Aclarion, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Aclarion is a healthcare technology company using magnetic resonance spectroscopy and a proprietary biomarker; it recognizes revenue when it delivers Nociscan reports to medical professionals. The filing is unaudited.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $18,222 | $10,865 | $37,924 | $48,315 |
| Gross profit (loss) | $1,194 | ($5,221) | ($10,085) | ($4,639) |
| Operating expenses | $1,634,454 | $792,034 | $4,761,676 | $1,879,781 |
| Operating loss | ($1,633,260) | ($797,255) | ($4,771,761) | ($1,884,420) |
| Net loss | ($1,633,033) | ($2,952,418) | ($6,276,636) | ($3,936,119) |
| Net loss per common share | ($0.21) | ($3.58) | ($1.21) | ($5.14) |
Margins: Gross margin was approximately 6.6% in Q3 2022 versus negative 48.1% in Q3 2021; for the first nine months it was negative 26.6% versus negative 9.6%. The company remained loss-making, with revenue far below operating costs.
- Q3 revenue rose 68%, attributed to a University of North Carolina at Chapel Hill purchase order for site trainings. Nine-month revenue fell 22%, as fewer medical professionals ordered reports; management reported no material pricing change.
- Q3 operating expenses increased 106% year over year. Nine-month expenses increased 153%, led by general and administrative costs, including option-vesting compensation, new management compensation, bonuses, and D&O insurance. Sales and marketing and R&D costs also rose.
- Nine-month interest expense increased to $1.51 million from $308,000, primarily reflecting a $1.3 million beneficial-conversion charge on accrued promissory-note interest in connection with the IPO. Q3 interest expense was only $2,070, versus $167,626 a year earlier.
Cash, liquidity, and capital
- At September 30, 2022, reported cash was $2.656 million, restricted cash was $10,000, and current assets totaled $2.880 million. Current liabilities were $1.168 million; the company reported no promissory note payable at quarter-end. Stockholders’ equity was $2.933 million.
- For the first nine months, operating cash use was $4.179 million, investing cash use was $160,000, and financing provided $6.552 million. Financing included IPO proceeds and repayment of $2.0 million of secured promissory notes.
- The April 2022 IPO raised approximately $8.6 million net, according to the filing; the cash-flow statement reports $8.552 million of proceeds, while the MD&A also cites $8.527 million net proceeds. Preferred shares and accrued dividends converted to common stock, and accrued note interest converted into common shares and warrants. The company reported 7,821,515 common shares outstanding as of November 14, 2022.
- Management estimated IPO proceeds would fund current plans into Q2 2023, but said additional funding would be needed for subsequent technology development and commercialization. Recurring losses and the need for additional financing raise substantial doubt about the company’s ability to continue as a going concern. No external funding was committed.
Outlook, risks, and other notable items
- No revenue, earnings, or cash-flow guidance was provided. Management’s stated liquidity estimate depends on assumptions that may prove incorrect, and spending could exceed expectations.
- Management identified risks including the company’s limited operating history, competition, access to funding, dependence on key personnel, and execution of customer-development and commercialization plans. COVID-19’s longer-term effects were described as uncertain; the company said it was not then affecting marketing or development plans.
- Further equity financing could dilute shareholders; debt or preferred financing may impose restrictive terms. Failure to obtain funding could require delaying, reducing, or ending development or commercialization, or licensing rights on unfavorable terms.
- Nociscan reports were not reimbursable through third-party payment arrangements. The company owed the University of California a minimum annual royalty of $50,000 plus 4% of net sales; it paid a $123,828 IPO-related milestone in May 2022.
- No material legal proceedings, material subsequent events, or material changes to the prospectus risk factors were reported. Management concluded disclosure controls were effective at a reasonable assurance level and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Reconcile the filing’s cash and IPO-proceeds figures, including the balance-sheet cash of $2.656 million plus restricted cash versus the MD&A and cash-flow presentations.
- Assess the timing, terms, and dilution implications of the additional financing management says is needed, and the going-concern uncertainty.
- Track Nociscan report orders, customer adoption, revenue growth, and the path to sustainable gross margins, given low revenue and continued operating losses.
- Review the effect of stock-based compensation and outstanding options and warrants on future expenses and shareholder dilution.