Aclarion(ACON) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents unaudited condensed financial statements, reflecting a significant post-IPO transformation to positive equity and increased cash, despite continued operating losses Condensed Balance Sheets The balance sheet as of September 30, 2022, shows marked improvement post-IPO, with increased cash, decreased liabilities, and a shift to positive stockholders' equity Balance Sheet Summary | Metric | Sep 30, 2022 (Unaudited) ($) | Dec 31, 2021 ($) | | :--- | :--- | :--- | | Assets | | | | Cash | $2,656,108 | $432,530 | | Total Current Assets | $2,879,921 | $732,204 | | Total Assets | $4,101,162 | $1,889,465 | | Liabilities & Equity | | | | Total Current Liabilities | $1,168,426 | $7,618,784 | | Total Stockholders' Equity (Deficit) | $2,932,736 | $(12,831,606) | - Following the IPO, all mezzanine equity (redeemable preferred stock) valued at $7.1 million as of Dec 31, 2021, was converted, resulting in a zero balance as of September 30, 2022[13] Condensed Statements of Operations The company reported a reduced net loss in Q3 2022 but a widened net loss for the nine-month period, driven by significantly increased operating expenses Three Months Ended September 30 | Metric | Three Months Ended Sep 30, 2022 ($) | Three Months Ended Sep 30, 2021 ($) | | :--- | :--- | :--- | | Revenue | $18,222 | $10,865 | | Total Operating Expenses | $1,634,454 | $792,034 | | Net Loss | $(1,633,033) | $(2,952,418) | | Net Loss Per Share | $(0.21) | $(3.58) | Nine Months Ended September 30 | Metric | Nine Months Ended Sep 30, 2022 ($) | Nine Months Ended Sep 30, 2021 ($) | | :--- | :--- | :--- | | Revenue | $37,924 | $48,315 | | Total Operating Expenses | $4,761,676 | $1,879,781 | | Net Loss | $(6,276,636) | $(3,936,119) | | Net Loss Per Share | $(1.21) | $(5.14) | Condensed Statements of Cash Flows For the nine months ended September 30, 2022, net cash used in operations increased, while IPO proceeds significantly boosted financing activities, leading to a net increase in cash Cash Flow Summary | Cash Flow Activity (Nine Months Ended Sep 30) | 2022 ($) | 2021 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | $(4,179,118) | $(1,567,690) | | Net cash used in investing activities | $(159,622) | $(84,984) | | Net cash provided by financing activities | $6,552,318 | $2,939,500 | | Net increase in cash | $2,213,578 | $1,286,826 | - Significant non-cash financing activities in 2022 included the conversion of $25.75 million of preferred stock and $4.27 million of preferred stock dividends to common stock as part of the IPO[23] Notes to Condensed Financial Statements The notes detail significant corporate restructuring from the April 2022 IPO, highlight a going concern uncertainty due to limited funding, and disclose a substantial increase in share-based compensation - On April 26, 2022, the company completed its IPO, receiving net proceeds of approximately $8.6 million; all outstanding preferred stock and accrued dividends were converted into common stock in connection with the IPO[32][33] - Management has concluded that recurring losses from operations and the need for additional financing raise substantial doubt about the Company's ability to continue as a going concern[44] Share-Based Compensation Expense | Share-Based Compensation Expense | Nine Months Ended Sep 30, 2022 ($) | Nine Months Ended Sep 30, 2021 ($) | | :--- | :--- | :--- | | General and administrative | $1,037,882 | $77,976 | | Total | $1,050,826 | $93,476 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting mixed revenue trends and rising post-IPO expenses, while acknowledging substantial doubt about the company's ability to continue as a going concern due to limited cash runway Results of Operations Q3 2022 revenue grew, but nine-month revenue declined, while operating expenses, especially G&A, significantly increased across both periods due to IPO-related costs and compensation - The 170% increase in Q3 G&A expenses was driven by increased compensation expense from the vesting of stock options for the Executive Chairman and executives, new management hires, bonuses, and higher D&O liability insurance[105] - For the nine-month period, revenue decreased by 22% due to a lower number of medical professionals ordering Nociscan reports[109] - The 389% increase in nine-month interest expense was primarily driven by a $1.3 million beneficial conversion rate charged upon the conversion of accrued interest on promissory notes into common stock and warrants during the IPO[112] Liquidity and Capital Resources The company's liquidity primarily stems from IPO proceeds, with current cash sufficient only until Q2 2023, raising substantial doubt about its ability to continue as a going concern - The Company believes its cash on hand of $2.7 million will be sufficient to fund current operating plans only into the second quarter of 2023, raising substantial doubt as to its ability to continue as a going concern[119] - To date, operations have been financed through private placements, debt, forgiven PPP loans, and the April 2022 IPO, which raised net proceeds of $8.5 million[120] Cash Flow Summary (Nine Months Ended Sep 30, 2022) | Cash Flow Summary (Nine Months Ended Sep 30, 2022) | Amount ($) | | :--- | :--- | | Cash used in operating activities | $(4,179,118) | | Cash used in investing activities | $(159,622) | | Cash provided by financing activities | $6,552,318 | | Net increase in cash | $2,213,578 | Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Aclarion, Inc. is exempt from providing quantitative and qualitative disclosures about market risk - The company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide quantitative and qualitative disclosures about market risk[136] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting - Based on an evaluation as of September 30, 2022, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[137] - There were no changes in the company's internal control over financial reporting during the third quarter of 2022 that have materially affected, or are reasonably likely to materially affect, internal controls[138] PART II. OTHER INFORMATION Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not currently a party to any material legal proceedings that could have a material adverse effect on its operations or financial position[140] Risk Factors There have been no material changes to the company's risk factors from those disclosed in the April 2022 IPO Prospectus - There have been no material changes to the company's risk factors from those included in the Prospectus dated April 21, 2022[141] Other Items (Items 2, 3, 4, 5, 6) This section confirms no unregistered equity sales, no senior security defaults, no other material information, and provides a list of exhibits - The company reported no unregistered sales of equity securities (Item 2), no defaults upon senior securities (Item 3), and no other material information (Item 5); Mine safety disclosures are not applicable (Item 4)[141][142]