Aclarion, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. Filed February 27, 2023. Aclarion is an early-stage healthcare technology company commercializing Nociscan, a cloud-based service using magnetic resonance spectroscopy (MRS) data and proprietary algorithms to help clinicians assess whether lumbar discs may be pain sources.
Financial results and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $60,444 | $60,292 |
| Cost of revenue | $65,298 | $69,175 |
| Gross profit (loss) | $(4,854) | $(8,883) |
| Operating expenses | $6,093,662 | $2,944,155 |
| Operating loss | $(6,098,516) | $(2,953,038) |
| Net loss | $(7,605,542) | $(4,950,290) |
| Net loss attributable to common stockholders | $(8,021,064) | $(5,955,888) |
| Cash used in operating activities | $(5,314,171) | $(2,399,949) |
| Cash, cash equivalents and restricted cash at year-end | $1,482,806 | $452,530 |
- Revenue was essentially unchanged; nearly all revenue came from Nociscan reports. Cost of revenue exceeded revenue in both years.
- Operating expenses rose $3.15 million, principally from higher general and administrative expense, including stock-based compensation, executive and management bonuses, and directors’ and officers’ insurance. Sales and marketing and R&D expenses also increased.
- Net loss widened by $2.66 million. Higher operating expenses and $1.51 million of interest expense contributed; FY2021 also included a $1.90 million preferred-stock fair-value charge and $373,511 of PPP loan forgiveness.
- Operating cash use more than doubled, while cash increased following the April 2022 IPO. The IPO generated approximately $8.6 million net proceeds; the company used $2.0 million to repay secured notes, alongside other disclosed uses.
- At December 31, 2022, total current assets were $1.99 million and current liabilities were $1.42 million; working capital was approximately $570,000. Total assets were $3.21 million, and stockholders’ equity was $1.79 million. No promissory note payable remained on the year-end balance sheet.
- The company reported $1.5 million of cash at year-end and estimated it would fund current operating plans only into the second quarter of 2023. The auditor highlighted substantial doubt about the company’s ability to continue as a going concern.
Material changes and notable items
- The company completed its IPO in April 2022, received net proceeds of approximately $8.6 million, and began trading on Nasdaq as ACON; warrants trade as ACONW. Preferred stock and accrued dividends converted into common shares, and accrued interest on secured notes converted into shares and warrants. A 1-for-7.47 reverse stock split was effected in connection with the IPO.
- Year-end common shares outstanding were 7,861,515. The filing also reports substantial outstanding options and warrants; potential dilution should be considered.
- Cash interest expense included a $1.30 million beneficial-conversion charge associated with conversion of accrued interest on secured notes at the IPO. The $2.0 million principal was repaid from IPO proceeds.
- The company paid UCSF $123,828 for an IPO-triggered license milestone. It also recorded a $50,000 annual minimum royalty, applied against earned royalties.
- In November 2022, Aclarion issued 40,000 restricted common shares to a vendor for services, recognizing $102,000 of expense.
Outlook, risks and management commentary
- No numerical revenue or earnings guidance was provided. Management’s near-term priority is securing payer coverage for Nociscan’s Category III CPT codes, building physician and imaging-center adoption, and generating additional clinical evidence. The company expects to need additional financing; it cautions that funding may not be available on acceptable terms or at all.
- Nociscan is currently compatible only with certain Siemens MRI scanner models. Limited scanner compatibility, payer reimbursement, adoption, and the need to scale and automate operations constrain commercialization.
- The company’s clinical-outcome claims rely substantially on a single, company-sponsored study at one center. In that study, 35 of 36 patients whose surgery included all Nociscan-identified painful discs met the study’s improvement criteria, compared with 7 of 13 where a flagged painful disc was omitted. The filing notes the study’s small size and that an author had a financial interest in Aclarion.
- The four disc-MRS Category III CPT codes took effect in 2021. Management seeks broader coverage and eventual conversion to Category I codes, but states that conversion and adequate reimbursement are not assured. Revenue to date remains very limited and is primarily patient-pay.
- Regulatory status carries uncertainty: Aclarion considers NOCICALC a Class I FDA-exempt device and NOCIGRAM clinical decision-support software outside FDA device regulation, but regulators could disagree. In Europe, the company expected MDR re-certification as a Class IIa device by May 2024 and said it had not yet engaged a Notified Body; it also disclosed work to address post-market compliance requirements.
- Management assessed internal control over financial reporting as ineffective at year-end because of a material weakness in segregation of duties and limited staffing. Disclosure controls and procedures were also deemed ineffective. The auditor did not attest to internal controls, consistent with the company’s emerging-growth-company exemption.
- Nasdaq notified the company in December 2022 that its share price did not meet the $1 minimum bid-price requirement. Failure to regain compliance could lead to delisting. In February 2023, the company issued its Executive Chairman a special preferred share with 15 million votes solely on a reverse-stock-split proposal.
- Other principal risks include recurring losses, financing and dilution risk, reliance on the UCSF intellectual-property license, privacy and cybersecurity exposure, clinical and regulatory uncertainty, and potential conflicts arising from financial relationships with physicians and study authors. The filing reports no material legal proceedings.
Important facts for investors to verify
- Available cash, actual monthly cash burn, financing plans and runway after the stated second-quarter 2023 estimate.
- Whether payer coverage and claim volumes for the Category III codes are growing, and the timetable and evidence required for Category I conversion.
- Independent replication of clinical performance and outcomes beyond the single-center study, including results from NIH’s BEST study and company registries.
- Progress on Siemens compatibility, adoption by imaging centers and clinicians, and the economics of Nociscan reports as volume scales.
- Status of EU MDR/UK regulatory compliance and whether the FDA or other regulators challenge the company’s product classifications.
- Remediation of the material weakness and disclosure-control deficiencies, and the potential dilution from outstanding equity awards and warrants.