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 and public offerings of our equity and debt securities.
Since our inception we
have incurred significant operating losses. As of December 31, 2024, we had an accumulated deficit of $51.3 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, 2024,
we had cash of approximately $0.46 million. Subsequent to December 31, 2024, the Company raised capital with two registered direct offerings
and one underwritten 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 2026. 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, 2024, and 2023.
Year Ended December 31,
$ Change
Revenue
Operating expenses:
Other income (expense):
Gain (Loss) on settlement of debt 6,058 – 6,058
Gain (Loss) on issuance of warrants – (72,862 ) 72,862
Income tax provision – –
Dividends accrued for preferred stockholders $ (59,675 ) $ – $ (59,675 )
Years ended December 31, 2024, and 2023
Total revenues. Total revenue for the year
ended December 31, 2024, was $45,724, which was an decrease of $29,680 from $75,404 for the year ended December 31, 2023. This decrease
was primarily due to the reduced utilization of Nociscan in third-party clinical studies, offset in part by and increase in patient-pay
volumes.
Cost of Revenue. Cost of Revenue is
comprised of hosting and software costs, field support, UCSF royalty cost, NuVasive commission of 6% (expired in 2023), partner fees (Radnet),
and credit card fees. Total Cost of Revenue was $84,658 for the year ended December 31, 2024, compared to $75,728 for the year ended December
31, 2023, an increase of 11.8%. While Nociscan report volumes decreased from the year 2023 to 2024, the increase in Cost of Revenue was
primarily due to a higher mix of Nociscan volume in Radnet accounts, which are subject to partner fees.
Sales and Marketing. Sales and marketing
expenses were $976,554 for the year ended December 31, 2024, compared to $757,004 for the year ended December 31, 2023, an increase of
$219,550 or 29.0%. This increase was driven primarily by the initiation of the Clarity clinical study in 2024 and co-marketing agreements
in select markets, offset in part by the conclusion in 2024 of restricted stock unit vesting expense related to our Key Opinion Leaders.
Research and Development. Research
and development expense is primarily related to personnel and quality and regulatory systems. Total expenses were fairly consistent year-over-year
with $888,766 for the year ended December 31, 2024, compared to $873,336 for the year ended December 31, 2023, an increase of $15,430
or 1.8%.
General and Administrative. General and
administrative expenses were $3,608,793 for the year ended December 31, 2024, an increase of $363,476 or 11.2%, from $3,245,317 for the
year ended December 31, 2023. This increase in general and administrative expenses was driven by increased investor relation services,
non-cash expense related to the equity line of credit, and a higher bonus accrual, offset in part by lower Director & Officer insurance
premiums in 2024.
Interest Expense. Total Interest expense
was $535,470 for the year ended December 31, 2024, a decrease of $72,818, from the $608,288 for the year ended December 31, 2023. Interest
expense was primarily the amortization of note discounts associated with the unsecured non-convertible promissory notes described in Note
10 to our financial statements -- Short Term Notes, Convertible Debt, and Derivative Liabilities. In 2024, the company retired all notes
payable through cash payoff or exchange for common and/or preferred stock.
Gain (Loss) on Settlement of Debt. During
the year ended December 31, 2024, the Company negotiated favorable discounts to outstanding accounts payable in the amount of $117,985.
This gain was offset almost entirely by the accelerated amortization of note discounts of $111,927 related to the payoff in cash of the
Series C Notes Payable in March 2024. The net gain for the year ended December 31, 2024, was $6,058.
Gain (Loss) on Exchange of Debt. During
the year ended December 31, 2024, the Company recorded a loss of $1,066,732 in the first quarter related to the accelerated amortization
of note discounts triggered by the exchange of principal and accrued interest on the Senior Notes Payable for shares of common stock.
Additionally, in the third quarter of 2024, the Company recorded a loss of $6,585 related to the accelerated amortization of note discounts
triggered by the exchange of principal and accrued interest on the Series B Notes Payable for newly issued Series B convertible preferred
stock described in Note 10 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, 2024, the Company recorded a favorable change of $335,033 in the fair value of the warrant
and derivative liabilities associated with unsecured non-convertible promissory notes described in Note 3 -- Fair Value Measurements and
Note 10 -- Short Term Notes, Convertible Debt, and Derivative Liabilities to our financial statements. The favorable change in fair value
of the warrant and derivative liabilities recorded in the year ended December 31, 2023, was $646,319.
Gain (Loss) on Issuance of Warrants. During
the year ended December 31, 2023, the Company incurred issuance costs of $72,862 relating to the Series C Notes Payable warrants which
were recorded as a day 1 expense due to the liability classification of such warrants.
Penalties and Settlements. During
the year ended December 31, 2024, the Company recorded a $25,000 settlement charge related to the timely registration of Series C Notes
Payable commitment shares, and a $187,453 charge recognizing the forward element related to equity line commitment shares.
Other Net Expenses. During the year
ended December 31, 2024, Other Net income was $269, which included bank interest, government fees, and realized exchange rate gain (losses).
During the year ended December 31, 2023, the company recorded expense of $562.
Net income (loss). The Company experienced
a net loss of $6,992,927 for the year ended December 31, 2024, compared to a net loss of $4,911,374 for the year ended December 31, 2023,
an increase of $2,081,552 (42%).
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.
Liquidity and capital
resources
Sources of liquidity
To date, we have financed
our operations primarily through private placements and public offerings of our equity and debt securities.
As of December 31, 2023,
we had cash, including $10,000 of restricted cash, of $1,031,069.
During the year ended
December 31, 2024, we raised an aggregate of $6.6 million of gross proceeds and reduced debt and accrued interest by $2.7 million.
Gross proceeds raised
in the year 2024 included $1.8 million from our equity line, $3.0 million from a February 27, 2024 public offering, $1.0 million from
our sale of Series C Preferred Stock, $0.5 million from three Regulation A+ offerings, and $0.3 million from an at-the-market offering.
The Company retired $2.7
million of outstanding debt through a combination of a $1.5 million conversion of debt to common stock, a $0.9 million exchange of debt
for Series B Preferred Stock, and a cash payoff of $0.3 million.
As of December 31, 2024,
we had cash of $463,661, including $10,000 of restricted cash.
Subsequent to December
31, 2024, the Company raised an aggregate of $20.1 million of gross proceeds through a combination of a public offering of units ($14.6
million) consisting of common shares, A warrants, and B warrants, two registered direct offerings ($5.2 million) of common stock, and
the exercise of Series C Preferred warrants ($0.3 million). 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 2026. Management is actively managing
our cash position and continually working to secure long-term funding.
Cash flows
The following table summarizes
our sources and uses of cash for each of the periods presented:
Year Ended December 31,
Net increase (decrease) in cash and cash equivalents $ (567,408 ) $ (451,737 )
Operating activities
During the year ended December 31, 2024, net cash
used in operating activities was $5,271,609. This use of cash consisted primarily of compensation and benefit expense, consulting, tax
and audit fees, officers’ liability insurance, and maintaining our quality system. Cash outlays in the year 2024 were relatively
higher than the year 2023 due to an increase in annual prepayments, settlement of long-standing accounts payable, and shorter procure-to-pay
cycles. During the twelve months ended December 31, 2023, operating activities used $3,646,947, consisting primarily of compensation and
benefit expense, consulting, and professional fees.
Investing activities
During the year ended December 31, 2024, and 2023,
investing activities used $321,937 and $119,522 of cash, respectively. These investing activities consisted almost entirely of patent
and license maintenance.
Financing activities
During the year ended
December 31, 2024, net cash provided by financing activities was $5,026,138, which included gross proceeds of $1,754,032 from our equity
line, $3,001,495 from a February 27, 2024, public offering, $1,000,000 from our sale of Series C Preferred Stock, $529,254 from three
Regulation A+ offerings, and $288,294 from an at-the-market offering. Cash issuance costs related to all financing activities totaled
$1,254,964. The Company used cash in the year 2024 to retire $300,973 of outstanding debt.
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.
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, 2024.
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 will remain an emerging growth company until the earliest of (1)
the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross
revenue of at least $1.235 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our
common stock that is held by non-affiliates exceeds $700 million as of the prior December 31st, and (2) the date on which we have issued
more than $1.0 billion in non-convertible debt during the prior three-year 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 $463,661
as of December 31, 2024. 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 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, 2024, and 2023 94
Statements of Cash Flows, for the Years Ended December 31, 2024, and 2023 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 sheets
of Aclarion, Inc. (the Company) as of December 31, 2024 and 2023, and the related statements of operations, changes in stockholders’
equity (deficit), and cash flows for the years 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, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
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
audits. 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 audits 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 audits, 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 audits 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 audits 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 audits provide a reasonable basis for our opinion.
/s/ Haynie & Company
Haynie & Company
Salt Lake City, Utah
April 9, 2025
We have served as the Company’s auditor since 2023.
PCAOB ID 0457
Aclarion, Inc.
Balance Sheets
December 31, 2024 and 2023
December 31,
ASSETS
Current assets:
Non-current assets:
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable, net of discount – 1,125,724
Commitments and contingencies (See Note 12) – –
Stockholders' equity (deficit)
Total liabilities and stockholders’ equity (deficit) $ 2,123,483 $ 2,459,774
* Rounds to less than one share or $1
See Accompanying Notes to Financial Statements
Aclarion, Inc.
Statements of Operations
For the Years Ended December 31, 2024, and 2023
Year Ended December 31,
Revenue
Operating expenses:
Other income (expense):
Gain (Loss) on settlement of debt 6,058 –
Gain (Loss) on exchange of debt (1,073,317 ) –
Gain (Loss) on issuance of warrants – (72,862 )
Changes in fair value of warrant and derivative liabilities 335,033 646,319
Penalties and settlements (212,453 ) –
Income tax provision – –
Dividends accrued for preferred stockholders $ (59,675 ) $ –
Net income (loss) allocable to common stockholders $ (7,052,602 ) $ (4,911,374 )
Weighted average shares of common stock outstanding, basic and diluted 943 62
See Accompanying Notes to Financial Statements
Aclarion, Inc.
Statements of Changes in Stockholders' Equity
(Deficit)
For the Years Ended December 31, 2024 and 2023
Series A Series B Series C
Preferred Stock Preferred Stock Preferred Stock
Shares Value Shares Value Shares Value
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 – $ – – $ – – $ –
Balance, December 31, 2023 – $ – – $ – – $ –
Share-based compensation – – – – – –
Issuance of common shares – – – – – –
Issuance of B-series preferred stock – – 930 * – –
Issuance of C-series preferred stock – – – – 1,000 *
Commitment shares - note financing – – – – – –
Issuance of C-series warrants – – – – – –
Commitment share forward element – equity line – – – – – –
Common share issuance costs – – – – – –
Preferred stock issuance costs – – – – – –
Cashless exercise of pre-funded warrants – – – – – –
Issuance of Reg A+ warrants – – – – – –
Capitalization of B-series preferred stock dividends – – – – – –
Conversion of C-series preferred to common stock – – – – (126 ) –
Conversion of vested restricted stock units to common shares – – – – – –
Common share - stock split round up – – – – – –
Net income (loss) – – – – – –
* Rounds to less than one share or $1
Additional
Common Stock Paid-In Accumulated
Shares Value Capital Deficit Total
Issuance of common shares * * * – –
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 1 * * – –
Common share issuance costs - equity line – – (204,647 ) – (204,647 )
Cashless exercise of pre-funded warrants * * * – –
Conversion of vested restricted stock units to common shares 1 * * – –
Common share - stock split round up * * * – –
Commitment share forward element – equity line – – 187,453 – 187,453
Cashless exercise of pre-funded warrants * * * – –
Capitalization of B-series preferred stock dividends – – (12,142 ) 12,142 –
Conversion of C-series preferred to common stock 82 * * – –
Conversion of vested restricted stock units to common shares 2 * * – –
Common share - stock split round up 4 * * – –
* Rounds to less than one share or $1
See Accompanying Notes to Financial Statements
Aclarion, Inc.
Statements of Cash Flows
For the Years Ended December 31, 2024, and 2023
Year Ended December 31,
Cash flows from operating activities
Changes in fair value of warrants and derivative (335,033 ) (646,319 )
Non-cash interest related to bridge funding 58,002 98,685
Warrants issued as non- cash finance charge – 72,862
Loss on exchange of debt 1,073,317 –
Loss on extinguishment of debt 111,928 –
Non-cash expenses related to equity line agreement 425,367 –
Change in assets and liabilities
Accrued interest on promissory and convertible notes – (6,190 )
Investing Activities
Fixed assets (5,115 ) –
Net cash (used in) investing activities (321,937 ) (119,522 )
Financing Activities
Bridge funding cash issuance costs – (323,301 )
Preferred stock cash issuance costs (90,000 ) –
Common stock cash issuance costs (788,099 )
Proceeds from issuance of promissory notes – 2,250,000
Redemption of preferred stock – (1,000 )
Proceeds from sale of common stock and warrants, Reg A+ 529,254 –
Proceeds from sale of common stock and warrants, ATM 288,294
Repayment of promissory notes (300,973 ) –
Net increase (decrease) in cash and cash equivalents (567,408 ) (451,737 )
Cash, cash equivalents, and restricted cash, end of period $ 463,661 $ 1,031,069
Cash paid for income taxes $ – $ –
Non- cash activities
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 59,675 –
Exchange of indebtedness for common shares 1,771,606 –
Exchange of indebtedness for preferred shares 930,052 –
Conversion of preferred stock to common stock 129,999 –
Issuance of common shares related to restricted stock units 216,597 –
Issuance of commitment shares related to bridge funding 33,297 –
See Accompanying Notes to Financial Statements
Aclarion, Inc.
Notes to Financial Statements
For the Year Ended December 31, 2024
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.
On April 26, 2022, the Company completed an
initial public offering (the “IPO”) of units comprised of one share of common stock and one redeemable warrant entitling
the holder to purchase one share of common stock. The IPO generated net proceeds of approximately $8.6
million, after underwriting discounts and expenses. The Company’s common stock and warrants started on the NASDAQ
under the ticker symbols “ACON” and “ACONW”, respectively.
2024 Reverse Stock Split
On January 4, 2024, the Company effected a 1:16
reverse stock split of the Company’s common stock (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.
2025 Reverse Stock Splits
The Company effected (i) a 1:335 reverse stock
split of the Company’s common stock on January 30, 2025, and (ii) a 1:27 reverse stock split of the Company’s common stock
on March 28, 2025 (together, the “2025 Stock Splits”). The 2025 Stock Splits 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.
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 2025 Stock Splits.
The following tables present selected share information
reflecting on a retroactive basis the 2024 and 2025 reverse stock splits as of and for the years ended December 31, 2024 and 2023:
Schedule of equity statement information
December 31
* Rounds to less than one share or $1
Year ended December 31
Weighted average shares outstanding, basic and diluted - post-2025 splits 943 62
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.
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.
Level 3 - Unobservable inputs
for the instrument requiring the development of assumptions by the Company.
The Company analyzes all financial instruments
with features of both liabilities and equity under the Financial Accounting Standard Board’s (“FASB”) accounting standard
for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level
of input that is significant to the fair value measurement.
The carrying values of the Company’s financial
instruments including cash equivalents, restricted cash, accounts receivable, and accounts payable are approximately equal to their respective
fair values due to the relatively short-term nature of these instruments. The Company’s warrant liabilities and derivative liabilities
are estimated using level 3 inputs (see Note 3).
Derivative Financial Instruments
The Company has derivative financial instruments
that are not hedges and do not qualify for hedge accounting. Changes in the fair value of these instruments are recorded in other income
(expenses), on a net basis in the Statements of Operations.
Cash and Cash Equivalents
The Company considers all highly liquid instruments
purchased with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents for all periods
presented. The Company maintains cash deposits at several financial institutions, which are insured by the Federal Deposit Insurance Corporation
up to $250,000. The Company’s cash balance may at times exceed these limits. On December 31, 2024, and 2023, the Company had approximately
$167,899 and $761,800, respectively, in excess of federally insured limits. The Company continually monitors its positions with, and the credit
quality of, the financial institutions with which it invests. The Company maintains no international bank accounts. As of December 31,
2024, $10,000 of the Company’s cash was restricted as collateral related to the credit card program offered by our bank.
Accounts Receivable, Less Allowance for Doubtful
Accounts
The Company estimates an allowance for doubtful
accounts based upon an evaluation of the current status of receivables, historical experience, and other factors as necessary. It is reasonably
possible that the Company’s estimate of the allowance for doubtful accounts will change. The allowance for doubtful accounts was
$0 on December 31, 2024, and 2023.
Revenue Recognition
Revenues are recognized when a contract with a
customer exists, and at that point in time when we have delivered a Nociscan report to our customer. Revenue is recognized in the amount
that reflects the negotiated consideration expected to be received in exchange for those reports. Following the delivery of the report,
the company has no ongoing obligations or services to provide to the customer. Customers pay no other upfront, licensing, or other fees.
To date, our reports are not reimbursable under any third-party payment arrangements, The Company invoices its customers based on the
billing schedules in its sales arrangements. Payment terms range generally from 30 to 90 days, from the date of invoice.
Geographic Locations & Segments
Approximately 35% and 13% of the Company’s
revenues were generated from contracts with customers outside the United States in the years ended December 31, 2024, and 2023, respectively.
All invoices are billed in the currency of the customers and are recorded in US Dollars at the then spot rate, which automatically is
converted to dollars upon receipt and deposited in the Company’s bank. Differences between the amounts received and the amounts
initially recorded are reflected in Other Income (Expense).
Segment Disclosure
Operating segments are components of an enterprise
about which separate financial information is available and is evaluated quarterly, by management, namely the Chief Operating Decision
Maker (“CODM”) of an organization, in order to determine operating and resource allocation decisions. By the definition, the
Company has identified Brent Ness, Chief Executive Officer, as the CODM.
The Company operates and reports in one segment
(“Nociscan segment”) related to the delivery of Nociscan reports. The Company generates revenues, earnings, net income, and
cash flows through the single segment by collecting fees from our clients for providing Nociscan reports.
The Company believes that this structure reflects
its current operational and financial management, and that it provides the best structure for the Company to focus on growth opportunities
while maintaining financial responsibility.
The results of the reportable segment is derived
directly from the Company’s management reporting system. The results are based on the Company’s method of internal reporting
and are not necessarily in conformity with accounting principles generally accepted in the United States. Management measures the performance
of the segment on several metrics, including contribution income (loss). Segment contribution income (loss) includes all product line
segment revenue less the related costs of sales, research and development and sales and marketing costs. Contribution income (loss) is
used, in part, to evaluate the performance of, and allocate resources to, the segment.
Financial information and annual operating plans
and forecasts are prepared and reviewed by the CODM at a segment level. The CODM assesses performance for the Nociscan segment and decides
how to better allocate resources based on the segment strategy and net income (losses) that are reported on the Statements of Operations.
The Company's objective in making resource allocation decisions is to optimize the financial results. The accounting policies of our Nociscan
segment are the same as those described in the summary of significant accounting policies herein.
For single reportable segment-level financial
information, total assets, and significant non-cash transactions, see Financial Statements.
Property and Equipment
Property and equipment are stated at cost and
are depreciated using the straight-line method over the estimated useful lives of the related assets. Furniture and fixtures are depreciated
over seven years. Computer and office equipment and computer software are depreciated over five years. Repairs and maintenance costs,
which are not considered improvements and do not extend the useful life of the property and equipment, are expensed as incurred.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including
intangible assets, property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying
amount of the assets may not be fully recoverable using pre-tax undiscounted cash flows. Impairment, if any, is measured as the amount
by which the carrying value of a long-lived asset exceeds its fair value.
Sales and Marketing Expenses
The Company expenses the costs of sales and
marketing its products and services as incurred. The primary drivers of cost have been employee payroll, the Clarity clinical study,
website and branding development, press releases, attendance at various industry conferences, Key Opinion Leader consulting fees in
the form of restricted stock grants, and travel expenses.
Research and Development Costs
Costs related to research, design and development
of products are charged to research and development expense as incurred. These costs include direct compensation, benefits, and other
headcount related costs for research and development personnel, regulatory consulting, our quality system, and costs for materials used
in research and development activities.
General & Administrative