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, 2025, we had an accumulated deficit of $58,495,940. 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 and convert them into Category I 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, 2025, we had cash and cash
equivalents and restricted cash of $12,040,789. Subsequent to December 31, 2025, the Company raised additional capital through a registered
direct offering (refer to Note 16 – Subsequent Events to our financial statements). We believe our current cash and cash equivalents
and restricted cash will fund our operating expenses and capital expenditure requirements through the first quarter of 2028. 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
The Company currently operates as a Delaware
corporation, under the name Aclarion, Inc.
Results of Operations
Operating activities:
The following table summarizes
our results of operations for the twelve months ended December 31, 2025, and 2024.
Year Ended December 31,
Revenue:
Operating expenses:
Other income (expense):
Income tax provision – – –
Years ended December 31, 2025, and 2024
Total revenues.
Total revenues for the year ended December 31,
2025, were $75,730, which was an increase of $30,006 or 65.6%, from $45,724 for the year ended December 31, 2024. This increase in revenue
was driven primarily by the growing volume of NOCISCAN® reports sold into the UK market following recent local coverage decisions.
We expect this increase in revenue to continue as we bring on more insurance payors, and our scan volumes increase.
Cost of Revenue.
Cost of revenue is comprised of hosting and software
costs, field support, UCSF royalty cost, partner fees (Radnet), and credit card fees. Total cost of revenue was $68,902 for the year ended
December 31, 2025, compared to $84,658 for the year ended December 31, 2024, a decrease of $15,756 or 18.6%. This decrease was primarily
due to a reduced allocation of hosting fees to cost of revenue and a change in revenue mix that reduced partner fees.
Sales and Marketing.
Sales and marketing expenses primarily consist
of post-clearance clinical services related to the CLARITY Trial, product marketing consulting, travel and entertainment costs, and salaries
and benefits. Sales and marketing expenses totaled $1,900,598 for the year ended December 31, 2025, compared to $976,554 for the year
ended December 31, 2024, representing an increase of $924,044 or 94.6%.
The increase in sales and marketing expenses was
primarily driven by higher post-clearance clinical services, which was $606,838 for the year ended December 31, 2025, compared to $300,794
for the same period in 2024, an increase of $306,044, reflecting costs associated with the initiation of the CLARITY Trial, for which
the first patient enrolled in June 2025. With continued enrollment in the CLARITY Trial in 2026, we expect these expenses continue to
increase. Product marketing consulting expenses increased by $277,410, to $362,640 for the year ended December 31, 2025, compared to $85,230
for the same period in 2024, reflecting expanded use of external marketing consultants. Salaries and benefits increased by $218,569 to
$542,515 for the year ended December 31, 2025, compared to $323,946 for the same period in 2024, primarily due to accruals for incentive-based
performance payouts and hiring of additional sales and marketing personnel in the United States and the United Kingdom. We expect salaries
and benefits continue to increase as a result of planned hiring within our sales and marketing function. Travel and entertainment expenses
increased by $104,997 to $228,834 for the year ended December 31, 2025, compared to $123,837 for the year ended December 31, 2024, primarily
related to activities supporting local coverage determinations in the United Kingdom.
Research and Development.
Research and development expenses increased by
$145,023, or 16.3%, to $1,033,789 for the year ended December 31, 2025, compared to $888,766 for the year ended December 31, 2024. The
increase was primarily attributable to higher patent maintenance fees, which totaled $52,141 for the year ended December 31, 2025, compared
to $0 for the same period in 2024, reflecting the Company’s efforts to advance protection of its intellectual property portfolio.
In addition, bonus expense increased by $58,013 to $85,771 for the year ended December 31, 2025, compared to $27,758 in 2024, due to accruals
for incentive-based performance payouts. Quality system and regulatory consulting expenses increased by $36,964 to $210,032 for the year
ended December 31, 2025, compared to $173,068 for the same period in 2024, primarily as a result of expanded regulatory compliance and
documentation activities. We expect research and development expenses to continue to increase as we continue the development of the Nociscan
3.0 product.
General and Administrative.
General and administrative expenses were $4,124,832
for the year ended December 31, 2025, compared to $3,608,793 for the year ended December 31, 2024, representing an increase of $516,039
or 14.3%. The increase was primarily driven by higher accruals under the Company’s 2025 incentive bonus program, which totaled $357,902
for the year ended December 31, 2025, compared to $216,409 in 2024, an increase of $141,493, due to incentive-based performance payout
accruals. In addition, insurance expenses, primarily related to directors and officers (“D&O”) coverage, increased to
$372,588 for the year ended December 31, 2025, from $289,798 in the prior-year period, an increase of $82,790, reflecting expanded policy
coverage and higher renewal premiums. The Company also incurred litigation and financial accounting advisory expenses of $100,534 and
$383,793, respectively, for the year ended December 31, 2025, compared to $0 and $208,752, respectively, for the same period in 2024,
representing increases of $100,534 and $175,041, respectively. These increases were partially offset by a decrease of $118,182 in stock-based
compensation expense, which totaled $105,368 for the year ended December 31, 2025, compared to $223,550 in 2024, primarily attributable
to stock options that vested in the prior year.
Interest Expense.
Interest expense was $0 for the year ended December
31, 2025, compared to $535,470 for the year ended December 31, 2024. The decrease in interest expense was attributable to the retirement
of all unsecured non-convertible notes in 2024.
Loss On Exchange Of Debt and Gain On Extinguishment
Of Debt.
During the year ended December 31, 2024, the Company
incurred losses on two transactions undertaken to reduce outstanding debt. The first transaction occurred between January 22 and January
29, 2024, when the Company entered into a series of exchange agreements with investors to issue an aggregate of 644,142 shares of common
stock (71 shares as adjusted for 2025 Stock Splits) in exchange for $1,519,779 of principal and accrued interest on outstanding notes.
This transaction accelerated the recognition of the related note discounts, resulting in a loss on exchange of debt of $1,073,317 for
the year ended December 31,2024, compared to $0 for the year ended December 31, 2025.
The second transaction occurred on March 6, 2024,
when the Company repaid $300,974 of principal and accrued interest on the notes. This transaction also accelerated the recognition of
the related note discounts and resulted in a charge $111,928 for the year ended December 31, 2024. This charge was offset by a gain on
settlement of debt of $117,985, resulting in a net gain on extinguishment of debt of $6,058 for the year ended December 31, 2024. In contrast,
the Company recognized a gain of $73,272 for the year ended December 31, 2025, representing an increase in gain of $67,214, related to
the retirement of an obligation associated with commitment shares.
Changes in Fair Value of Warrant and Derivative
Liabilities.
The Company’s warrant and derivative liabilities
are measured at fair value at each reporting date. For the year ended December 31, 2025, the Company recorded a favorable fair value adjustment
of $11,806, compared to a favorable adjustment of $335,033 for the year ended December 31, 2024, representing a decrease in favorable
adjustment of $323,227. The derivative liability was fully retired in 2024 in connection with the settlement of all unsecured non-convertible
notes.
Penalties and Settlements.
In March 2025, the Company paid $687,500 to settle
a dispute under the "fee tail" provision of a previously executed investment banking agreement. This payment was partially offset
by a $14,875 favorable accounts payable settlement, resulting in penalties and settlements expense of $672,625 for the year ended December
31, 2025, compared to $212,453 for the year ended December 31, 2024, representing an increase of $460,172.
Interest Income.
Interest income was $411,061 for the year ended
December 31, 2025, primarily reflecting interest income earned on money market deposits following the Company’s fundraising activities
during 2025, compared to $318 for the year ended December 31, 2024, representing an increase of $410,743.
Net Loss.
The Company reported a net loss of $7,233,629
for the year ended December 31, 2025, compared to a net loss of $6,992,927 for the year ended December 31, 2024, representing an increase
in net loss of $240,702 or 3.4%.
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 the Company expects
to receive in exchange for those services. Substantially all of our revenues are generated from contracts with customers in the United
Kingdom and 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.
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, 2025,
we had cash and cash equivalents of $12,040,789, including $25,000 of restricted cash.
During the year ended
December 31, 2025, the Company raised aggregate gross proceeds of $22,566,911 through a combination of financing transactions, including
a registered direct public offering of units totaling $14,554,545 consisting of common shares, Series A warrants, and Series B warrants;
two registered direct offerings of common stock totaling $5,702,968; a registered direct offering of pre-funded warrants totaling $1,972,957;
and the exercise of Series C Preferred warrants totaling $336,441.
Subsequent to December 31, 2025, the Company completed
a registered direct public offering of (i) 200,000 shares of the Company’s common stock, and (ii) pre-funded warrants (the “Pre-funded
Warrants”) to purchase up to 1,800,000 shares of common stock, at an offering price of $5.18 per share. The
purchase price of each Pre-funded Warrant was $5.17999, which represents the offering price per share of common stock, minus the exercise
price of $.00001 per share. The Pre-funded Warrants are immediately exercisable. The aggregate gross proceeds to the Company from
this offering were approximately $10.4 million, before deducting placement agent fees of 6% of the aggregate gross proceeds and other
offering expenses payable by the Company. See Note 16 – 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 first quarter of 2028. Management is actively managing
the cash position.
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 $ 11,577,128 $ (567,408 )
Operating Activities
During the year ended December 31, 2025, the Company
used $7,164,204 in cash for operating activities, representing an increase in cash use of $1,892,595, compared to $5,271,609 used during
the same period in 2024. The increase in cash used in operating activities was primarily attributable to a higher net loss after adjustments
for non-cash items, partially offset by favorable changes in certain working capital accounts.
For the year ended December 31, 2025, the Company
recognized a net loss after non-cash adjustments of $6,806,302, representing an increase of $2,098,937, compared to an adjusted net loss
of $4,707,365 for the same period in 2024. The year-over-year increase in adjusted net loss was primarily due to lower non-cash addbacks
in 2025, including the absence of non-cash adjustment related to the loss on exchange of debt, compared to a non-cash addback of $1,073,317
recorded in 2024, as the Company did not engage in comparable debt exchange or restructuring activities during 2025; the absence of amortization
of deferred issuance costs, compared to non-cash addback of $471,387 recorded in 2024, reflecting the completion of the debt financing
arrangement in the prior year; and the absence of non-cash expenses related to the equity line agreement, compared to $425,367 recorded
in 2024, as the Company did not utilize the equity line of credit in 2025.
During the year ended December 31, 2025, the Company
provided $16,057 in cash related to prepaids and other current assets, representing a decrease in cash used of $303,720, compared to $287,663
used during the same period in 2024. The decrease was primarily attributable to lower advance payments made to vendors and service providers,
as well as a reduction in clinical prepayments, compared to the same period in 2024.
Investing Activities
During the year ended December 31, 2025, cash
used in investing activities was $203,902, a decrease in cash used of $118,035, compared to cash used of $321,937 during the same period
in 2024, mainly due to lower expenditures related to patent and license filings, partially offset by purchases of computer equipment.
Financing Activities
During the year ended
December 31, 2025, the Company raised aggregate gross proceeds of $22,566,911 through a combination of financing transactions, including
a register direct public offering of units totaling $14,554,545 consisting of common shares, Series A warrants, and Series B warrants;
two registered direct offerings of common stock totaling $5,702,968; a registered direct offering of pre-funded warrants totaling $1,972,927;
and the exercise of Series C Preferred warrants totaling $336,441.
January 2025 Registered Direct Public Offerings
On January 3, 2025, the Company sold in a registered
direct offering an aggregate of 3,380,276 shares (374 shares post-2025 Stock Splits) of its common stock at a price of $0.142 per share
($1,284.39 post-2025 Stock Splits). The net proceeds to the Company of this offering were approximately $450,000.
On January 30, 2025, the Company sold in a registered
direct offering an aggregate of 506,803 shares (18,770 shares post-Second 2025 Stock Split) of its common stock at a price of $9.25 per
share ($249.75 post-March 2025 stock split). The net proceeds to the Company of this offering were $4.4 million.
Units Offering Of Common Stock And Warrants
On January 15, 2025, the Company sold, in an underwritten
public offering, an aggregate of (i) 100,000 shares (11 shares post-2025 Stock Splits) of the Company’s common stock, (ii) 143,900,000
pre-funded warrants (the “Pre-Funded Warrants) (15,909 pre-funded warrants post-2025 Stock Splits) to purchase up to an aggregate
of 143,900,000 common shares (15,909 shares post-2025 Stock Splits), (iii) 144,000,000 Series A Common Warrants (the “Series A Common
Warrants”) (15,920 warrants post-2025 Stock Splits), and (iv) 144,000,000 Series B Common Warrants (the “Series B Common Warrants”
and, together with the Series A Common Warrants, the “Common Warrants”) Each share or Pre-Funded Warrant, as applicable, was
sold together with one Series A Common Warrant to purchase one share of Common Stock and one Series B Common Warrant to purchase one share
of Common Stock.
The public offering price for each Unit (consisting
of a common share (or Pre-Funded Warrant in lieu thereof) and accompanying Common Warrants was $0.10 ($904.50 post-2025 Stock Splits).
In addition, the Company granted the underwriter an option to purchase up to an additional 21,000,000 shares (2,322 shares post-2025 Stock
Splits) of our common stock (or Pre-Funded Warrants in lieu of shares of Common Stock), at the public offering price, less underwriting
discounts and commissions, and up to an additional 21,000,000 (2,322 shares post-2025 Stock Splits) Series A Common Warrants and up to
an additional 21,000,000 (2,322 post-2025 Stock Splits) Series B Common Warrants at a nominal price within 45 days from January 15, 2025,
to cover over-allotment sales. The underwriter exercised its option to purchase 21,000,000 (2,322 post-2025 Stock Splits) Series A Common
Warrants and 21,000,000 (2,322 post-2025 Stock Splits) Series B Common Warrants. The net proceeds to the Company of this offering were
$13.4 million.
The Pre-Funded Warrants had an exercise price
of $0.00001 ($.09 post-2025 Stock Splits) per share, were immediately exercisable and expired when exercised in full. All Pre-Funded Warrants
have been exercised as of March 31, 2025. Each Series A Common Warrant will have an exercise price per share of $0.20 ($1,809.00 post-2025
Stock Splits) and will be exercisable beginning on the first trading day following the date on which Stockholder Approval is received
and deemed effective (the “Initial Exercise Date” or the “Stockholder Approval Date”). The Series A Common Warrants
will expire on the five-year anniversary of the Initial Exercise Date. The Series B Common Warrants will have an exercise price per share
of $0.20 ($1,809.00 post-2025 Stock Splits) and will be exercisable beginning on the Initial Exercise Date. The Series B Common Warrants
will expire on the two and one-half year anniversary of the Initial Exercise Date.
On March 5, 2025, the Company convened a Special
Meeting of Stockholders. Stockholders approved the full issuance of shares of common stock issuable by the Company upon exercise of the
Series A Common Warrants and the Series B Common Warrants. Following March 5, 2025, holders of Series B warrants have exercised substantially
all of our outstanding Series B warrants using the alternative cashless exercise ("ACE") feature included in those warrants.
The Company has issued approximately 14.7 million common shares (544 thousand shares adjusted for the Second 2025 Stock Split) in such
Series B warrant exercises. No Series A warrants have been exercised as of December 31, 2025.
Redemption Of Series B Preferred Stock
On January 22, 2025, the Company redeemed all
Series B Preferred Stock and related accrued dividends with a cash payment of $1,213,590.
October 2025 Registered Direct Public Offering
On October 14, 2025, the Company sold, in a registered
direct public offering, an aggregate of (i) 64,000 shares of the Company’s common stock, and (ii) pre-funded warrants (the “Pre-funded
Warrants”) to purchase up to 236,000 shares of common stock, at an offering price of $8.36 per share. The Pre-funded Warrants were
immediately exercisable, with exercise price of $.00001 per share. A holder of Pre-funded Warrants may not exercise the warrant if the
holder, together with its affiliates, would beneficially own more than either 4.99% or 9.99% of the number of shares of the common stock
outstanding immediately after giving effect to such exercise. A holder of Pre-funded Warrants may increase or decrease this percentage
not in excess of 9.99% by providing at least 61 days’ prior notice to the Company.
The aggregate gross proceeds to the Company from
this offering were approximately $2.5 million, before deducting the placement agent fees of 7% of the aggregate gross proceeds and other
offering expenses payable by the Company. The Company intends to use the net proceeds from the offering to fund market development and
clinical evidence, product development and quality, and general and administration support, and other general corporate purposes.
As of December 31, 2025, 28,000 Pre-funded Warrants
issued in connection with the direct offering remained unexercised, all of which were subsequently exercised on January 8, 2026.
Series C Preferred Stock and Warrants
During the fourth quarter of 2024, certain holders
converted 126 shares of C Preferred Stock and related accrued dividends into 739,050 shares of common stock (equivalent to 82 common shares
following the 2025 Stock Splits). There were 874 C Preferred shares remaining at December 31, 2024.
During the year ended December 31, 2025, certain
holders converted the remaining 874 shares of C Preferred Stock and related accrued dividends into 6,211,618 shares of common stock (equivalent
to 687 common shares following the 2025 Stock Splits).
During the year ended December 31, 2025, holders
of the Series C warrants exercised 5,685,049 warrants (629 post-2025 Stock Splits). 4,548,039 (503 post-2025 Stock Splits) warrants were
exercised at $0.03 per share ($271.35 post-2025 Stock Splits), and 1,137,010 (126 post-2025 Stock Splits) warrants were exercised at $0.1759
per share ($1,591.02 post-2025 Stock Splits). The Company received payments of $336,411 as part of the warrant exercises.
During the year ended December 31, 2024, net cash
provided by financing activities was $4,900,996 which included gross proceeds of $1,754,032 from our equity line, $2,691,391 from a February
27, 2024 public offering, $1,000,000 from sales of C-series preferred stock and warrants, and $529,254 from common stock and warrant RegA+
offering. Cash issuance costs related to all financing activities totaled $772,707. The Company used cash in the year 2024 to retire $300,973
of outstanding promissory 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
The Company does not have any contractual obligations,
not otherwise on our balance sheet as of December 31, 2025.
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 cash equivalents and restricted
cash totaling $12,040,789 as of December 31, 2025. 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, 2025, and 2024 89
Statements of Cash Flows, for the Years Ended December 31, 2025, and 2024 92
Notes to Financial Statements 93
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, 2025 and 2024, 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, 2025 and 2024, 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
March 18, 2026
We have served as the Company’s auditor since 2023.
PCAOB ID 0457
Aclarion, Inc.
Balance Sheets
December 31, 2025 and 2024
December 31,
ASSETS
Current assets:
Non-current assets:
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Liability to issue equity – 80,772
Commitments and contingencies (see Note 11) –
Stockholders' equity:
* Rounds to less than $1
The Accompanying Notes Are An Integral Part of
These Financial Statements
Aclarion, Inc.
Statements of Operations
For the Years Ended December 31, 2025, and 2024
Year Ended December 31,
Revenue:
Operating expenses:
Other income (expense):
Loss on exchange of debt – (1,073,317 )
Changes in fair value of warrant and derivative liabilities 11,806 335,033
Income tax provision – –
Dividends on preferred stock (6,683 ) (59,675 )
Net loss allocable to common stockholders $ (7,240,312 ) $ (7,052,602 )
Net loss per share allocable to common stockholders $ (13.61 ) $ (7,478.90 )
The Accompanying Notes Are An Integral Part of
These Financial Statements
Aclarion, Inc.
Statements of Changes in Stockholders' Equity
(Deficit)
For the Years Ended December 31, 2025 and 2024
Series B Series C
Preferred Stock Preferred Stock Common Stock Paid-in Accumulated
Shares Value Shares Value Shares Value Capital Deficit Total
For the Year Ended December 31, 2024
Issuance of RegA+ warrants – – – – – – 77,283 – 77,283
Conversion of C-series preferred to common stock – – (126 ) – 82 * – – *
Issuance of commitment shares - note financing – – – – 1 * 33,297 – 33,297
Commitment share forward element - equity line – – – – – – 187,453 – 187,453
Preferred stock issuance costs – – – – – – (140,800 ) – (140,800 )
Common stock issuance costs – – – – – – (951,161 ) – (951,161 )
Issuance of common shares related to restricted stock units – – – – 2 * * – *
Cashless exercise of pre-funded warrants – – – – * * * – *
Round-up conversion related to reverse stock splits – – – – 5 * 2 – 2
For the Year Ended December 31, 2025
Conversion of C-series preferred stock to common stock – – (874 ) – 687 * – – *
Alternative cashless exercise of B warrants – – – – 544,299 5 (5 ) – –
Round-up conversion related to reverse stock splits – – – – 194 * – – *
* Rounds to less than one share or $1
The Accompanying Notes Are An Integral Part of
These Financial Statements
Aclarion, Inc.
Statements of Cash Flows
For the Years Ended December 31, 2025, and 2024
Year Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net loss to net cash used in operating activities:
Amendment of warrants 48,087 –
Non-cash settlements 58,272 –
Loss on exchange of debt – 1,073,317
Loss on extinguishment of debt – 111,928
Amortization of deferred issuance costs – 471,387
Change in fair value related to warrants and derivative (11,806 ) (335,033 )
Non-cash interest related to bridge funding – 58,002
Non-cash expenses related to equity line agreement – 425,367
Change in operating assets and liabilities
CASH FLOWS FROM INVESTING ACTIVITIES:
CASH FLOWS FROM FINANCING ACTIVITIES:
Registered direct offerings of common stock 5,702,968 –
Proceeds from direct offering of prefunded warrants 1,972,957 –
Proceeds from sale of preferred stock – 1,000,000
Proceeds from sale of common stock and warrants, ATM – 288,294
Exercise of Series C warrants 336,441 –
Redemption of Series B Preferred stock (1,213,590 ) –
Proceeds from common stock and warrant RegA+ offering – 529,254
Proceeds from equity line – 1,754,032
Repayment of promissory notes – (300,973 )
Equity line cash issuance costs – (367,865 )
Preferred stock cash issuance costs – (90,000 )
Net increase (decrease) in cash and cash equivalents 11,577,128 (567,408 )
Cash, cash equivalents and restricted cash, end of period $ 12,040,789 $ 463,661
Supplemental disclosures
Cash paid for interest $ – $ 13,072
Cash paid for income taxes $ 1,691 $ –
Non-cash activities
Capitalization of Series B preferred stock dividends $ 5,425 $ –
Capitalization of Series C preferred stock dividends $ 1,258 $ –
Conversion of Series C preferred stock to common stock $ 548,534 $ –
Cashless exercise of B warrants to common stock $ 9,539,081 $ –
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
The Accompanying Notes Are An Integral Part of
These Financial Statements
Aclarion, Inc.
Notes to Financial Statements
For the Year Ended December 31, 2025
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”) combined
with proprietary signal-processing biomarkers to optimize clinical treatments. The Company was formed in February 2015, incorporated in
Delaware, and has its principal place of business in Broomfield, Colorado.
Basis of Presentation
The accompanying financial statements have been
prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and pursuant
to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial statements include all adjustments,
consisting only of normal recurring adjustments, that management considers necessary for a fair presentation of the Company’s financial
position, results of operations, and cash flows for the periods presented. The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and
expenses. Actual results may differ from those estimates.
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.
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 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, 2025 and 2024:
Schedule of equity statement information from reverse stock split
December 31,
* Rounds to less than 1 share
Schedule of share and net loss per share from reverse stock split
December 31,
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, and
valuation of warrants, warrant and derivative liabilities, and options to purchase shares of the Company's common stock. These estimates
may be adjusted as more current information becomes available, and any adjustment could be significant.
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 are estimated using
level 3 inputs (see Note 3).
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 $273,290 cash deposits and $11,767,499
of cash equivalents at December 31, 2025. The Company had $463,661 of cash deposits and $0 cash equivalents at December 31, 2024.
The Company maintains cash deposits and cash equivalents
at three financial institutions, which are insured by the FDIC up to $250,000. The Company’s cash balance may at times exceed these
limits. On December 31, 2025 and 2024, the Company had $11,540,789 and $167,899, 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, 2025, $25,000 of the Company’s cash was restricted as collateral
related to the credit card program offered by our bank
Accounts Receivable, Less Allowance for Credit
Losses
The Company estimates an allowance for credit
losses 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 credit losses will change. The allowance for credit losses was $6,241
and $0 on December 31, 2025 and 2024, respectively.
Revenue Recognition
The Company recognizes revenue in accordance with
Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. Under ASC 606, revenue
is recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the