Aethlon Medical (OTC BB:AEMD) filed their 10-Q for the fiscal first quarter ending 6/30/2013 on August 13th. Revenue came in in-line with our number with operating income coming in much better than our estimate as a result of AEMD doing a nice job of cutting operating expenses and conserving resources. AEMD booked $196k in DARPA contract revenue in Q1 which was in-line with our number. Revenue relates to the twelfth milestone under the DARPA contract (the fourth milestone under the year-2 contract). Subsequent to the end of fiscal Q1 AEMD invoiced for and was paid another $404k which relates to the thirteenth and fourteenth milestones.
AEMD also disclosed in the 10-Q that they have submitted to Battelle their first invoice for work the company is doing under the previously announced subcontract agreement that the company has with Battelle related to the $22.8 million systems integrator contract with DARPA. AEMD's initial invoice is for just over $20k which we assume will be recorded and collected in fiscal Q2. As a reminder, AEMD's subcontract is a time and materials contract so the total that AEMD will eventually bill will not be known until their work is completed. We do, however, think it's likely that there will be additional revenue contribution from this contract throughout the year.
The milestone paid in Q1 related to the year-2 DARPA contract is (per AEMD's 10-Q);
Milestone 184.108.40.206 – Formulate initial design based on work from previous phase. Begin to build and test selected instrument design and tubing sets. The milestone payment was $195,596. Management considers this milestone to be substantive as it was not dependent on the passage of time nor was it based solely on another party's efforts. We demonstrated that we were able to build and test selected instrument design and tubing sets. The report was accepted by the contracting officer's representative and the invoice was submitted thereafter.
Through July 2013 AEMD has booked approximately $3.2 million in DARPA revenue and had approximately $390k remaining to invoice under the year 2 contract. As a reminder, DARPA has the option of entering into the remainder of the proposed contract for years three through five, which would pay Aethlon up to an additional $3.2 million, annual payments under which would range between $775k and $1.6 million.
Q1 operating expenses were $980k, well below our $1.2 million estimate and the lowest since fiscal Q2 2012 (ending 9/30/2011). This is a result of management's focus on conserving resources and keeping op expenses to a minimum as well as lower litigation and investor relations expense. Operating loss was $784k, significantly better than our $1.0 million loss estimate. Q1 net income and EPS of ($304)k and ($0.00) were better than our ($1.2) million and ($0.01) estimates and benefitted from a $609k non-cash gain from change in value of derivative liabilities.
Aethlon exited fiscal Q1 with $32k in cash and equivalents, compared to $125k at the end of fiscal 2013 (3/31/2013). However, subsequent to fiscal Q1 quarter end the company raised an additional $500k through the sale of a combination of common stock ($100k) and 90 day notes ($400k from two company directors). And, as noted, subsequent to the end of the quarter AEMD collected $404k from the 13th and 14th DARPA milestones. AEMD also recently signed an agreement with a broker-dealer to raise additional capital. The company also continues to make progress with cleaning up its balance sheet with converting some outstanding and non-performing debt to equity.
Cash used in operations was $221k in Q1, which is significantly less than recent periods (including $522k used in Q4. As we've noted in the past, AEMD has been very successful in raising operating capital on an ongoing basis.
Along with their ongoing ability to continue to raise operating capital, we have been encouraged, from the standpoint of strengthening their financial position and balance sheet, by the success of converting some of their outstanding debt to stock. While a substantial portion of debt remains in default, the company continues to make progress on cleaning up their balance sheet, which we view as meaningful from a de-risking perspective. We reiterate, however, as we have in the past, that Aethlon will need to raise a substantial amount of cash, enter into partnering arrangements or score additional valuable contracts/grants in order to complete the recently announced U.S. safety study and to be able to maintain operations for the longer-term. Nonetheless, we believe management's recent progress should not be marginalized.