AETHLON MEDICAL INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures We maintain “disclosure controls and procedures,” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) that are designed to ensure that information required to be disclosed, in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we were required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation as of the end of the period covered by this report under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective. Internal Control over Financial Reporting (a) Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. 55 Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2021. According to the guidelines established by Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, one or more material weaknesses renders a company’s internal control over financial reporting ineffective. Based on this evaluation, we have concluded that our internal control over financial reporting was effective as of March 31, 2021. (b) Changes in Internal Control Over Financial Reporting There was no change in our internal control over financial reporting during the last fiscal quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION We have no disclosure applicable to this item. 56 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Except as set forth below, the information required by this item will be contained in our Definitive Proxy Statement to be filed with the SEC in connection with our 2021 Annual Meeting of Stockholders, the Proxy Statement, within 120 days after the end of the fiscal year ended March 31, 2021, and is incorporated herein by reference. On February 23, 2005, the Board of Directors approved a “Code of Business Conduct and Ethics,” or the Code, which applies to our principal executive officer, our principal financial officer, our principal accounting officer and persons performing similar tasks. On February 6, 2020, the Board of Directors adopted an amended Code, which supersedes the Company’s existing Code previously adopted by the Board of Directors. Our Code is available on our company website at www.aethlonmedical.com. If we make any substantive amendments to, or grant any waivers from, the Code of Business Conduct and Ethics for any officer or director, we will disclose the nature of such amendment or waiver on our website or in a Current Report on Form 8-K. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will be contained in our Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item will be contained in our Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE The information required by this item will be contained in our Proxy Statement and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this item will be contained in our Proxy Statement and is incorporated herein by reference. 57 PART IV ITEM 15. EXHIBITS ANDFINANCIAL STATEMENT SCHEDULES The following documents are filed as part of this report on Form 10-K: 1. Consolidated Financial Statements for the years ended March 31, 2021 and 2020: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 2. Exhibits Incorporated by Reference Exhibit Number Exhibit Description Form SEC File No. Exhibit Number Date Filed Herewith 3.1 Articles of Incorporation. S-3 333-211151 3.1 May 5, 2016 3.2 Amended and Restated Bylaws of the Company. 8-K 001-37487 3.1 September 12, 2019 4.1 Form of Common Stock Certificate. S-1 333-201334 4.1 December 31, 2014 4.2 Form of Common Stock Purchase Warrant dated August 29, 2012. 8-K 000-21846 4.1 September 6, 2012 4.3 Form of Common Stock Purchase Warrant dated October, November and December 2012. 10-Q 000-21846 4.1 February 13, 2013 4.4 Form of Common Stock Purchase Warrant dated June 14, 2013. 10-Q 000-21846 4.1 August 13, 2013 4.5 Form of Common Stock Purchase Warrant dated June 24, 2014. 8-K 000-21846 4.1 June 30, 2014 4.6 Form of Common Stock Purchase Warrant dated July 24, 2014. 8-K 000-21846 4.1 July 28, 2014 4.7 Form of Common Stock Purchase Warrant dated August and September 2014. 10-Q 000-21846 4.3 November 10, 2014 58 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 4.16 Description of Aethlon Medical, Inc.’s Securities. 10-K 001-37487 4.16 June 25, 2020 10.1 Amended 2010 Stock Incentive Plan. ++ 8-K 001-37487 10.1 March 30, 2016 10.2 Standard Industrial Net Lease, by and between Glenborough Aventine, LLC and Aethlon Medical, Inc., dated September 28, 2009. 10-Q 000-21846 10.6 November 16, 2009 10.3 Second Amendment to Standard Industrial Net Lease, by and between AGP Sorrento Business Complex and Aethlon Medical, Inc., dated October 10, 2014. S-1 333-201334 10.52 December 31, 2014 10.4 Office Lease, by and between T-C Stonecrest LLC and Aethlon Medical, Inc., dated November 13, 2014. 8-K/A 000-21846 10.1 November 19, 2014 10.5 UCI Clinical Trial Agreement, by and between The Regents of the University of California, on behalf of its Irvine campus and Aethlon Medical, Inc., dated March 24, 2015. 8-K 000-21846 10.1 April 15, 2015 10.8 Third Amendment to Standard Industrial Net Lease, by and between AGP Sorrento Business Complex, L.P. and Aethlon Medical, Inc., dated October 21, 2015. 10-Q 001-37487 10.5 November 16, 2015 10.9 Common Stock Sales Agreement, by and between H.C. Wainwright & Co., LLC and Aethlon Medical, Inc., dated June 28, 2016. 8-K 001-37487 10.1 June 28, 2016 59 10.10 Amendment No. 1 to Common Stock Sales Agreement, by and between H.C. Wainwright & Co., LLC and Aethlon Medical, Inc., dated June 28, 2016. 8-K 001-37487 10.1 August 12, 2019 10.11 Amendment No. 2 to Common Stock Sales Agreement, by and between H.C. Wainwright & Co., LLC and Aethlon Medical, Inc., dated March 30, 2020. 10-Q 001-37487 10.1 August 11, 2020 10.12 Aethlon Medical, Inc. Amended and Restated Non-Employee Directors Compensation Policy, as Modified on October 30, 2020. X 10.13 Fourth Amendment to Standard Industrial Net Lease, by and between AGP Sorrento Business Complex, L.P. and Aethlon Medical, Inc., dated October 5, 2016. 10-K 001-37487 10.80 June 28, 2017 10.14 Form of Securities Purchase Agreement, by and among each purchaser identified on the signature pages therein and Aethlon Medical, Inc., dated March 22, 2017. ++ 8-K 001-37487 10.1 March 22, 2017 10.15 Form of Securities Purchase Agreement, by and among each purchaser identified on the signature pages therein and Aethlon Medical, Inc., dated September ______, 2017. ++ S-1 333-220490 10.84 September 15, 2017 10.16 Fifth Amendment to Standard Industrial Net Lease, by and between AGP Sorrento Business Complex, L.P. and Aethlon Medical, Inc., dated October 16, 2017. 10-Q 001-37487 10.1 November 2, 2017 10.17 Sixth Amendment to Standard Industrial Net Lease, by and between AGP Sorrento Business Complex, L.P. and Aethlon Medical, Inc., dated September 18, 2018. 10-Q 001-37487 10.1 November 6, 2018 10.18 Employment Agreement, by and between Aethlon Medical, Inc. and James Frakes, dated December 12, 2018. ++ 10-Q 001-37487 10.3 February 11, 2019 10.19 Form of Indemnification Agreement for Officers and Directors. ++ 10-Q 001-37487 10.4 February 11, 2019 10.20 Form of Option Grant Agreement for Officers and Directors. ++ 10-Q 001-37487 10.5 February 11, 2019 60 10.21 Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement for Directors. ++ 10-Q 001-37487 10.6 February 11, 2019 10.22 Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement for Executives. ++ 10-Q 001-37487 10.7 February 11, 2019 10.23 Seventh Amendment to Standard Industrial Net Lease, by and between Aethlon Medical, Inc. and San Diego Inspire 1, LLC., dated September 9, 2019. 10-Q 001-37487 10.1 November 1, 2019 10.24 SBIR Phase II Award Contract, by and among Aethlon Medical, Inc., the National Institutes of Health and the National Cancer Institute, dated September 12, 2019. 10-Q 001-37487 10.2 November 1, 2019 10.25 Assignment Agreement, by and between Aethlon Medical, Inc. and London Health Sciences Center Research Inc., dated November 7, 2006. S-1 001-37487 10.27 November 15, 2019 10.26 Form of Securities Purchase Agreement, by and between Aethlon Medical, Inc. and the Purchasers thereto, dated January 17, 2020. 8-K 001-37487 10.1 January 17, 2020 10.27 Aethlon Medical, Inc. 2020 Equity Incentive Plan, Form of Restricted Stock Grant, Form of Option Grant and Agreement. 8-K 001-37487 10.1 September 15, 2020 10.28 Separation Agreement between the Company and Dr. Rodell, dated October 30, 2020. 8-K 001-37487 10.1 November 3, 2020 10.29 Employment Agreement between the Company and Dr. Fisher, dated October 30, 2020. 8-K 001-37487 10.2 November 3, 2020 10.30 Lease, by and between the Company and San Diego Inspire 1, LLC. and San Diego Inspire 2, LLC, effective December 7, 2020. 10-Q 001-37487 10.3 February 10, 2021 10.31 Eighth Amendment to Standard Industrial Net Lease, by and between the Company and San Diego Inspire 1, LLC., effective December 7, 2020. 10-Q 001-37487 10.4 February 10, 2021 61 10.32 Executive Employment Agreement between the Company and Guy Cipriani, dated January 1, 2021. 10-Q 001-37487 10.5 February 10, 2021 10.33 Executive Employment Agreement between the Company and Steven P. LaRosa, MD, dated January 4, 2021. 10-Q 001-37487 10.6 February 10, 2021 10.34 At the Market Offering Agreement, March 22, 2021, by and between Aethlon Medical, Inc. and H.C. Wainwright & CO., LLC. 8-K 001-37487 1.1 March 22, 2021 21.1 List of Subsidiaries. S-1 333-201334 21.1 December 31, 2014 23.1 Consent of Independent Registered Public Accounting Firm X 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. X 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 . X 32.1 Statement of our Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). X 32.2 Statement of our Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). X 101.INS XBRL Instance Document X 101.SCH XBRL Schema Document X 101.CAL XBRL Calculation Linkbase Document X 101.DEF XBRL Definition Linkbase Document X 101.LAB XBRL Label Linkbase Document X 101.PRE XBRL Presentation Linkbase Document X ___________________ ++ Indicates management contract or compensatory plan. ITEM 16. FORM 10-K SUMMARY None. 62 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, on the 24th day of June, 2021. By: /s/ CHARLES J. FISHER, JR., M.D. Charles J. Fisher, Jr., M.D. Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James B. Frakes and Timothy C. Rodell, his or her true and lawful attorney-in-fact and agent, with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ CHARLES J. FISHER, JR., MD Chief Executive Officer, Principal Executive Officer and Director June 24, 2021 Charles J. Fisher, Jr., MD /s/ JAMES B. FRAKES Chief Financial Officer and Principal Accounting Officer June 24, 2021 James B. Frakes /s/ EDWARD G. BROENNIMAN Chairman and Director June 24, 2021 Edward G. Broenniman /s/ CHETAN S. SHAH Director June 24, 2021 Chetan S. Shah /s/ SABRINA MARTUCCI JOHNSON Director June 24, 2021 Sabrina Martucci Johnson /s/ GUY CIPRIANI SVP and Chief Business Officer and Director June 24, 2021 Guy Cipriani 63 AETHLON MEDICAL, INC. AND SUBSIDIARY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Consolidated Financial Statements Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of March 31, 2021 and 2020 F-3 Consolidated Statements of Operations for the Years Ended March 31, 2021 and 2020 F-4 Consolidated Statements of Equity for the Years Ended March 31, 2021 and 2020 F-5 Consolidated Statements of Cash Flows for the Years Ended March 31, 2021 and 2020 F-6 Notes to Consolidated Financial Statements F-7 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Aethlon Medical, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Aethlon Medical, Inc. and its subsidiary (the Company) as of March 31, 2021 and 2020, the related consolidated statements of operations, equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. Baker Tilly US, LLP We have served as the Company's auditor since 2001. San Diego, California June 24, 2021 F- 2 AETHLON MEDICAL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS March 31, 2021 March 31, 2020 ASSETS CURRENT ASSETS Cash $ 9,861,575 $ 9,604,780 Accounts receivable 149,082 206,729 Prepaid expenses and other current assets 341,081 229,604 TOTAL CURRENT ASSETS 10,351,738 10,041,113 Property and equipment, net 160,976 140,484 Right-of-use lease asset 40,363 136,426 Patents, net 56,954 57,504 Restricted cash 46,726 – Deposits 12,159 12,159 TOTAL ASSETS $ 10,668,916 $ 10,387,686 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable $ 337,678 $ 285,036 Due to related parties 118,520 111,707 Deferred revenue 114,849 100,000 Lease liability, current portion 42,543 98,557 Other current liabilities 761,636 472,420 TOTAL CURRENT LIABILITIES 1,375,226 1,067,720 Lease liability, less current portion – 42,540 TOTAL LIABILITIES 1,375,226 1,110,260 COMMITMENTS AND CONTINGENCIES (Note 11) STOCKHOLDERS’ EQUITY Common stock, $0.001 par value, 30,000,000 shares authorized at March 31, 2021 and 2020; 12,150,597 and 9,366,873 issued and outstanding at March 31, 2021 and 2020, respectively 12,152 9,368 Additional paid-in capital 129,331,542 121,426,563 Accumulated deficit (119,913,090 ) (112,026,381 ) TOTAL AETHLON MEDICAL, INC. STOCKHOLDERS’ EQUITY BEFORE NONCONTROLLING INTERESTS 9,430,604 9,409,550 NONCONTROLLING INTERESTS (136,914 ) (132,124 ) TOTAL STOCKHOLDERS’ EQUITY 9,293,690 9,277,426 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 10,668,916 $ 10,387,686 See accompanying notes to the consolidated financial statements. F- 3 AETHLON MEDICAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended March 31, 2021 2020 REVENUES: Government contract and grant revenue $ 659,104 $ 650,187 Total revenues 659,104 650,187 OPERATING COSTS AND EXPENSES Professional fees 2,637,664 2,729,025 Payroll and related expenses 3,454,941 2,302,599 General and administrative 2,456,418 1,548,551 Total operating expenses 8,549,023 6,580,175 OPERATING LOSS (7,889,919 ) (5,929,988 ) OTHER EXPENSE Loss on debt extinguishment – 447,011 (Gain) on share for warrant exchanges – (51,190 ) Interest and other expenses 1,580 54,232 Total other expense 1,580 450,053 NET LOSS BEFORE NONCONTROLLING INTERESTS (7,891,499 ) (6,380,041 ) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS (4,790 ) (6,093 ) NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (7,886,709 ) $ (6,373,948 ) Basic and diluted net loss per share attributable to common stockholders $ (0.65 ) $ (1.87 ) Weighted average number of common shares outstanding - basic and diluted 12,090,884 3,414,840 See accompanying notes to the consolidated financial statements. F- 4 AETHLON MEDICAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF EQUITY FOR THE YEARS ENDED MARCH 31, 2021 AND 2020 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 161,149 162 895,869 – – 896,031 Loss on debt extinguishment – – 447,011 – – 447,011 Issuances of common stock for cash under warrant exercises 2,700,000 2,700 3,804,462 – – 3,807,162 Issuance of common shares upon vesting of restricted stock units. 12,393 12 (40,950 ) – – (40,938 ) Proceeds from the issuance of common stock in public offerings, net 5,218,712 5,219 7,451,096 – – 7,456,315 Issuances of common stock upon warrant exchanges 3,992 4 (51,194 ) – – (51,190 ) Par value of DTC roundup of shares following reverse split 3,946 4 (4 ) – – – Adjustment (298 ) – – – – – Stock-based compensation expense – – 843,998 – – 843,998 Net loss – – – (6,373,948 ) (6,093 ) (6,380,041 ) 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 2,685,600 2,686 7,258,183 – – 7,260,869 Issuance of common shares upon vesting of restricted stock units and net stock option exercise 98,124 98 (132,625 ) – – (132,527 ) Stock-based compensation expense – – 779,421 – – 779,421 Net loss – – – (7,886,709 ) (4,790 ) (7,891,499 ) BALANCE - MARCH 31, 2021 12,150,597 $ 12,152 $ 129,331,542 $ (119,913,090 ) $ (136,914 ) $ 9,293,690 See accompanying notes to the consolidated financial statements. F- 5 AETHLON MEDICAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 2021 AND 2020 2021 2020 Cash flows from operating activities: Net loss $ (7,891,499 ) $ (6,380,041 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 39,939 26,366 Gain on share for warrant exchanges – (51,190 ) Loss on debt extinguishment – 447,011 Stock based compensation 779,421 843,998 Amortization of debt discount and deferred financing costs – 30,287 Non-cash rent expense (2,491 ) 964 Changes in operating assets and liabilities: Accounts receivable 57,647 (206,729 ) Prepaid expenses and other current assets (111,477 ) (19,562 ) Accounts payable and other current liabilities 341,858 (16,765 ) Deferred revenue 14,849 100,000 Due to related parties 6,813 28,053 Net cash used in operating activities (6,764,940 ) (5,197,608 ) Cash flows from investing activities: Purchases of property and equipment (59,881 ) (151,665 ) Net cash used in investing activities (59,881 ) (151,665 ) Cash flows from financing activities: Tax withholding payments or tax equivalent payments for net share settlement of restricted stock units (132,527 ) (40,938 ) Principal repayments of notes payable – (992,591 ) Net proceeds from the issuance of common stock and exercise of warrants 7,260,869 12,159,508 Net cash provided by financing activities 7,128,342 11,125,979 Net increase in cash and restricted cash 303,521 5,776,706 Cash and restricted cash at beginning of year 9,604,780 3,828,074 Cash and restricted cash at end of year $ 9,908,301 $ 9,604,780 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ – $ 83,332 Supplemental information of non-cash investing and financing activities: Issuance of shares under vested restricted stock units, net stock option exercises and unvested share issuance for services $ 98 $ 12 Issuance of common stock upon warrant exchanges $ – $ 51,190 Initial recognition of right-of-use lease asset and lease liability $ – $ 228,694 Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets: Cash and cash equivalents $ 9,861,575 $ 9,604,780 Restricted cash $ 46,729 $ – Cash and restricted cash $ 9,908,301 $ 9,604,780 See accompanying notes to the consolidated financial statements. F- 6 Aethlon Medical, Inc. and Subsidiary Notes to Consolidated Financial Statements 1. ORGANIZATION, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Aethlon Medical, Inc. and its subsidiary (collectively, “Aethlon”, the “Company”, “we” or “us”), is 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 to12 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 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 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, 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 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. F- 7 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. 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 Effective October 14, 2019, the Company completed 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. The accompanying 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. All shares and per share amounts have been revised accordingly. LIQUIDITY AND GOING CONCERN Management expects existing cash as of March 31, 2021 and additional cash raised in June 2021 to be sufficient to fund the Company’s operations for at least twelve months from the issuance date of these consolidated financial statements. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Aethlon Medical, Inc. and its majority-owned (80% ownership) and controlled subsidiary, Exosome Sciences, Inc., or ESI. All significant intercompany balances and transactions have been eliminated in consolidation. The Company has classified the (20% ownership) noncontrolling interests in ESI as part of consolidated net loss in the fiscal years ended March 31, 2021 and 2020 and includes the accumulated amount of noncontrolling interests as part of equity. The losses at ESI during the fiscal year ended March 31, 2021 reduced the noncontrolling interests on our consolidated balance sheet by $4,790 from $(132,124) at March 31, 2020 to $(136,914) at March 31, 2021. F- 8 RISKS AND UNCERTAINTIES We operate in an industry that is subject to intense competition, government regulation and rapid technological change. Our operations are subject to significant risk and uncertainties including financial, operational, technological, regulatory, and including the potential risk of business failure. USE OF ESTIMATES We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, or GAAP, which 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. CASH AND CASH EQUIVALENTS Accounting standards define “cash and cash equivalents” as any short-term, highly liquid investment that is both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. For the purpose of financial statement presentation, we consider all highly liquid investment instruments with original maturities of three months or less when purchased, or any investment redeemable without penalty or loss of interest to be cash equivalents. As of March 31, 2021 and 2020, we had no assets that were classified as cash equivalents. CONCENTRATIONS OF CREDIT RISKS Cash is maintained at one financial institution in checking accounts. Accounts at this institution are secured by the Federal Deposit Insurance Corporation up to $250,000. Our March 31, 2021 cash balances were approximately $9,712,000 over such insured amount. We do not believe that the Company is exposed to any significant risk with respect to its cash. All of our accounts receivable at March 31, 2021 and all of our revenue in the fiscal years ended March 31, 2021 and 2020 related to our government contracts. Restricted Cash To comply with the terms of our new laboratory and office lease, 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. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, which range from two to five years. Repairs and maintenance are charged to expense as incurred while improvements are capitalized. Upon the sale or retirement of property and equipment, the accounts are relieved of the cost and the related accumulated depreciation with any gain or loss included in the consolidated statements of operations. F- 9 INCOME TAXES Deferred tax assets and liabilities 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. LONG-LIVED ASSETS Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the cost basis of a long-lived asset is greater than the projected future undiscounted net cash flows from such asset, an impairment loss is recognized. We believe no impairment charges were necessary during the fiscal years ended March 31, 2021 and 2020. LOSS PER SHARE Basic loss per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period of computation. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional 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 March 31, 2021 and 2020, a total of 2,836,062 and 2,072,492 potential common shares, consisting of shares underlying outstanding stock options, restricted stock units, warrants and convertible notes payable were excluded as their inclusion would be antidilutive. SEGMENTS Historically, we operated in one segment that was based on our development of therapeutic devices. However, in the December 2013 quarter, we initiated the operations of ESI to develop diagnostic tests. As a result, we now operate in two segments, Aethlon for therapeutic applications and ESI for diagnostic applications (See Note 9). 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. DEFERRED FINANCING COSTS Costs related to the issuance of debt are capitalized as a deduction to our convertible notes based on the new accounting standard on imputation of interest, and amortized to interest expense over the life of the related debt using the effective interest method. There was no amortization related to our deferred financing costs in the fiscal years ended March 31, 2021 and 2020. 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 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. F- 10 We identify the deliverables included within these agreements and evaluate which deliverables represent separate units of accounting based on if certain criteria are met, including whether the delivered element has standalone value to the collaborator. The consideration received is allocated among the separate units of accounting, and the applicable revenue recognition criteria are applied to each of the separate units. A milestone is an event having all of the following characteristics: (1) There is substantive uncertainty at the date the arrangement is entered into that the event will be achieved. A vendor’s assessment that it expects to achieve a milestone does not necessarily mean that there is not substantive uncertainty associated with achieving the milestone. (2) The event can only be achieved based in whole or in part on either: (a) the vendor’s performance; or (b) a specific outcome resulting from the vendor’s performance. (3) If achieved, the event would result in additional payments being due to the vendor. A milestone does not include events for which the occurrence is either: (a) contingent solely upon the passage of time; or (b) the result of a counterparty’s performance. The policy for recognizing deliverable consideration contingent upon achievement of a milestone must be applied consistently to similar deliverables. The assessment of whether a milestone is substantive is performed at the inception of the arrangement. The consideration earned from the achievement of a milestone must meet all of the following for the milestone to be considered substantive: (1) The consideration is commensurate with either: (a) the vendor’s performance to achieve the milestone; or (b) the enhancement of the value of the delivered item or items as a result of a specific outcome resulting from the vendor’s performance to achieve the milestone; (2) The consideration relates solely to past performance; and (3) The consideration is reasonable relative to all of the deliverables and payment terms (including other potential milestone consideration) within the arrangement. A milestone is not considered substantive if any portion of the associated milestone consideration relates to the remaining deliverables in the unit of accounting (i.e., it does not relate solely to past performance). To recognize the milestone consideration in its entirety as revenue in the period in which the milestone is achieved, the milestone must be substantive in its entirety. Milestone consideration cannot be bifurcated into substantive and nonsubstantive components. In addition, if a portion of the consideration earned from achieving a milestone may be refunded or adjusted based on future performance, the related milestone is not considered substantive. 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. F- 11 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. As of December 31, 2020, we have received all of the funds allocated to the Breast Cancer Grant. 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. STOCK-BASED COMPENSATION Employee stock options and rights to purchase shares under stock participation plans are accounted for under the fair value method. Accordingly, share-based compensation is measured when all granting activities have been completed, generally the grant date, based on the fair value of the award. The exercise price of options is generally equal to the market price of the Company’s common stock (defined as the closing price as quoted on the Nasdaq Capital Market or OTCBB on the date of grant). Compensation cost recognized by the Company includes (a) compensation cost for all equity incentive awards granted prior to April 1, 2006, but not yet vested, based on the grant-date fair value estimated in accordance with the original provisions of the then current accounting standards, and (b) compensation cost for all equity incentive awards granted subsequent to March 31, 2006, based on the grant-date fair value estimated in accordance with the provisions of subsequent accounting standards. We use a Binomial Lattice option pricing model for estimating fair value of options granted (see Note 5). F- 12 The following table summarizes share-based compensation expenses relating to shares and options granted and the effect on loss per common share during the years ended March 31, 2021 and 2020: Fiscal Years Ended March 31, 2021 March 31, 2020 Vesting of Stock Options and Restricted Stock Units $ 779,421 $ 843,998 Total Stock-Based Compensation Expense $ 779,421 $ 843,998 Weighted average number of common shares outstanding – basic and diluted 12,090,884 3,414,840 Basic and diluted loss per common share $ (0.06 ) $ (0.25 ) We record share-based compensation expenses for awards of stock options and restricted stock units, or RSUs, under ASC 718, Share-based compensation, or ASC 718. For awards to non-employees for periods prior to the adoption of ASU 2018-07, Compensation-Stock Compensation: Improvements to Non-employee Share-Based Payment Accounting, on April 1, 2019, the Company had applied ASC 505-50, Equity – Equity-based payments to non-employees, or ASC 505-50. ASC 718 establishes guidance for the recognition of expenses arising from the issuance of share-based compensation awards at their fair value at the grant date. We recognize share-based compensation expense related to stock options and SARs granted to employees, directors and consultants based on the estimated fair value of the awards on the date of grant. We estimate the grant date fair value, and the resulting share-based compensation expense, for stock options that only have service vesting requirements or performance-based vesting requirements without market conditions using the binomial lattice option-pricing model. The grant date fair value of the share-based awards with service vesting requirements is generally recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. Determining the appropriate amount to expense for performance-based awards based on the achievement of stated goals requires judgment. The estimate of expense is revised periodically based on the probability of achieving the required performance targets and adjustments are made as appropriate. The cumulative impact of any revisions is reflected in the period of change. If any applicable financial performance goals are not met, no compensation cost is recognized and any previously recognized compensation cost is reversed. For performance-based awards with market conditions, we determine the fair value of awards as of the grant date using a Monte Carlo simulation model. We review share-based compensation on a quarterly basis for changes to the estimate of expected award forfeitures based on actual forfeiture experience. The effect of adjusting the forfeiture rate for all expense amortization after March 31, 2007 is recognized in the period the forfeiture estimate is changed. The effect of forfeiture adjustments for the fiscal year ended March 31, 2020 was insignificant. PATENTS Patents include both foreign and domestic patents. We capitalize the cost of patents, some of which were acquired, and amortize such costs over the shorter of the remaining legal life or their estimated economic life, upon issuance of the patent. The unamortized costs of patents are subject to our review for impairment under our long-lived asset policy above. STOCK PURCHASE WARRANTS We grant warrants in connection with the issuance of common stock for cash. Warrants issued in connection with common stock for cash, if classified as equity, are considered issued in connection with equity transactions and the warrant fair value is recorded to additional paid-in-capital. F- 13 BENEFICIAL CONVERSION FEATURE OF CONVERTIBLE NOTES PAYABLE The convertible feature of certain notes payable provides for a rate of conversion that is below market value. Such feature is normally characterized as a Beneficial Conversion Feature, or BCF. We measure the estimated fair value of the BCF in circumstances in which the conversion feature is not required to be separated from the host instrument and accounted for separately, and record that value in the consolidated financial statements as a discount from the face amount of the notes. Such discounts are amortized to interest expense over the term of the notes. As of March 31, 2021, we did not have any unamortized debt discount relating to BCF. RESEARCH AND DEVELOPMENT EXPENSES Our research and development costs are expensed as incurred. We incurred approximately $2,072,000 and $927,000 of research and development expenses for the years ended March 31, 2021 and 2020, respectively, which are included in various operating expenses in the accompanying consolidated statements of operations. 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 material effect on our consolidated financial statements. SIGNIFICANT RECENT ACCOUNTING PRONOUNCEMENTS In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting, or ASU No. 2018-07. ASU No. 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU No. 2018-07 is effective for interim and annual reporting periods beginning after December 15, 2018 and early adoption is permitted. Entities must apply the guidance retrospectively with a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. The adoption of ASU No. 2018-07 on April 1, 2019 did not have a material impact on the Company's consolidated financial position, results of operations and related disclosures. On April 1, 2019, the Company adopted ASC Topic 842, Leases,” utilizing the alternative transition method allowed for under this guidance. As a result, the Company recorded lease liabilities and right-of-use lease assets of $228,694 on its balance sheet as of April 1, 2019. The lease liabilities represent the present value of the remaining lease payments of the Company’s corporate headquarters lease (see Note 13), discounted using the Company’s incremental borrowing rate as of April 1, 2019. The corresponding right-of-use lease assets are recorded based on the lease liabilities and the cumulative difference between rent expense and amounts paid under its corporate headquarters lease. The Company also elected the short-term lease recognition exemption for its laboratory lease. For the laboratory lease that qualified as short-term, the Company did not recognize ROU assets or lease liabilities at adoption. 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. F- 14 · 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. 2. PROPERTY AND EQUIPMENT, NET Property and equipment, net, consist of the following: March 31, 2021 March 31, 2020 Furniture and office equipment, at cost $ 585,910 $ 526,029 Accumulated depreciation (424,934 ) (385,545 ) $ 160,976 $ 140,484 Depreciation expense for the fiscal years ended March 31, 2021 and 2020 was $39,389 and $17,202, respectively. 3. PATENTS, NET Patents, net consist of the following: March 31, 2021 March 31, 2020 Issued patents $ 157,442 $ 157,442 Accumulated amortization (154,691 ) (154,141 ) Issued patents, net of accumulated amortization 2,751 3,301 Patents pending 54,203 54,203 Patents, net $ 56,954 $ 57,504 Amortization expense for our capitalized issued patents for each of the fiscal years ended March 31, 2021 and 2020 was $550 and $9,164, respectively. As several patents expired during the fiscal year ended March 31, 2020 and only one capitalized patent remains to be amortized, future amortization expense on patents is estimated to be approximately $550 per year based on the estimated life of the patent. The weighted average remaining life of our remaining capitalized patent is approximately 5 years. 4. CONVERTIBLE NOTES PAYABLE We paid off our convertible notes in full in July 2019. We also paid $83,332 of accrued interest during the fiscal year ended March 31, 2020. The following table shows the activity related to our convertible notes during the fiscal year ended March 31, 2020: Total Convertible Notes Payable at March 31, 2019 $ 992,591 Less Principal Payments in Cash on Convertible Notes During the Fiscal Year Ended March 31, 2020 (992,591 ) Total Convertible Notes Payable at March 31, 2020 $ – During the fiscal year ended March 31, 2020, we recorded interest expense of $23,759 related to the contractual interest rates of our convertible notes and interest expense of $30,287 related to the amortization of the note discount, for a total interest expense of $54,046 related to our convertible notes in the fiscal year ended March 31, 2020. F- 15 5. EQUITY TRANSACTIONS ISSUANCES OF COMMON STOCK AND WARRANTS Equity Transactions in the Fiscal Year Ended March 31, 2021. Common Stock Sales Agreement with H.C. 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. 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 has been 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 Agreement, through the sale of 2,685,600 shares at an average price of $2.70 per share of net proceeds. F- 16 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 (See Note 9). 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. 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. Restricted Stock Grant to Consultant In February 2021, our Board of directors approved a restricted stock grant of 7,758 shares to an investor relations consultant. Those shares were valued at $18,000 based on our closing price on the date of the approval. The shares will vest quarterly over a twelve month period and were issued under our 2020 Stock Plan. During the twelve months ended March 31, 2021, we recorded non-cash stock-based compensation expense of $1,500 related to this grant. F- 17 Equity Transactions in the Fiscal Year Ended March 31, 2020. December 2019 Public Offering On December 13, 2019, we entered into an underwriting agreement with H.C. Wainwright and Co., or Wainwright, 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 and common warrant. 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. Subsequent to the completion of the December 2019 Public Offering and prior to March 31, 2020, 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. January 2020 Registered Direct Offering and Private Placement On January 16, 2020, we engaged Wainwright to act as our exclusive placement agent in connection with the private placement and a concurrent registered direct offering, or together, the Offering, of an aggregate of 1,885,378 shares of our common stock at a purchase price per share of $2.00, or 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, or the Purchase Agreement with certain institutional investors, or the Purchasers, pursuant to which we agreed to sell and issue to the Purchasers warrants, or the Purchase Warrants, to purchase up to an aggregate of 942,689 shares of our common stock, or 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 paid Wainwright an additional 1.0% of the aggregate gross proceeds in the Offering as a management fee and also paid Wainwright an additional $70,000 for certain expenses in connection with the Offering. 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 of Common Stock, at an exercise price of $2.50 per share and a term expiring on January 17, 2025, or the Placement Agent Warrants, and the shares of common stock issuable thereunder, or the Placement Agent Warrant Shares. On January 22, 2020, the Company closed the Offering and issued the Purchase Warrants 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. The net proceeds from the January 2020 Registered Direct Offering and Private Placement were $3,364,878. F- 18 Common Stock Sales Agreement with H.C. Wainwright In the fiscal year ended March 31, 2020, we raised aggregate net proceeds of $896,031 (net of $27,896 in commissions to H.C. Wainwright and $5,929 in other offering expenses) under this Agreement through the sale of 161,149 shares at an average price of $5.56 per share of net proceeds. Warrant Exercises In fiscal year ended March 31, 2020, investors that participated in the December 2019 public offering exercised 2,700,000 warrants for aggregate cash proceeds to us of $3,807,162. 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 for upon vesting. In April 2019, pursuant to the Non-Employee Directors Compensation Program, we issued RSUs with a value of $35,000, in accordance with the terms of the plan, to each of our non-employee directors, as the stock-based compensation element of their overall directors’ compensation, for the fiscal year ending March 31, 2020. Those grants were based on the closing price of our common stock on the grant date, or $14.25 per share, resulting in 2,456 RSUs being issued to each of our five non-employee directors, for a total of 12,280 RSUs. All of the RSUs were subject to vesting in equal quarterly installments on June 30, 2019, September 30, 2019, December 31, 2019 and March 31, 2020. During the fiscal year ended March 31, 2020, 12,280 vested RSUs held by our outside directors were exchanged into the same number of shares of our common stock. As four of our five independent directors elected to return 40% of their RSUs in exchange for cash in order to pay their withholding taxes on the share issuances, 3,926 of the RSUs were cancelled and we paid $11,230 in cash to those independent directors. In addition, during the fiscal year ended March 31, 2020, 8,793 vested RSUs then held by our executive officers were exchanged into the same number of shares of our common stock. As our executives elected to net settle a portion of their RSU’s in exchange for the Company paying the related withholding taxes on the share issuance, 4,657 of the RSUs were cancelled and we issued a net 4,136 shares to our executives. There were no vested RSUs outstanding as of March 31, 2020. 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. F- 19 WARRANTS: We did not issue any warrants during the fiscal year ended March 31, 2021. During the fiscal year ended March 31, 2020, we issued 4,432,585 warrants in association with our December 2019 Public Offering and our January 2020 Registered Direct Financing and associated private placement (see Note 6). All of those warrants had a five year term and had exercise prices as follows: Financing Warrants Issued Exercise Price December 2019 Public Offering – Investors’ Warrants 3,333,334 $1.50 December 2019 Public Offering – Placement Agents’ Warrants 100,000 $1.875 January 2020 Registered Direct – Investors’ Warrants 942,689 $2.75 January 2020 Registered Direct – Placement Agents’ Warrants 56,562 $2.50 Based on the above assumptions, we valued the warrants issued during the fiscal year ended March 31, 2020 as follows: · The 999,251 warrants issued in our January 2020 Registered Direct Financing were valued at $2,388,776 and we classified that fair value as equity. · The 3,433,334 warrants issued in our December 2019 public offering were valued at $3,021,334 and we classified that fair value as equity. A summary of the aggregate warrant activity for the years ended March 31, 2021 and 2020 is presented below: Fiscal Year Ended March 31, 2021 2020 Warrants Weighted Average Exercise Price Warrants Weighted Average Exercise Price Outstanding, beginning of year 2,021,368 $ 5.21 342,992 $ 27.00 Granted – N/A 4,432,585 $ 1.79 Adjustment for reverse split – N/A 73 N/A Exercised – N/A (2,700,000 ) $ 1.50 Cancelled/Forfeited (29,395 ) $ 91.17 (54,282 ) $ 91.23 Outstanding, end of year 1,991,973 $ 5.23 2,021,368 $ 5.21 Exercisable, end of year 1,991,973 $ 5.23 2,021,368 $ 5.21 Weighted average estimated fair value of warrants granted N/A $ 1.22 The following outlines the significant weighted average assumptions used to estimate the fair value of warrants granted in the fiscal year ended March 31, 2020 utilizing the Binomial Lattice option pricing model: Fiscal Year Ended March 31, 2020 Risk free interest rate 1.57% - 1.71% Average expected life 5 years Expected volatility 148.6% - 233.0% Expected dividends None F- 20 The expected volatility was based on the historic volatility. The expected life of options granted was based on the “simplified method” as described in the SEC’s guidance due to changes in the vesting terms and contractual life of current option grants compared to our historical grants. The detail of the warrants outstanding and exercisable as of March 31, 2021 is as follows: Warrants Outstanding Warrants Exercisable Range of Exercise Prices Number Outstanding Weighted Average Remaining Life (Years) Weighted Average Exercise Price Number Outstanding Weighted Average Exercise Price $2.75 or Below 1,732,585 3.80 $ 2.23 1,732,585 $ 2.23 $16.50 - $59.25 249,985 1.43 $ 23.24 249,985 $ 23.24 $64.50 - $135.00 9,403 0.58 $ 77.62 9,403 $ 77.62 1,991,973 1,991,973 STOCK-BASED COMPENSATION: 2020 EQUITY INCENTIVE PLAN In September 2020, our stockholders approved the adoption of the 2020 Plan, to provide incentives to attract, retain and motivate employees, directors and consultants, whose present and potential contributions are important to our success, by offering them an opportunity to participate in our future performance through awards of options, the right to purchase common stock, stock bonuses and stock appreciation rights and other awards. We initially authorized a total of 1,842,556 common shares for issuance under the 2020 Plan pursuant to stock option grants, RSUs or other forms of stock-based compensation. 2010 STOCK INCENTIVE PLAN In August 2010, we adopted the 2010 Stock Incentive Plan, to provide incentives to attract, retain and motivate employees, directors and consultants, whose present and potential contributions are important to our success, by offering them an opportunity to participate in our future performance through awards of options, the right to purchase common stock, stock bonuses and stock appreciation rights and other awards. We initially authorized a total of 4,667 common shares for issuance under the 2010 Stock Incentive Plan. On January 26, 2016, our Board of Directors approved an amendment to the 2010 Stock Incentive Plan to increase the total number of shares of common stock authorized for issuance under the plan to 211,333 shares, subject to amendment of our Articles of Incorporation to increase our authorized common stock. On March 29, 2016, at which our stockholders approved the Amended 2010 Stock Incentive Plan and an amendment of our Articles of Incorporation to increase our authorized common stock to 30,000,000 shares. On March 31, 2016, we filed a Certificate of Amendment to our Articles of Incorporation to effect the increase in our authorized common stock. As a result of such amendment, the Amended 2010 Stock Incentive Plan became effective on March 31, 2016. Effective October 14, 2019, we completed 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. No future grants will be made under the 2010 Stock Incentive Plan. F- 21 2012 NON-EMPLOYEE DIRECTORS COMPENSATION PROGRAM 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 were subject to vesting as follows: 50% of the RSUs subject to the grants vested on December 31, 2020 and 50% of the RSUs vested 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. 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. F- 22 STAND-ALONE GRANTS From time to time our Board of Directors grants common stock or options to purchase common stock or warrants exercisable to common stock to selected officers, employees and consultants as equity compensation to such persons on a stand-alone basis outside of any of our formal stock plans. The terms of these grants are individually negotiated. STOCK OPTION ACTIVITY 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 2020 Annual Meeting of Stockholders, 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. Effective as of October 30, 2020, we issued an option to purchase 239,122 shares of our common stock pursuant to the 2020 Plan to our Chief Executive Officer, in connection with the appointment of Dr. Fisher as our Chief Executive Officer. 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 were vested as of March 31, 2021 and options that are expected to vest subsequent to March 31, 2021 are as follows: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term in Years Vested 58,954 $ 20.06 7.35 Expected to vest 785,135 $ 1.79 9.19 Total 844,089 F- 23 The following is a summary of the stock options outstanding at March 31, 2021 and 2020 and the changes during the years then ended: Fiscal Year Ended March 31, 2021 2020 Options Weighted Average Exercise Price Options Weighted Average Exercise Price Outstanding, beginning of year 51,124 $ 44.12 59,111 $ 56.85 Granted 1,011,860 $ 1.71 – $ N/A Exercised (15,896 ) $ 1.28 – $ N/A Cancelled/Forfeited (202,999 ) $ 6.76 (7,987 ) $ 138.75 Outstanding, end of year 844,089 $ 3.07 51,124 $ 44.12 Exercisable, end of year 58,954 $ 20.06 25,197 $ 70.08 Weighted average estimated fair value of options granted $ 1.58 $ N/A The detail of the options outstanding and exercisable as of March 31, 2021 is as follows: Options Outstanding Options Exercisable Exercise Prices Number Outstanding Weighted Average Remaining Life (Years) Weighted Average Exercise Price Number Outstanding Weighted Average Exercise Price $1.28 - $1.68 479,814 9.25 years $ 1.34 -- $ N/A $2.45 - $2.52 329,766 9.00 years $ 2.50 24,445 $ 2.45 $18.75 - $142.50 34,509 5.88 years $ 32.53 34,509 $ 32.53 844,089 58,954 We recorded stock-based compensation expense related to restricted stock unit issuances and to options granted totaling $779,421 and $843,998 for the fiscal years ended March 31, 2021 and 2020, respectively. These expenses were recorded as stock compensation included in payroll and related expenses in the accompanying consolidated statement of operations for the years ended March 31, 2021 and 2020. Our total stock-based compensation for fiscal years ended March 31, 2021 and 2020 included the following: Fiscal Year Ended March 31, 2021 March 31, 2020 Vesting of restricted stock units $ 175,000 $ 678,028 Vesting of restricted shares issued for services 1,500 – Vesting of stock options 602,921 165,970 Total Stock-Based Compensation $ 779,421 $ 843,998 F- 24 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 fiscal year ended March 31, 2021 was insignificant. On March 31, 2021, our outstanding stock options had no intrinsic value since the closing price on that date of $2.03 per share was below the weighted average exercise price of our outstanding stock options. At March 31, 2021, there was approximately $2,668,000 of unrecognized compensation cost related to share-based payments, which is expected to be recognized over a weighted average period of 4.44 years. 6. RELATED PARTY TRANSACTIONS DUE TO RELATED PARTIES Historically, certain of our officers and other related parties have advanced us funds, agreed to defer compensation and/or paid expenses on our behalf to cover working capital deficiencies. There were no such related party transactions during the fiscal year ended March 31, 2021, except that we had accrued unpaid Board fees of $52,000 owed to our outside directors as of March 31, 2021. Due to related parties were comprised of the following items: March 31, 2021 March 31, 2020 Accrued board fees $ 52,000 $ 69,750 Accrued vacation 66,520 41,957 Total due to related parties $ 118,520 $ 111,707 7. OTHER CURRENT LIABILITIES Other current liabilities were comprised of the following items: March 31, 2021 March 31, 2020 Accrued separation expenses for former executive (see Note 11) $ 284,270 $ – Accrued professional fees 477,366 472,420 Total other current liabilities $ 761,636 $ 472,420 8. INCOME TAXES For the years ended March 31, 2021 and 2020, we had no income tax expense due to our net operating losses and 100% deferred tax asset valuation allowance. At March 31, 2021 and 2020, we had net deferred tax assets as detailed below. These deferred tax assets are primarily composed of capitalized research and development costs and tax net operating loss carryforwards. Due to uncertainties surrounding our ability to generate future taxable income to realize these assets, a 100% valuation allowance has been established to offset the net deferred tax assets. F- 25 Significant components of our net deferred tax assets at March 31, 2021 and 2020 are shown below: YEAR ENDED MARCH 31, 2021 2020 Deferred tax assets: Capitalized research and development $ 3,442,000 $ 3,442,000 Net operating loss carryforwards 1 19,921,000 18,384,000 Stock compensation 1,399,000 1,181,000 Total deferred tax assets 24,762,000 23,007,000 Total deferred tax liabilities – – Net deferred tax assets 24,762,000 23,007,000 Valuation allowance for deferred tax assets (24,762,000 ) (23,007,000 ) Net deferred tax assets $ – $ – At March 31, 2021, we had tax net operating loss carryforwards for federal and state purposes approximating $77 million and $60 million, portions of which began to expire in the year 2021. The provision for income taxes on earnings subject to income taxes differs from the statutory federal rate for the years ended March 31, 2021 and 2020 due to the following: 2021 2020 Income taxes (benefit) at federal statutory rate of 21.00% $ (1,657,000 ) $ (1,340,000 ) State income tax, net of federal benefit (551,000 ) (446,000 ) Tax effect on non-deductible expenses and credits 1,000 122,000 True up items 25,000 42,000 Expiration of net operating loss carryforwards 427,000 222,000 Change in valuation allowance 1,755,000 1,400,000 $ – $ – ______________ (1) Pursuant to Internal Revenue Code Section 382, use of our tax net operating loss carryforwards may be limited. ASC 740, “Income Taxes”, clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements, and prescribes recognition thresholds and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under ASC 740, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. During the years ended March 31, 2021 and 2020, we did not recognize any interest or penalties relating to tax matters. At and for the years ended March 31, 2021 and 2020, management does not believe the Company has any uncertain tax positions. Accordingly, there are no unrecognized tax benefits at March 31, 2021 or March 31, 2020. Our tax returns remain open for examination by the applicable authorities, generally 3 years for federal and 4 years for state. We are currently not under examination by any taxing authorities. F- 26 9. SEGMENTS We operate our businesses principally through two reportable segments: Aethlon, which represents our therapeutic business activities, and 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: Fiscal Years Ended March 31, 2021 2020 Revenues: Aethlon $ 659,104 $ 650,187 ESI – – Total Revenues $ 659,104 $ 650,187 Operating Losses: Aethlon $ (7,865,967 ) $ (5,899,523 ) ESI (23,952 ) (30,465 ) Total Operating Loss $ (7,889,919 ) $ (5,929,988 ) Net Losses: Aethlon $ (7,867,547 ) $ (6,349,576 ) ESI (23,952 ) (30,465 ) Net Loss Before Non-Controlling Interests $ (7,891,499 ) $ (6,380,041 ) Cash: Aethlon $ 9,861,378 $ 9,604,583 ESI 197 197 Total Cash $ 9,861,575 $ 9,604,780 Total Assets: Aethlon $ 10,668,719 $ 10,387,489 ESI 197 197 Total Assets $ 10,668,916 $ 10,387,686 Capital Expenditures: Aethlon $ 59,881 $ 151,665 ESI – – Capital Expenditures $ 59,881 $ 151,665 Depreciation and Amortization: Aethlon $ 39,939 $ 26,366 ESI – – Total Depreciation and Amortization $ 39,939 $ 26,366 Interest Expense: Aethlon $ 1,580 $ 54,232 ESI – – Total Interest Expense $ 1,580 $ 54,232 F- 27 10. SUBSEQUENT EVENTS Management has evaluated events subsequent to March 31, 2021 through the date that the accompanying consolidated financial statements were filed with the Securities and Exchange Commission for transactions and other events which may require adjustment of and/or disclosure in such financial statements. SALES UNDER ATM FACILITY In June 2021, we raised aggregate net proceeds under the Agreement described above of $4,947,785, net of $126,922 in commissions to Wainwright and $2,154 in other offering expense through the sale of 626,000 shares of our common stock at an average price of $7.90 per share of net 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 through a securities purchase agreement with certain institutional investors, The shares were issued 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) and a prospectus supplement thereunder. WARRANT EXERCISES In June 2021, pursuant to the exercise of outstanding warrants to purchase 531,167 shares of our common stock, we received proceeds in the amount of $820,938 from institutional investors. Also in June 2021, pursuant to the exercise of 874,664 outstanding warrants on a cashless basis, we issued 675,554 shares of our common stock. The difference of 199,110 shares of common stock issuable pursuant to the warrants were cancelled. STOCK OPTION EXERCISE In June 2021, a former employee paid us $22,969 to exercise 9,375 stock options. 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 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. CONTINGENT BONUS AWARDS Pursuant to the terms of the Executive Employment Agreement, dated October 30, 2020, between the Company and Charles J. Fisher, Jr., M.D., or the Employment Agreement, the Company’s Chief Executive Officer, Dr. Fisher is entitled to a cash bonus equal to 50% of his annual base salary upon achievement of certain qualified events, or a Qualifying Event, as set forth in the Employment Agreement, as well as a stock option grant of a number of shares of common stock, pursuant to the 2020 Plan, such that Dr. Fisher’s equity holdings in the Company after the additional grant will equal 3% of the Company, on a fully diluted basis. Based on the market capitalization of the Company and the Company’s recent registered direct financing, the Company believes, subject to approval of the Compensation Committee of the Company’s Board of Directors, that in June 2021 a Qualifying Event has occurred and that Dr. Fisher has earned the cash bonus award in the amount of $215,000 and an additional stock option grant under the terms of the Employment Agreement. F- 28 11. COMMITMENTS AND CONTINGENCIES CONTRACTUAL OBLIGATIONS AND COMMITMENTS We have had the following material changes to our contractual obligations and commitments outside the ordinary course of business during the fiscal year ended March 31, 2021: SEPARATION AGREEMENT 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, 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 March 31, 2021 relating to the Separation Agreement, was $284,270 (see Note 7). 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 current rental rate under the lease extension is $8,265 per month. 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 $6,148 per month on a one-year lease that originally was to expire on November 30, 2020. In December 2020, we entered into a short-term lease extension running from December 1, 2020 through the completion date of 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 $192,000 and $178,000 for the fiscal years ended March 31, 2021 and 2020, respectively. Future minimum lease payments under the Granite Ridge Lease as of March 31, 2021, are as follows: April 1, 2021 through August 31, 2021 $ 43,670 Less: discount (1,127 ) Total lease liability $ 42,543 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 lease liabilities and right-of-use lease 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 of our corporate headquarters lease, discounted using our 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. We also elected the short-term lease recognition exemption for its laboratory lease. For the laboratory lease that qualified as short-term, we did not recognize right-of-use assets or lease liabilities at adoption. F- 29 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 third 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 fiscal year ended March 31, 2021 and transferred a like amount to a restricted certificate of deposit which secured the bank’s risk in issuing that letter of 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. F- 30