Item 7.
Management’sDiscussion and Analysis of Financial Condition
and Results of Operations
You should read the
following discussion and analysis of our financial condition and results of operations in conjunction with the audited financial statements
(prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and related notes
included elsewhere in this Annual Report on Form 10-K (this “Form 10-K”). The following discussion contains
forward-looking statements that are subject to risks and uncertainties. See “Special Note Regarding Forward-Looking Statements”
for a discussion of the uncertainties, risks, and assumptions associated with those statements. Actual results could differ materially
from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere
in this Form 10-K, particularly in the section entitled “Risk Factors.” Unless we state otherwise or the context
otherwise requires, the terms “we,” “us,” “our” and the “Company” refer to Aclarion, Inc.
Overview
Aclarion is a healthcare
technology company that leverages Magnetic Resonance Spectroscopy (“MRS”), proprietary signal processing techniques, biomarkers,
and augmented intelligence algorithms to optimize clinical treatments. The Company is first addressing the chronic low back pain market
with Nociscan, the first, evidence-supported, SaaS platform to noninvasively help physicians distinguish between painful and nonpainful
discs in the lumbar spine. Through a cloud connection, Nociscan receives magnetic resonance spectroscopy (MRS) data from an MRI machine
for each lumbar disc being evaluated. In the cloud, proprietary signal processing techniques extract and quantify chemical biomarkers
demonstrated to be associated with disc pain. Biomarker data is entered into proprietary algorithms to indicate if a disc may be a source
of pain. When used with other diagnostic tools, Nociscan provides critical insights into the location of a patient’s low back pain,
giving physicians clarity to optimize treatment strategies.
To date, we have financed
our operations primarily through private placements of preferred shares and debt financing, PPP loans that were forgiven, an equity line,
an initial public offering on April 21, 2022, and a secondary public offering on February 27, 2024.
Since our inception we
have incurred significant operating losses. As of December 31, 2023, we had an accumulated deficit of approximately $44.3 million. Our
ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful commercialization and continued
development of our SaaS platform. We expect that our expenses and capital requirements will increase substantially in connection with
our ongoing activities, particularly if and as we:
Our primary near-term
growth strategy is to secure payer contracts (including insurance companies, self- insured employers, Medicare, Medicaid, workmen’s
compensation boards et. al.) to cover our Category III CPT codes. We believe that with favorable payer coverage, the Company has the opportunity
to more efficiently engage physicians and imaging centers that will adopt our technology.
As a result, we may need
substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate
significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other
capital sources, which may include collaborations with other companies or other strategic transactions.
As of December 31, 2023,
we had cash of approximately $1.0 million. Subsequent to December 31, 2023, the Company raised capital using an equity line and a secondary
public offering (refer to Note 17 – Subsequent Events to our financial statements). We believe our current cash will fund our operating
expenses and capital expenditure requirements into the third quarter of 2024, approaching our final maturity repayment of our unsecured
non-convertible note, which is due in September 2024. We have based this estimate on assumptions that may prove to be wrong, and we could
exhaust our available capital resources sooner than we expect. See “Liquidity and capital resources.” To finance our operations
beyond that point, we will need to raise additional capital, which cannot be assured. If we are unable to raise additional capital in
sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back, or discontinue the commercialization
or further development of our SaaS platform.
Corporate Information
We were formed under
the name Nocimed, LLC, a limited liability company in January 2008, under the laws of the State of Delaware. In February 2015, Nocimed,
LLC was converted into Nocimed, Inc. a Delaware corporation. On December 3, 2021, we changed our name to Aclarion, Inc. Our principal
executive offices are located at 8181 Arista Place, Suite 100, Broomfield, Colorado 80021. Our main telephone number is (833) 275-2266.
Our internet website is www.aclarion.com. The information contained in, or that can be accessed through, our website is not incorporated
by reference and is not a part of this Annual Report on Form 10-K.
Results of operations
Operating activities:
The following table summarizes
our results of operations for the twelve months ended December 31, 2023, and 2022.
Year Ended December 31,
(restated) $ Change
Revenue
Operating expenses:
Other income (expense):
Changes in fair value of warrant and derivative liabilities 646,319 – 646,319
Income tax provision –
Dividends accrued for preferred stockholders $ – $ (415,523 ) $ 415,523
Years ended December 31, 2023, and 2022
Total revenues. Total revenue for the year
ended December 31, 2023, was $75,404, which was an increase of $14,960 from $60,444 for the year ended December 31, 2022. This increase
was primarily due to growing utilization of Nociscan in third-party clinical studies. Volumes and pricing were generally consistent in
each year.
Cost of Revenue. 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 $75,728 for the year ended December 31, 2023, compared to $65,298 for the year ended December 31,
2022, an increase of 16.0%. This increase was primarily due to higher year-over-year scan volumes and related Nociscan report output.
Sales and Marketing. Sales and marketing
expenses were $757,004 for the year ended December 31, 2023, compared to $498,003 for the year ended December 31, 2022, an increase of
$259,001 or 52.0%. This increase was driven primarily by additional vesting of restricted stock units to our increased number of Key Opinion
Leaders.
Research and Development. Research
and development expenses were $873,336 for the year ended December 31, 2023, compared to $1,067,992 for the year ended December 31, 2022,
a decrease of $194,656 or 18.2%. This decrease was primarily due to a $123,828 contract milestone payment to UCSF in April 2022, related
to the initial public offering, and reduced expense in 2023 clinical services.
General and Administrative. General and
administrative expenses were $3,245,317 for the year ended December 31, 2023, a decrease of $745,402 or 18.7%, from $3,990,719 for the
year ended December 31, 2022. This decrease in general and administrative expenses was driven primarily by a higher 2022 compensation
expense related to the vesting of the Executive Chairman’s and executive’s outstanding common stock options, offset in part
by higher legal and accounting fees in 2023.
Interest Expense. Total Interest expense
was $608,288 for the year ended December 31, 2023, a decrease of $899,258, from the $1,507,546 for the year ended December 31, 2022. This
decrease was driven primarily by the $1.3 million beneficial conversion rate charged to interest expense in 2022 for the conversion of
all accrued interest on the Company's outstanding secured promissory notes into common shares and common stock warrants in connection
with the April 2022, initial public offering. The 2023 interest expense was primarily due to the amortization of the note discount associated
with the unsecured non-convertible promissory notes described in Note 11 to our financial statements -- Short Term Notes, Convertible
Debt, and Derivative Liabilities.
Changes in Fair Value of Warrant and Derivative
Liabilities. In the year ended December 31, 2023, the Company recorded $646,319 of changes in the fair value of the warrant and derivative
liabilities associated with unsecured non-convertible promissory notes described in Note 4 -- Fair Value Measurements and Note 11 -- Short
Term Notes, Convertible Debt, and Derivative Liabilities to our financial statements.
Other Net Expenses. During the year
ended December 31, 2023, Other Net expenses were $562, which included bank interest, government fees, and realized exchange rate gain
(losses).
Net income (loss). The Company experienced
a net loss of $4,911,374 for the year ended December 31, 2023, compared to a net loss of $7,068,593 for the year ended December 31, 2022.
In general, the year ended December 31, 2023 excluded two significant expenses that were present during the year 2022, that being the
compensation expense related to the vesting of the Executive Chairman’s and other executive’s outstanding common stock options,
and the $1.3 million beneficial conversion rate charged to interest expense for the conversion of all accrued interest on the Company's
outstanding secured promissory notes into common shares and common stock warrants in connection with the April, 2022,
initial public offering.
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 the United States. The preparation of our financial statements and related
disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses
and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known
trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate
our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates.
While our significant
accounting policies are described in more detail in the notes to our financial statements, we believe that the following accounting policies
are those most critical to the judgments and estimates used in the preparation of our financial statements.
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 our revenues are generated from contracts with customers in the United States.
Equity-based compensation
The Company accounts for stock-based awards in
accordance with provisions of ASC Topic 718, Compensation—Stock Compensation, under which the Company recognizes the grant-date
fair value of stock-based awards issued to employees and nonemployee board members as compensation expense on a straight-line basis over
the vesting period of the award, while awards containing a performance condition are recognized as expense when the achievement of the
performance criteria is achieved. The Company uses the Black-Scholes option pricing model to determine the grant-date fair value of stock
options. The Company records expense for forfeitures in the periods they occur.
Until our April 2022 IPO, we were a private company
with no active public market for our common equity. Therefore, we had periodically determined the overall value of our company and the
estimated per share fair value of our common equity at their various dates using contemporaneous valuations performed in accordance with
the guidance outlined in the American Institute of CPA’s Practice Aid. Since a public trading market for our common stock has been
established in connection with the completion of our IPO, the fair value of the Company’s common stock underlying its equity awards
is the quoted market price of the Company’s common stock on the grant date.
Going
Concern
As of December 31, 2023, we had cash of approximately
$1.0 million. Subsequent to December 31, 2023, the Company raised capital using an equity line and a secondary public offering (refer
to Note 17 – Subsequent Events to our financial statements). We believe our current cash will fund our operating expenses and capital
expenditure requirements into the third quarter of 2024, approaching our final maturity repayment of our unsecured non-convertible note,
which is due in September 2024. The Company has based these estimates, however, on assumptions that may prove to be wrong, and could spend
available financial resources much faster than we currently expect. The Company will need to raise additional funds to continue funding
our technology development and commercialization efforts over the following twelve months. Management has plans to secure such additional
funding.
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, an equity line,
an initial public offering on April 21, 2022, and a secondary public offering on February 27, 2024.
Through December 31,
2023, we raised an aggregate of $32,603,097 of gross proceeds from $19,319,098 of preferred and common stock, $2,928,541 from the sale
of convertible notes that were later converted to equity, $370,191 of PPP loans that were forgiven, $8,527,318 of net proceeds from the
April 2022 IPO, and $1,457,949 of net proceeds from an equity line.
We issued a $2,000,000
promissory note in June 2021 that was repaid in April 2022.
On May 16, 2023, the
Company entered into a securities purchase agreement with accredited investors for an unsecured non-convertible note financing. The Company
received $1,250,000 of gross proceeds, with out-of-pocket issuance costs of $203,575. On September 1, 2023, the Company closed the second
tranche of this financing. The Company received an additional $750,000 of gross proceeds, with out-of-pocket issuance costs of $92,738.
On November 1, 2023, the Company entered into a securities purchase agreement with accredited investors for an unsecured non-convertible
note financing. The Company received an additional $250,000 of gross proceeds, with out-of-pocket issuance costs of $65,363.
As of December 31, 2023,
we had cash, including $10,000 of restricted cash, of $1,031,069. Subsequent to December 31, 2023, the Company entered into a series of
Exchange Agreements with accredited investors and issued additional common shares using the equity line. Additionally, the Company completed
a secondary public offering in February 2024. See Note 17 – Subsequent Events to our financial statements for more information.
We believe our current cash will fund our operating expenses and capital expenditure requirements into the third quarter of 2024, approaching
our final maturity repayment of our unsecured non-convertible note, which is due in September 2024. Management is actively managing our
cash position and working to secure longer-term funding in the first quarter of 2024.
Cash flows
The following table summarizes
our sources and uses of cash for each of the periods presented:
Year Ended December 31,
(restated)
Net increase (decrease) in cash and cash equivalents $ (451,737 ) $ 1,030,276
Operating activities
During the year ended December 31, 2023, net cash
used in operating activities was $3,646,947. This use of cash consisted primarily of compensation and benefit expense, officers’
liability insurance, consulting, tax and audit fees, and maintain our quality system. Cash outlays in the year 2023 were relatively lower
than the year 2022 due to longer procure-to-pay cycles. During the twelve months ended December 31, 2022, operating activities used $4,949,112,
consisting primarily of compensation and benefit expense, consulting, and professional fees.
Investing activities
During the year ended December 31, 2023, and 2022,
investing activities used $119,522 and $207,870 of cash, respectively. These investing activities consisted almost entirely of patent
and license maintenance.
Financing activities
During the year ended December 31, 2023, net cash
provided by financing activities was $3,314,732, which included $2,250,000 of proceeds from unsecured non-convertible note financings,
1,462,949 of proceeds from an equity line, and $398,217 of cash issuance costs related to both the equity line and debt. During the year
ended December 31, 2022, net cash provided by financing activities was $6,187,258, which included $8,552,318 of initial public offering
proceeds (net of underwriter compensation and deductions but excluding $25,000 pre-payment in 2021), $2,000,000 repayment of promissory
notes, and $365,060 of IPO issuance costs.
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. To the extent that we raise additional capital through the sale of equity securities,
current stockholders’ ownership interests 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 prior office lease and sublease expired on
June 30, 2022. The Company does not have any contractual obligations not otherwise on our balance sheet as of December 31, 2023.
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
Securities and Exchange Commission (“SEC”).
Recently issued accounting
pronouncements
We have reviewed all
recently issued standards and have determined that, other than as disclosed in Note 2 to our financial statements appearing at the end
of this annual 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 irrevocably 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 $700 million and our annual revenue
was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either
(i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million
during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If
we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain
disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose
to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging
growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest rate sensitivity
We had cash and restricted cash totaling $1,031,069
as of December 31, 2023. These amounts are invested primarily in demand deposit accounts and money market funds. We consider all highly
liquid debt instruments purchased with a maturity of three months or less and SEC-registered money market mutual funds to be cash equivalents.
The primary objectives of our investing activities are capital preservation, meeting our liquidity needs and, with respect to investing
client funds, generating interest income while maintaining the safety of principal. We do not enter into investments for trading or speculative
purposes.
Our cash equivalents are subject to market risk
due to changes in interest rates. The market value of fixed rate securities may be adversely affected due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future
investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if we are forced
to sell securities that decline in market value due to changes in interest rates.
Item 8. Financial Statements and Supplementary Data
Aclarion, Inc. Page
Financial Statements
Statements of Operations, for the Years Ended December 31, 2023, and 2022 94
Statements of Cash Flows, for the Years Ended December 31, 2023, and 2022 97
Notes to Financial Statements 98
Report of Independent
Registered Public Accounting Firm
To the Board of Directors and
Stockholders
of Aclarion, Inc.
Opinion on the
Financial Statements
We have audited the accompanying
balance sheet of Aclarion, Inc. (the Company) as of December 31, 2023, and the related statements of operations, changes in stockholders’
equity (deficit), and cash flows for the year then ended, and the related notes (collectively referred to as the financial statements).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2023, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally
accepted in the United States of America.
Substantial Doubt
about the Company’s Ability to Continue as a Going Concern
The accompanying financial
statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements,
the Company has suffered recurring losses from operations and has a deficiency in shareholders’
equity that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit
in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required
to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our
opinion.
/s/ Haynie & Company
Haynie & Company
Salt
Lake City, Utah
February 20, 2024, except
for Notes 2 and 17, as to which the date is March 28, 2024
We have served as the
Company’s auditor since 2023
PCAOB ID 0457
Report
of Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders
Aclarion, Inc.
Broomfield, Colorado
Opinion on the Financial Statements
We have audited the accompanying
balance sheet of Aclarion, Inc. (the “Company”) as of December 31, 2022, and the related statements of operations, changes
in stockholders’ equity (deficit) and cash flows for the year then ended, and the related notes (collectively referred to as the
financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company at December 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
Restatement to correct the 2022 financial statements
As discussed in Note 3 to the financial statements,
the 2022 financial statements have been restated to correct misstatements.
The financial statements of the Company as of
December 31, 2022, before the effects of the adjustments for the correction of the errors described in Note 3, were audited by Daszkal
Bolton LLP who issued an unqualified opinion on those statements in their report, containing explanatory language that substantial doubt
exists about the entity’s ability to continue as a going concern, dated February 27, 2023. Effective March 1, 2023, CohnReznick
LLP acquired certain people and assets of Daszkal Bolton LLP.
Going Concern Uncertainty
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has
suffered recurring losses from operations and an accumulated deficit that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding
of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ CohnReznick LLP
CohnReznick
LLP
Sunrise, Florida
June 12, 2023, except for Note 1, 2024 Reverse Stock Split, Note 7,
SUPPLEMENTAL FINANCIAL INFORMATION, Prepaids and other current assets and Accrued and other liabilities, and Note 14, Net Loss Per Share
of Common Stock, as to which the date is February 21, 2024.
We have served
as the Company’s auditor from 2021 (such date takes into account the acquisition of certain people and assets of Daszkal Bolton
LLP by CohnReznick LLP effective March 1, 2023) to 2023
Aclarion, Inc.
Balance Sheets
December 31, 2023 and 2022
December 31,
(restated)
ASSETS
Current assets:
Non-current assets:
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable, net of discount 1,125,724 –
Liability to issue equity 33,297 –
Commitments and contingencies (See Note 12) – –
Stockholders' equity (deficit)
Total liabilities and stockholders’ equity (deficit) $ 2,459,774 $ 2,914,629
See Accompanying Notes to Financial Statements
Aclarion, Inc.
Statements of Operations
For the Years Ended December 31, 2023, and 2022
Year Ended December 31,
(restated)
Revenue
Operating expenses:
Other income (expense):
Changes in fair value of warrant and derivative liabilities 646,319 –
Loss on issuance of warrants (72,862 ) –
Income tax provision – –
Dividends accrued for preferred stockholders $ – $ (415,523 )
Net income (loss) allocable to common stockholders $ (4,911,374 ) $ (7,484,116 )
See Accompanying Notes to Financial Statements
Aclarion,
Inc.
Statements of Changes in Stockholders' Equity
(Deficit)
For the Years Ended December 31, 2023
and 2022 (restated)
Series A Series A-1, A-2, A-3, A-4 Series B, B-1
Preferred Stock Preferred Stock Preferred Stock
Shares Value Shares Value Shares Value
Share-based compensation – – – – – –
Preferred stock dividend payable – – – – – –
Conversion of preferred dividends payable to common stock – – – – – –
Conversion of accrued interest on promissory notes – – – – – –
Issuance of common shares – – – – – –
Issuance of warrants – – – – – –
IPO issuance costs – – – – – –
Exercise of convertible note warrants – – – – – –
Net income (loss) – – – – – –
Balance, December 31, 2022 – $ – – $ – – $ –
Balance, December 31, 2022 – $ – – $ – – $ –
Share-based compensation – – – – – –
Issuance of common shares – – – – – –
Proceeds from sale of Series A preferred stock 1 1,000 – – – –
Redemption of Series A preferred stock (1 ) (1,000 ) – – – –
Commitment shares - note financing – – – – – –
Issuance of warrants - note financing – – – – – –
Issuance of common shares - equity line – – – – – –
Commitment common shares - equity line – – – – – –
Common share issuance costs - equity line – – – – – –
Cashless exercise of pre-funded warrants – – – – – –
Conversion of vested restricted stock units to common shares – – – – – –
Common share - stock split round up – – – – – –
Net income (loss) – – – – – –
Balance, December 31, 2023 – $ – – $ – – $ –
Series B-2, B-3 Additional
Preferred Stock Common Stock Paid-In Accumulated
Shares Value Shares Value Capital Deficit Total
Preferred stock dividend payable – – – – – (415,523 ) (415,523 )
Issuance of warrants – – – – 1,280 – 1,280
Exercise of convertible note warrants – – 3,776 – – – –
Issuance of common shares – – 1,852 – – – –
Proceeds from sale of Series A preferred stock – – – – – – 1,000
Redemption of Series A Preferred stock – – – – – – (1,000 )
Issuance of warrants - note financing – – – – 67,500 – 67,500
Commitment common shares - equity line – – 11,719 – – – –
Common share issuance costs - equity line – – – – (204,647 ) – (204,647 )
Cashless exercise of pre-funded warrants – – 3,396 – – – –
Conversion of vested restricted stock units to common shares – – 9,930 – – – –
Common share - stock split round up – – 70 – – – –
See Accompanying Notes to Financial Statements
Aclarion, Inc.
Statements of Cash Flows
For the Years Ended December 31, 2023, and 2022
Year Ended December 31,
(restated)
Cash flows from operating activities
Amortization of deferred issuance costs 497,656 –
Changes in fair value of warrants and derivative (646,319 ) –
Non-cash interest related to bridge funding 98,685 –
Warrants issued as non- cash finance charge 72,862 –
Share-based vendor payments – 102,000
Loss on disposal of furniture and equipment – 3,789
Interest conversion discount settled in equity – 1,299,507
–
Change in assets and liabilities
Prepaids and other current assets (38,539 ) (87,522 )
Accrued interest on promissory and convertible notes (6,190 ) 200,712
Investing Activities
Proceeds from sale of furniture – 1,000
Net cash (used in) investing activities (119,522 ) (207,870 )
Financing Activities
Bridge funding issuance costs (323,301 ) –
Equity line issuance costs (74,916 ) –
Proceeds from equity line 1,462,949 –
Proceeds from issuance of promissory notes 2,250,000 –
Proceeds from sale of Series A preferred stock 1,000 –
Redemption of Series A Preferred stock (1,000 ) –
IPO cash issuance costs – (365,060 )
Repayment of promissory notes – (2,000,000 )
Issuance of common stock and warrants related to IPO, net deductions – 8,552,318
Net increase (decrease) in cash and cash equivalents (451,737 ) 1,030,276
Non- cash activities
Accrued debt issuance costs related to bridge funding 22,150 –
Accrued debt issuance costs related to equity line 129,731 –
Issuance of warrants related to bridge funding 67,500 –
Original issuance discount (15%) related to bridge funding 344,118 –
Liability to issue common shares 33,297 –
Issuance of commitment shares related to bridge funding 175,619 –
Dividends accrued on preferred shares – 415,523
Conversion of preferred stock to common stock – 25,754,379
Conversion of preferred stock dividends to common stock – 4,272,421
Issuance of underwriter's warrants related to IPO – 199,246
Designation of prepaid expenses to IPO issuance costs – 165,403
See Accompanying Notes to Financial Statements
Aclarion, Inc.
Notes to Financial Statements
For the Year Ended December 31, 2023
NOTE 1. THE COMPANY AND BASIS OF PRESENTATION
The Company
Aclarion, Inc., formerly Nocimed, Inc., (the “Company”
or “Aclarion”) is a healthcare technology company that leverages magnetic resonance spectroscopy (“MRS”), and
a proprietary biomarker to optimize clinical treatments. The Company was formed in February 2015, is incorporated in Delaware, and has
its principal place of business in Broomfield, Colorado.
Risks and Uncertainties
The Company is subject to various risks and uncertainties
frequently encountered by companies in the early stages of development. Such risks and uncertainties include, but are not limited to,
its limited operating history, competition from other companies, limited access to additional funds, dependence on key personnel, and
management of potential rapid growth. To address these risks, the Company must, among other things, develop its customer base; implement
and successfully execute its business and marketing strategy; develop follow-on products; provide superior customer service;
and attract, retain, and motivate qualified personnel. There can be no guarantee that the Company will be successful in addressing these
or other such risks.
Initial Public Offering
On April 21, 2022, the registration statement
for our initial public offering (“IPO”) was declared effective. In connection with the effectiveness of the IPO registration
statement:
On April 26, 2022, the Company completed its
IPO of 2,165,000 units at a public offering price of $4.35 per unit. Each unit consisted of (i) one share of common stock (equivalent
to 0.0625 of a common share following the 2024 Split) and (ii) one warrant to purchase one share of common stock (adjusted to 0.0625
of a common share following the 2024 Split) with a per share exercise price of $4.35 (adjusted to $69.60 following the 2024 Split). Following
the commencement of the IPO, the underwriters partially exercised their over-allotment option and purchased additional common stock warrants
to purchase 324,750 common shares (adjusted to 20,297common shares following the 2024 Split). After deducting underwriter's commissions and expenses, we received net proceeds of approximately
$8.6
million and our common stock and warrants started trading on Nasdaq under the ticker symbols “ACON” and “ACONW”,
respectively.
In connection with the IPO, we issued to the
representative of the underwriters a common stock warrant to purchase 173,200 shares of common stock (10,825
shares after giving effect to the 2024 Stock Split) with an exercise price of $5.44 ($87.04 on a post-2024 Split basis) per share.
The representative's warrants are exercisable commencing October 26, 2022 and will expire on April 26, 2027.
On April 21, 2022, options to purchase
1,204,819 shares of common stock (75,301
common shares after giving effect to the 2024 Stock Split) previously awarded to the Company's Executive Chairman, Dr. Jeffrey
Thramann, vested in connection with the completion of the IPO pursuant to the terms of such options. The per share exercise price of
these options is $1.94 ($31.04 on a post-2024 Split basis) per share. The options have a 10-year term.
On April 21, 2022, in connection with the IPO,
the Company’s 2022 Aclarion Equity Incentive Plan, or “2022 Plan”, became effective. Our board of directors has appointed
the compensation committee of our board of directors as the committee under the 2022 Plan with the authority to administer the 2022 Plan.
At the 2022 Plan effective date, the aggregate number of our shares of common stock that could be issued or used for reference purposes
under the 2022 Plan could not exceed 2,000,000 shares (125,000 shares after giving effect to the 2024 Stock Split), subject to adjustments
as described in the 2022 Plan.
On April 29, 2022, in connection with the IPO,
a bonus was paid to David Neal and Brent Ness of $100,000 each. On May 13, 2022, in connection with the IPO, a bonus of $130,000 was paid
to James Peacock.
On May 2, 2022, in connection with the IPO, the
Company paid the University of California - San Francisco the amount of $123,828 to satisfy the Indexed Milestone Payment obligation included
within the exclusive license agreement.
2022 Reverse Stock Split
On April 21, 2022, the Company effected a 1-for-7.47
reverse stock split (the “2022 Stock Split”) of its issued and outstanding common stock.
2024 Reverse Stock Split
In March 2023 the Company’s
stockholders approved a reverse stock split proposal at a ratio in the range of one-for-five to one-for-fifty, with the final ratio
to be determined by the Company's board in its discretion without further approval from the Company's stockholders. In January 2024,
the Company's board subsequently approved the final reverse stock split ratio of one-for-sixteen
(the “2024 Stock Split”), which resulted in a reduction in the number of outstanding shares of common stock,
warrants, stock options and restricted share units and a proportionate increase in the value of each share or strike price of the
warrants and stock options. The common stock began trading on a reverse split-adjusted basis on the NASDAQ on January 4, 2024.
As a result of the 2022 Stock Split and the 2024
Stock Split, unless described otherwise, all references to common stock, share data, per share data and related information contained
in these financial statements have been retrospectively adjusted to reflect the effect of the stock splits for all periods presented.
In addition, any fractional shares that would otherwise be issued as a result of the stock splits were rounded up to the nearest whole
share. Further, the number of shares issuable and exercise prices of stock options and warrants have been retrospectively adjusted in
these financial statements for all periods presented to reflect the 2022 Stock Split and the 2024 Stock Split.
The following tables present selected share information
reflecting on a retroactive basis the reverse stock splits as of and for the years ended December 31, 2023 and 2022:
Equity statement information
December 31
Year ended December 31
Basis of Presentation
The accompanying financial statements have been
prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The financial statements include some amounts
that are based on management's best estimates and judgments. The most significant estimates relate to depreciation, amortization, valuation
of capital stock, and valuation of warrants and options to purchase shares of the Company's preferred and common stock. These estimates
may be adjusted as more current information becomes available, and any adjustment could be significant.
Valuation
of Derivative Instruments
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 815-40, Derivatives and Hedging: Contracts on an Entity’s Own Equity,
addresses whether an equity-linked contract qualifies as equity in the entity’s financial statements. Agreements where an entity
has insufficient authorized and unissued shares to settle the contract generally are accounted for as a liability and marked to fair value
through earnings each reporting period. The Company evaluates its financial instruments to determine if such instruments are liabilities
or contain features that qualify as embedded derivatives. For financial instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then revalued at each reporting date, with changes in the fair value reported
as charges or credits to income.
Fair Value of Financial Instruments
ASC 820, Fair Value Measurements, provides guidance
on the development and disclosure of fair value measurements. Under this accounting guidance, fair value is defined as an exit price,
representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions
that market participants would use in pricing an asset or a liability.
The accounting guidance classifies fair value
measurements in one of the following three categories for disclosure purposes:
Level 1 - Unadjusted quoted prices
in active markets for identical instruments that are accessible by the Company on the measurement date.
Level 2 - Quoted prices in markets
that are not active or inputs which are either directly or indirectly observable.