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 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 Interim Chief Executive Officer and Chief Financial Officer (who is our principal executive officer and principal financial officer), to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its 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 Annual Report under the supervision and with the participation of our management, including our Interim Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. 57 Internal Control over Financial Reporting (a) Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Under the supervision and with the participation of our management, including our Interim Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2024. 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 not effective as of March 31, 2024 due to the material weaknesses described below. Description of Material Weaknesses Based on such evaluation, management identified a material weakness in the segregation of duties within our financial systems. Specifically, user access controls were not sufficiently maintained to properly restrict both user and privileged access to financial applications within our accounting software system to initiate, record and approve entries. Also noted that check stock was secured in an authorized signatory’s office. It is difficult to design and maintain appropriate segregation of duties in the initiation, recording, and approval of transactions within financial systems with a limited number of personnel. This, coupled with management having not designed and maintained user access controls that adequately restrict user and privileged access to financial applications, and the absence of sufficient other mitigating controls, created a segregation of duties weakness which could potentially have resulted in a material misstatement. Management has identified remediation actions that may require the addition of personnel to the finance and accounting function or a change in accounting software, which will allow the Company to design the control environment in a manner that provides effective segregation of duties. Management has identified certain actions beyond staff changes or accounting software changes. As of May 2024, the accounting software was updated, and distinct user roles were created. Transactions are recorded by personnel who are independent of those who initiate them and are approved by separate personnel who are independent of those who record them. Additionally, check stock was relocated in November 2023. During 2017 through 2020, the Company incorrectly recorded accrued commission liability of approximately $404,000. The Company reversed accrued commission liability of approximately $404,000 during the year ended March 31, 2024 related to this error in accounting under U.S. GAAP. The Company originally failed to correctly apply appropriate accounting principles in recording the transaction, and the error was not detected and corrected in a timely manner, resulting in an adjustment to the financial statements. Management has discussed with counsel appropriate measures to record such potential commission liabilities in the future and will implement a quarterly review of all accruals. The reversal of the accrued commission liability into equity as of March 31, 2024 corrected the impact of the error. The Company is in the process of implementing quarterly review controls over review and assessment of accruals. This plan, with oversight from our Audit Committee, is in the process of implementation in response to the identified material weakness. Limitation on Effectiveness of Controls In designing and evaluating our disclosure controls and procedures, management recognized that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. No evaluation of internal control can provide absolute assurance that all internal control issues and instances of fraud, if any, within a company are detected. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. In addition, the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. (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, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 58 ITEM 9B. OTHER INFORMATION On June 27, 2024, we received a letter, or Notice, from The Nasdaq Stock Market, or Nasdaq, advising us that for 31 consecutive trading days preceding the date of the Notice, the bid price of our common stock had closed below the $1.00 per share minimum required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2), or the Minimum Bid Price Requirement. The Notice has no effect on the listing of our common stock at this time, and our common stock continues to trade on The Nasdaq Capital Market under the symbol “AEMD.” In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have 180 calendar days to regain compliance with the Minimum Bid Requirement, or the Grace Period, subject to a potential 180 calendar day extension, as described below. To regain compliance, the closing bid price of our common stock must be at least $1.00 per share for a minimum of ten consecutive business days within the Grace Period. If we do not achieve compliance with the Minimum Bid Requirement by December 24, 2024, the end of the Grace Period, we may be eligible for an additional 180 calendar day period to regain compliance. To qualify, we would be required to meet the continued listing requirement for the market value of our publicly held shares and all other Nasdaq initial listing standards, with the exception of the bid price requirement, and would need to provide written notice of our intention to cure the deficiency during the second compliance period. However, if it appears to Nasdaq staff that we will not be able to cure the deficiency, or if we do not meet the other listing standards, Nasdaq could provide notice that our common stock will be subject to delisting. In the event we receive notice that our common stock is being delisted, we would be entitled to appeal the determination to a Nasdaq Listing Qualifications Panel and request a hearing. We intend to monitor the closing bid price of our common stock and may, if appropriate, consider implementing available options to regain compliance with the Minimum Bid Price Requirement. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 59 PART III Certain information required by Part III is omitted from this Annual Report and incorporated by reference to our definitive proxy statement for our 2024 Annual Meeting of Stockholders, or the Proxy Statement, to be filed pursuant to Regulation 14A of the Exchange Act. If our Proxy Statement is not filed within 120 days after the end of the fiscal year covered by this Annual Report, the omitted information will be included in an amendment to this Annual Report filed not later than the end of such 120-day period. ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Except as set forth below, the information required by this item will be contained in the sections titled “Information About our Board of Directors and Executive Officers,” “Information About our Board of Directors and Executive Officers – Code of Ethics,” “Information About our Board of Directors and Executive Officers – Information Regarding Committees of the Board of Directors – Nominating and Corporate Governance Committee,” “Information About our Board of Directors and Executive Officers – Information Regarding Committees of the Board of Directors – Audit Committee and Audit Committee Financial Expert,” “Information About our Board of Directors and Executive Officers – Information Regarding Committees of the Board of Directors – Compensation Committee” and “Executive and Director Compensation” in our Proxy Statement and is incorporated herein by reference. We maintain a Code of Business Conduct and Ethics that applies to all our employees, officers and directors. This includes our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. The full text of our Code of Business Conduct and Ethics is posted on our website at www.aethlonmedical.com on the “Governance” page of the section titled “Investors.” If we make any substantive amendments to the Code of Business Conduct and Ethics or grant any waiver from a provision of the Code of Business Conduct and Ethics to any executive officer or director that are required to be disclosed pursuant to SEC rules, we will promptly disclose the nature of the amendment or waiver on our website or in a current report on Form 8-K. Information contained in, or that can be accessed through, our website is not incorporated by reference herein, and you should not consider information on our website to be part of this Annual Report. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will be contained in the sections titled “Executive and Director Compensation” and “Information About our Board of Directors and Executive Officers – Information Regarding Committees of the Board of Directors – Compensation Committee” 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 the sections titled “Security Ownership of Certain Beneficial Owners and Management” and “Executive and Director Compensation – Narrative Disclosure to Executive Summary – Equity-Based Incentive Awards” 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 the sections titled “Information About our Board of Directors and Executive Officers – Board of Directors” and “Certain Relationships and Related Transactions” in our Proxy Statement and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item will be contained in the section titled “Ratification of Appointment of Independent Registered Public Accounting Firm” in our Proxy Statement and is incorporated herein by reference. 60 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES The following documents are filed as part of this Annual Report: (a)(1) Financial Statements. The response to this portion of Item 15 is set forth under Part II, Item 8 above. (a)(2) Financial Statement Schedules. All schedules have been omitted because they are not required or because the required information is given in the Financial Statements or Notes thereto set forth under Item 8 above. (a)(3) Exhibits required by Item 601 of Regulation S-K. Incorporated by Reference Exhibit Number Exhibit Description Form SEC File No. Exhibit No. Date Filed Herewith 3.1 Articles of Incorporation, as amended. 8-K 001-37487 3.1 September 19, 2022 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 Warrant to Purchase Common Stock. S-1/A 333-234712 4.14 December 11, 2019 4.3 Form of Underwriter Warrant. S-1/A 333-234712 4.15 December 11, 2019 4.4 Form of Common Stock Purchase Warrant. 8-K 001-37487 4.1 January 17, 2020 4.5 Form of Class A Warrant to Purchase Common Stock, issued on May 17, 2024. 8-K 001-37487 4.1 May 17, 2024 4.6 Form of Class B Warrant to Purchase Common Stock, issued on May 17, 2024. 8-K 001-37487 4.2 May 17, 2024 4.7 Form of Pre-Funded Warrant to Purchase Common Stock, issued on May 17, 2024. 8-K 001-37487 4.3 May 17, 2024 4.8 Form of Placement Agent Warrant to Purchase Common Stock, issued on May 17, 2024. 8-K 001-37487 4.4 May 17, 2024 4.9 Description of Aethlon Medical, Inc.’s Securities. 10-K 001-37487 4.16 June 25, 2020 61 Incorporated by Reference Exhibit Number Exhibit Description Form SEC File No. Exhibit No. Date Filed Herewith 10.1++ Aethlon Medical, Inc. Amended and Restated Non-Employee Director Compensation Policy, as Modified on February 10, 2022. 10-Q 001-37487 10.2 February 14, 2022 10.2++ Employment Agreement, by and between Aethlon Medical, Inc. and James Frakes, dated December 12, 2018. 10-Q 001-37487 10.3 February 11, 2019 10.3++ Amendment No. 1 to Executive Employment Agreement, effective as of November 7, 2023, by and between the Company and James B. Frakes. 8-K 001-37487 10.1 December 22, 2023 10.4++ Form of Indemnification Agreement for Officers and Directors. 10-Q 001-37487 10.4 February 11, 2019 10.5++ Form of Option Grant Agreement for Officers and Directors. 10-Q 001-37487 10.5 February 11, 2019 10.6++ Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement for Directors. 10-Q 001-37487 10.6 February 11, 2019 10.7++ Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement for Executives. 10-Q 001-37487 10.7 February 11, 2019 10.8 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 10.9++ Aethlon Medical, Inc. 2020 Equity Incentive Plan, Form of Restricted Stock Grant, Form of Option Grant and Agreement. 8-K 001-37487 99.1 September 19, 2022 10.10++ Employment Agreement between the Company and Dr. Fisher, dated October 30, 2020. 8-K 001-37487 10.2 November 3, 2020 10.11++ Separation Agreement between the Company and Dr. Fisher, effective as of November 27, 2023. 8-K 001-37487 10.1 November 27, 2023 10.12 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 62 Incorporated by Reference Exhibit Number Exhibit Description Form SEC File No. Exhibit No. Date Filed Herewith 10.13++ Executive Employment Agreement between the Company and Guy Cipriani, dated January 1, 2021. 10-Q 001-37487 10.5 February 10, 2021 10.14++ Amendment No. 1 to Executive Employment Agreement, effective as of November 7, 2023, by and between the Company and Guy F. Cipriani. 8-K 001-3748 7 10.2 December 22, 2023 10.15++ Executive Employment Agreement between the Company and Steven P. LaRosa, MD, dated January 4, 2021. 10-Q 001-37487 10.6 February 10, 2021 10.16++ Executive Employment Agreement, by and between Aethlon Medical, Inc. and Lee D. Arnold, Ph.D., dated February 1, 2023. 10-Q 001-37487 10.1 February 13, 2023 10.17 Lease between Aethlon Medical, Inc. and San Diego Inspire 5, LLC, effective October 27, 2021. 10-Q 001-37487 10.1 November 9, 2021 10.18 At the Market Offering Agreement, dated March 24, 2022, by and between Aethlon Medical, Inc. and H.C. Wainwright & Co., LLC. 8-K 001-37487 1.1 March 24, 2022 10.19++ Amendment No. 1 to Executive Employment Agreement, by and between Aethlon Medical, Inc. and Lee D. Arnold, Ph.D., dated May 1, 2023. 10-K 001-37487 10.18 June 28, 2023 21.1 List of Subsidiaries. X 23.1 Consent of Independent Registered Public Accounting Firm. X 24.1 Power of Attorney (see signature page) X 31.1 Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. X 32.1* Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(b) or 15d-14(b) of the Exchange Act and 18 U.S.C. Section 1350. X 63 Incorporated by Reference Exhibit Number Exhibit Description Form SEC File No. Exhibit No. Date Filed Herewith 97.1 Incentive Compensation Recoupment Policy. X 101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) X 101.SCH Inline XBRL Taxonomy Extension Schema Document X 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X 104 Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101) X __________________ ++ Indicates management contract or compensatory plan. * The information in Exhibit 32.1 shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act (including this Annual Report), unless the Registrant specifically incorporates the foregoing information into those documents by reference. ITEM 16. FORM 10-K SUMMARY None. 64 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, o n the 27 th d ay of June, 2024. By: /s/ JAMES B. FRAKES JAMES B. FRAKES INTERIM CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER. POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James B. Frakes 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 attorney-in-fact and agent 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 attorney-in-fact and agent 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, as amended, 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/ JAMES B. FRAKES Interim Chief Executive Officer and Chief Financial Officer, Principal Executive Officer, Principal Financial and Accounting Officer and Director June 27, 2024 James B. Frakes /s/ EDWARD G. BROENNIMAN Chairman and Director June 27, 2024 Edward G. Broenniman /s/ CHETAN S. SHAH Director June 27, 2024 Chetan S. Shah, M.D. /s/ ANGELA ROSSETTI Director June 27, 2024 Angela Rossetti /s/ NICOLAS GIKAKIS Director June 27, 2024 Nicolas Gikakis 65 Page Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (Baker Tilly US, LLP, San Diego, CA PCAOB ID No. 23 ) F-2 Consolidated Balance Sheets as of March 31, 2024 and 2023 F-3 Consolidated Statements of Operations and Comprehensive Loss for the Years Ended March 31, 2024 and 2023 F-4 Consolidated Statements of Equity for the Years Ended March 31, 2024 and 2023 F-5 Consolidated Statements of Cash Flows for the Years Ended March 31, 2024 and 2023 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, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, 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, 2024 and 2023, 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. Going Concern Uncertainty The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 of the consolidated financial statements, the Company has recurring losses from operations, an accumulated deficit, expects to incur losses for the foreseeable future and requires additional working capital. These are the reasons that raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not contain any adjustments that might result from the outcome of this uncertainty. 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. /s/ Baker Tilly US, LLP We have served as the Company's auditor since 2001. San Diego, California June 27, 2024 F- 2 AETHLON MEDICAL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS March 31, 2024 2023 ASSETS CURRENT ASSETS Cash and cash equivalents $ 5,441,978 $ 14,532,943 Deferred offering costs 277,827 – Prepaid expenses and other current assets 505,983 557,623 TOTAL CURRENT ASSETS 6,225,788 15,090,566 Property and equipment, net 1,015,229 1,144,004 Right-of-use lease asset, net 883,054 1,151,909 Patents, net 1,100 1,650 Restricted cash 87,506 87,506 Deposits 33,305 33,305 TOTAL ASSETS $ 8,245,982 $ 17,508,940 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable $ 777,862 $ 432,889 Due to related parties 546,434 214,221 Lease liability, current portion 290,565 269,386 Other current liabilities 215,038 588,592 TOTAL CURRENT LIABILITIES 1,829,899 1,505,088 Lease liability, less current portion 649,751 939,642 TOTAL LIABILITIES 2,479,650 2,444,730 COMMITMENTS AND CONTINGENCIES (Note 8) – – STOCKHOLDERS’ EQUITY Common stock, $ 0.001 par value, 60,000,000 shares authorized at March 31, 2024 and 2023; 2,629,725 and 2,299,259 shares issued and outstanding at March 31, 2024 and 2023, respectively 2,629 2,299 Additional paid-in capital 160,337,371 157,426,606 Accumulated other comprehensive loss ( 6,940 ) ( 6,141 ) Accumulated deficit ( 154,566,728 ) ( 142,358,554 ) TOTAL AETHLON MEDICAL, INC. STOCKHOLDERS’ EQUITY BEFORE NONCONTROLLING INTERESTS 5,766,332 15,064,210 TOTAL STOCKHOLDERS’ EQUITY 5,766,332 15,064,210 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 8,245,982 $ 17,508,940 See accompanying notes to the consolidated financial statements. F- 3 AETHLON MEDICAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Years Ended March 31, 2024 2023 REVENUES: Government contract and grant revenue $ – $ 574,245 Total revenues – 574,245 OPERATING COSTS AND EXPENSES Professional fees 3,526,926 3,548,028 Payroll and related expenses 5,206,451 4,443,552 General and administrative 3,903,191 4,481,303 Total operating expenses 12,636,568 12,472,883 OPERATING LOSS ( 12,636,568 ) ( 11,898,638 ) OTHER EXPENSE (INCOME) Loss on dissolution of subsidiary – 142,121 Interest income and other ( 428,394 ) ( 10,973 ) Other expense (income) ( 428,394 ) 131,148 NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS ( 12,208,174 ) ( 12,029,786 ) Basic and diluted net loss per share attributable to common stockholders $ ( 4.86 ) $ ( 5.86 ) Weighted average number of common shares outstanding - basic and diluted 2,512,774 2,053,744 NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS ( 12,208,174 ) ( 12,029,786 ) OTHER COMPREHENSIVE LOSS ( 799 ) ( 6,141 ) COMPREHENSIVE LOSS $ ( 12,208,973 ) $ ( 12,035,927 ) 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, 2024 AND 2023 ATTRIBUTABLE TO AETHLON MEDICAL, INC. COMMON STOCK ADDITIONAL PAID IN ACCUMULATED ACCUMULATED COMPREHENSIVE NON- CONTROLLING TOTAL SHARES AMOUNT CAPITAL DEFICIT LOSS INTERESTS EQUITY BALANCE - MARCH 31, 2022 1,541,926 $ 1,542 $ 147,460,747 $ ( 130,329,181 ) $ – $ ( 141,708 ) $ 16,991,400 Issuances of common stock for cash under at the market program 748,084 748 8,926,463 – – – 8,927,211 Issuance of common shares upon vesting of restricted stock units and net stock option exercise 9,249 9 ( 12,502 ) – – – ( 12,493 ) Loss on dissolution of subsidiary – – – – – 142,121 142,121 Stock-based compensation expense – – 1,051,898 – – – 1,051,898 Net loss – – – ( 12,029,373 ) – ( 413 ) ( 12,029,786 ) Other comprehensive loss – – – – ( 6,141 ) – ( 6,141 ) BALANCE - MARCH 31, 2023 2,299,259 $ 2,299 $ 157,426,606 $ ( 142,358,554 ) $ ( 6,141 ) $ – $ 15,064,210 Issuances of common stock for cash under at the market program 296,056 296 1,322,087 – – – 1,322,383 Rounding for reverse split 32 – – – – – – Issuance of common shares upon vesting of restricted stock units 34,378 34 ( 34,812 ) – – – ( 34,778 ) Reversal of accrued commission liability (see Note 6) – – 404,120 – – – 404,120 Stock-based compensation expense – – 1,219,370 – – – 1,219,370 Net loss – – – ( 12,208,174 ) – – ( 12,208,174 ) Other comprehensive loss – – – – ( 799 ) – ( 799 ) BALANCE - MARCH 31, 2024 2,629,725 $ 2,629 $ 160,337,371 $ ( 154,566,728 ) $ ( 6,940 ) $ – $ 5,766,332 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, 2024 AND 2023 Years Ended March 31, 2024 2023 Cash flows from operating activities: Net loss $ ( 12,208,174 ) $ ( 12,029,786 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 359,057 240,892 Stock-based compensation 1,219,370 1,051,898 Loss on disposal of property, plant and equipment 21,135 – Loss on dissolution of Subsidiary – 142,121 Non-cash lease expense 143 24,408 Changes in operating assets and liabilities: Accounts receivable – 127,965 Prepaid expenses and other current assets ( 10,232 ) 398,169 Accounts payable and other current liabilities 156,678 ( 174,727 ) Deferred revenue – ( 344,547 ) Due to related parties 332,213 58,479 Net cash used in operating activities ( 10,129,810 ) ( 10,505,128 ) Cash flows from investing activities: Purchases of property and equipment ( 250,867 ) ( 943,109 ) Net cash used in investing activities ( 250,867 ) ( 943,109 ) Cash flows from financing activities: Tax withholding payments or tax equivalent payments for net share settlement of restricted stock units ( 34,778 ) ( 12,493 ) Net proceeds from the issuance of common stock 1,322,383 8,927,211 Net cash provided by financing activities 1,287,605 8,914,718 Effect of Exchange Rate on Changes on Cash 2,107 ( 5,957 ) Net decrease in cash and restricted cash ( 9,090,965 ) ( 2,539,476 ) Cash and restricted cash at beginning of year 14,620,449 17,159,925 Cash and restricted cash at end of year $ 5,529,484 $ 14,620,449 Supplemental information of non-cash investing and financing activities: Initial recognition of right-of-use lease asset and lease liability $ – $ 625,471 Issuance of shares under vested restricted stock units, net stock option exercises and unvested share issuance for services $ 35 $ 92 Reversal of accrued commission liability (see Note 6) $ 404,120 $ – Deferred offering costs not yet paid $ 219,117 $ – Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets: Cash and cash equivalents $ 5,441,978 $ 14,532,943 Restricted cash 87,506 87,506 Cash and restricted cash $ 5,529,484 $ 14,620,449 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., or Aethlon, the Company, we or us, is a medical therapeutic company focused on developing the Hemopurifier, a clinical-stage immunotherapeutic device designed to combat cancer and life-threatening viral infections and for use in organ transplantation. In human studies, 164 sessions with 38 patients, the Hemopurifier was safely utilized and demonstrated the potential to remove life-threatening viruses. In pre-clinical studies, the Hemopurifier has demonstrated the potential to remove harmful exosomes and exosomal particles from biological fluids, utilizing its proprietary lectin-based technology. This action has potential applications in cancer, where exosomes and exosomal particles may promote immune suppression and metastasis, and in life-threatening infectious diseases. 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. Oncology We believe the Hemopurifier may be a substantial advancement in the treatment of patients with advanced and metastatic cancer through its design to bind to and remove harmful exosomes and exosomal particles that promote the growth and spread of tumors. In October 2022, we formed a wholly-owned subsidiary in Australia to initially conduct oncology-related clinical research, then seek regulatory approval and commercialize our Hemopurifier in Australia. We are currently working with our contract research organization, or CRO, on preparations to conduct a clinical trial in Australia in patients with solid tumors, including head and neck cancer, and gastrointestinal cancers. In January 2023, we entered into an agreement with North American Science Associates, LLC, or NAMSA, a world leading medical technology CRO offering global end-to-end development services, to oversee our planned clinical trials investigating the Hemopurifier for oncology indications. Pursuant to the agreement, NAMSA agreed to manage our planned clinical trials of the Hemopurifier for patients in the United States and Australia with various types of cancer tumors. We recently completed an in vitro binding study of relevant oncology targets, to provide pre-clinical evidence to support our trial design and translational endpoints. Our study indicated positive results from this study, providing evidence that our Hemopurifier removes extracellular vesicles, or EVs, from plasma. This translational study provides pre-clinical evidence to support our planned phase 1 safety, feasibility and dose-finding clinical trials of our Hemopurifier in patients with solid tumors who have stable or progressive disease during anti-PD-1 monotherapy treatment, such as Keytruda® or Opdivo®. In addition to an interested initial trial site in India, we had three interested sites in Australia that were awaiting our completion of this in vitro binding study. We added the data from this study to our Clinical Investigator Brochure and submitted that brochure to the Ethics Committee of Royal Adelaide Hospital in Australia and in June 2024, we received approval for our proposed phase 1 oncology trial from the Ethics Committee from Royal Adelaide Hospital. We are currently in the process of applying to the Ethics Committees of the two additional interested clinical trial sites in Australia and the site in India. F- 7 Life-Threatening Viral Infections We also believe that the Hemopurifier can be part of the broad-spectrum treatment of life-threatening highly glycosylated, or carbohydrate coated, viruses that are not addressed with an already approved treatment. In small-scale or early feasibility human studies, the Hemopurifier has been used in the past 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, Monkeypox 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. We believe the Hemopurifier can be part of the treatment of severe SARS-CoV-2 viremia/COVID-19, or COVID-19, cases. COVID viremia is detected in approximately 34% of patients and is associated with severity, requirement for intensive care unit, or ICU, stay, development of multi-organ failure and poor outcomes. EVs and exosomal miRNAs may play a role in the spread of infection as well as ongoing inflammation, development of coagulopathy and lung injury. Our proprietary Galanthus nivalis agglutinin, or GNA, affinity resin has been shown to bind multiple clinically relevant SARS-CoV-2 variants. Furthermore, studies have demonstrated in vitro removal of seven SARS-CoV2 variants (104 PFU/mL) in phosphate buffered saline passed over a column of GNA affinity resin (1g) three times, with capture efficiencies between 53% and 89%. On June 17, 2020, the FDA approved a supplement to our open Investigational Device Exemption, or IDE, for the Hemopurifier in viral disease to allow for the testing of the Hemopurifier in patients with SARS-CoV-2/COVID-19, or COVID-19, in a new feasibility study. That study was designed to enroll up to 40 subjects at up to 20 centers in the United States. Subjects were to have established laboratory diagnosis of COVID-19, be admitted to an intensive care unit, or ICU, and have acute lung injury and/or severe or life-threatening disease, among other criteria. Endpoints for this study, in addition to safety, included reduction in circulating virus as well as clinical outcomes (NCT # 04595903). In January 2021, the Hemopurifier was used to treat a viremic patient, under our emergency use approval, with a predicted risk of mortality of 80% and the Hemopurifier was able to reduce the patient’s SARS-CoV-2 plasma viral load by 58.4%. In June 2022, the first patient in this study was enrolled and completed the Hemopurifier treatment phase of the protocol. Due to the lack of COVID-19 patients in the ICUs of our trial sites, we terminated this study in 2022. However, our IDE for this indication remains open, as we have an active COVID-19 trial in India and wish to preserve the option of enrolling patients if the situation with COVID-19 changes. Under Single Patient Emergency Use regulations, Aethlon has treated two patients with COVID-19 with the Hemopurifier, in addition to the COVID-19 patient treated with our Hemopurifier in our COVID-19 clinical trial discussed above . We previously reported a disruption in our Hemopurifier supply, as our then existing supply of Hemopurifiers expired on September 30, 2022 and, also as previously disclosed, we are dependent on FDA approval of qualified suppliers to manufacture our Hemopurifier. We recently completed final testing in order to begin manufacturing Hemopurifiers at our new manufacturing facility in San Diego, California for use in planned U.S. clinical trials, using GNA from our current supplier. In April 2024, we received a notice of approval from the FDA for our IDE supplement to add our San Diego manufacturing facility and we now are able to manufacture Hemopurifiers at this site. We also have sufficient Hemopurifiers on hand for use in our planned Australia and India oncology trials. Our intended transition to a new supplier for GNA, a component of our Hemopurifier, continues to be delayed as we work with the FDA for approval of our supplement to our IDE, which is required to make this manufacturing supplier change. We are working with the FDA to qualify this second supplier of our GNA. We also obtained ethics review board, or ERB, approval from and entered into a clinical trial agreement with Medanta Medicity Hospital, a multi-specialty hospital in Delhi NCR, India, for a COVID-19 clinical trial at that location. F- 8 In May 2023, we received ERB approval from the MAMC, for a second site for our clinical trial in India to treat severe COVID-19. MAMC was established in 1958 and is located in New Delhi, India. MAMC is affiliated with the University of Delhi and is operated by the Delhi government. We now have two sites in India for this trial with the Medanta Medicity Hospital and Maulana Azad Medical College, or MAMC. One patient has been treated to date; however, we have been informed by our CRO that a new COVID-19 subvariant was detected in India recently. Our COVID-19 trial in India remains open in the event that there are COVID-19 admissions to the ICUs at our sites in India. Organ Transplantation Additionally, based on preclinical data with acellular kidney perfusates, we believe that the Hemopurifier has potential applications in organ transplantation. We are investigating whether the Hemopurifier, when incorporated into a machine perfusion organ preservation circuit, can remove harmful viruses, exosomes, RNA molecules, cytokines, chemokines and other inflammatory molecules from recovered organs. We initially are focused on recovered kidneys from deceased donors. We have previously demonstrated the removal of multiple viruses and exosomes and exosomal particles from buffer solutions, in vitro , utilizing a scaled-down version of our Hemopurifier and believe this process could reduce transplantation complications by improving graft function, reducing graft rejection, maintaining or improving organ viability prior to transplantation, and potentially reducing the number of kidneys rejected for transplant. Successful outcomes of human trials will also be required by the regulatory agencies of certain foreign countries where we plan to market and 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 to us more recently will help protect the proprietary nature of our Hemopurifier treatment technology. In addition to the foregoing, we are monitoring closely the impact of inflation, recent bank failures and the war between Russia and Ukraine and the military conflicts in Israel and the surrounding areas, as well as related political and economic responses and counter-responses by various global factors on our business. Given the level of uncertainty regarding the duration and impact of these events on capital markets and the U.S. economy, we are unable to assess the impact on our timelines and future access to capital. The full extent to which inflation, recent bank failures and the ongoing military conflicts will impact our business, results of operations, financial condition, clinical trials and preclinical research will depend on future developments, as well as the economic impact on national and international markets that are highly uncertain. Our executive offices are located at 11555 Sorrento Valley Road, Suite 203, San Diego, California 92121. Our telephone number is (619) 941-0360. Our website address is www.aethlonmedical.com. The information contained on, or that can be accessed through, our website is not part of, and is not incorporated into, this Annual Report on Form 10-K. . Our common stock is listed on the Nasdaq Capital Market under the symbol “AEMD.” LIQUIDITY AND GOING CONCERN The Company has incurred losses since inception in devoting substantially all of its efforts toward research and development and has an accumulated deficit of $ 154,566,728 as of March 31, 2024. During the year ended March 31, 2024, the Company generated a net loss of approximately $ 12,208,000 and the Company expects that it will continue to generate operating losses for the foreseeable future. While the Company currently has over $ 9.1 million in cash and cash equivalents and have been carrying out certain expense reductions since November 2023; our planned additional expense reductions may not materialize and/or our patient recruitment may occur more rapidly than expected along with the concomitant increases in expenses, therefore there is substantial doubt that our cash on hand will carry the company for 12 months beyond the filing date of the financial statements included in this Annual Report. F- 9 The Company’s ability to execute its current operating plan depends on its ability to reduce expenses and obtain additional funding via the sale of equity, or other sources of capital. The Company plans to continue actively pursuing financing alternatives, however, there can be no assurance that it will obtain the necessary funding, raising substantial doubt about the Company’s ability to continue as a going concern within one year of the date these financial statements are issued. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Aethlon Medical, Inc. and its wholly owned subsidiary, Aethlon Medical Australia Pty Ltd, as well as its previously majority-owned subsidiary, ESI, which dissolved in September 2022. Operations in our Australian subsidiary is recorded in their functional currency. The results of operations for our Australian subsidiary are translated from functional currency into U.S. dollars using the current exchange rate on the date the expense was recognized. Assets and liabilities are translated using the period end exchange rates. The U.S dollar effects that arise from translating the net assets of are recorded in other comprehensive income (loss). All significant inter-company transactions and balances have been eliminated in consolidation. The consolidated financial statements contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the consolidated financial statements as of and for the fiscal years ended March 31, 2024 and 2023, and the consolidated statement of cash flows for the fiscal years ended March 31, 2024 and 2023. 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. 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. Cash is carried at cost, which approximates fair value, and cash equivalents are carried at fair value. F- 10 For the fiscal years ended March 31, 2024 and March 31, 2023 our cash and cash equivalents were comprised of the following instruments: Schedule of cash and cash equivalents For the year ended March 31, 2024 March 31, 2023 Cash in US bank checking account $ 697,908 $ 575,766 Cash equivalents held in US Treasury bills 4,736,469 13,910,973 Cash in Australian bank checking account 7,601 46,204 Total cash and cash equivalents $ 5,441,978 $ 14,532,943 CONCENTRATIONS OF CREDIT RISKS Cash is maintained at one US financial institution in a checking account. Accounts at this institution are secured by the Federal Deposit Insurance Corporation up to $250,000. Our March 31, 2024 cash balances were approximately $ 568,000 over such insured amount. We do not believe that the Company is exposed to any significant risk with respect to its cash in that checking account. At March 31, 2024, we maintained cash equivalents of approximately $ 4.7 million in US Treasury bills with maturities of less than three months. We do not believe that the Company is exposed to any significant risk with respect to its cash equivalents since they represent US government risk. Cash is maintained at one Australian financial institution in checking accounts. Accounts at this institution are secured by the Financial Claims Scheme for up to Australian $250,000. Our March 31, 2024 Australian cash balance was below that threshold. We did not have any revenue in fiscal year ended March 31, 2024. All of our revenue in the fiscal year ended March 31, 2023 related to our government contracts. We did not have any accounts receivable at March 31, 2024. RESTRICTED CASH To comply with the terms of our laboratory, office, and manufacturing space leases, we caused our bank to issue two standby letters of credit, or the L/Cs, in the amount of $ 87,506 in favor of the landlord. The L/Cs are in lieu of a security deposit. In order to support the L/Cs, we agreed to have our bank withdraw $87,506 from our operating accounts and to place that amount in restricted certificates 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- 11 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. Management has provided a full valuation allowance against the Company’s net deferred tax asset. Tax positions taken or expected to be taken in the course of preparing tax returns are required to be evaluated to determine whether the tax positions are more-likely-than-not to be sustained by the applicable tax authority. Tax positions deemed to not meet a more-likely-than-not threshold would be recorded as tax expense in the current year. There were no uncertain tax positions that require accrual to or disclosure in the consolidated financial statements as of March 31, 2024 and 2023. 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, 2024 and 2023. LOSS PER SHARE Basic loss per share is computed by dividing net loss 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, 2024 and 2023, a total of 124,028 and 204,501 potential common shares, consisting of shares underlying outstanding stock options, restricted stock units, or RSUs, and warrants were excluded as their inclusion would be antidilutive. DEFERRED OFFERING COSTS Specific incremental costs directly attributable to an actual offering of securities may be deferred and charged against the gross proceeds of the offering. As of March 31, 2024, approximately $ 278,000 of costs have been deferred. REVENUE RECOGNITION We did not recognize revenue in fiscal year ended March 31, 2024. Our revenues in the fiscal year ended March 31, 2023 consisted entirely of amounts earned under contracts and grants with the National Institutes of Health, or NIH. During the fiscal year ended March 31, 2023, we recognized revenues totaling $ 574,245 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- 12 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 contract/grant: Phase 2 Melanoma Cancer Contract On September 12, 2019, the National Cancer Institute, or NCI, part of the NIH, awarded to us a 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 was $1,860,561 and, as amended, ran for the period from September 16, 2019 through September 15, 2022. F- 13 The work performed pursuant to this Award Contract was focused on melanoma exosomes. This work followed from our completion of a Phase I contract for the Topic 359 solicitation that ran from September 2017 through June 2018, as described below. Following on the Phase I work, the deliverables in the Phase II program involved the design and testing of a pre-commercial prototype of a more advanced version of the exosome isolation platform. The Award Contract ended on September 15, 2022 and we presented the required final report to the NCI. As the NCI completed its close out review of the contract, we recognized as revenue $ 574,245 in fiscal year ended March 31, 2023. 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 4). 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, 2024 and 2023: Schedule of share-based compensation expenses Fiscal Years Ended March 31, 2024 March 31, 2023 Vesting of Stock Options and Restricted Stock Units $ 1,219,370 $ 1,051,898 Total Stock-Based Compensation Expense $ 1,219,370 $ 1,051,898 Weighted average number of common shares outstanding – basic and diluted 2,512,774 2,053,744 Basic and diluted loss per common share $ ( 0.49 ) $ ( 0.51 ) We record share-based compensation expenses for awards of stock options and 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 stock appreciation rights 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. F- 14 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, 2024 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 In the past we issued warrants for the purchase of shares of our common stock 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. RESEARCH AND DEVELOPMENT EXPENSES Our research and development costs are expensed as incurred. We incurred approximately $ 2,520,000 and $ 2,745,000 of research and development expenses for the years ended March 31, 2024 and 2023, 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 December 2023, the FASB issued Accounting Standards Update 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires enhanced annual disclosures for specific categories in the rate reconciliation and income taxes paid disaggregated by federal, state and foreign taxes. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024. The Company is evaluating if the adoption of this new standard will have a material effect on our disclosures. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The adoption of ASU No. 2016-13 for smaller reporting companies that did not previously early adopt was January 1, 2023. The Company maintained US Treasury bills with maturities of less than three months and expects zero credit losses from these securities. As a result, the Company did not record an allowance for expected credit losses. F- 15 2. PROPERTY AND EQUIPMENT, NET Property and equipment, net, consist of the following: Schedule of property and equipment, net March 31, 2024 March 31, 2023 Furniture and office equipment, at cost $ 1,112,648 $ 989,987 Leasehold improvements 893,131 888,224 Accumulated depreciation ( 990,550 ) ( 734,207 ) Fixed Assets, net $ 1,015,229 $ 1,144,004 Depreciation expense for the fiscal years ended March 31, 2024 and 2023 was $ 358,507 and $ 240,342 , respectively. 3. PATENTS, NET Patents, net consist of the following: Schedule of patents, net March 31, 2024 March 31, 2023 Issued patents $ 157,442 $ 157,442 Accumulated amortization ( 156,342 ) ( 155,792 ) Issued patents, net of accumulated amortization 1,100 1,650 Patents, net $ 1,100 $ 1,650 Amortization expense for our capitalized issued patents for each of the fiscal years ended March 31, 2024 and 2023 was $ 550 . As 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 2.0 years. 4. EQUITY TRANSACTIONS REVERSE STOCK SPLIT On October 4, 2023, we effected a 1-for-10 reverse stock split of our then outstanding shares of common stock. Accordingly, each 10 shares of outstanding common stock then held by our 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 60,000,000 shares following the stock split. 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, 2022. All shares and per share amounts have been revised accordingly. ISSUANCES OF COMMON STOCK AND WARRANTS Equity Transactions in the Fiscal Year Ended March 31, 2024. 2022 At The Market Offering Agreement with H.C. Wainwright & Co., LLC On March 24, 2022, we entered into an At The Market Offering Agreement, or the 2022 ATM Agreement, with H.C. Wainwright & Co., LLC, or 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 2022 ATM Agreement. F- 16 The offering was registered under the Securities Act of 1933, as amended, or the Securities Act, pursuant to our shelf registration statement on Form S-3 (Registration Statement No. 333-259909), as previously filed with the Securities and Exchange Commission, or SEC, and declared effective on October 21, 2021. We filed a prospectus supplement, dated March 24, 2022, with the SEC that provides for the sale of shares of our common stock, or the 2022 ATM Shares, having an aggregate offering price of up to $ 15,000,000 , which was subsequently and most recently updated pursuant to our prospectus supplement, dated September 29, 2022, filed with the SEC that provides for the sale of 2022 ATM Shares having an aggregate offering price of up to $ 6,625,000 . As of March 31, 2024, $ 5,302,617 of 2022 ATM Shares remained available for sale under the 2022 ATM Agreement. Under the 2022 ATM Agreement, Wainwright may sell the 2022 ATM Shares by any method permitted by law and deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act, including sales made directly on the Nasdaq Capital Market, or on any other existing trading market for the 2022 ATM Shares. In addition, under the 2022 ATM Agreement, Wainwright may sell the 2022 ATM Shares in privately negotiated transactions with our consent and in block transactions. Under certain circumstances, we may instruct Wainwright not to sell the 2022 ATM Shares if the sales cannot be effected at or above the price designated by us from time to time. We are not obligated to make any further sales of the 2022 ATM Shares under the 2022 ATM Agreement. The offering of the 2022 ATM Shares pursuant to the 2022 ATM Agreement will terminate upon the termination of the 2022 ATM Agreement by Wainwright or us, as permitted therein. The 2022 ATM Agreement contains customary representations, warranties and agreements by us, and customary indemnification and contribution rights and obligations of the parties. We agreed to pay Wainwright a placement fee of up to 3.0% of the aggregate gross proceeds from each sale of the 2022 ATM Shares. We also agreed to reimburse Wainwright for certain specified expenses in connection with entering into the 2022 ATM Agreement. In the fiscal year ended March 31, 2024, we raised aggregate net proceeds of $ 1,322,383 net of $ 34,118 in commissions to Wainwright and $ 8,202 in other offering expense, through the sale of 296,056 shares of our common stock at an average price of $ 4.47 per share under the 2022 ATM Agreement. RSU Grants to Non-Employee Directors In April 2023, the Compensation Committee of the Board, or Compensation Committee, approved, pursuant to the terms of the Company’s Amended and Restated Non-Employee Director Compensation Policy, or the Director Compensation Policy, the grant of the annual RSUs under the Director Compensation Policy to each of the three non-employee directors of the Company then serving on the Board of Directors of the Company, or Board. The Director Compensation Policy provides for a grant of stock options or $50,000 worth of RSUs at the beginning of each fiscal year for current non-employee directors then serving on the Board, and for a grant of stock options or $75,000 worth of RSUs for a newly elected non-employee director, with each RSU priced at the average for the closing prices for the five days preceding and including the date of grant, or $4.30 per share for the April 2023 RSU grants. As a result, in April 2023 the three eligible directors were each granted an RSU in the amount of 11,628 shares under the 2020 Plan. The RSUs are subject to vesting in four equal installments, with 25% of the restricted stock units vesting on each of June 30, 2023, September 30, 2023, December 31, 2023, and March 31, 2024, subject in each case to the director’s Continuous Service (as defined in the 2020 Plan), through such dates. Vesting will terminate upon the director’s termination of Continuous Service prior to any vesting date. Unvested RSUs covering 4,885 shares of common stock were outstanding as of March 31, 2024. Equity Transactions in the Fiscal Year Ended March 31, 2023. During the fiscal year ended March 31, 2023, we raised net proceeds of $ 8,927,211 , net of $ 229,610 in commissions to Wainwright and $ 27,153 in other offering expense, through the sale of 748,084 shares of our common stock at an average price of $ 11.90 per share under the 2022 ATM Agreement. F- 17 RSU Grants to Non-Employee Directors The Compensation Committee approved, effective as of April 1, 2022, pursuant to the terms of the Director Compensation Policy, the grant of the annual RSUs to each of the two non-employee directors of the Company then serving on the Board, and the grant of an RSU for the then newly appointed non-employee director. The RSU grants were made subject to stockholder approval of an increase of 1,800,000 shares of common stock authorized for issuance under the Company’s 2020 Equity Incentive Plan, or the 2020 Plan, at the Company’s 2022 Annual Meeting of Stockholders. The increase was approved at the Company’s 2022 Annual Meeting of Stockholders held in September 2022. The Director Compensation Policy provides for a grant of stock options or $50,000 worth of RSUs at the beginning of each fiscal year for current non-employee directors then serving on the Board and for a grant of stock options or $75,000 worth of RSUs for a newly elected non-employee director, with each RSU priced at the average for the closing prices for the five days preceding and including the date of grant, or $14.60 per share as of April 1, 2022. The two then-current eligible directors each was granted a contingent RSU in the amount of 3,425 shares under the 2020 Plan and the then newly appointed director received a contingent RSU grant for 5,137 shares under the 2020 Plan. The RSUs were subject to vesting in three installments, 50% on September 30, 2022, and 25% on each of December 31, 2022, and March 31, 2023, subject to the recipient's continued service with the Company on each such vesting date. There were no vested RSUs outstanding as of March 31, 2023. WARRANTS: We did not issue any warrants during the fiscal years ended March 31, 2024 and 2023. A summary of the aggregate warrant activity for the years ended March 31, 2024 and 2023 is presented below: Schedule of warrant activity Fiscal Year Ended March 31, 2024 2023 Warrants Weighted Average Exercise Price Warrants Weighted Average Exercise Price Outstanding, beginning of year 32,676 $ 20.09 57,678 $ 112.11 Granted – $ N/A – $ N/A Exercised – $ N/A – $ N/A Cancelled/Forfeited – $ N/A ( 25,002 ) $ 232.38 Outstanding, end of year 32,676 $ 20.09 32,676 $ 20.09 Exercisable, end of year 32,676 $ 20.09 32,676 $ 20.09 Weighted average estimated fair value of warrants granted $ N/A $ N/A F- 18 The detail of the warrants outstanding and exercisable as of March 31, 2024 is as follows: Schedule of warrant activity exercisable and outstanding 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 $18.75 or Below 20,217 .71 $ 15.66 20,217 $ 15.66 $25.00 - $27.50 12,459 .81 $ 27.28 12,459 $ 27.28 32,676 32,676 The detail of the warrants outstanding and exercisable as of March 31, 2023 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 $18.75 or Below 20,217 1.71 $ 15.66 20,217 $ 15.66 $25.00 - $27.50 12,459 1.81 $ 27.28 12,459 $ 27.28 32,676 32,676 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 168,182 common shares for issuance under the 2020 Plan pursuant to stock option grants, RSUs or other forms of stock-based compensation. In September 2022, our stockholders approved an increase in the number of shares of common stock authorized for issuance under the 2020 Plan by 180,000 shares. As of March 31, 2024, there were 200,948 shares available under the 2020 Plan. NON-EMPLOYEE DIRECTOR COMPENSATION POLICY The Company maintains the Director Compensation Policy which provides for cash and equity compensation for persons serving as non-employee directors of the Company. Under this policy, each new non-employee director receives either stock options or a grant of RSUs upon appointment/election, as well as either an annual grant of stock options or of RSUs at the beginning of each fiscal year. The (i) stock options are subject to vesting and (ii) RSUs are subject to vesting and represent the right to be issued on a future date shares of our common stock upon vesting. F- 19 Please see above under the heading "Equity Transactions in the Fiscal Year Ended March 31, 2024—RSU Grants to Non-Employee Directors" for disclosure regarding equity awards under the Director Compensation Policy during the fiscal year ended March 31, 2024. STOCK OPTION ACTIVITY During the fiscal year ended March 31, 2024, we did not issue stock option grants. The assumptions used in estimating the fair value of stock options in the fiscal year ended March 31, 2023 included volatility ranging from 136.1 % to 140 %, a 0 % dividend rate, and risk-free rates between 1.49 % and 2.14 %. The weighted average expected volatility was 138.07 % Options outstanding that were vested as of March 31, 2024 and options that are expected to vest subsequent to March 31, 2024 are as follows: Schedule of options outstanding that have vested and are expected to vest Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term in Years Vested 57,813 $ 19.41 6.96 Expected to vest 28,653 $ 15.01 7.78 Total 86,466 The following is a summary of the stock options outstanding at March 31, 2024 and 2023 and the changes during the years then ended: Schedule of stock option activity Fiscal Year Ended March 31, 2024 2023 Options Weighted Average Exercise Price Options Weighted Average Exercise Price Outstanding, beginning of year 171,825 $ 22.4 166,595 $ 23.1 Granted – $ – 12,222 $ 9.50 Cancelled/Forfeited ( 85,359 ) $ 26.89 ( 6,992 ) $ 17.70 Outstanding, end of year 86,466 $ 17.95 171,825 $ 22.4 Exercisable, end of year 57,813 $ 19.41 75,554 $ 24.5 Weighted average estimated fair value of options granted $ N/A $ N/A There were no stock option grants during the fiscal year ended March 31, 2024. There were 12,222 stock options granted during the fiscal year ended March 31, 2023. The weighted average grant date fair value of stock options granted during the fiscal year ended March 31, 2023 was $ 61,146 . There were 54,428 RSUs granted during the fiscal year ended March 31, 2024. The weighted average grant date fair value of RSUs granted during the fiscal year ended March 31, 2024 was $ 58,333 . There were no stock option exercises during the fiscal years ended March 31, 2024 and 2023. F- 20 The table below summarizes nonvested stock options as of March 31, 2024 and changes during the year ended March 31, 2024. Schedule of nonvested shares Shares Weighted Average Grant Date Fair Value Nonvested stock options at April 1, 2023 96,273 $ 19.99 Vested ( 21,934 ) $ 1.59 Forfeited ( 45,686 ) $ 2.55 Nonvested stock options at March 31, 2024 28,653 The detail of the options outstanding and exercisable as of March 31, 2024 is as follows: Schedule of detail of options outstanding and exercisable by exercise price Options Outstanding Options Exercisable Exercise Prices Number Outstanding Weighted Average Remaining Life (Years) Weighted Average Exercise Price Number Outstanding Weighted Average Exercise Price $6.90 - $16.80 62,204 7.48 years $ 13.24 38,589 $ 13.48 $25.20 24,178 6.76 years $ 25.20 19,140 $ 25.20 $1,425.00 84 .18 years $ 1,425.00 84 $ 1,425.00 86,466 57,813 We recorded stock-based compensation expense related to RSU issuances and to options granted totaling $ 1,219,370 and $ 1,051,898 for the fiscal years ended March 31, 2024 and 2023, 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, 2024 and 2023. The table below summarizes restricted stock units as of March 31, 2024 and changes during the year ended March 31, 2024. Schedule of RSUs Shares Nonvested RSUs at April 1, 2023 – Granted 54,428 Vested ( 34,378 ) Tax withholding payments or tax equivalent payments for net share settlement of restricted stock units ( 15,165 ) Nonvested RSUs at March 31, 2024 4,885 Our total stock-based compensation for fiscal years ended March 31, 2024 and 2023 included the following: Schedule of stock-based compensation Fiscal Year Ended March 31, 2024 March 31, 2023 Vesting of restricted stock units $ 206,250 $ 175,000 Vesting of stock options 1,013,120 876,898 Total Stock-Based Compensation $ 1,219,370 $ 1,051,898 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, 2024 was insignificant. On March 31, 2024, our outstanding stock options had no intrinsic value since the closing price on that date of $ 1.68 per share was below the weighted average exercise price of our outstanding stock options. At March 31, 2024, there was approximately $ 400,002 of unrecognized compensation cost related to share-based payments, which is expected to be recognized over a weighted average period of 1.57 years. F- 21 5. RELATED PARTY TRANSACTIONS DUE TO RELATED PARTIES For the fiscal year ended March 31, 2024 we accrued unpaid fees of $ 68,250 owed to our non-employee directors. As a result of entering into a Separation Agreement effective November 27, 2023 with our former Chief Executive Officer, or CEO, Charles J. Fisher, M.D., or the Separation Agreement, we paid out accrued vacation of $ 53,076 to Dr. Fisher in the fiscal year ended March 31, 2024. That accrued vacation was previously recorded in the due to related parties account. In addition, pursuant to the terms of Dr. Fisher’s Executive Employment Agreement, we accrued $ 435,378 for cash severance payments payable monthly and COBRA payments to be paid monthly over a 12-month period that began on December 1, 2023. Additionally, $ 393,139 of stock-based compensation was recorded during the fiscal year ended March 31, 2024 for the acceleration of vesting for 50% of then outstanding options held by Dr. Fisher at the time of his separation from the Company. Amounts due to related parties were comprised of the following items: Schedule of amounts due to related parties March 31, 2024 March 31, 2023 Accrued Board fees $ 68,250 $ 57,000 Accrued vacation to all employees 167,973 157,221 Accrued separation expenses for former executive 310,211 – Total due to related parties $ 546,434 $ 214,221 6. OTHER CURRENT LIABILITIES Other current liabilities were comprised of the following items: Schedule of other current liabilities March 31, 2024 March 31, 2023 Accrued professional fees $ 215,038 $ 184,472 Accrued commission liability – 404,120 Total other current liabilities $ 215,038 $ 588,592 During 2017 through 2020, the Company incorrectly recorded accrued commission liability of approximately $404,000. The Company reversed accrued commission liability of approximately $404,000 during the year ended March 31, 2024. 7. INCOME TAXES For the years ended March 31, 2024 and 2023, we had no income tax expense due to our net operating losses and 100% deferred tax asset valuation allowance. At March 31, 2024 and 2023, 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- 22 Significant components of our net deferred tax assets at March 31, 2024 and 2023 are shown below: Schedule of deferred tax assets YEAR ENDED MARCH 31, 2024 2023 Deferred tax assets: Research and development credit carryforwards $ 3,442,000 $ 3,442,000 Capitalized research and development costs 646,000 519,000 Net operating loss carryforwards (1) 26,927,000 24,158,000 Stock compensation 2,244,000 1,903,000 Total deferred tax assets 33,259,000 30,022,000 Total deferred tax liabilities – – Net deferred tax assets 33,259,000 30,022,000 Valuation allowance for deferred tax assets ( 33,259,000 ) ( 30,022,000 ) Net deferred tax assets $ – $ – ______________ (1) Pursuant to Internal Revenue Code Section 382, use of our tax net operating loss carryforwards may be limited. The amount of the annual limitation, if any, will be determined based on the value of the Company immediately prior to an ownership change. Subsequent ownership changes may further affect the limitation in future years. If and when the Company utilizes the NOL carryforwards in a future period, it will perform an analysis to determine the effect, if any, of these loss limitation rules on the NOL carryforward balances. At March 31, 2024, we had tax net operating loss carryforwards for federal and state purposes approximating $ 98 million and $ 91 million, respectively, portions of which began to expire in the year 2021. The indefinite position is approximately $ 36 million. Research and Development credits begin to expire in 2025. The provision for income taxes on earnings subject to income taxes differs from the statutory federal rate for the years ended March 31, 2024 and 2023 due to the following: Schedule of provision for income taxes 2024 2023 Income taxes (benefit) at federal statutory rate of 21.00% $ ( 2,564,000 ) $ ( 2,526,000 ) Tax effect on non-deductible expenses and credits 2,000 2,000 True up items ( 29,000 ) 57,000 Expiration of net operating loss carryforwards (1) 204,000 353,000 Change in valuation allowance 2,387,000 2,114,000 Income Tax Expense (Benefit) $ – $ – ______________ (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, 2024 and 2023, we did not recognize any interest or penalties relating to tax matters. F- 23 At and for the years ended March 31, 2024 and 2023, management does not believe the Company has any uncertain tax positions. Accordingly, there are no unrecognized tax benefits at March 31, 2024 or March 31, 2023. 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. 8. 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, 2024: LEASE COMMITMENTS Office, Lab and Manufacturing Space Leases 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 located at 11555 Sorrento Valley Road, Suite 203, San Diego, California 92121 and 11575 Sorrento Valley Road, Suite 200, San Diego, California 92121, respectively. The agreement carries a term of 63 months and we took possession of the office space effective October 1, 2021. We took possession of the laboratory space effective January 1, 2022. In October 2021, we entered into another lease for approximately 2,655 square feet of space to house our manufacturing operations located at 11588 Sorrento Valley Road, San Diego, California 92121. The term is for 55 months and we took possession of the manufacturing space in August 2022. The current monthly base rent under the office and laboratory component of the lease is $ 14,158 . The current monthly base rent under the manufacturing component of the lease is $ 12,452 . The office, lab and manufacturing leases are coterminous with a remaining term of 36 months. The weighted average discount rate is 4.25 %. As of our March 31, 2024 balance sheet, we have a right-of-use lease asset of $ 883,054 . The following table presents a maturity analysis of expected undiscounted cash flows for operating leases on an annual basis for the next three fiscal years. All of our leases conterminously expire during the fiscal year ending March 31, 2027. Schedule of lease maturity Fiscal Years Ended March 31, 2025 $ 323,812 2026 333,462 2027 343,352 Total minimum lease payments 1,000,626 Less amount representing imputed interest ( 60,310 ) Present value of minimum lease payments $ 940,316 F- 24 Mobile Clean Room In addition, we rented a mobile clean room on a short term, month-to-month basis, where we housed our manufacturing operations until our permanent manufacturing space was completed. The mobile clean room was located on leased land near our office and lab and we paid $2,000 per month for the right to locate it there. The arrangement was terminated in September 2022 and the mobile clean room was returned to the vendor that leased it to us. Overall, our rent expense, which is included in general and administrative expenses, approximated $ 420,353 and $ 519,000 for the fiscal years ended March 31, 2024 and 2023, respectively. 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. 9. SUBSEQUENT EVENTS Management has evaluated events subsequent to March 31, 2024 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. Public Offering On May 17, 2024, we closed a public offering pursuant to which we sold an aggregate of: (i) 2,450,000 shares of our common stock and accompanying Class A warrants to purchase up to 2,450,000 shares of common stock and Class B warrants to purchase up to 2,450,000 shares of common stock, at a combined public offering price of $0.58 per share and accompanying warrants; and (ii) in lieu of common stock, pre-funded warrants to purchase 5,650,000 shares of common stock and accompanying Class A warrants to purchase up to 5,650,000 shares of common stock and Class B warrants to purchase up to 5,650,000 shares of common stock, at a combined public offering price of $0.579 per pre-funded warrant and accompanying warrants, which is equal to the public offering price per share of common stock, and accompanying warrants less the $0.001 per share exercise price of each such pre-funded warrant. The Class A and Class B warrants each have an exercise price of $0.58 per share, are immediately exercisable, and, in the case of Class A warrants, will expire on May 17, 2029, and in the case of Class B warrants, will expire on May 19, 2025. The exercise price of the Class A and Class B warrants is also subject to adjustment for stock splits, reverse splits, and similar capital transactions as described in such warrants. Maxim Group LLC acted as the exclusive placement agent for the offering. The gross proceeds from the offering, before deducting the placement agent’s fees and other offering expenses, were approximately $4.7 million. The Company intends to use the net proceeds from this offering for general corporate purposes, which may include clinical trial expenses, research and development expenses, capital expenditures and working capital. In June 2024, holders of Class A and Class B warrants exercised 295,000 shares and 2,875,000 shares, respectively, for total proceeds of $1,838,600. F- 25 RSU Grants In April 2024, the Board approved, pursuant to the terms of the Director Compensation Policy, the grant of the annual RSUs under the Director Compensation Policy to each of the four non-employee directors of the Company then serving on the Board. The Director Compensation Policy provides for a grant of stock options or $50,000 worth of RSUs at the beginning of each fiscal year for current non-employee directors then serving on the Board, and for a grant of stock options or $75,000 worth of RSUs for a newly elected non-employee director, with each RSU priced at the average for the closing prices for the five days preceding and including the date of grant, or $1.52 per share for the April 2024 RSU grants. As a result, in April 2024 the four eligible directors were each granted an RSU in the amount of 32,894 shares under the 2020 Plan. The RSUs are subject to vesting in four equal installments, with 25% of the restricted stock units vesting on each of June 30, 2024, September 30, 2024, December 31, 2024, and March 31, 2025, subject in each case to the director’s Continuous Service (as defined in the 2020 Plan), through such dates. Vesting will terminate upon the director’s termination of Continuous Service prior to any vesting date. F- 26