Aclarion, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Aclarion is a healthcare technology company whose Nociscan reports use magnetic resonance spectroscopy and a proprietary biomarker to support clinical treatment decisions.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $19,065 | $18,222 | $61,607 | $37,924 |
| Gross profit (loss) | $(493) | $1,194 | $5,295 | $(10,085) |
| Operating expenses | $1,161,682 | $1,634,454 | $3,754,934 | $4,609,023 |
| Net loss | $(998,010) | $(1,633,033) | $(3,646,027) | $(6,123,983) |
| Loss per common share | $(0.12) | $(0.20) | $(0.44) | $(1.17) |
| Cash used in operations | Not provided quarterly | Not provided quarterly | $(2,913,165) | $(3,814,059) |
- Q3 revenue increased 5% year over year; nine-month revenue increased 62%, which management attributed to higher scan volume at research institutions. Revenue remains modest, and Q3 cost of revenue exceeded revenue.
- Nine-month operating expenses declined about 19%, mainly reflecting lower general and administrative and research and development costs; sales and marketing expense increased 64%, driven in part by consultant/KOL RSU vesting, conferences, and travel.
- Nine-month net loss improved year over year, partly because 2022 included a $1.3 million beneficial conversion charge to interest expense. In 2023, a $318,452 fair-value gain on warrant and derivative liabilities also reduced reported losses; this is a non-cash valuation item.
- At September 30, cash was $161,450 and restricted cash was $10,000. Current assets were $364,948 versus current liabilities of $2,371,199, a working-capital deficit of approximately $2.0 million. Stockholders’ deficit was $827,980.
- Notes had $2.3 million face value and a reported carrying value, net of discounts and deferred financing costs, of $727,536. The unsecured notes bear 8% annual interest and mature in May and September 2024. Warrant and derivative liabilities totaled $578,346.
- For the nine months, cash used in investing was $85,603 and financing provided $1,687,412, primarily from $2.0 million of bridge-note proceeds, net of $312,588 in issuance costs. Cash and restricted cash decreased by $1,311,356.
Changes, outlook, and material risks
- Management stated the two-tranche bridge financing was expected to fund operations into Q4 2023 and that it was seeking longer-term funding. The filing states that recurring losses and the need for additional financing raise substantial doubt about the company’s ability to continue as a going concern. No specific revenue or earnings guidance is provided.
- Nasdaq had identified deficiencies in both the $1.00 minimum bid-price rule and the $2.5 million stockholders’ equity rule. On November 7, 2023, after the quarter end, the Nasdaq Hearings Panel granted continued listing subject to demonstrating compliance with both requirements by January 31, 2024.
- On October 9, 2023, Aclarion entered a conditional equity purchase agreement giving it the right to sell up to $10 million of shares to White Lion through December 31, 2024. The agreement includes purchase-price discounts and share-volume limits. After quarter end, the company reported selling 300,000 and 75,000 shares for net proceeds of $90,625 and $21,484, respectively. The associated note warrants’ exercise price was reduced from $0.6262 to $0.2865 under a full-ratchet provision.
- The company reports ineffective disclosure controls and material weaknesses in internal control, citing limited segregation of duties and insufficient accounting resources for complex transactions. It engaged an outside accounting firm in Q3 and intends to use it to strengthen controls.
- Additional financing may dilute shareholders or include restrictive terms; failure to obtain funding could require reducing or delaying development and commercialization efforts. The company also identifies Nasdaq delisting as a risk to trading liquidity and future capital raising.
- The 2022 comparative interim financial information is presented as restated following correction of errors involving IPO costs and warrant-exercise accounting.
Key facts for investors to verify
- Available cash, current obligations, cash burn, and the timing and sufficiency of financing to fund operations beyond Q4 2023.
- Progress toward the Nasdaq equity and bid-price requirements by January 31, 2024, and any resulting financing or reverse-split actions.
- Terms, availability, actual utilization, and dilution from the White Lion equity facility and the adjusted warrant exercise price.
- Revenue growth and scan volumes, given low absolute revenue and the Q3 gross loss.
- Plans and measurable progress to remediate material weaknesses in disclosure and financial reporting controls.
- The filing gives inconsistent Q3 interest expense amounts: $166,332 in the financial statements and $166,632 in the MD&A narrative. Confirm the correct amount.