Aclarion, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Aclarion is a healthcare technology company using magnetic resonance spectroscopy and proprietary biomarkers; it generates revenue from delivery of Nociscan reports. Financial statements are unaudited. Share and per-share data reflect the 1-for-16 reverse stock split effective January 4, 2024.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Revenue | $10,114 | $25,470 |
| Gross profit (loss) | $(9,362) | $8,017 |
| Operating expenses | $1,265,945 | $1,189,281 |
| Operating loss | $(1,275,307) | $(1,181,264) |
| Net loss | $(2,399,102) | $(1,183,460) |
| Net loss per share | $(0.44) | $(2.39) |
| Cash used in operations | $(2,238,557) | $(1,013,113) |
| Cash and restricted cash, March 31 | $2,142,635 | $457,975 at March 31, 2023 |
| Total current liabilities | $1,221,812 | $3,187,769 at December 31, 2023 |
| Note payable, net of discounts | $670,150 | $1,125,724 at December 31, 2023 |
Revenue fell about 60%, mainly because certain customer-site clinical activity using Nociscan reports concluded. Cost of revenue rose 12%, resulting in a negative gross margin. Operating expenses increased about 6%: research and development rose 17%, chiefly for regulatory and quality-system work; general and administrative increased 5%, primarily on audit and legal fees. Net loss widened substantially, largely due to debt-related charges and higher interest expense.
Q1 financing cash flow was $3,413,780, including $2,691,391 net public-offering proceeds and $1,449,532 equity-line proceeds, offset by repayments and issuance costs. Investing cash outflow was $63,657, mainly for patents. Cash increased by $1,111,566 during the quarter; $2,142,635 is the quarter-end total including $10,000 restricted cash.
Material changes and unusual items
- February public offering: 5,175,000 units at $0.58 each, for approximately $3.0 million gross proceeds before expenses. Units included common stock or pre-funded warrants and two common warrants.
- Debt exchanges in January converted $1,519,779 of principal and accrued interest into 644,142 post-split shares. Accelerated debt discounts produced a $1,066,732 loss. A March $300,974 payment on notes generated a further $111,928 extinguishment loss.
- Interest expense was $335,824, versus $1,380 a year earlier. Fair-value changes in warrant and derivative liabilities generated a $297,684 gain. Other net income of $93,005 included a $117,985 favorable accounts-payable discount, partly offset by a $25,000 investor penalty for late registration of commitment shares.
- At March 31, gross note principal was $862,500; the balance-sheet carrying amount after discounts and financing costs was $670,150. Notes mature in 2024, including a remaining note maturity in September.
- Common shares outstanding increased from 825,459 at December 31 to 7,153,500 at March 31, reflecting the offering, equity-line issuance, debt-for-equity exchanges and other share issuances.
Liquidity, outlook and risks
- Management estimates that cash from the February offering and subsequent funding will support current operating plans into Q3 2024, approaching repayment of unsecured notes due in September. Management says further funding is needed and plans to seek it. The filing states that recurring losses and financing needs raise substantial doubt about the company’s ability to continue as a going concern.
- After quarter-end, Aclarion reported that cumulative White Lion equity-line issuances through April 26 totaled 1,800,000 shares for $3,216,981. The agreement provides for purchases of up to $10 million in aggregate, subject to conditions and limitations.
- On April 8, Nasdaq notified the company that it was below the $1.00 minimum bid-price requirement. The initial compliance period runs through October 7, 2024; the company is monitoring its share price and considering options.
- Disclosure controls and procedures were deemed ineffective. Management cited material weaknesses involving limited segregation of duties, inadequate control documentation and insufficient accounting resources for complex transactions; remediation work with an outside firm is ongoing.
- Key risks include limited operating history, low revenue, need for additional capital, possible dilution or restrictive financing terms, and the possibility that available funds are insufficient. The company reports no material legal proceedings and no material changes to its previously disclosed risk factors.
Important facts for investors to verify
- Whether further financing is secured in time to fund operations and meet the September 2024 note maturity, and the resulting dilution or financing terms.
- Actual cash burn and runway relative to management’s Q3 2024 estimate; the filing cautions that estimates rely on assumptions and spending could be faster than expected.
- Progress toward Nasdaq bid-price compliance by October 7, 2024, and any eligibility for an additional compliance period.
- Revenue trends, customer-site activity and the company’s ability to expand commercial adoption of Nociscan reports.
- Remediation of the disclosed control weaknesses and consistency of future reporting. Also reconcile the MD&A cash-flow summary, which labels $2,142,635 as the net increase, with the cash-flow statement’s $1,111,566 increase and $2,142,635 ending cash and restricted cash.