Aclarion, Inc. — Q2 2023 Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2023. The company is an early-stage healthcare technology business using magnetic resonance spectroscopy and a proprietary biomarker to deliver Nociscan reports. The filing was signed August 25, 2023.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $17,072 | $10,676 | $42,542 | $19,702 |
| Gross profit (loss) | $(2,229) | $(3,573) | $5,788 | $(11,279) |
| Gross margin | (13.1%) | (33.5%) | 13.6% | (57.2%) |
| Operating expenses | $1,403,971 | $2,209,175 | $2,593,253 | $2,974,569 |
| Net loss | $(1,464,557) | $(3,554,862) | $(2,648,017) | $(4,490,950) |
| Loss per share | $(0.18) | $(0.47) | $(0.33) | $(1.12) |
Revenue increased 60% in Q2 and 116% for the first half, primarily from a purchase order from the University of North Carolina at Chapel Hill. Revenue remains very small relative to operating costs. First-half gross profit turned positive, while Q2 continued to report a gross loss.
Operating expenses declined year over year, largely because 2022 included IPO-related bonuses and stock compensation, and a UCSF license milestone payment. Sales and marketing costs rose, driven by consultant/key opinion leader RSU vesting, conferences and travel. The much lower 2023 interest expense reflects the absence of the approximately $1.3 million beneficial conversion charge recorded in 2022. 2022 comparative information was restated for errors involving warrant-exercise accounting and IPO cash-flow classification.
Cash, liquidity and financing
- At June 30, 2023, cash was $604,518 and restricted cash was $10,000, down from combined cash and restricted cash of $1,482,806 at year-end 2022.
- Current assets were $798,087 versus current liabilities of $1,994,242, a working-capital deficit of approximately $1.20 million. Stockholders’ equity was only $10,223.
- First-half operating cash use was $1,960,653; investing cash use was $72,634; financing provided $1,165,000. Net cash decreased $868,287.
- In May, the company issued unsecured senior notes with $1,437,500 principal for $1,250,000 gross cash proceeds, at an 8% annual interest rate and with a 15% original issue discount. The notes mature May 16, 2024. After discounts and financing costs, the reported carrying value was $118,838; the face principal is materially higher. The company may, subject to conditions, draw a further $750,000 tranche.
Management stated the bridge financing was expected to fund operations only into Q3 2023 and was actively seeking longer-term financing. The filing concludes that recurring operating losses and the need for additional capital raise substantial doubt about the company’s ability to continue as a going concern. No specific revenue or earnings guidance was provided.
Risks, contingencies and other notable items
- Nasdaq listing: The company had a stockholders’ equity deficiency, with a compliance deadline of August 30, 2023, and received an August 2023 notice for failure to meet the $1.00 minimum bid-price requirement. It also received a notice related to the late Q2 filing; the company expected filing this report to restore timely-filing compliance. Delisting could impair liquidity and access to capital.
- Controls: Management found disclosure controls and internal control over financial reporting ineffective, citing material weaknesses in segregation of duties, control documentation and accounting resources. The company also acknowledged delays in filing periodic reports.
- Potential dilution and valuation: The notes carry warrants to purchase 1,232,156 shares at $0.6262 per share; related warrant and embedded derivative liabilities totaled $754,788 at quarter-end and are measured using significant Level 3 inputs. The company also had 8,200,875 common shares outstanding and substantial additional options, RSUs and warrants.
- License obligation: The UCSF license requires a $50,000 annual minimum royalty, creditable against a 4% royalty on net sales; the company recorded $25,000 of royalty costs in the first half.
- The company reported no material pending legal proceedings and no off-balance-sheet arrangements.
Key facts for investors to verify
- Whether the company secured additional financing, including the conditional $750,000 second note tranche, and whether available funds extended beyond the stated Q3 2023 runway.
- Subsequent Nasdaq compliance status for stockholders’ equity, minimum bid price and timely filing, including any reverse-stock-split action.
- Revenue growth and customer concentration: the filing attributes the period’s increase primarily to one UNC purchase order.
- Progress addressing material weaknesses and the causes of filing delays; confirm the accuracy of financial reporting going forward.
- The notes’ repayment and interest terms, warrant-related dilution, and the assumptions behind Level 3 liability valuations.