses and other current assets		114,036			210,042
Total current assets		899,694			4,038,116

Property and equipment, net		124,833			6,021
Right-of-use lease asset		183,018			–
Patents, net		62,086			66,668
Deposits		12,159			12,159
Total assets	$	1,281,790		$	4,122,964

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable	$	586,960		$	131,931
Due to related parties		101,462			83,654
Convertible notes payable, net		–			962,301
Deferred revenue		100,000			–
Lease liability, current portion		94,885			–
Other current liabilities		285,211			646,000
Total current liabilities		1,168,518			1,823,886

Lease liability, less current portion		92,600			–
Total liabilities		1,261,118			1,823,886

Commitments and Contingencies (Note 13)

Stockholders’ Equity
Common stock, par value $0.001 per share; 30,000,000 shares authorized; 1,337,259 and 1,266,979 shares issued and outstanding as of September 30, 2019 and March 31, 2019, respectively		1,338			1,267
Additional paid-in capital		109,571,708			108,076,275
Accumulated deficit		(109,423,894	)		(105,652,433	)
Total Aethlon Medical, Inc. stockholders’ equity before noncontrolling interests		149,152			2,425,109

Noncontrolling interests		(128,480	)		(126,031	)

Total stockholders’ equity		20,672			2,299,078

Total liabilities and stockholders’ equity	$	1,281,790		$	4,122,964

	Six Months Ended September 30, 2019			Six Months Ended September 30, 2018

Cash flows used in operating activities:
Net loss	$	(3,773,911	)	$	(2,554,436	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		5,751			16,040
Stock based compensation		653,072			599,658
Loss on debt extinguishment		447,011			–
Loss on share for warrant exchanges		4,403			–
Amortization of debt discount		30,287			60,574
Common stock issued for services		–			19,350
Noncash lease expense		45,676			–
Changes in operating assets and liabilities:
Accounts receivable		–			74,813
Prepaid expenses and other current assets		96,006			93,163
Accounts payable and other current liabilities		97,947			(127,358	)
Change in lease liability		(44,916	)		–
Deferred revenue		100,000			–
Due to related parties		17,808			8,500
Net cash used in operating activities		(2,320,866	)		(1,809,696	)

Cash flows used in investing activities:
Purchases of property and equipment		(119,981	)		–
Net cash used in investing activities		(119,981	)		–

Cash flows (used in) provided by financing activities:
Proceeds from the issuance of common stock, net		423,234			–
Principal payments on convertible notes		(992,591	)		–
Tax withholding payments or tax equivalent payments for net share settlement of restricted stock units		(32,212	)		(85,769	)
Net cash used in financing activities		(601,569	)		(85,769	)

Net decrease in cash		(3,042,416	)		(1,895,465	)

Cash at beginning of period		3,828,074			6,974,070

Cash at end of period	$	785,658		$	5,078,605

Supplemental disclosures of cash flow information:

Cash paid during the period for:

Interest	$	83,332		$	95,388

Supplemental disclosures of non-cash investing and financing activities:
Initial recognition of right-of-use lease asset and lease liability	$	228,694		$	–
Par value of shares issued for vested restricted stock units	$	7		$	4

	Principal		Unamortized Discount			Net Amount		Accrued Interest
Convertible Notes Payable, Net:
November 2014 10% Convertible Notes (due July 1, 2019)	$	612,811	$	(18,701	)	$	594,110	$	37,309
December 2016 10% Convertible Notes (due July 1, 2019)		379,780		(11,589	)		368,191		22,264
Total Convertible Notes Payable, Net	$	992,591	$	(30,290	)	$	962,301	$	59,573

	Six Months Ended 9/30/19		Six Months Ended 9/30/18		Change in Dollars
Melanoma Cancer Contract	$	–	$	149,625	$	(149,625	)
Breast Cancer Grant		30,000		–		30,000
Total Government Contract and Grant Revenue	$	30,000	$	149,625	$	(119,625	)