UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, ~~2019~~2020

☐ 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 ~~February7, 2020,~~February 4, 2021, the registrant had ~~outstanding9,256,249~~outstanding 12,123,524 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 DECEMBER 31, ~~2019~~2020 (UNAUDITED) AND MARCH 31, ~~2019~~2020	3

	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE ~~MONTH PERIODS~~MONTHS ENDED DECEMBER 31, 2020 AND 2019 ~~AND 2018~~ (UNAUDITED)	4

	CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2020 AND 2019 ~~AND 2018~~ (UNAUDITED)	5

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED DECEMBER 31, 2020 AND 2019 ~~AND 2018~~ (UNAUDITED)	7

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	8

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3031

ITEM 4.	CONTROLS AND PROCEDURES	31

PART II.	OTHER INFORMATION	32

ITEM 1.	LEGAL PROCEEDINGS	32

ITEM 1A.	RISK FACTORS	32

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	34

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	34

ITEM 4.	MINE SAFETY DISCLOSURES	34

ITEM 5.	OTHER INFORMATION	34

ITEM 6.	EXHIBITS	35

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AETHLON MEDICAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31,
2019 March 31,
2019
(Unaudited)
ASSETS
Current assets
Cash $ 4,058,653 $ 3,828,074
Accounts receivable 206,729 –
Prepaid expenses and other current assets 40,351 210,042
Total current assets 4,305,733 4,038,116

Property and equipment, net 144,966 6,021
Right-of-use lease asset 159,838 –
Patents, net 59,795 66,668
Deposits 12,159 12,159
Total assets $ 4,682,491 $ 4,122,964

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable $ 327,408 $ 131,931
Due to related parties 111,212 83,654
Convertible notes payable, net – 962,301
Deferred revenue 100,000 –
Lease liability, current portion 96,712 –
Other current liabilities 175,282 646,000
Total current liabilities 810,614 1,823,886

Lease liability, less current portion 67,695 –
Total liabilities 878,309 1,823,886

Commitments and Contingencies (Note 13)

Stockholders’ Equity
Common stock, par value $0.001 per share; 30,000,000 shares authorized; 4,779,614 and 1,266,979 shares issued and outstanding as of December 31, 2019 and March 31, 2019, respectively 4,781 1,267
Additional paid-in capital 114,172,714 108,076,275
Accumulated deficit (110,243,475 ) (105,652,433 )
Total Aethlon Medical, Inc. stockholders’ equity before noncontrolling interests 3,934,020 2,425,109

Noncontrolling interests (129,838 ) (126,031 )

Total stockholders’ equity 3,804,182 2,299,078

Total liabilities and stockholders’ equity $ 4,682,491 $ 4,122,964

	December 31, 2020			March 31, 2020
		(Unaudited)
ASSETS
Current assets
Cash	$	12,131,593		$	9,604,780
Accounts receivable		114,849			206,729
Prepaid expenses and other current assets		75,829			229,604
Total current assets		12,322,271			10,041,113

Property and equipment, net		166,751			140,484
Right-of-use lease asset		64,750			136,426
Patents, net		57,092			57,504
Restricted cash		46,726			–
Deposits		12,159			12,159
Total assets	$	12,669,749		$	10,387,686

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable	$	175,422		$	285,036
Due to related parties		131,746			111,707
Deferred revenue		–			100,000
Lease liability, current portion		67,698			98,557
Other current liabilities		860,697			472,420
Total current liabilities		1,235,563			1,067,720

Lease liability, less current portion		–			42,540
Total liabilities		1,235,563			1,110,260

Commitments and Contingencies (Note 13)

Stockholders’ Equity
Common stock, par value $0.001 per share; 30,000,000 shares authorized; 12,123,524 and 9,366,873 shares issued and outstanding as of December 31, 2020 and March 31, 2020, respectively		12,125			9,368
Additional paid-in capital		129,207,491			121,426,563
Accumulated deficit		(117,650,120	)		(112,026,381	)
Total Aethlon Medical, Inc. stockholders’ equity before noncontrolling interests		11,569,496			9,409,550

Noncontrolling interests		(135,310	)		(132,124	)

Total stockholders’ equity		11,434,186			9,277,426

Total liabilities and stockholders’ equity	$	12,669,749		$	10,387,686

See accompanying notes.

AETHLON MEDICAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Nine Month Periods Ended December 31, ~~2019~~2020 and ~~2018~~2019

(Unaudited)

	Three Months Ended December 31, 2019			Three Months Ended December 31, 2018			Nine Months Ended December 31, 2019			Nine Months Ended December 31, 2018			Three Months Ended December 31, 2020			Three Months Ended December 31, 2019			Nine Months Ended December 31, 2020			Nine Months Ended December 31, 2019

REVENUES

Government contract revenue	$	413,458		$	–		$	443,458		$	149,625		$	624,871		$	413,458		$	624,871		$	443,458

OPERATING EXPENSES

Professional fees		609,933			587,192			1,979,848			1,449,218			624,979			609,933			1,845,659			1,979,848
Payroll and related expenses		406,421			1,161,531			1,609,942			2,426,828			1,523,650			406,421			2,520,805			1,609,942
General and administrative		273,510			215,150			998,465			681,678			919,830			273,510			1,883,802			998,465
Total operating expenses		1,289,864			1,963,873			4,588,255			4,557,724			3,068,459			1,289,864			6,250,266			4,588,255
OPERATING LOSS		(876,406	)		(1,963,873	)		(4,144,797	)		(4,408,099	)		(2,443,588	)		(876,406	)		(5,625,395	)		(4,144,797	)

OTHER (INCOME) EXPENSE
OTHER EXPENSE
Interest and other debt expenses		126			55,107			54,232			165,317			802			126			1,530			54,232
(Gain) on share for warrant exchanges		(55,593	)		–			(51,190	)		–			–			(55,593	)		–			(51,190	)
Loss on debt extinguishment		–			–			447,011			–			–			–			–			447,011
Total other (income) expense		(55,467	)		55,107			450,053			165,317
Total other expense														802			(55,467	)		1,530			450,053

NET LOSS		(820,939	)		(2,018,980	)		(4,594,850	)		(4,573,416	)		(2,444,390	)		(820,939	)		(5,626,925	)		(4,594,850	)

LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS		(1,358	)		(5,940	)		(3,808	)		(20,803	)		(1,498	)		(1,358	)		(3,186	)		(3,808	)

NET LOSS ATTRIBUTABLE TO AETHLON MEDICAL, INC.	$	(819,581	)	$	(2,013,040	)	$	(4,591,042	)	$	(4,552,613	)	$	(2,442,892	)	$	(819,581	)	$	(5,623,739	)	$	(4,591,042	)

BASIC AND DILUTED LOSS PER COMMON SHARE	$	(0.28	)	$	(1.67	)	$	(2.52	)	$	(3.82	)	$	(0.20	)	$	(0.28	)	$	(0.50	)	$	(2.52	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC AND DILUTED		2,887,883			1,203,344			1,821,557			1,191,012			12,093,361			2,887,883			11,265,725			1,821,557

See accompanying notes.

AETHLON MEDICAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three and Nine Months Ended December 31, ~~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
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		3,236		4		(8,448	)		–			–			(8,444	)		17,920	$	17	$	(16,145	)	$	–		$	–		$	(16,128	)

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

Stock-based compensation expense		–		–		326,536			–			–			326,536			–		–		167,042						–			167,042

Net loss		–		–		–			(1,705,037	)		(1,589	)		(1,706,626	)		–		–		–			(1,770,564	)		(825	)		(1,771,389	)

BALANCE - SEPTEMBER 30, 2019		1,337,259	$	1,339	$	109,571,708		$	(109,423,894	)	$	(128,480	)	$	20,673
BALANCE - SEPTEMBER 30, 2020																		12,088,313	$	12,089	$	128,895,581		$	(115,207,228	)	$	(133,812	)	$	13,566,630


Proceeds from the issuance of common stock, net		3,432,056		3,432		4,560,802			–			–			4,564,234

Issuance of common shares upon vesting of restricted stock units		3,439		3		(6,772	)		–			–			(6,769	)

Issuances of common stock upon warrant exchanges		2,914		3		(55,596	)		–			–			(55,593	)

Par value of DTC roundup of shares following reverse split		3,946		4		(4	)		–			–			–
Issuance of common shares upon vesting of restricted stock units and net stock option exercise																		35,211	$	36	$	(66,048	)	$	–		$	–			(66,012	)

Stock-based compensation expense		–		–		102,576			–			–			102,576			–		–		377,958						–			377,958

Net loss		–		–		–			(819,581	)		(1,358	)		(820,939	)		–		–		–			(2,442,892	)		(1,498	)		(2,444,390	)

BALANCE - DECEMBER 31, 2019		4,779,614	$	4,781	$	114,172,714		$	(110,243,475	)	$	(129,838	)	$	3,804,182
BALANCE - DECEMBER 31, 2020																		12,123,524	$	12,125	$	129,207,491		$	(117,650,120	)	$	(135,310	)	$	11,434,186

Continued on following page

~~AETHLON MEDICAL, INC. AND SUBSIDIARY~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~For the Three and Nine Months Ended December 31, 2019 and 2018, Continued~~
~~(Unaudited)~~

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

BALANCE - MARCH 31, 2018 1,182,634 $ 1,183 $ 105,590,571 $ (99,457,714 ) $ (101,246 ) $ 6,032,794

Issuance of common shares upon vesting of restricted stock units 1,446 1 (32,738 ) – – (32,737 )

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

Net loss – – – (1,146,228 ) (6,148 ) (1,152,376 )

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

Proceeds from the issuance of common stock, net 45,622 45 883,452 – – 883,497

Issuance of common shares upon vesting of restricted stock units 3,889 4 (50,943 ) – – (50,939 )

Stock-based compensation expense – – 344,854 – – 344,854

Net loss – – – (2,013,040 ) (5,940 ) (2,018,980 )

BALANCE - DECEMBER 31, 2018 1,238,488 $ 1,238 $ 107,301,167 $ (104,010,327 ) $ (122,049 ) $ 3,170,029

	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		4		(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	$	1,339	$	109,571,708		$	(109,423,894	)	$	(128,480	)	$	20,672

Proceeds from the issuance of common stock, net		3,432,056	$	3,432	$	4,560,802		$	–		$	–		$	4,564,234

Issuance of common shares upon vesting of restricted stock units		3,439		3		(6,772	)		–			–			(6,769	)

Issuances of common stock upon warrant exchanges		2,914		3		(55,596	)		–			–			(55,593	)

Par value of DTC roundup of shares following reverse split		3,946		4		(4	)		–			–			–

Stock-based compensation expense		–		–		102,576			–			–			102,576

Net loss		–		–		–			(819,581	)		(1,358	)		(820,939	)

BALANCE – DECEMBER 31, 2019		4,779,614	$	4,781	$	114,172,714		$	(110,243,475	)	$	(129,838	)	$	3,804,182

See accompanying notes.

AETHLON MEDICAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended December 31, ~~2019~~2020 and ~~2018~~2019

(Unaudited)

Nine Months
Ended
December 31, 2019 Nine Months
Ended
December 31, 2018

Cash flows used in operating activities:
Net loss $ (4,594,850 ) $ (4,573,416 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 15,992 24,756
Stock based compensation 755,648 944,512
Loss on debt extinguishment 447,011 –
Gain on share for warrant exchanges (51,190 ) –
Amortization of debt discount 30,287 90,861
Common stock issued for services – 19,350
Non-cash rent expense 68,856 –
Changes in operating assets and liabilities:
Accounts receivable (206,729 ) 74,813
Prepaid expenses and other current assets 169,691 152,411
Accounts payable and other current liabilities (271,533 ) 391,369
Deferred revenue 100,000 –
Lease liability (67,994 ) –
Due to related parties 27,558 (20,616 )
Net cash used in operating activities (3,577,253 ) (2,895,960 )

Cash flows used in investing activities:
Purchases of property and equipment (148,064 ) –
Net cash used in investing activities (148,064 ) –

Cash flows provided by (used in) financing activities:
Proceeds from the issuance of common stock, net 4,987,468 883,500
Principal payments on convertible notes (992,591 ) –
Tax withholding payments or tax equivalent payments for net share settlement of restricted stock units (38,981 ) (136,709 )
Net provided by financing activities 3,955,896 746,791

Net increase (decrease) in cash 230,579 (2,149,169 )

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

Cash at end of period $ 4,058,653 $ 4,824,901

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 $ 10 $ 138
Par value of shares issued for round up following reverse split $ 4 $ –

	Nine Months Ended December 31, 2020			Nine Months Ended December 31, 2019

Cash flows used in operating activities:
Net loss	$	(5,626,925	)	$	(4,594,850	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		28,775			15,992
Stock based compensation		629,207			755,648
Loss on debt extinguishment		–			447,011
Gain on share for warrant exchanges		–			(51,190	)
Accretion of right-of-use lease asset		(1,723	)		862
Amortization of debt discount		–			30,287
Changes in operating assets and liabilities:
Accounts receivable		91,880			(206,729	)
Prepaid expenses and other current assets		153,775			169,691
Accounts payable and other current liabilities		278,663			(271,533	)
Deferred revenue		(100,000	)		100,000
Due to related parties		20,039			27,558
Net cash used in operating activities		(4,526,309	)		(3,577,253	)

Cash flows used in investing activities:
Purchases of property and equipment		(54,630	)		(148,064	)
Net cash used in investing activities		(54,630	)		(148,064	)

Cash flows provided by (used in) financing activities:
Proceeds from the issuance of common stock, net		7,260,869			4,987,468
Principal payments on convertible notes		–			(992,591	)
Tax withholding payments or tax equivalent payments for net share settlement of restricted stock units and net stock option exercise		(106,391	)		(38,981	)
Net cash provided by financing activities		7,154,478			3,955,896

Net increase in cash and restricted cash		2,573,539			230,579

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

Cash and restricted cash at end of period	$	12,178,319		$	4,058,653

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 round up following reverse stock split	$	–		$	4
Par value of shares issued for vested restricted stock units and net stock option exercise	$	71		$	10

Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:
Cash and cash equivalents	$	12,131,593		$	4,058,653
Restricted cash		46,726			–
Cash and restricted cash	$	12,178,319		$	4,058,653

See accompanying notes.

AETHLON MEDICAL, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

December 31, ~~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 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. 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 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 have a cross-licensing and development agreement with SeaStar Medical, Inc., 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).~~shares. 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 nine months ended December 31, ~~2019,~~2020, there 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.~~2020.

~~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).

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 nine months ended December 31, ~~2019,~~2020, and the condensed consolidated statement of cash flows for the nine months ended December 31, ~~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 nine months ended December 31, ~~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.

Restricted Cash

To comply with the terms of our new laboratory and office lease (see Note 13), we caused our bank to issue a standby letter of credit, or the L/C, in the amount of $46,726 in favor of the landlord. The L/C is in lieu of a security deposit. In order to support the L/C, we agreed to have our bank withdraw $46,726 from our operating accounts and to place that amount in a restricted certificate of deposit. We have classified that amount as restricted cash, a long-term asset, on our balance sheet.

LIQUIDITY AND GOING CONCERN

Management expects existing cash as of December 31, ~~2019, together with cash raised in January~~ 2020 to be sufficient to fund the Company’s operations for at least twelve months from the issuance date of these condensed consolidated financial statements.

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 nine months ended December 31, 2019 and 2018 included common shares underlying 215 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 December 31, ~~2019~~2020, and ~~2018,~~2019, an aggregate of ~~3,779,301~~2,626,485 and ~~459,068~~3,779,301 potential common shares, respectively, consisting of shares underlying outstanding stock options, warrants and unvested restricted stock units, 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 nine month periods ended December 31, ~~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:

	December 31,		December 31,		December 31,		December 31,
	2019		2018		2020		2019
Three months ended	$	218,571	$	243,843	$	461,176	$	218,571
Nine months ended	$	692,022	$	655,760	$	1,367,333	$	692,022

4.Recent Accounting Pronouncements

~~The Company adopted ASU Topic 842 on April 1, 2019 utilizing~~We do not expect 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~~any recent accounting pronouncement to have a material impact on ~~either the statement of operations or statement of cash flows for the nine months ended December 31, 2019.~~our financial statements.

~~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.

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 December 31, 2019.~~aggregate amount of $992,591, were paid in full.

For the nine months ended December 31, 2019, we recorded interest expense of $23,759 related to the contractual interest rates of our ~~Convertible Notes~~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.

~~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 nine months ended December 31, ~~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 $74,445 related to the contractual interest rates of our Convertible Notes and interest expense of $90,861 related to the amortization of the note discount for a total interest expense of $165,306 related to our Convertible Notes in the nine months ended December 31, 2018.$447,011.

6. EQUITY TRANSACTIONS IN THE NINE MONTHS ENDED DECEMBER 31, ~~2019~~

~~December 2019 Public Offering~~

On December 13, 2019, we entered into an underwriting agreement with H.C. Wainwright and Co., as representative of the several underwriters named therein, relating to the public offering, issuance and sale of 3,333,334 shares of common stock (which includes pre-funded warrants to purchase shares of common stock in lieu thereof), and common warrants to purchase up to an aggregate of 3,333,334 shares of common stock at a public offering price of $1.50 per share (the “December 2019 Public Offering”). Each share of common stock (or pre-funded warrant in lieu thereof) was sold together with a common warrant to purchase one share of common stock. The common warrants have an exercise price of $1.50 per share, were immediately exercisable, and will expire five years from the date of issuance. The offering closed on December 17, 2019.

The gross proceeds of the December 2019 Public Offering were approximately $5 million, prior to deducting underwriting discounts and commissions and estimated offering expenses and excluding the exercise of any common warrants and the underwriter's option to purchase additional securities. The net proceeds from the December 2019 Public Offering were $4,091,437. We intend to use approximately $700,000 of the net proceeds from this offering for the currently planned clinical trials for the Hemopurifier® over the next 12 months, with the remainder for working capital and other general corporate purposes.

~~Subsequent to the completion of the December 2019 Public Offering and prior to December 31, 2019, all of the holders of pre-funded warrants exercised their pre-funded warrants in full.~~

In the event of a Fundamental Transaction (a transfer of ownership of the Company as defined in the common warrants issued in the December 2019 Public Offering) within our control, the holders of the unexercised common stock warrants exercisable for $1.50 per share, are entitled to receive cash consideration equal to a Black-Scholes valuation, as defined in the warrant. If such Fundamental Transaction is not within our control, the warrant holders would only be entitled to receive the same form of consideration (and in the same proportion) as the holders of our common stock, hence these warrants are classified as a component of permanent equity.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 ~~or the Shares,~~ of our common stock having an aggregate offering price of up to $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. We terminated the ATM Prospectus Supplement and suspended any sales under the Sales Agreement on January 17, 2020, but the Sales Agreement remains in full force and effect.~~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 ~~nine~~three months ended ~~December 31, 2019,~~June 30, 2020, we raised aggregate net proceeds of ~~$896,031 (net~~$7,260,869, net of ~~$27,896~~$224,825 in commissions to ~~H.C.~~ Wainwright and ~~$5,929~~$8,472 in other offering ~~expenses)~~expenses, under ~~this~~the Agreement, through the sale of ~~161,149~~2,685,600 shares at an average price of ~~$5.56~~$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.

~~In October 2019, 2,859 vested~~

Also in September 2020, our stockholders approved the 2020 Plan at the Annual Meeting, at which point the grants of 929 RSUs ~~held by current and former executive officers were exchanged for the same number of shares~~to each of our ~~common stock. As these executives elected to net settle~~eligible independent directors for a ~~portion~~total of ~~their vested RSUs in exchange for the Company paying the related withholding taxes of $5,938 on the share issuance, 1,511 of the vested~~4,645 RSUs were ~~cancelled~~considered effective and ~~we issued a net 1,348 shares to the current and former executives.~~no longer contingent as of that date (See Note 9).

In December ~~2019, 3,075~~2020, 32,189 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~~12,876 of the vested RSUs being cancelled in exchange for ~~$3,463~~$31,802 in aggregate cash proceeds to those independent directors.

RSUs outstanding that have vested as of, and are expected to vest subsequent to, December 31, ~~2019~~2020 are as follows:

	Number of RSUs
Vested		~~215~~–
Expected to vest		~~3,075~~32,189
Total		~~3,290~~32,189

~~Common Stock for Warrant Cancellation~~

During the nine months ended December 31, 2019, we agreed with seven accredited investors to issue an aggregate of 3,992 shares of our common stock to these investors in exchange for the cancellation of outstanding warrants then held by the investors to purchase an aggregate of 39,900 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 gain of $51,190 on those exchanges based on the changes in fair value between the instruments exchanged.

7. RELATED PARTY TRANSACTIONS

During the three months ended December 31, ~~2019,~~2020, we accrued unpaid fees of ~~$69,750~~$69,292 owed to our non-employee directors as of December 31, ~~2019. For~~2020.

As a result of entering into a Separation Agreement on October 30, 2020 with our former Chief Executive Officer, or CEO, Timothy Rodell, M.D., or the ~~nine~~Separation Agreement, we paid out accrued vacation of $20,260 to Dr. Rodell in the three months ended December ~~31, 2019, we~~2020 (see Note 8 and Note 13). That accrued vacation was previously recorded ~~$209,250~~ in ~~fees~~the due to ~~our non-employee directors.~~related parties account.

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

	December 31, 2019		March 31, 2019		December 31, 2020		March 31, 2020
Accrued Board fees	$	69,750	$	69,750	$	69,292	$	69,750
Accrued vacation to all employees		41,462		13,904		62,454		41,957
Total due to related parties	$	111,212	$	83,654	$	131,746	$	111,707

8. OTHER CURRENT LIABILITIES

Other current liabilities were comprised of the following items:

	December 31,		March 31,		December 31,		March 31,
	2019		2019		2020		2020
Accrued interest	$	–	$	59,573
Accrued separation expenses for former executives		–		355,189
Accrued separation expenses for former executive					$	400,578	$	–
Accrued professional fees		175,282		231,238		460,119		472,420
Total other current liabilities	$	175,282	$	646,000	$	860,697	$	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 nine month periods ended December 31, ~~2019~~2020 and ~~2018:~~2019:

	Three Months Ended December 31, 2019			Three Months Ended December 31, 2018			Nine Months Ended December 31, 2019			Nine Months Ended December 31, 2018			Three Months Ended December 31, 2020			Three Months Ended December 31, 2019			Nine Months Ended December 31, 2020			Nine Months Ended December 31, 2019
Vesting of stock options and restricted stock units	$	102,576		$	344,854		$	755,648		$	944,512		$	377,958		$	102,576		$	629,207		$	755,648
Total stock-based compensation expense	$	102,576		$	344,854		$	755,648		$	944,512		$	377,958		$	102,576		$	629,207		$	755,648

Weighted average number of common shares outstanding – basic and diluted		2,887,883			1,203,344			1,821,557			1,191,012			12,093,361			2,887,883			11,265,725			1,821,557

Basic and diluted loss per common share attributable to stock-based compensation expense	$	(0.04	)	$	(0.29	)	$	(0.41	)	$	(0.79	)	$	(0.03	)	$	(0.04	)	$	(0.06	)	$	(0.41	)

All of the stock-based compensation expense recorded during the nine months ended December 31, ~~2019~~2020 and ~~2018,~~2019, which totaled ~~$755,648~~$629,207 and ~~$944,512,~~$755,648, respectively, is included in payroll and related expense in the accompanying condensed consolidated statements of operations. Stock-based compensation expense recorded during the nine months ended December 31, ~~2019~~2020 and ~~2018~~2019 represented an impact on basic and diluted loss per common share of ~~$(0.41)~~$(0.06) and ~~$(0.79)~~$(0.41), 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 nine months ended December 31, ~~2019~~2020 was insignificant.

Stock Option Activity and Approval of 2020 Plan

From February 2020 through May 2020, our compensation committee granted options to purchase 521,476 shares of our common stock 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 pursuant to 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~~issued an option to purchase shares 239,122 shares of our common stock ~~options~~pursuant to the 2020 Plan to our Chief Executive Officer during the three ~~or nine~~ months ended December 31, ~~2019.~~2020, in connection with the appointment of Dr. Fisher as our Chief Executive Officer, effective as of October 30, 2020.

In connection with the Separation Agreement and pursuant to Dr. Rodell’s employment agreement with the Company, the vesting was accelerated on 50% of outstanding and unvested options to purchase shares of our common stock held by Dr. Rodell as of the Separation Date of October 30, 2020, such that the accelerated stock options were fully vested and exercisable as of the Separation Date.

In December 2020, Dr. Rodell elected to net exercise a portion of his stock options. As a result, we issued Dr. Rodell an aggregate of 15,896 shares of our common stock and we paid the estimated withholding taxes of $34,209 related to the net exercise.

Options outstanding that ~~have~~were vested as of December 31, ~~2019~~2020 and options that are expected to vest subsequent to December 31, ~~2019~~2020 are as follows:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years		Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years
Vested		22,894	$	75.24		4.99		34,509	$	32.53		5.84
Expected to vest		28,230	$	18.89		7.99		567,814	$	1.51		9.67
Total		51,124						602,323

A summary of stock option activity during the nine months ended December 31, ~~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 December 31, 2019 51,124 $ 18.75 - 187.50 $ 44.12
Stock options exercisable at December 31, 2019 22,894 $ 25.20 - 187.50 $ 75.24

	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		(15,896	)		$1.28	$	1.28
Granted		770,094			$1.28 – $2.45	$	1.45
Cancelled/Expired		(202,999	)		$1.28 - $187.50	$	6.76
Stock options outstanding at December 31, 2020		602,323			$1.28 - $187.50	$	3.29
Stock options exercisable at December 31, 2020		34,509			$1.28 - $187.50	$	32.53

On December 31, ~~2019,~~2020, our outstanding stock options had no intrinsic value since the closing price on that date of ~~$0.96~~$2.47 per share was below the weighted average exercise price of our outstanding stock options.

At December 31, ~~2019,~~2020, there was approximately ~~$1,418,000~~$2,240,000 of unrecognized compensation cost related to share-based payments, which is expected to be recognized over a weighted average period of ~~3.5~~1.48 years.

10. WARRANTS

During the nine months ended December 31, ~~2019, we issued pre-funded warrants~~2020 and ~~common warrants as part of our December~~ 2019, Public Offering (see Footnote 6). All of the pre-funded warrants were fully exercised immediately after the offering. We issued 3,333,334 common warrants in the offering with an exercise price of $1.50 per share. Those common warrants carried a term of five years. We also issued 100,000 warrants to the placement agent in the offering. The placement agent warrants have an exercise price of $1.875 and have a term of five years.

The following outlines the significant weighted average assumptions used to estimate the fair value information presented, with respect to warrants, utilizing the Binomial Lattice option pricing models, issued during the nine months ended December 31, 2019:

~~Risk free interest rate~~			~~1.71%~~
~~Average expected life~~			~~5 years~~
~~Expected volatility~~			~~229.6% - 233%~~
~~Expected dividends~~			~~None~~

~~During the nine months ended December 31, 2018,~~ we did not issue any warrants.

A summary of warrant activity during the nine months ended December 31, ~~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
Warrants issued 3,433,334 $ 1.50 - 1.875 $ 1.51
Adjustment for reverse split 73 n/a n/a
Cancelled/Expired (51,287 ) $ 64.50 - 180.75 $ 91.88
Warrants outstanding at December 31, 2019 3,725,112 $ 1.50 – 125.25 $ 3.98
Warrants exercisable at December 31, 2019 3,725,112 $ 1.50 – 125.25 $ 3.98

	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		(29,395	)		$90.75 – $135.00	$	97.17
Warrants outstanding at December 31, 2020		1,991,973			$1.50 – $99.00	$	5.23
Warrants exercisable at December 31, 2020		1,991,973			$1.50 – $99.00	$	5.23

11. GOVERNMENT CONTRACTS AND RELATED REVENUE RECOGNITION

We have ~~entered into~~recognized revenue under 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.

During the period ended December 31, 2020, we completed all of the milestones relevant to that time period. As a result, we recorded $436,427 of government contract revenue on the Phase 2 Melanoma Cancer Contract in the nine months ended December 31, ~~2019, we~~2020. Of the total revenue recognized ~~$413,458 in government contract revenue under~~during the current period relating to this ~~contract as~~grant, a ~~result~~total of ~~the work involved completing the first two milestones in the project as reported in the kick-off presentation~~$117,849 was invoiced to the NCI during the three months ended December 31, 2020 and first quarterly report. The kick-off presentation covered the Company's organization and project status, recent achievements, the status of the field, the status of commercial and academic competitors, where the proposed project was positioned against the state of the art, the IP landscape, a refresher on the proposed technology, the detailed plan for the first budget period of the contract and technical risks and alternative approaches. The first quarterly report covered a summary of technical objectives, a description of activities accomplished in the quarter, an analysis of experimental data, comments regarding the timeliness of performance, and a brief explanation of activities to be pursued in the following quarter.we recorded $318,578 which had previously been recognized as deferred revenue.

~~Phase 1 Melanoma~~Breast 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 was 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.Grant

In the nine months ended December 31, ~~2018,~~2020, we ~~performed work under~~completed and submitted 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 immunocapturefinal reports applicable 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 recognized $149,625 in revenue from NIH during the nine months ended December 31, 2018. The Phase 1 Melanoma Cancer Contract is now completed.

~~Breast Cancer Grant~~

~~In September 2018, the~~this 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 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 iswas $298,444. The grant ~~calls~~called for two subcontractors to work with us. Those subcontractors ~~are~~were University of Pittsburgh and Massachusetts General Hospital. As of December 31, 2020, we have received all of the funds allocated to the Breast Cancer Grant.

During the nine months ended December 31, ~~2019,~~2020, we ~~recognized $30,000 in government contract~~recorded the remaining $188,444 of revenue ~~under this grant~~related to the Breast Cancer Grant, as ~~a result of the work involved in one~~we achieved two of the three ~~technical objectives~~milestones related to the Breast Cancer Grant. We concluded in our final report to the SBIR that our pre-clinical results demonstrated that our work under the grant provided support that the Hemopurifier has the capacity to clear exosomes from breast cancer patients. That amount previously was recorded as deferred revenue.

As of December 31, 2020, we received all of the ~~contract (Aim 2. “Elution~~funds allocated to the Breast Cancer Grant and have submitted the final reports applicable to this grant.

Subaward with University of Pittsburgh

In addition, we are completing the logistical elements of documentation and billing the University of Pittsburgh in connection with 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 NCIcost reimbursable subaward arrangement under an ~~additional $100,000~~NIH project entitled “Depleting Exosomes to Improve Responses to Immune Therapy in ~~the six month period ended September 30, 2019 in order to pay our subcontractors under the contract. As we did not complete any~~HNNCC.” Our share of the ~~technical objectives beyond Aim 2 noted above during the December period, we~~award is $256,750. We have not recorded ~~this $100,000 as deferred revenue~~any revenues as of December 31, ~~2019.~~2020 related to the subaward. We anticipate billing and recognizing revenue under this subaward in future periods.

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.

The following tables set forth certain information regarding our segments:

	Nine Months Ended December 31,						Nine Months Ended December 31,
	2019			2018			2020			2019
Revenues:
Aethlon	$	443,458		$	149,625		$	624,871		$	443,458
ESI		–			–			–			–
Total Revenues	$	443,458		$	149,625		$	624,871		$	443,458

Operating Losses:
Aethlon	$	(4,125,758	)	$	(4,304,082	)	$	(5,609,464	)	$	(4,125,758	)
ESI		(19,039	)		(104,017	)		(15,931	)		(19,039	)
Total Operating Loss	$	(4,144,797	)	$	(4,408,099	)	$	(5,625,395	)	$	(4,144,797	)

Net Losses:
Aethlon	$	(4,575,811	)	$	(4,469,399	)	$	(5,610,994	)	$	(4,575,811	)
ESI		(19,039	)		(104,017	)		(15,931	)		(19,039	)
Net Loss Before Non-Controlling Interests	$	(4,594,850	)	$	(4,573,416	)	$	(5,626,925	)	$	(4,594,850	)

Cash:
Aethlon	$	4,058,456		$	4,824,225		$	12,131,396		$	4,058,456
ESI		197			676			197			197
Total Cash	$	4,058,653		$	4,824,901		$	12,131,593		$	4,058,653

Total Assets:
Aethlon	$	4,682,294		$	4,950,079		$	12,669,552		$	4,682,294
ESI		197			676			197			197
Total Assets	$	4,682,491		$	4,950,755		$	12,669,749		$	4,682,491

Capital Expenditures:
Aethlon	$	148,064		$	–		$	54,630		$	148,064
ESI		–			–			–			–
Capital Expenditures	$	148,064		$	–		$	54,630		$	148,064

Depreciation and Amortization:
Aethlon	$	15,992		$	24,756		$	28,775		$	15,992
ESI		–			–			–			–
Total Depreciation and Amortization	$	15,992		$	24,756		$	28,775		$	15,992

Interest Expense:
Aethlon	$	(54,232	)	$	(165,317	)	$	(1,530	)	$	(54,232	)
ESI		–			–			–			–
Total Interest Expense	$	(54,232	)	$	(165,317	)	$	(1,530	)	$	(54,232	)

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~~June 25, 2020.

On October 30, 2020, we entered into a Separation Agreement with Timothy Rodell, M.D., our former Chief Executive Officer, or the Separation Agreement. Under this agreement, we agreed to pay Dr. Rodell a total of $444,729 and to cover his medical insurance costs over a twelve-month period that began on November 1, ~~2019.~~2020, all in accordance with the terms of his employment agreement with the Company. We also paid Dr. Rodell accrued vacation in the amount of $20,260 in November 2020.

The total expense accrued at December 31, 2020 relating to the Separation Agreement, was $400,578 (see Note 7 and Note 8).

On October 30, 2020, we entered into an Executive Employment Agreement, or Agreement, with Charles J. Fisher Jr., M.D. The Agreement provides Dr. Fisher with (i) an initial annualized base salary of $430,000 per year; (ii) eligibility for a discretionary annual cash bonus, (iii) eligibility for a one-time cash bonus and additional equity grant upon attaining a specified performance goal, (iv) eligibility to participate in and receive additional stock options or equity award grants under the Company’s equity incentive plans from time to time, in the discretion of the Board or the Compensation Committee, and in accordance with the terms and conditions of such plans; and (iv) severance payments in the event that Dr. Fisher’s employment is terminated by the Company for any reason other than Cause (as defined in the Agreement) or if it is terminated by Dr. Fisher for Good Reason (as defined in the Agreement).

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~~$6,148 per month on a one-year lease that originally was to expire on November 30, ~~2019.~~2020. In ~~October 2019,~~December 2020, we entered into a short-term lease extension ~~for an additional twelve months~~ running from December 1, ~~2019~~2020 through ~~November 30, 2020, at~~ the ~~rate~~completion date of ~~$5,961 per month.~~our construction of our planned new laboratory space which is adjacent to our current laboratory.

Rent expense, which is included in general and administrative expenses, approximated ~~$44,000~~$50,000 and ~~$42,000~~$44,000 for the three month periods ended December 31, ~~2019~~2020 and ~~2018,~~2019, respectively. For the nine month periods ended December 31, ~~2019~~2020 and ~~2018,~~2019, rent expense approximated ~~$130,000~~$144,000 and ~~$126,000,~~$130,000, respectively.

Future minimum lease payments under the Granite Ridge Lease as of December 31, ~~2019,~~2020, are as follows:

January 1, 2020 through March 31, 2020	$	24,795
April 1, 2020 through March 31, 2021		102,074
January 1, 2021 through March 31, 2021				$	25,663
April 1, 2021 through August 31, 2021		43,670			43,670
Total future minimum lease payments		170,539			69,333
Less: discount		(6,132	)		(1,635	)
Total lease liability	$	164,407		$	67,698

During 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 ~~nine~~laboratory lease that qualified as short-term, we did not recognize right-of-use assets or lease liabilities at adoption.

In December 2020, we entered into an agreement to lease approximately 2,823 square feet of office space and 1,807 square feet of laboratory space. The agreement carries a term of 63 months and we will commence paying rent when we take occupancy of those spaces, which is expected to occur in the second quarter of 2021. Upon taking occupancy of the space, we will record lease liabilities and right-of-use lease assets related to this agreement on our balance sheet. We estimate that the present value of the contractual payments under the lease agreement to be approximately $806,000.

In addition, the new lease agreement required us to post a standby letter of credit in favor of the landlord in the amount of $46,726 in lieu of a security deposit. We arranged for our bank to issue the standby letter of credit in the three months ended December 31, ~~2019, reduction~~2020 and transferred a like amount to a restricted certificate of deposit which secured the ~~right-of-use lease asset was $68,856 and reduction~~bank’s risk in issuing that letter of ~~the lease liability was $67,994.~~credit. We have classified that restricted certificate of deposit on our balance sheet as restricted cash .

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 December 31, ~~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.

~~Registered Direct Financing~~In January 2021, we hired two senior executives, Guy Cipriani as Senior Vice President, Chief Business Officer, and ~~Private Placement –~~~~On January 16, 2020, we engaged H.C. Wainwright & Co.~~Steven LaRosa, M.D., ~~LLC (“Wainwright”)~~as Chief Medical Officer and entered into employment agreements with each executive. Mr. Cipriani will oversee business development and partnerships, while also contributing to ~~act as our exclusive placement agent~~fundraising and corporate development. Mr. Cipriani’s initial annual base salary is $340,000 and Mr. Cipriani also is eligible for a discretionary annual cash bonus. Mr. Cipriani also is eligible for reimbursement of relocation expenses in ~~connection~~the aggregate amount of up to $75,000. Dr. LaRosa will be responsible for the clinical development of Aethlon's Hemopurifier®, including leading clinical operations and regulatory strategy. In addition to a one-time signing bonus of $100,000, subject to repayment if Dr. LaRosa leaves Aethlon prior to two years with the ~~private placement~~Company, Dr. LaRosa’s initial annual base salary is $400,000. Dr. LaRosa also is eligible for a discretionary annual cash bonus and ~~a concurrent registered direct offering (together, the “Offering”)~~relocation expense reimbursement of up to $50,000. Upon commencement of employment each of Mr. Cipriani and Dr. LaRosa was granted an ~~aggregate of 1,885,378~~option to purchase 120,883 shares of our common stock at a purchase price per share of $2.00 (the “Shares”), for aggregate gross proceeds to us of approximately $3.77 million, before deducting fees payable to Wainwright and other estimated offering expenses payable by us. We also entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional investors (the “Purchasers”), pursuant to which we agreed to sell and issue to the Purchasers warrants (the “Purchase Warrants”) to purchase up to an aggregate of 942,689 shares of our common stock (the “Purchase Warrant Shares”). We agreed to pay Wainwright a cash fee of 6.0% of the aggregate gross proceeds in the Offering, excluding the proceeds, if any, from the exercise of the Purchase Warrants. We also agreed to pay Wainwright an additional 1.0% of the aggregate gross proceeds in the Offering as a management fee and to pay Wainwright for certain expenses in connection with the Offering in an aggregate amount not to exceed $82,900. In addition, Wainwright received placement agent warrants on substantially the same terms as the Purchase Warrants in an amount equal to 3.0% of the aggregate number of Shares sold in the offering, or 56,561 shares ofCompany’s Common Stock, atwith an exercise price ~~of $2.50 per share and a term expiring on January 17, 2025 (the “Placement Agent Warrants,” and the shares of common stock issuable thereunder, the “Placement Agent Warrant Shares”).~~

~~On January 22, 2020, the Company closed the Offering and issued the Purchase Warrants~~equal to the ~~Purchasers. The Purchase Warrants are exercisable immediately at an exercise price of $2.75 per share and will expire five and one-half years from the issuance date.~~

~~Warrant Exercises –~~ Subsequent to December 31, 2019, investors that participated in the December 2019 Public Offering exercised warrants to purchase an aggregate of 2,591,167 shares of common stock for aggregate cash proceeds to us of $3,888,249 before expenses.

~~Restricted Stock Unit (“RSU”) Issuance~~ – In January 2020, 215 RSUs held by an executive were exchanged into the same number of shares of our common stock. As the executive elected to net settle a portion of his RSU’s in exchange for us paying the related withholding taxesfair market value on the ~~share issuance, 125~~date of grant, subject to a four-year vesting schedule and other terms and conditions of the ~~RSUs were cancelled and we issued a net 90 shares of common stock to the executive. This was the final vested amount under the RSU vesting program to our executives (see Footnote 6).~~

~~Order of Suspension of Trading~~ ~~– On February 7,~~Company’s 2020 the Securities and Exchange Commission (the “SEC”) issued an Order of Suspension of Trading (the “SEC Order”), temporarily suspending trading in our stock for a period of ten days. The SEC Order stated that the suspension was due to concerns regarding the accuracy and adequacy of information in the marketplace that appeared to be disseminated by third party promotors and recent and unusual market activity since at least January 22, 2020. We are unable to predict the outcome of the SEC Order or any other actions the SEC may take in connection therewith.

Equity Incentive Plan.

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 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 DECEMBER 31, ~~2019~~2020 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, ~~2018~~2019

Government Contract Revenues

We recorded ~~government contract revenue of $413,458~~$624,871 in ~~the three months ended December 31, 2019. This revenue resulted from work performed under Phase 2 Melanoma Cancer Contract with the National Institutes of Health, or NIH. We did not record any~~ government contract revenue in the three months ended December 31, ~~2018.~~2020. This revenue resulted from work performed under our government contracts with NIH as follows:

	Three Months Ended 12/31/20		Three Months Ended 12/31/19		Change in Dollars
Phase 2 Melanoma Cancer Contract	$	436,427	$	413,458	$	22,969
Breast Cancer Grant		188,444		30,000		158,444
Total Government Contract and Grant Revenue	$	624,871	$	443,458	$	181,413

Phase 2 Melanoma Cancer Contract

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 involve the design and testing of a pre-commercial prototype of a more advanced version of the exosome isolation platform.

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During the period ended December 31, 2020, we completed all of the milestones relevant to that time period. As a result, we recorded $436,427 of government contract revenue on the Phase 2 Melanoma Cancer Contract in the three months ended December 31, ~~2019, we~~2020. Of the total revenue recognized ~~$413,458 in government contract revenue under~~during the current period relating to this ~~contract as~~grant, a ~~result~~total of ~~the work involved completing the first two milestones in the project as reported in the kick-off presentation~~$117,849 was invoiced to the NCI during the three months ended December 31, 2020 and first quarterly report. The kick-off presentation covered the Company's organization and project status, recent achievements, the status of the field, the status of commercial and academic competitors, where the proposed project was positioned against the state of the art, the IP landscape, a refresher on the proposed technology, the detailed plan for the first budget period of the contract and technical risks and alternative approaches. The first quarterly report covered a summary of technical objectives, a description of activities accomplished in the quarter, an analysis of experimental data, comments regarding the timeliness of performance, and a brief explanation of activities to be pursued in the following quarter.

~~Phase 1 Melanoma Cancer Contract~~

We entered into a contract with the NCI in September 2017. This award was under the NIH’s SBIR program. The title of the award was “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~~we recorded $318,578 which had ~~the unilateral right to require us to perform additional work under an option period for an additional fixed amount of $49,800.~~

Under the terms of the contract, we were required to perform certain incremental work towards the achievement of specific milestones against which we will invoice the government for fixed payment amounts. The Phase 1 Melanoma Cancer Contract was completed in June 2018. previously been recognized as deferred revenue.

Breast Cancer Grant

In ~~September 2018,~~ the three months ended December 31, 2020, we completed and submitted the final reports applicable to this 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 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~~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 iswas $298,444. The grant ~~calls~~called for two subcontractors to work with us. Those subcontractors ~~are~~were University of Pittsburgh and Massachusetts General Hospital. ~~We did not recognize any revenue from this contract in~~As of December 31, 2020, we have received all of the funds allocated to the Breast Cancer Grant.

During the three months ended December 31, ~~2019~~2020, we recorded the remaining $188,444 of revenue related to the Breast Cancer Grant as we achieved two of the three milestones related to the Breast Cancer Grant and ~~2018.~~concluded in our final report that our work under the grant provided nonclinical support that the Hemopurifier has the capacity to clear exosomes from breast cancer patients. That amount previously was recorded as deferred revenue.

Subaward with University of Pittsburgh

Operating Expenses

Consolidated operating expenses for the three months ended December 31, ~~2019~~2020 were $3,068,459, compared to $1,289,864 ~~in comparison with $1,963,873~~ for the three months ended December 31, ~~2018.~~2019. This ~~decrease~~increase of ~~$674,009,~~$1,778,595, or ~~34%~~137.9%, in ~~2019~~the 2020 period was due to ~~a decrease~~increases in payroll and related expenses of ~~$755,110, which was partially offset by increases in professional fees of $22,741 and~~$1,117,229, in general and administrative expenses of ~~$58,360.~~$646,320, and in professional fees of $15,046.

The ~~$755,110 decrease~~$1,117,229 increase in payroll and related expenses was due to the combination of ~~a $512,832 reduction~~an $841,847 increase in our cash-based compensation expense and a ~~$242,278 decrease~~$275,382 increase in stock-based ~~compensation.~~compensation expense. The ~~reduction~~largest factor in the cash-based compensation ~~expense~~increase was ~~due to~~a result of recording ~~a $505,609 accrual in the December 2018 period~~an aggregate of $593,272 related to ~~contractually agreed~~ severance costs associated with the Separation Agreement. Additional factors were a $125,000 increase in year-end bonus payments, ~~to our former CEO~~increased headcount and ~~president with no comparable expense in the December 2019 period.~~salary increases.

The ~~$22,741~~$646,320 increase in general and administrative expenses was primarily due to a $360,703 increase in our clinical trial expenses, a $132,542 increase in subcontractor expenses associated with our government contracts and grants, a $130,019 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 $39,667 increase in our insurance expenses.

The $15,046 increase in our professional fees ~~in 2019~~ was primarily due to a ~~$100,577~~$28,421 increase in contract labor, predominantly research scientists hired on a consulting basis, and a $23,151 increase in our legal ~~fees and a $26,927 increase in our accounting~~ fees, which were partially offset by a ~~$103,924~~$35,189 decrease in ~~scientific consulting expenses. The increase in legal and~~our accounting ~~fees related to increased activity in our registration statement filings and in intellectual property actions, among other matters.~~fees.

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The $58,360 increase in general and administrative expenses in 2019 was primarily due to the combination of a $29,065 increase in our clinical trial expenses and a $18,323 increase in licenses and permitting costs.

Other Income (Expense)

~~Other income (expense)~~We had $802 of other expense during the three months ended December 31, 2020. In the three months ended December 31, 2019, other expense consisted of interest expense and a gain on share for warrant exchanges and during the three months ended December 31, 2018, consisted of interest expense only. Other income for the three months ended December 31, 2019 was $55,467, in comparison with other expense of $55,107 for the three months ended December 31, 2018.exchanges.

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

Three Months
Ended Three Months
Ended
12/31/19 12/31/18 Change
Gain on Share for Warrant Exchanges $ 55,593 $ – $ 55,593
Interest Expense (126 ) (55,107 ) 54,981
Total Other Income (Expense) $ 55,467 $ (55,107 ) $ 110,574

	Three Months Ended		Three Months Ended
	12/31/20		12/31/19			Change
(Gain) on Share for Warrant Exchanges	$	–	$	(55,593	)	$	55,593
Interest Expense		802		126			676
Total Other Expense	$	802	$	(55,467	)	$	56,269

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

There was no warrant exchange activity during the three months ended December 31, 2020. During the three months ended December 31, 2019, we agreed with two accredited investors to issue 2,914 shares of our common stock to these investors in exchange for the cancellation of outstanding warrants then held by the investors to purchase ~~an aggregate of~~ 29,141 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 gain of $55,593 on those exchanges based on the changes in fair value between the instruments exchanged.

Interest Expense

We had $802 in interest expense in the three months ended December 31, 2020. Interest expense was $126 for the three months ended December 31, ~~2019, and $55,107 for the three months ended December 31, 2018, a decrease of $54,981 in~~ 2019. The various components of our interest expense are shown in the following table:

Three Months
Ended Three Months
Ended
12/31/19 12/31/18 Change
Interest Expense $ 126 $ 24,820 $ (24,694 )
Amortization of Note Discounts – 30,287 (30,287 )
Total Interest Expense $ 126 $ 55,107 $ (54,981 )

~~The $54,981 decrease in our interest expense was due to the payoff of our convertible notes in July 2019.~~

	Three Months Ended		Three Months Ended
	12/31/20		12/31/19		Change
Interest Expense	$	802	$	126	$	676

Net Loss

As a result of the changes in revenues and expenses noted above, our net loss ~~decreased from~~increased to approximately ~~$2,019,000~~$2,447,000 in the three month period ended December 31, ~~2018~~2020, from approximately $821,000 in the three month period ended December 31, 2019.

Basic and diluted loss attributable to ~~$820,000 in~~common stockholders were ($0.20) for the three month period ended December 31, 2020, compared to ($0.28) for the three month period ended December 31, 2019.

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~~Basic and diluted loss attributable to common stockholders were ($0.28) for the three month period ended December 31, 2019, compared to ($1.67) for the three month period ended December 31, 2018.~~

~~RESULTS OF OPERATIONS~~

NINE MONTHS ENDED DECEMBER 31, ~~2019~~2020 COMPARED TO THE NINE MONTHS ENDED DECEMBER 31, ~~2018~~2019

Government Contract Revenues

We recorded $624,871 in government contract revenue in the nine months ended December 31, ~~2019 and 2018.~~2020. This revenue resulted from work performed under our government contracts with ~~the~~ NIH as follows:

	Nine Months Ended 12/31/19		Nine Months Ended 12/31/18		Change in Dollars			Nine Months Ended 12/31/20		Nine Months Ended 12/31/19		Change in Dollars
Phase 2 Melanoma Cancer Contract	$	413,458	$	–	$	413,458		$	436,427	$	413,458	$	22969
Phase 1 Melanoma Cancer Contract		–		149,625		(149,625	)
Breast Cancer Grant		30,000		–		30,000			188,444		30,000		158,444
Total Government Contract and Grant Revenue	$	443,458	$	149,625	$	293,833		$	624,871	$	443,458	$	181,413

Phase 2 Melanoma Cancer Contract

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 involve the design and testing of a pre-commercial prototype of a more advanced version of the exosome isolation platform.

~~Phase 1 Melanoma~~Breast Cancer ~~Contract~~

In the nine months ended December 31, ~~2018,~~2020, we ~~performed work under~~completed and submitted 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 immunocapturefinal reports applicable to select out the tumor-derived exosomes from non-malignant exosomes and Aim 3: To evaluate the functional integrity of melanoma exosomes purified by the Hemopurifier and immunocapture isolation steps). As a result, we invoiced NIH for $149,625 during the nine months ended December 31, 2018. The Phase 1 Melanoma Cancer Contract is now completed.

~~Breast Cancer Grant~~

~~In September 2018, the~~this 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 the Breast Cancer Grant.

During the nine months ended December 31, ~~2019,~~2020, we ~~recognized $30,000 in government contract~~recorded the remaining $188,444 of revenue ~~under this grant~~related to the Breast Cancer Grant as ~~a result of the work involved in one~~we achieved two of the three ~~technical objectives~~milestones related to the Breast Cancer Grant and concluded in our final report that our work under the grant provided nonclinical support that the Hemopurifier has the capacity to clear exosomes from breast cancer patients. That amount previously was recorded as deferred revenue.

Subaward with University of Pittsburgh

In addition, we are completing the logistical elements of documentation and billing the University of Pittsburgh in connection with a cost reimbursable subaward arrangement under an NIH project entitled “Depleting Exosomes to Improve Responses to Immune Therapy in HNNCC.” Our share 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”).award is $256,750. We ~~also invoiced the NCI for an additional $100,000 during the nine month period ended December 31, 2019 in order to pay our subcontractors under the contract. As we did~~have not ~~complete~~recorded any ~~additional technical objectives beyond Aim 2 noted above during the period, we recorded this $100,000 as deferred revenue~~revenues as of December 31, ~~2019.~~2020 related to the subaward. We anticipate billing and recognizing revenue under this subaward in future periods.

Operating Expenses

Consolidated operating expenses for the nine months ended December 31, ~~2019~~2020 were $6,250,266, compared to $4,588,255 ~~in comparison with $4,557,724~~ for the nine months ended December 31, ~~2018.~~2019. This increase of ~~$30,531,~~$1,662,011, or ~~0.7%~~36.2%, in ~~2019~~the 2020 period was due to increases ~~professional fees~~in payroll and related expenses of ~~$530,630~~$910,863 and in general and administrative expenses of ~~$316,787,~~$885,337, which were partially offset by a ~~reduction~~decrease in ~~and~~professional fees of $134,189.

The $910,863 increase in payroll and related expenses ~~of $816,886.~~

~~The $530,630~~in the nine months ended December 31, 2020 was due to a $934,726 increase in our ~~professional fees in 2019~~cash-based compensation expense, which was primarily due to a $512,174 increase in our legal fees, a $152,731 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, which were partially offset by a $23,865 reduction in ~~our scientific consulting expenses~~stock-based compensation expense. The largest factor in the cash-based compensation increase was a result of ~~$153,660. The~~recording an aggregate of $593,272 related to severance costs associated with the Separation Agreement. Additional factors were a $125,000 increase in ~~legal~~year-end bonus payments and ~~accounting fees related to increased activity in~~ our ~~registration statement filings~~headcount and ~~in intellectual property actions, among other matters.~~salary increases.

The ~~$316,787~~$885,337 increase in general and administrative expenses in ~~2019~~the nine months ended December 31, 2020 was primarily due to ~~the combination of~~ a ~~$189,857~~$441,246 increase in our clinical trial ~~expense, primarily costs~~expenses, a $67,542 increase in subcontractor expenses associated with ~~the manufacturing~~our government contracts and grants, a $318,100 increase in lab supplies, in connection with our ongoing effort to continue to build an inventory of Hemopurifiers for ~~an expected~~our clinical ~~trial in the cancer space,~~trials, and to a ~~$61,354~~$60,958 increase in our ~~lab supplies expense, primarily related to our breast cancer grant and lab work related to our IDE application and a $57,271 increase in travel expense.~~insurance expenses.

The ~~$816,886~~$134,189 decrease in ~~payroll and related expenses~~our professional fees was due to ~~the combination of~~ a ~~$628,022 reduction~~$116,432 decrease in our ~~cash-based compensation expense~~accounting fees, a $92,820 decrease in our legal fees, and a ~~$188,864~~$23,610 decrease in ~~stock-based compensation. The reduction~~other consulting fees, which were partially offset by a $102,243 increase in ~~cash-based compensation expense was partially due to recording~~contact labor, predominantly research scientists hired on a ~~$505,609 accrual in the December 2018 period related to contractually agreed severance payments to our former CEO and president with no comparable expense in the December 2019 period.~~consulting basis.

Other Expense

Other expense during the nine months ended December 31, 2020 consisted of interest expense and during the nine months ended December 31, 2019, consisted of interest expense, a gain on share for warrant exchanges and a loss on debt ~~extinguishment and during the nine months ended December 31, 2018, consisted of interest expense only.~~extinguishment. Other expense for the nine months ended December 31, ~~2019~~2020 was ~~$450,053, in comparison with~~$1,530, compared to other expense of ~~$165,317~~$450,053 for the nine months ended December 31, ~~2018.~~2019.

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

	Nine Months Ended			Nine Months Ended					Nine Months Ended		Nine Months Ended
	12/31/19			12/31/18		Change			12/31/20		12/31/19			Change
Loss on Debt Extinguishment	$	447,011		$	–	$	447,011		$	–	$	447,011		$	(447,011	)
Gain on Share for Warrant Exchanges		(51,190	)		–		(51,190	)	$	–	$	(51,190	)	$	51,190
Interest Expense		54,232			165,317		(111,085	)	$	1,530	$	54,232		$	(52,702	)
Total Other Expense	$	450,053		$	165,317	$	284,736		$	1,530	$	450,053		$	(448,523	)

Loss on Debt Extinguishment

There were no losses on debt extinguishment during the nine months ended December 31, 2020. During the nine months ended December 31, 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.

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

There was no warrant exchange activity during the nine months ended December 31, 2020. During the nine months ended December 31, 2019, we agreed with seven accredited investors to issue ~~an aggregate of~~ 3,992 shares of our common stock to these investors in exchange for the cancellation of outstanding warrants then held by the investors to purchase ~~an aggregate of~~ 39,900 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 gain of $51,190 on those exchanges based on the changes in fair value between the instruments exchanged.

Interest Expense

~~Interest~~Total interest expense was $1,530 for the nine months ended December 31, 2020, and $54,232 for the nine months ended December 31, 2019, ~~and $165,317 for the nine months ended December 31, 2018,~~ a decrease of ~~$111,085 in 2019.~~$52,702. The various components of our interest expense are shown in the following table:

	Nine Months Ended		Nine Months Ended					Nine Months Ended		Nine Months Ended
	12/31/19		12/31/18		Change			12/31/20		12/31/19		Change
Interest Expense	$	23,945	$	74,456	$	(50,511	)	$	1,530	$	23,945	$	(22,415	)
Amortization of Note Discounts		30,287		90,861		(60,574	)	$	–	$	30,287	$	(30,287	)
Total Interest Expense	$	54,232	$	165,317	$	(111,085	)	$	1,530	$	54,232	$	(52,702	)

The ~~$111,085~~$52,702 decrease in our total interest expense in the nine months ended December 2020 was due to the ~~payoff~~payment in full of our convertible notes in July 2019.

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Net Loss

As a result of the changes in revenues and expenses noted above, our net loss ~~decreased from~~increased to approximately ~~$4,573,000~~$5,630,000 in the nine month period ended December 31, ~~2018 to~~2020, from approximately $4,595,000 in the nine month period ended December 31, 2019.

Basic and diluted loss attributable to common stockholders were ($0.50) for the nine month period ended December 31, 2020, compared to ($2.52) for the nine month period ended December 31, ~~2019, compared to ($3.82) for the nine month period ended December 31, 2018.~~2019.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, ~~2019,~~2020, we had a cash balance of ~~$4,058,653~~$12,131,593 and current working capital of ~~$3,495,119.~~$11,086,708. 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.~~2020. We expect our existing cash as of December 31, ~~2019, together with cash raised in January~~ 2020 ~~(see Subsequent Events Footnote),~~ to be sufficient to fund the Company’s operations for at least twelve ~~months.~~months from the issuance date of these financial statements.

~~Our~~The primary ~~sources~~source of ~~capital~~our increase in cash during the nine months ended December 31, ~~2019 were the December 2019 Public Offering and~~2020 resulted from our Common Stock Sales Agreement with H.C. Wainwright & Co., LLC, or ~~H.C.~~ Wainwright. The cash raised from ~~those activities~~that activity is ~~noted~~described below:

~~December 2019 Public Offering~~

The gross proceeds of the December 2019 Public Offering were approximately $5 million, prior to deducting underwriting discounts and commissions and estimated offering expenses and excluding the exercise of any common warrants and the underwriter's option to purchase additional securities. The net proceeds from the December 2019 Public Offering were approximately $4,091,437. We intend to use approximately $700,000 of the net proceeds from this offering for the currently planned clinical trials for the Hemopurifier® over the next 12 months, with the remainder for working capital and other general corporate purposes.

~~Subsequent to the completion of the December 2019 Public Offering and prior to December 31, 2019, all of the holders of pre-funded warrants exercised their pre-funded warrants in full.~~

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, 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 nine months ended December 31, ~~2019,~~2020, we raised aggregate net proceeds of ~~$896,031 (net~~$7,260,869, net of ~~$27,896~~$224,825 in commissions to ~~H.C.~~ Wainwright and ~~$5,929~~$8,472 in other offering ~~expenses)~~expenses, under ~~this~~the Agreement through the sale of ~~161,149~~2,685,600 shares at an average price of ~~$5.56~~$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 nine months ended
December 31,
2019 December 31,
2018
Cash used in:
Operating activities $ (3,577 ) $ (2,896 )
Investing activities (148 ) –
Financing activities 3,956 747
Net increase (decrease) in cash $ 231 $ (2,149 )

	(In thousands) For the nine months ended
	December 31, 2020			December 31, 2019
Cash provided by (used in):
Operating activities	$	(4,526	)	$	(3,577	)
Investing activities	$	(55	)	$	(148	)
Financing activities	$	7,154		$	3,956
Net increase (decrease) in cash and cash equivalents	$	2,573		$	231

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 $4,526,000 in the nine month period ended December 31, 2020, compared to approximately $3,577,000 in the nine month period ended December 31, ~~2019, compared to approximately $2,896,000 in the nine month period ended December 31, 2018.~~2019.

NET CASH USED IN INVESTING ACTIVITIES. We used approximately ~~$148,000~~$55,000 of cash to purchase laboratory and office equipment in the nine months ended December 31, ~~2019. We had no investing activities~~2020, compared to approximately $148,000 in the nine ~~months~~month period ended December 31, ~~2018.~~2019.

NET CASH PROVIDED BY/(USED ININ) FINANCING ACTIVITIES. During the nine months ended December 31, ~~2019,~~2020, we raised approximately ~~$3,956,000~~$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 ~~$993,000 to partially pay down our convertible notes and the use of approximately $39,000~~$106,000 to pay for the tax withholding on restricted stock units and on a net stock option exercise by our former Chief Executive Officer, for an aggregate increase of cash provided by financing activities of approximately ~~$3,956,000.~~$7,154,000. During the nine months ended December 31, ~~2018,~~2019, we raised approximately ~~$884,000~~$4,987,000 from the issuance of common stock, which was ~~partially~~ offset by the use of approximately ~~$137,000~~$993,000 to pay off our then outstanding convertible notes and approximately $39,000 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 December 31, 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.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

ITEM 1A. RISK FACTORS.

RISK FACTOR SUMMARY

Below is a summary of the principal factors that make an investment in our securities speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Quarterly Report on Form 10-Q and our other filings with the SEC before making investment decisions regarding our securities.

We have incurred significant operating losses since our inception and have not generated any revenue. We expect to incur continued losses for the foreseeable future and may never achieve or maintain profitability.

We will require substantial additional funding to sustain our operations. If we are unable to raise capital on favorable terms when needed, we could be forced to delay, reduce or eliminate our research or device development programs or any future commercialization efforts.

To achieve the levels of production necessary to commercialize our Hemopurifier and any other future products, we will need to secure large-scale manufacturing agreements with contract manufacturers which comply with good manufacturing practice standards and other standards prescribed by various federal, state and local regulatory agencies in the U.S. and any other country of use. We have limited experience coordinating and overseeing the manufacture of medical device products on a large-scale.

Our Hemopurifier product may be made unmarketable prior to commercialization by us by new scientific or technological developments by others with new treatment modalities that are more efficacious and/or more economical than our products. Any one of our competitors could develop a more effective product which would render our technology obsolete.

Our Hemopurifier product is subject to extensive government regulations related to development, testing, manufacturing and commercialization in the U.S. and other countries. If we fail to comply with these extensive regulations of the U.S. and foreign agencies, the commercialization of our products could be delayed or prevented entirely.

As a public company with limited financial resources undertaking the launch of new medical technologies, we may have difficulty attracting and retaining executive management and directors.

We will need to significantly expand our operations to implement our longer-term business plan and growth strategies. We will also be required to manage multiple relationships with various strategic partners, technology licensors, customers, manufacturers and suppliers, consultants and other third parties. The time and costs to effectuate these steps may place a significant strain on our management personnel, systems and resources, particularly given the limited amount of financial resources and skilled employees that may be available at the time.

Our business prospects will depend on our ability to complete studies, clinical trials, obtain satisfactory results, obtain required regulatory approvals and successfully commercialize our Hemopurifier product candidate. Delays in successfully completing the clinical trials could jeopardize our ability to obtain regulatory approval.

If we are unable to adequately address these and other risks we face, our business, financial condition, operating results and prospects may be adversely affected.

Our business could be adversely affected by the effects of health pandemics or epidemics, including the COVID-19 pandemic.

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 products are manufactured with raw materials that are sourced from specialty suppliers with limited competitors and we may therefore be unable~~Delays in successfully completing our planned clinical trials could jeopardize our ability to ~~access the materials we need to manufacture our products.~~obtain regulatory approval.

Specifically, the Hemopurifier contains three critical components with limited supplier numbers. The base cartridge on which the Hemopurifier is constructed is sourced from Medica S.p.A and we are dependent on the continued availability of these cartridges. We currently purchase the diatomaceous earth from Janus Scientific Inc., our distributor; however, the product is manufactured by Imerys Minerals Ltd., which is the only supplier of this product. The Galanthus nivalis lectin, or GNA Lectin, is sourced from Vector Laboratories, Inc. and also is available from other suppliers; however, Sigma Aldrich is the only approved back up supplier at this time. AOur business ~~interruption at any of these sources could have a material impact~~prospects will depend on our ability to ~~manufacture~~complete studies, clinical trials, including our EFS trial in 10 to 12 patients, obtain satisfactory results, obtain required regulatory approvals and successfully commercialize our Hemopurifier product candidate. Completion of our clinical trials, announcement of results of the ~~Hemopurifier.~~trials and our ability to obtain regulatory approvals could be delayed for a variety of reasons, including:

slow patient enrollment;

serious adverse events related to our medical device candidates;

unsatisfactory results of any clinical trial;

the failure of our principal third-party investigators to perform our clinical trials on our anticipated schedules;

different interpretations of our pre-clinical and clinical data, which could initially lead to inconclusive results; and

delays resulting from the coronavirus pandemic.

Our development costs will increase if we have material delays in any clinical trial or if we need to perform more or larger clinical trials than planned. If the delays are significant, or if any of our product candidates do not prove to be safe or effective or do not receive required regulatory approvals, our financial results and the commercial prospects for our product candidates will be harmed. Furthermore, our inability to complete our clinical trials in a timely manner could jeopardize our ability to obtain regulatory approval.

*~~Even though~~The approval requirements for medical products used to fight bioterrorism are still evolving, and any products we ~~have~~develop for such uses may not meet these requirements.

We are advancing product candidates under governmental policies that regulate the development and commercialization of medical treatment countermeasures against bioterror and pandemic threats. While we intend to pursue FDA market clearance to treat infectious bioterror and pandemic threats, it is often not feasible to conduct human studies against these deadly high threat pathogens. For example, the Hemopurifier is an investigational device that has not yet received ~~breakthrough device designation~~FDA approval for any indication. We continue to investigate the potential for the ~~Hemopurifier for two independent indications, this designation may not expedite the development or review~~use of the Hemopurifier in viral diseases under an open IDE and ~~does~~our FDA Breakthrough Designation for “…the treatment of life-threatening glycosylated viruses that are not ~~provide assurance ultimately~~addressed with an approved therapy.” We currently have an open FDA approved Expanded Access Protocol for the treatment of ~~PMA submission or~~Ebola infected patients in the U.S. and a corresponding HealthCanada approval byin Canada. Based on our studies to date, the ~~FDA.~~Hemopurifier can potentially clear many viruses that are pathogenic in humans, including HCV, HIV and Ebola. We do have preclinical data suggesting that it could clear a closely related coronavirus (MERS). Additionally, we have a very limited supply of Hemopurifiers and therefore any use in this pandemic will be only investigational in a very small number of patients, even if it appears that the device can help those patients.

~~The Breakthrough Devices Program is~~Thus, we may not be able to demonstrate the effectiveness of our treatment countermeasures through controlled human efficacy studies. Additionally, a ~~voluntary program intended~~change in government policies could impair our ability to ~~expedite~~obtain regulatory approval and the ~~review, development, assessment and review~~FDA may not approve any of certain medical devices that provide for more effective treatment or diagnosis of life-threatening or irreversibly debilitating human diseases or conditions for which no approved or cleared treatment exists or that offer significant advantages over existing approved or cleared alternatives. All submissions for devices designated as Breakthrough Devices will receive priority review, meaning that the review of the submission is placed at the top of the appropriate review queue and receives additional review resources, as needed.our product candidates.

Although breakthrough designation or access to any other expedited program may expedite the development or approval process, it does not change the standards for approval. Although we obtained breakthrough device designation for the Hemopurifier for two indications, we may not experience faster development timelines or achieve faster review or approval compared to conventional FDA procedures. For example, the time required to identify and resolve issues relating to manufacturing and controls, the acquisition of a sufficient supply of our product for clinical trial purposes or the need to conduct additional nonclinical or clinical studies may delay approval by the FDA, even if the product qualifies for breakthrough designation or access to any other expedited program. Access to an expedited program may also be withdrawn by the FDA if it believes that the designation is no longer supported by data from our clinical development program. Additionally, qualification for any expedited review procedure does not ensure that we will ultimately obtain regulatory approval for the product.

*Compliance with laws, regulations, and related interpretations and related legal claims or other regulatory enforcement actions could impact our business, and we face additional risks and uncertainties related to any potential actions resulting from the Securities and Exchange Commission’s (the “SEC”) ongoing investigation, or any other investigation or action.

On February 7, 2020, the SEC issued an Order of Suspension of Trading (the “SEC Order”), temporarily suspending trading in our stock for a period of ten days. The SEC Order stated that the suspension was due to concerns regarding the accuracy and adequacy of information in the marketplace that appeared to be disseminated by third party promotors and recent and unusual market activity since at least January 22, 2020. We are unable to predict the outcome of the SEC Order or any other actions the SEC may take in connection therewith. Furthermore, the Company’s reputation may be negatively impacted. As a result, the potential impact to the Company’s business, if any, cannot be determined.

*Our bylaws designate the Eighth Judicial District Court of Clark County, Nevada, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.

Our bylaws require that, to the fullest extent permitted by law, and unless the Company consents in writing to the selection of an alternative forum, the Eighth Judicial District Court of Clark County, Nevada, will, to the fullest extent permitted by law, be the sole and exclusive forum for each of the following:

	·	~~any derivative action or proceeding brought in the name or right of the Company or on its behalf,~~

	·	~~any action asserting a claim for breach of any fiduciary duty owed by any director, officer, employee or agent of the Company to the Company or the Company’s stockholders,~~

	·	~~any action arising or asserting a claim arising pursuant to any provision of NRS Chapters 78 or 92A or any provision of our articles of incorporation or bylaws, or~~

	·	any action asserting a claim governed by the internal affairs doctrine, including, without limitation, any action to interpret, apply, enforce or determine the validity of our articles of incorporation or bylaws.

However, our bylaws provide that the exclusive forum provisions do not apply to suits brought to enforce any liability or duty created by the Securities Exchange Act of 1934, as amended, or any other claim for which the federal courts have exclusive jurisdiction. We note that there is uncertainty as to whether a court would enforce the provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Although we believe this provision benefits us by providing increased consistency in the application of Nevada law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers.

*Should any of our potential products, including the Hemopurifier, be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability to market and sell our products.

Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and third-party payors to decrease costs. Third-party payors are increasingly challenging the prices charged for medical products and services and instituting cost containment measures to control or significantly influence the purchase of medical products and services.

For example, in the U.S., the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limited Medicare reimbursement to certain providers. However, on December 14, 2018, a Texas U.S. District Court Judge ruled that the Affordable Care Act is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Cuts and Jobs Act of 2017. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the PPACA are invalid as well. The United States Supreme Court is currently reviewing this case, but it is unclear when a decision will be made. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments to providers by two percent through fiscal year 2030. The Coronavirus Aid, Relief and Economic Security Act, or CARES Act, and other COVID-19 relief legislation have, among other things, temporarily suspended the two percent Medicare sequester from May 1, 2020 through March 31,2021. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase new technologies. Furthermore, the healthcare industry in the U.S. has experienced a trend toward cost containment as government and private insurers seek to control healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the future that limits payments for our products from governmental payors. It is possible that additional governmental action is taken to address the COVID-19 pandemic. It is also possible that additional health reform measures will be implemented as a result of the new Presidential administration. In addition, commercial payors such as insurance companies, could adopt similar policies that limit reimbursement for medical device manufacturers’ products. Therefore, it is possible that our product or the procedures or patient care performed using our product will not be reimbursed at a cost-effective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countries where we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtain international reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell our products and have a material adverse effect on our business and financial condition.

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

InWe did not issue or sell any unregistered securities during the three months ended December 31, 2019, an aggregate of 851 shares of our common stock were issued to two accredited investors in exchange for the cancellation of outstanding warrants previously held by these investors to purchase an aggregate of 8,505 shares of our common stock.2020.

The offers, sales and issuances of the securities described above 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 investors did not involve a public offering. The recipients of securities in each of these transactions acquired 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.

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.

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 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

				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

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

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

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

10.1 Assignment Agreement, by and between Aethlon Medical, Inc. and London Health Sciences Center Research Inc., dated November 7, 2006. S-1 333-234712 10.27 November 15, 2019

10.2 Form of Securities Purchase Agreement, by and between Aethlon Medical, Inc. and the Purchaser’s thereto, dated January 17, 2020. 8-K 001-37487 10.1 January 17, 2020

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

Separation Agreement between the Company and Dr. Rodell, dated October 30, 2020.

8-K

001-37487

10.1

November 3, 2020

10.2*

Employment Agreement between the Company and Dr. Fisher, dated October 30, 2020.

8-K

001-37487

10.2

November 3, 2020

10.3

Lease, by and between the Company and San Diego Inspire 1, LLC. and San Diego Inspire 2, LLC, effective December 7, 2020.

10.4

Eighth Amendment to Standard Industrial Net Lease, by and between the Company and San Diego Inspire 1, LLC., effective December 7, 2020.

10.5

Executive Employment Agreement between the Company and Guy Cipriani, dated January 1, 2021.

10.6

Executive Employment Agreement between the Company and Steven P. LaRosa, MD, dated January 4, 2021.

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

___________________

Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedules will be furnished to the SEC upon request.

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: February 10, ~~2020~~2021	By:	/s/ JAMES B. FRAKES
		JAMES B. FRAKES
		CHIEF FINANCIAL OFFICER
		CHIEF ACCOUNTING OFFICER

	December 31, 2019			March 31, 2019
	(Unaudited)
ASSETS
Current assets
Cash	$	4,058,653		$	3,828,074
Accounts receivable		206,729			–
Prepaid expenses and other current assets		40,351			210,042
Total current assets		4,305,733			4,038,116

Property and equipment, net		144,966			6,021
Right-of-use lease asset		159,838			–
Patents, net		59,795			66,668
Deposits		12,159			12,159
Total assets	$	4,682,491		$	4,122,964

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable	$	327,408		$	131,931
Due to related parties		111,212			83,654
Convertible notes payable, net		–			962,301
Deferred revenue		100,000			–
Lease liability, current portion		96,712			–
Other current liabilities		175,282			646,000
Total current liabilities		810,614			1,823,886

Lease liability, less current portion		67,695			–
Total liabilities		878,309			1,823,886

Commitments and Contingencies (Note 13)

Stockholders’ Equity
Common stock, par value $0.001 per share; 30,000,000 shares authorized; 4,779,614 and 1,266,979 shares issued and outstanding as of December 31, 2019 and March 31, 2019, respectively		4,781			1,267
Additional paid-in capital		114,172,714			108,076,275
Accumulated deficit		(110,243,475	)		(105,652,433	)
Total Aethlon Medical, Inc. stockholders’ equity before noncontrolling interests		3,934,020			2,425,109

Noncontrolling interests		(129,838	)		(126,031	)

Total stockholders’ equity		3,804,182			2,299,078

Total liabilities and stockholders’ equity	$	4,682,491		$	4,122,964

	Nine Months Ended December 31, 2019			Nine Months Ended December 31, 2018

Cash flows used in operating activities:
Net loss	$	(4,594,850	)	$	(4,573,416	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		15,992			24,756
Stock based compensation		755,648			944,512
Loss on debt extinguishment		447,011			–
Gain on share for warrant exchanges		(51,190	)		–
Amortization of debt discount		30,287			90,861
Common stock issued for services		–			19,350
Non-cash rent expense		68,856			–
Changes in operating assets and liabilities:
Accounts receivable		(206,729	)		74,813
Prepaid expenses and other current assets		169,691			152,411
Accounts payable and other current liabilities		(271,533	)		391,369
Deferred revenue		100,000			–
Lease liability		(67,994	)		–
Due to related parties		27,558			(20,616	)
Net cash used in operating activities		(3,577,253	)		(2,895,960	)

Cash flows used in investing activities:
Purchases of property and equipment		(148,064	)		–
Net cash used in investing activities		(148,064	)		–

Cash flows provided by (used in) financing activities:
Proceeds from the issuance of common stock, net		4,987,468			883,500
Principal payments on convertible notes		(992,591	)		–
Tax withholding payments or tax equivalent payments for net share settlement of restricted stock units		(38,981	)		(136,709	)
Net provided by financing activities		3,955,896			746,791

Net increase (decrease) in cash		230,579			(2,149,169	)

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

Cash at end of period	$	4,058,653		$	4,824,901

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	$	10		$	138
Par value of shares issued for round up following reverse split	$	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

	(In thousands) For the nine months ended
	December 31, 2019			December 31, 2018
Cash used in:
Operating activities	$	(3,577	)	$	(2,896	)
Investing activities		(148	)		–
Financing activities		3,956			747
Net increase (decrease) in cash	$	231		$	(2,149	)