ACLARION, INC. The following discussion and analysis should be read in conjunction with the
unaudited condensed financial statements and related notes included elsewhere in
this Quarterly Report and our audited financial statements and related notes
included in our Prospectus dated
Overview Corporate Information
We currently operate as a
Effect of COVID-19 Pandemic on business operations
The COVID-19 Pandemic is not currently impacting plans for marketing our products or our continuing development efforts, as all such activities have been conducted by us using remote work strategies. The Company cannot accurately predict the longer- term impact of the COVID-19 Pandemic on its business.
Results of operations
For the Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended June 30, Change
2022 2021 Amount
Revenue $ 10,676 $ 25,620 $ (14,944 )
Cost of revenue 14,249 20,304 (6,055 )
Gross margin (3,573 ) 5,316 (8,889 )
Operating expenses:
Sales and marketing 124,759 64,961 59,798
Research and development 353,226 162,714 190,512
General and administrative 1,883,843 404,265 1,479,578
Total operating expenses 2,361,828 631,940 1,729,888
Income (loss) from operations (2,365,401 ) (626,624 ) (1,738,777 )
Other income (expense):
PPP loan forgiveness - 245,191 (245,191 )
Interest expense (1,340,667 ) (82,829 ) (1,247,838 )
Other, net (1,447 ) (1,582 ) 135
Total other income (expense) (1,342,114 ) 160,780 (1,502,894 )
Income (loss) before income taxes (3,707,515 ) (465,844 ) (3,241,671 )
Income tax provision - - -
Net income (loss) $ (3,707,515 ) (465,844 ) $ (3,241,671 )
Dividends accrued for preferred
stockholders: $ (128,208 ) $ (212,919 ) $ (84,711 )
Net income (loss) allocable to common
stockholders: $ (3,835,723 ) $ (678,763 ) $ (3,156,960 )
Net income (loss) per share allocable
to common stockholders, basic and
diluted: $ (0.49 ) $ (0.75 ) $ (0.26 )
Weighted average shares of common
stock outstanding, basic and diluted:
(1) 7,821,515 905,685 6,915,830
(1) The weighted average shares of common stock outstanding is presented on a
post-split basis. The Company implemented to a 1-for-7.47 reverse stock split
of our shares of common stock immediately prior to the effectiveness of our
IPO on April 21, 2022 .
17
Total revenues. Total revenues for the quarter ended
Cost of Revenue. Direct cost of revenue is comprised of hosting and software
costs, field support, UCSF royalty cost, NuVasive commission of 6%, partner fees
(Radnet), and credit card fees. Total cost of revenue was
Sales and Marketing. Sales and marketing expenses were
Research and Development. Research and development expenses were
General and Administrative. General and administrative expenses were
Interest Expense. Interest expense was
For the Six Months Ended
The following table summarizes our results of operations for the six months
ended
Six Months Ended June 30, Change
2022 2021 Amount
Revenue $ 19,702 $ 37,450 $ (17,748 )
Cost of revenue 30,981 36,869 (5,888 )
Gross margin (11,279 ) 581 (11,860 )
Operating expenses:
Sales and marketing 194,067 130,829 63,238
Research and development 558,029 330,465 227,564
General and administrative 2,375,126 626,453 1,748,673
Total operating expenses 3,127,222 1,087,747 2,039,475
Income (loss) from operations (3,138,501 ) (1,087,166 ) (2,051,335 )
Other income (expense):
PPP loan forgiveness - 245,191 (245,191 )
Interest expense (1,503,407 ) (140,043 ) (1,363,364 )
Other, net (1,695 ) (1,685 ) (10 )
Total other income (expense) (1,505,102 ) 103,463 (1,608,565 )
Income (loss) before income taxes (4,643,603 ) (983,703 ) (3,659,900 )
Income tax provision - -
Net income (loss) $ (4,643,603 ) (983,703 ) $ (3,659,900 )
Dividends accrued for preferred
stockholders: $ (415,523 ) $ (425,838 ) $ 10,315
Net income (loss) allocable to common
stockholders: $ (5,059,126 ) $ (1,409,541 ) $ (3,649,585 )
Net income (loss) per share allocable to
common stockholders, basic and diluted: $ (1.16 ) $ (1.56 ) $ 0.40
Weighted average shares of common stock
outstanding, basic and diluted: (1) 4,363,600 905,685 3,457,915
18
Total revenues. Total revenues for the six months ended
Cost of Revenue. Direct cost of revenue is comprised of hosting and software
costs, field support, UCSF royalty cost, NuVasive commission of 6%, partner fees
(Radnet), and credit card fees. Total cost of revenue was
Sales and Marketing. Sales and marketing expenses were
Research and Development. Research and development expenses were
General and Administrative. General and administrative expenses were
Interest Expense. Interest expense was
Critical accounting policies and use of estimates
Our Management's Discussion and Analysis of Financial Condition and Results of
Operations is based on our financial statements, which have been prepared in
accordance with generally accepted accounting principles in
While our significant accounting policies are described in more detail in the notes to our financial statements appearing at the end of this prospectus, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
19 Revenue Recognition
The Company derives its revenues from one source, the delivery of Nociscan
reports to medical professionals. Revenues are recognized when a contract with a
customer exists, and the control of the promised services are transferred to our
customers. The amount of revenue recognized reflects the consideration we expect
to receive in exchange for those services. Substantially all of our revenues are
generated from contracts with customers in
Equity-Based Compensation
Certain of our employees and consultants have received grants of common stock options in our company. These awards are accounted for in accordance with guidance prescribed for accounting for equity-based compensation. Based on this guidance and the terms of the awards, the awards are equity classified.
Until our
For financial reporting purposes, we performed common stock valuations as a private company with the assistance of a third-party specialist. Subsequent to the initial public offering, the fair value of the Company's common stock underlying its equity awards is based on the quoted market price of the Company's common stock on the grant date.
Going Concern
We believe that the net proceeds from our recent IPO and our existing cash will be sufficient to fund our current operating plans into the second quarter of 2023. We have based these estimates, however, on assumptions that may prove to be wrong, and we could spend our available financial resources much faster than we currently expect and need to raise additional funds sooner than we anticipate. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce, or eliminate our technology development and commercialization efforts.
As a result of the Company's recurring losses from operations, and the need for additional financing to fund its operating and capital requirements, there is uncertainty regarding the Company's ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company's ability to continue as a going concern.
Liquidity and capital resources
Sources of liquidity
To date, we have financed our operations primarily through private placements of
preferred shares and debt financing, PPP loans that were forgiven, and an
initial public offering on
Through
20
Cash flows
The following table summarizes our sources and uses of cash for each of the
periods presented:
Six Months Ended June 30,
2022 2021
Cash used in operating activities
(120,957 ) (74,824 )
Cash provided by financing activities 6,552,318 2,889,500
Net (decrease) increase in cash
Operating activities
During the six months ended
Investing activities
During the six months ended
Financing activities
During the six months ended
Funding requirements
Developing medical technology products is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate meaningful revenues. Accordingly, we may need to obtain substantial additional funds to achieve our business objectives.
Adequate additional funds may not be available to us on acceptable terms, or at all. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity securities, the ownership interest of existing stockholders may be diluted. Any debt or preferred equity financing, if available, may involve agreements that include restrictive covenants that may limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, which could adversely impact our ability to conduct our business, and may require the issuance of warrants, which could potentially dilute existing stockholders' ownership interests.
If we raise additional funds through licensing agreements and strategic collaborations with third parties, we may have to relinquish valuable rights to our technology, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds, we may be required to delay, limit, reduce and/or terminate development of our product candidates or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Contractual obligations and commitments
Our current office lease and sublease expired on
Off-balance sheet arrangements
We did not have, during the periods presented, and we do not currently have any
off-balance sheet arrangements as defined in the rules and regulations of the
21
Recently issued accounting pronouncements
We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our condensed financial statements appearing in this quarterly report, such standards will not have a material impact on our financial statements or do not otherwise apply to our operations.
Emerging growth company and smaller reporting company status
The JOBS Act permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected not to "opt out" of this extended transition period and, as a result, we will not adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for public entities. Accordingly, our financial statements may not be comparable to other public companies that do not elect the extended transition period.
We are also a "smaller reporting company" meaning that the market value of our
stock held by non-affiliates is less than
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