Aclarion, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Filed July 3, 2023. Aclarion is a healthcare technology company using magnetic resonance spectroscopy and its proprietary biomarker to support clinical treatment decisions. Its reported revenue comes from delivery of Nociscan reports.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 / prior period |
|---|---|---|
| Revenue | $25,470 | $9,026 |
| Cost of revenue | $17,453 | $16,732 |
| Gross profit (loss) | $8,017 | $(7,706) |
| Operating expenses | $1,189,281 | $765,394 |
| Operating loss | $(1,181,264) | $(773,100) |
| Net loss | $(1,183,460) | $(936,088) |
| Net loss per share | $(0.15) | $(1.35) |
| Cash used in operating activities | $(1,013,113) | $(309,427) |
| Cash and restricted cash, end of period | $457,975 | $60,449 |
| Total assets | $1,861,437 | $2,914,629 at Dec. 31, 2022 |
| Current liabilities | $736,407 | $688,671 at Dec. 31, 2022 |
Gross margin was approximately 31% in Q1 2023, compared with a gross loss in Q1 2022. The filing reports no income tax provision. At March 31, cash was $447,975 and restricted cash was $10,000. Current assets were $675,533; the balance sheet lists accounts payable and accrued liabilities but no outstanding notes payable. The $2 million secured promissory notes had been repaid in April 2022.
Changes versus the comparable period
- Revenue increased $16,444, or 182%, primarily due to a purchase order from the University of North Carolina at Chapel Hill.
- Operating expenses rose $423,887. Sales and marketing increased 156%, attributed to key opinion leader RSU vesting, conferences, and travel. General and administrative expense increased 64%, reflecting public-company audit, investor relations, transfer agent, and legal costs after the 2022 IPO. Research and development was broadly unchanged.
- Operating cash use increased to $1.01 million from $309,427. The company attributed Q1 2023 cash use mainly to employee and contractor costs, insurance, and audit and legal fees.
- Interest expense fell to $1,380 from $162,740, primarily because the secured notes were repaid after the IPO. Net loss nevertheless increased by $247,372, reflecting higher operating expenses.
Outlook, risks, and unusual items
- Going concern and funding: Management says recurring operating losses and the need for additional financing raise substantial doubt about the company’s ability to continue as a going concern. At March 31, cash was $457,975; management then estimated IPO proceeds and subsequent funding would support current plans only into Q3 2023 and said additional funding was needed.
- Subsequent financing: In May 2023, the company agreed to sell up to $2.3 million of unsecured notes bearing 8% interest and maturing in 12 months, with a 15% original issue discount. The first tranche had approximately $1.44 million principal and generated $1.25 million in proceeds. It included 1,232,156 five-year warrants initially exercisable at $0.6262 per share, plus commitment shares and placement-agent warrants. Management said combined tranche financing of $2 million should fund operations for approximately four months, into Q3 2023. The second tranche was optional and subject to conditions. Default raises the rate to 15% and permits redemption at a 25% premium; certain qualified offerings require partial note repayment.
- Nasdaq listing: Nasdaq granted an extension through August 30, 2023 to regain compliance with its $2.5 million stockholders’ equity requirement. Separately, the company reported it regained compliance with Nasdaq’s $1.00 minimum bid-price requirement on June 15, 2023. The filing also reports stockholders’ equity of $1.125 million at March 31, 2023.
- Potential dilution: The May financing includes warrants and commitment shares. At March 31, 3,089,718 warrants, 649,215 nonvested RSUs, and 2,738,820 stock options were excluded from diluted loss per share as antidilutive. The filing states 8,200,875 common shares were outstanding as of July 3, 2023.
- Banking risk: The company disclosed that its cash was held at Silicon Valley Bank when it was closed on March 10, 2023, and says it diversified banking relationships. At March 31, $146,643 of cash exceeded FDIC-insured limits; further banking instability or inability to access funds could impair operations.
- Controls and accounting: Management concluded disclosure controls and internal control over financial reporting were ineffective, citing limited segregation of duties, inadequate control documentation, limited staffing, and insufficient accounting resources for complex transactions. The company adopted the expected-credit-loss standard in 2023 with no retained-earnings adjustment; it is evaluating the impact of a convertible-instruments accounting standard effective later.
- Other commitments: The company owes a minimum annual royalty of $50,000 under a University of California license, creditable against earned royalties of 4% of net sales. No material litigation or off-balance-sheet arrangements were reported.
Investor verification priorities
- Confirm available cash, burn rate, and whether the optional second tranche or other longer-term financing was secured; compare realized runway with management’s Q3 2023 estimate.
- Review the terms, repayment obligations, defaults, and potential dilution from the May notes, warrants, commitment shares, and placement-agent warrants.
- Track progress toward Nasdaq’s stockholders’ equity requirement by the August 30, 2023 deadline and any subsequent listing notices.
- Assess whether revenue growth from the UNC purchase order is repeatable, given the small revenue base and lack of third-party reimbursement for reports.
- Monitor remediation of the disclosed material weaknesses and any effect on reporting reliability.