AETHLON MEDICAL INC 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on the Nasdaq Capital Market under the trading symbol “AEMD.” On July 7, 2015, The Nasdaq Stock Market LLC approved our application for listing our common stock on the Nasdaq Capital Market under the symbol “AEMD,” and we commenced trading on the Nasdaq Capital Market on July 13, 2015. Previously, our common stock was quoted on the OTCQB Marketplace under the trading symbol “AEMD.” Holders of Record There were approximately 67 record holders of our common stock at June 21, 2021. The number of registered stockholders includes any beneficial owners of common shares held in street name. Dividend Policy We have not paid any dividends on our common stock to date and do not anticipate that we will pay dividends in the foreseeable future. Any payment of cash dividends on our common stock in the future will be dependent upon the amount of funds legally available, our earnings, if any, our financial condition, our anticipated capital requirements and other factors that the board of directors may think are relevant. However, we currently intend for the foreseeable future to follow a policy of retaining all of our earnings, if any, to finance the development and expansion of our business and, therefore, do not expect to pay any dividends on our common stock in the foreseeable future. Recent Sales of Unregistered Securities The Company did not have any sales of unregistered securities for the period covered by this Annual Report. Securities Authorized for Issuance Under Equity Compensation Plans Information about our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report. ITEM 6. SELECTED FINANCIAL DATA As a Smaller Reporting Company, we are not required to furnish information under this Item 6. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the consolidated Financial Statements and Notes thereto appearing elsewhere in this Annual Report. 44 Overview We are a medical technology company focused on developing products to diagnose and treat life and organ threatening diseases. The Aethlon 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). The primary endpoint for the EFS, which will enroll 10-12 subjects at a single center, will be safety, with secondary endpoints including measures of exosome clearance and characterization, as well as response and survival rates. This study is being conducted at the UPMC Hillman Cancer Center in Pittsburgh, PA, is in the process of recruiting and treating patients. We also believe the Hemopurifier can be part of the broad-spectrum treatment of life-threatening highly glycosylated, or carbohydrate coated, viruses that are not addressed with an already approved treatment. In small-scale or early feasibility human studies, the Hemopurifier has been used to treat individuals infected with human immunodeficiency virus, or HIV, 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 validations were conducted in collaboration with leading government or non-government research institutes. On June 17, 2020, the FDA approved a supplement to our 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 initial sites for this trial, Hoag Memorial Hospital Presbyterian in Newport Beach, CA and Hoag Hospital – Irvine in Irvine, CA and Loma Linda Hospital in Loma Linda, CA, have completed clinical trial agreements, and have received IRB approval in the case of the Hoag hospitals, and are preparing to open for patient enrollment. Under Single Patient Emergency Use regulations, the Company has also treated two patients with COVID-19 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. 45 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. 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. Fiscal Years Ended March 31, 2021 and 2020 Results of Operations Government Contract Revenues We recorded government contract revenue in the fiscal years ended March 31, 2021 and 2020. This revenue resulted from work performed under our government contracts with the NIH and our subaward with the University of Pittsburgh as follows: Fiscal Year Ended 3/31/21 Fiscal Year Ended 3/31/20 Change in Dollars Phase 2 Melanoma Cancer Contract $ 436,427 $ 620,187 $ (183,760 ) Breast Cancer Grant 188,444 30,000 158,444 Subaward with University of Pittsburgh 34,233 – 34,233 Total Government Contract and Grant Revenue $ 659,104 $ 650,187 $ 8,917 46 We have recognized revenue under the following three government contracts/grants over the past two years: Phase 2 Melanoma Cancer Contract On September 12, 2019, the National Cancer Institute, or NCI, part of the National Institutes of Health, or NIH, 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 focuses on melanoma exosomes. This work follows from our completion of a phase I contract for the Topic 359 solicitation that ran from September 2017 through June 2018. Following on the phase I work, the deliverables in the phase II program involve the design and testing of a pre-commercial prototype of a more advanced version of the exosome isolation platform. During the fiscal year ended March 31, 2021, we completed the milestones relevant to the first nine months of the fiscal year. As a result, we recorded $436,427 of government contract revenue on the Phase 2 Melanoma Cancer Contract in the fiscal year ended March 31, 2021. Of the total revenue recognized during the current period relating to this grant, a total of $117,849 was invoiced to the NCI during the three months ended December 31, 2020 and we recorded $318,578 which had previously been recognized as deferred revenue. During the three month period ended March 31, 2021, we did not complete all of the milestones relevant to that time period, as a result, we recorded $114,849 as deferred revenue related to the Phase 2 Melanoma Cancer Contract. Breast Cancer Grant In the fiscal year ended March 31, 2021, we completed and submitted the final reports applicable to this NCI 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,” 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; through August 31, 2020. The total amount of the firm grant was $298,444. The grant called for two subcontractors to work with us. Those subcontractors were University of Pittsburgh and Massachusetts General Hospital. During the fiscal year ended March 31, 2021, 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. 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 March 31, 2021, we received all of the funds allocated to the Breast Cancer Grant and have submitted the final reports applicable to this grant. Subaward with University of Pittsburgh In 2020, we entered into a cost reimbursable subaward arrangement with the University of Pittsburgh in connection with an NIH contract entitled “Depleting Exosomes to Improve Responses to Immune Therapy in HNNCC.” Our share of the award is $256,750. We recorded $34,233 of revenue related to this subaward in the fiscal year ended March 31, 2021. 47 Operating Costs and Expenses Consolidated operating expenses were $8,549,023 for the fiscal year ended March 31, 2021, compared to $6,580,175 for the fiscal year ended March 31, 2020, an increase of $1,968,848. The $1,968,848 increase was due to increases in payroll and related expenses of $1,152,342 and in general and administrative expense of $907,867, which were partially offset by a decrease of $91,361 in professional fees. The $1,152,342 increase in fiscal year ended March 31, 2021 in our payroll and related expenses was due to an increase in cash-based compensation of $1,216,919, which was partially offset by a decrease in our stock-based compensation of $64,577. Approximately $444,729 of the increase in cash-based compensation related to an accrual for severance payments to our former Chief Executive Officer. The $907,867 increase in fiscal year ended March 31, 2021 in our general and administrative expenses primarily arose from increases of $460,817 in our clinical trial expenses and $469,304 in laboratory supplies. The $91,361 decrease in fiscal year ended March 31, 2021 in our professional fees primarily arose from decreases of $295,022 in legal fees and $116,536 in accounting fees, which were partially offset by increases of $179,457 in scientific consulting fees, $94,548 in recruiting fees and $58,966 in contract labor costs. Other Expense In the fiscal year ended March 31, 2021, we recognized other expenses of $1,580, compared to $450,053 of other expense in the fiscal year ended March 31, 2020. The following table breaks out the various components of our other expense over the fiscal years ended March 31, 2021 and 2020: Components of Other Expense in Fiscal Year Ended March 31, 2021 March 31, 2020 Change Loss on debt extinguishment $ – $ 447,011 $ (447,011 ) (Gain) on share for warrant exchanges – (51,190 ) 51,190 Interest and other debt expenses 1,580 54,232 (52,652 ) Total other expense $ 1,580 $ 450,053 $ (448,473 ) Loss on Debt Extinguishment During the fiscal year ended March 31, 2020, we reduced the conversion price on our 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. There was no comparable loss on debt extinguishment in the fiscal year ended March 31, 2021. 48 Gain on Common Stock for Warrant Cancellation During the fiscal year ended March 31, 2020, 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. There was no comparable gain on common stock for warrant cancellation in the fiscal year ended March 31, 2021. Interest and Other Debt Expenses Our interest and other debt expense decreased by $52,652 in the fiscal year ended March 31, 2021, from the fiscal year ended March 31, 2020. The following table breaks out the various components of our interest expense over the fiscal years ended March 31, 2021 and 2020: Components of Interest Expense and Other Debt Expenses in Fiscal Year Ended March 31, 2021 March 31, 2020 Change Interest expense and financing charges $ 1,580 $ 23,945 $ (22,365 ) Amortization of note discounts – 30,287 (30,287 ) Total interest and other debt expenses $ 1,580 $ 54,232 $ (52,652 ) As noted in the above table, the factors in the $52,652 overall decrease in fiscal year ended March 21, 2021 in interest and other debt expenses were a $30,287 decrease in the amortization of note discounts and a $22,365 decrease in interest expense in fiscal year ended March 31, 2021 as the result of paying off our convertible notes. As a result of the above factors, our net loss before noncontrolling interests increased to $7,891,499 for the fiscal year ended March 31, 2021, from $6,380,041 for the fiscal year ended March 31, 2020. Liquidity and Capital Resources At March 31, 2021, we had a cash balance of $9,861,575 and working capital of $8,976,512. This compares to a cash balance of $9,604,780 and working capital of $8,973,393 at March 31, 2020. We expect our existing cash as of March 31, 2021 to be sufficient to fund the Company’s operations for at least twelve months from the issuance date of this Form 10-K. The primary source of our increase in cash during the fiscal year ended March 31, 2021 resulted from our Common Stock Sales Agreement with H.C. Wainwright & Co., LLC, or Wainwright, entered into originally in 2016. The cash raised from that activity is described below: Common Stock Sales Agreement with Wainwright On June 28, 2016, we entered into a Common Stock Sales Agreement, or the 2016 Agreement, with Wainwright, which established an at-the-market equity program pursuant to which we may offer and sell shares of our common stock from time to time as set forth in the 2016 Agreement. The 2016 Agreement provided for the sale of shares of our common stock having an aggregate offering price of up to $12,500,000. 49 On March 30, 2020, we executed Amendment No. 2 to the 2016 Agreement with Wainwright, effective as of the same date. The amendment provides that references in the 2016 Agreement to the registration statement shall refer to the registration statement on Form S-3 (File No. 333-237269), originally filed with the SEC on March 19, 2020, declared effective by the SEC on March 30, 2020. Subject to the terms and conditions set forth in the 2016 Agreement, Wainwright agreed to use its commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares under the 2016 Agreement from time to time, based upon our instructions. We provided Wainwright with customary indemnification rights under the 2016 Agreement, and Wainwright is entitled to a commission at a fixed rate equal to three percent of the gross proceeds per share sold. In addition, we agreed to pay certain expenses incurred by Wainwright in connection with the 2016 Agreement, including up to $50,000 of the fees and disbursements of their counsel. The 2016 Agreement will terminate upon the sale of all of the shares under the 2016 Agreement, unless terminated earlier by either party as permitted under the 2016 Agreement. As of March 31, 2021, no further sales will be made under the 2016 Agreement. On March 22, 2021, we entered into an At the Market Offering Agreement, or the Offering Agreement, with Wainwright as sales agent, pursuant to which we may offer and sell shares of our common stock, from time to time as set forth in the Offering Agreement. The offering was registered under the Securities Act of 1933, as amended, or Securities Act , pursuant to our shelf registration statement on Form S-3 (Registration Statement No. 333-237269), as previously filed with the SEC and declared effective on March 30, 2020. We filed a prospectus supplement, dated March 22, 2021, with the SEC in connection with the offer and sale of the shares of common stock, pursuant to which we may offer and sell shares of common stock having an aggregate offering price of up to $5,080,000 from time to time. Subject to the terms and conditions set forth in the Offering Agreement, Wainwright agreed to use its commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares under the Offering Agreement from time to time, based upon our instructions. We provided Wainwright with customary indemnification rights under the Offering Agreement, and Wainwright is entitled to a commission at a fixed rate equal to three percent of the gross proceeds per share sold. In addition, we agreed to reimburse Wainwright for certain specified expenses in connection with entering into the Offering Agreement. The Offering Agreement will terminate upon the written termination by either party as permitted thereunder. Sales of the shares, if any, under the 2016 Agreement and the Offering 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 Wainwright. We have no obligation to sell any of the shares, and, at any time, we may suspend offers under the 2016 Agreement and the Offering Agreement or terminate the Agreement. In the fiscal year ended March 31, 2021, we raised aggregate net proceeds of $7,260,869, net of $224,825 in commissions to Wainwright and $8,472 in other offering expenses, under the 2016 Agreement through the sale of 2,685,600 shares at an average price of $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. 50 As a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. If equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive. Any of these actions could materially harm our business, results of operations and future prospects. Cash Flows Cash flows from operating, investing and financing activities, as reflected in the accompanying Consolidated Statements of Cash Flows, are summarized as follows (in thousands): (In thousands) For the year ended March 31, 2021 March 31, 2020 Cash (used in) provided by: Operating activities $ (6,765 ) $ (5,198 ) Investing activities (60 ) (152 ) Financing activities 7,128 11,126 Net increase in cash $ 303 $ 5,776 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 $6,765,000 in fiscal 2021, compared to net cash used in operating activities of approximately $5,198,000 in fiscal 2020, an increase of approximately $1,567,000. The primary factors in this $1,567,000 increase in cash used in operations was a $1,511,000 increase in our net loss. Net Cash Used in Investing Activities During the fiscal years ended March 31, 2121 and 2020, we purchased approximately $60,000 and $152,000 of equipment, respectively. Net Cash from Financing Activities Net cash generated from financing activities decreased from approximately $11,126,000 in the fiscal year ended March 31, 2020 to approximately $7,128,000 in the fiscal year ended March 31, 2021. In the fiscal year ended March 31, 2021, we raised approximately $7,261,000 from the issuance of common stock, which was partially offset by the use of approximately $133,000 to pay for the tax withholding on the issuance of restricted stock units. In the fiscal year ended March 31, 2020, we raised approximately $12,160,000 from the issuance of common stock. We used approximately $993,000 to pay off our convertible notes in the fiscal year ended March 31, 2020 and we also used approximately $41,000 to pay for the tax withholding on restricted stock units issued in the fiscal year ended March 31, 2020. 51 Recent Events RSU Grants On April 1, 2021, pursuant to the terms of the Company’s 2012 Non-Employee Directors Compensation Program, as amended, or the Directors Plan, the Compensation Committee of the Board granted RSUs under the Company’s 2020 Equity Incentive Plan, or the 2020 Plan, to each non-employee director of the Company. The Director’s Plan provides for a grant of $50,000 worth of RSUs at the beginning of each fiscal year, priced at the average for the closing prices for the five days preceding and including the date of grant, or $2.06 per share as of April 1, 2021. Each eligible director was granted an RSU in the amount of 24,295 shares under the 2020 Plan. The RSU’s are subject to vesting in four equal quarterly installments on June 30, September 30, December 31, 2021, and March 31, 2022, subject to the recipient's continued service with the Company on each such vesting date. Sales Under ATM Facility In June 2021, we raised aggregate net proceeds of $4,947,785, net of $126,922 in commissions to Wainwright and $2,154 in other offering expenses, under the Offering Agreement described above through the sale of 626,000 shares of our common stock at an average purchase price of $8.11 per share of gross proceeds. Registered Direct Financing In June 2021, we sold an aggregate of 1,380,555 shares of our common stock at a purchase price per share of $9.00, for aggregate gross proceeds to us of approximately $12.425 million, before deducting fees payable to Maxim Group LLC, the placement agent and other offering expenses. These shares were sold pursuant to a securities purchase agreement entered into by the Company with certain institutional investors, The shares of common stock were issued in this offering pursuant to an effective shelf registration statement on Form S-3, which was originally filed with the SEC on March 19, 2020, and was declared effective on March 30, 2020 (File No. 333-237269) (the “Registration Statement”) and a prospectus supplement thereunder. Warrant Exercises In June 2021, pursuant to the exercise of outstanding warrants held by institutional investors, we issued 531,167 shares of our common stock and received proceeds in the amount of $820,938. Also in June 2021, pursuant to the exercise on a cashless, net exercise basis, of 874,664 outstanding warrants, we issued 675,554 shares of our common stock. The difference of 199,110 outstanding warrants were cancelled in connection with the exercise. 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. Such estimates and assumptions affect the reported amounts of expenses during the reporting period. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions. We believe that the estimates and assumptions that are most important to the portrayal of our financial condition and results of operations, in that they require the most difficult, subjective or complex judgments, form the basis for the accounting policies deemed to be most critical to us. These critical accounting 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. 52 Revenue Recognition Our revenues consist entirely of amounts earned under contracts and grants with the National Institutes of Health, or NIH. During the fiscal years ended March 31, 2021 and 2020, we recognized revenues totaling $659,104 and $650,187, respectively, under such contracts. We have concluded that these agreements are not within the scope of ASC Topic, 606, Revenue from Contracts with Customers, or Topic 606, as the NIH grants and contracts do not meet the definition of a “customer” as defined by Topic 606. Prior to the effective date of ASC Topic 606, which for the Company was April 1, 2018, we accounted for our grant/contract revenues under the Milestone Method as prescribed by the legacy guidance of ASC 605-28, Revenue Recognition – Milestone Method, or the Milestone Method. In the absence of other applicable guidance under US GAAP, effective April 1, 2018, we elected to continue to use the Milestone Method by analogy to recognize revenue under these grants/contracts. Common Stock Warrants We often grant warrants to purchase our common stock in connection with financing transactions. When such warrants are classified as equity, we measure the relative estimated fair value of such warrants which represents a discount from the face amount of the notes payable. Such discounts are amortized to interest expense over the term of the notes. We analyze such warrants for classification as either equity or derivative liabilities and value them based on binomial lattice models. Share-based Compensation We account for share-based compensation awards using the fair-value method and record such expense based on the grant date fair value in the consolidated financial statements over the requisite service period. Derivative Instruments We evaluate free-standing derivative instruments (or embedded derivatives) to properly classify such instruments within equity or as liabilities in our financial statements. Our policy is to settle instruments indexed to our common shares on a first-in-first-out basis. The classification of a derivative instrument is reassessed at each reporting date. If the classification changes as a result of events during a reporting period, the instrument is reclassified as of the date of the event that caused the reclassification. There is no limit on the number of times a contract may be reclassified. Instruments classified as derivative liabilities are remeasured each reporting period (or upon reclassification) and the change in fair value is recorded on our consolidated statement of operations in other expense (income). We had no derivative instruments at March 31, 2021 or March 31, 2020. Income Taxes Deferred tax assets are recognized for the future tax consequences attributable to the difference between the consolidated financial statements and their respective tax basis. Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts reported for income tax purposes, and (b) tax credit carryforwards. We record a valuation allowance for deferred tax assets when, based on our best estimate of taxable income (if any) in the foreseeable future, it is more likely than not that some portion of the deferred tax assets may not be realized. 53 Off-Balance Sheet Arrangements We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. Convertible Notes Payable and Warrants In July 2019, we paid off our then outstanding convertible notes in the amount of $992,591. There were no convertible notes outstanding as of March 31, 2021 or 2020. Restricted Stock Unit Grants to Non-Employee Directors In 2012, as amended through October 30, 2020, our Board of Directors established the Non-Employee Directors Compensation Program, to provide for cash and equity compensation for persons serving as non-employee directors of the Company. Under this program, each new director receives either stock options or a grant of restricted stock units, or 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 upon vesting. On April 3, 2020, pursuant to the terms of the Company’s Non-Employee Directors 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 non-employee director for fiscal year 2020 would be 24,822 shares of our common stock. 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 each eligible director a contingent grant under our 2020 Equity Incentive Plan, or the 2020 Plan, for the remaining portion of the annual RSU grants, or 929 RSU’s to each eligible director, contingent upon stockholder approval of the 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 subject to the grants will vest on December 31, 2020 and 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 2020, 29,866 vested RSUs held by our non-employee directors were exchanged into the same number of shares of our common stock. 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 11,947 of the vested RSUs being cancelled in exchange for $24,251 in aggregate cash proceeds to those independent directors. In September 2020, 29,866 vested RSUs held by our non-employee directors were exchanged into the same number of shares of our common stock. 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 11,947 of the vested RSUs being cancelled in exchange for $16,128 in aggregate cash proceeds to those independent directors. Also in September 2020, our stockholders approved the 2020 Plan at the Annual Meeting, at which point the grants of 929 RSUs to each of our eligible independent directors for a total of 4,645 RSUs were considered effective and no longer contingent as of that date. In December 2020, 32,189 vested RSUs held by our non-employee directors were exchanged into the same number of shares of our common stock. 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 12,876 of the vested RSUs being cancelled in exchange for $31,802 in aggregate cash proceeds to those independent directors. 54 In March 2021, 32,189 vested RSUs held by our non-employee directors were exchanged into the same number of shares of our common stock. All five 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 12,875 of the vested RSUs being cancelled in exchange for $26,136 in aggregate cash proceeds to those independent directors. There were no vested RSUs outstanding as of March 31, 2021. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a Smaller Reporting Company, we are not required to furnish information under this Item 7A. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements listed in the accompanying Index to Financial Statements are attached hereto and filed as a part of this Report under Item 15. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.