ACLARION, INC. Form 10-Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-41358

ACLARION, INC.

(Exact name of registrant as specified in its charter)

Delaware		47-3324725
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

8181 Arista Place, Suite 100

Broomfield, Colorado 80021

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (833) 275-2266

Not Applicable

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.00001 per share	ACON	The Nasdaq Stock Market LLC
Warrants, each exercisable for one share of Common stock	ACONW	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated Filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 14, 2024, there were 8,610,671 shares of the registrant's common stock, $0.00001 par value per share, outstanding.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future financial condition, future operations, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “positioned,” “potential,” “predict,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.

Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur at all. Forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those indicated (both favorably and unfavorably). These risks and uncertainties include, but are not limited to, those described in the Risk Factors section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the Form 10-K) dated March 28, 2024, as filed with the Securities and Exchange Commission on March 28, 2024, under Rule 424(b)(4). Caution should be taken not to place undue reliance on any such forward-looking statements. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward- looking statements in this Quarterly Report on Form 10-Q by these cautionary statements.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	4
	Condensed Balance Sheets	4
	Condensed Statements of Operations	5
	Condensed Statements of Changes in Stockholders' Equity	6
	Condensed Statements of Cash Flows	8
	Notes to Condensed Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34
	Signatures	36

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Aclarion, Inc.

Condensed Balance Sheets


	Jun 30, 2024			Dec 31, 2023
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,172,687		$	1,021,069
Restricted cash		10,000			10,000
Accounts receivable, net		19,713			13,270
Prepaids and other current assets		649,357			245,030
Total current assets		1,851,757			1,289,369

Non-current assets:
Property and equipment, net		1,189			1,782
Intangible assets, net		1,235,875			1,168,623
Total non-current assets		1,237,064			1,170,405

Total assets	$	3,088,821		$	2,459,774

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable	$	179,123		$	760,535
Accrued and other liabilities		447,972			857,722
Note payable, net of discount		777,087			1,125,724
Warrant liability		23,861			289,165
Derivative liability		18,601			121,326
Liability to issue equity		–			33,297
Total current liabilities		1,446,644			3,187,769

Total liabilities		1,446,644			3,187,769

Stockholders' equity (deficit)
Common stock - $0.00001 par value, 200,000,000 authorized and 8,210,671 and 825,459 shares issued and outstanding (see Note 11)		82			8
Additional paid-in capital		49,560,800			43,553,523
Accumulated deficit		(47,918,705	)		(44,281,526	)
Total stockholders’ equity (deficit)		1,642,177			(727,995	)

Total liabilities and stockholders’ equity (deficit)	$	3,088,821		$	2,459,774

See accompanying notes to condensed financial statements.

Aclarion, Inc.

Condensed Statements of Operations

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023

Revenue
Revenue	$	10,971		$	17,072		$	21,085		$	42,542
Cost of revenue		23,294			19,301			42,770			36,754
Gross profit (loss)		(12,323	)		(2,229	)		(21,685	)		5,788

Operating expenses:
Sales and marketing		225,037			207,790			406,094			385,074
Research and development		202,102			250,006			441,143			454,405
General and administrative		696,099			946,175			1,541,947			1,753,774
Total operating expenses		1,123,238			1,403,971			2,389,184			2,593,253

(Loss) from operations		(1,135,561	)		(1,406,200	)		(2,410,869	)		(2,587,465	)

Other income (expense):
Interest expense		(127,848	)		(47,139	)		(463,672	)		(48,519	)
Loss on exchange of debt		–			–			(1,066,732	)		–
Loss on extinguishment of debt		–			–			(111,928	)		–
Changes in fair value of warrant and derivative liabilities		25,357			(11,800	)		323,041			(11,800	)
Other, net		(25	)		583			92,980			(234	)
Total other income (expense)		(102,516	)		(58,356	)		(1,226,311	)		(60,552	)

Income (loss) before income taxes		(1,238,077	)		(1,464,557	)		(3,637,180	)		(2,648,017	)
Income tax provision		–			–			–			–
Net income (loss)	$	(1,238,077	)	$	(1,464,557	)	$	(3,637,180	)	$	(2,648,017	)

Net income (loss) allocable to common stockholders	$	(1,238,077	)	$	(1,464,557	)	$	(3,637,180	)	$	(2,648,017	)
Net income (loss) per share allocable to common shareholders	$	(0.15	)	$	(2.83	)	$	(0.53	)	$	(5.22	)
Weighted average shares of common stock outstanding, basic and diluted		8,217,024			517,979			6,829,825			507,499

See accompanying notes to condensed financial statements.

Aclarion, Inc.

Condensed Statements of Changes in Stockholders' Equity (Deficit)

(Unaudited)

Series A

Series A-1, A-2, A-3, A-4

Series B, B-1

Series B-2, B-3

Preferred Stock

Value

Value*

Balance, December 31, 2022

–

Share-based compensation

–

Proceeds from sale of Series A preferred stock

1,000

–

Redemption of Series A Preferred stock

)

(1,000

)

–

Net income (loss)

–

Balance, March 31, 2023

–

Share-based compensation

–

Commitment shares - note financing

–

Issuance of warrants - note financing

–

Net income (loss)

–

Balance, June 30, 2023

–

Balance, December 31, 2023

–

Share-based compensation

–

Issuance of common shares related to restricted stock units

–

Issuance of common shares - equity line of credit

–

Issuance of commitment shares - note financing

–

Cashless exercise of pre-funded warrants

–

Issuance of common stock and warrants related to public offering, net issuance costs

–

Public offering and line of credit issuance costs

–

Issuance of common shares - debt for equity exchange

–

Round up conversion related to reverse stock split

–

Net income (loss)

–

Balance, March 31, 2024

–

Share-based compensation

–

Issuance of common shares related to restricted stock units

–

Issuance of common shares - equity line of credit

–

Net income (loss)

–

Balance, June 30, 2024

–

(continued)

Aclarion, Inc.

Condensed Statements of Changes in Stockholders' Equity (Deficit)

(Unaudited)

(continued)


					Additional
	Common Stock				Paid-In			Accumulated
	Shares		Value		Capital			Deficit			Total
Balance, December 31, 2022		491,345	$	5	$	41,596,106		$	(39,370,153	)	$	2,225,958
Share-based compensation		–		–		82,531			–			82,531
Proceeds from sale of Series A preferred stock		–		–		–			–			1,000
Redemption of Series A Preferred stock		–		–		–			–			(1,000	)
Net income (loss)		–		–		–			(1,183,460	)		(1,183,460	)
Balance, March 31, 2023		491,345	$	5	$	41,678,637		$	(40,553,613	)		1,125,029

Share-based compensation		–		–		136,631			–			136,631
Commitment shares - note financing		21,210		–		175,619			–			175,619
Issuance of warrants - note financing		–		–		37,500			–			37,500
Net income (loss)		–		–		–			(1,464,557	)		(1,464,557	)
Balance, June 30, 2023		512,555	$	5	$	42,028,387		$	(42,018,169	)		10,223



Balance, December 31, 2023		825,459	$	8	$	43,553,524		$	(44,281,526	)	$	(727,995	)
Share-based compensation		–		–		85,827			–			85,827
Issuance of common shares related to restricted stock units		4,261		–		–			–			–
Issuance of common shares - equity line of credit		452,343		5		1,449,527			–			1,449,532
Issuance of commitment shares - note financing		9,312		–		33,297			–			33,297
Cashless exercise of pre-funded warrants		2,915		–		–			–			–
Issuance of common stock and warrants related to public offering, net issuance costs		5,175,000		52		2,691,339			–			2,691,391
Public offering and line of credit issuance costs		–		–		(399,106	)		–			(399,106	)
Issuance of common shares - debt for equity exchange		644,142		6		1,771,600			–			1,771,606
Round up conversion related to reverse stock split		40,068		–		–			–			–
Net income (loss)		–		–		–			(2,399,102	)		(2,399,102	)
Balance, March 31, 2024		7,153,500	$	72	$	49,186,006		$	(46,680,628	)		2,505,449

Share-based compensation		–		–		70,305			–			70,305
Issuance of common shares related to restricted stock units		7,171		–		–			–			–
Issuance of common shares - equity line of credit		1,050,000		10		304,490			–			304,500
Net income (loss)		–		–		–			(1,238,077	)		(1,238,077	)
Balance, June 30, 2024		8,210,671	$	82	$	49,560,800		$	(47,918,705	)		1,642,177

See accompanying notes to condensed financial statements.

Aclarion, Inc.

Condensed Statements of Cash Flows

(unaudited)


	Six Months Ended June 30,
	2024			2023
Cash flows from operating activities
Net income (loss)	$	(3,637,180	)	$	(2,648,017	)

Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		90,864			79,809
Share-based compensation		156,131			219,162
Loss on exchange of debt		1,066,732			–
Loss on extinguishment of debt		111,928			–
Amortization of deferred issuance costs		442,289			28,520
Change in fair value related to warrants and derivative		(323,041	)		11,800
Non-cash interest related to bridge funding		49,116			14,346
Change in assets and liabilities
Accounts receivable		(5,115	)		1,414
Prepaids and other current assets		(405,657	)		33,287
Accounts payable		(540,710	)		57,914
Accrued and other liabilities		(267,325	)		241,110
Note payable, net of discount		(31,129	)		–
Net cash (used in) operations		(3,293,096	)		(1,960,653	)

Investing activities
Intangible assets - Patents		(157,523	)		(72,634	)
Net cash (used in) investing activities		(157,523	)		(72,634	)

Financing activities
Issuance of common stock and warrants related to public offering, net deductions		2,691,391			–
Proceeds from equity line		1,754,032			–
Repayment of promissory notes		(300,973	)		–
Equity line cash issuance costs		(262,744	)		–
Public offering cash issuance costs		(256,094	)		–
Bridge fund cash issuance costs		(23,375	)		(85,000	)
Proceeds from bridge funding		–			1,250,000
Proceeds from sale of Series A preferred stock		–			1,000
Redemption of Series A Preferred stock		–			(1,000	)
Net cash provided by financing activities		3,602,237			1,165,000

Net increase (decrease) in cash and cash equivalents		151,618			(868,287	)
Cash, cash equivalents and restricted cash, beginning of period		1,031,069			1,482,806
Cash, cash equivalents and restricted cash, end of period	$	1,182,687		$	614,518

Non-cash activities
Issuance of common shares in exchange for debt		1,519,779			–
Issuance of bridge fund commitment shares		33,297			175,619
Fair value of warrants and derivative related to bridge funding		–			742,988
Accrued debt issuance costs related to bridge funding		–			118,575
Issuance of warrants related to bridge funding		–			37,500
Original issue discount (15%) related to bridge funding		–			187,500

See accompanying notes to condensed financial statements.

Aclarion, Inc.

Notes to Condensed Financial Statements

(unaudited)

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.

Basis of Presentation

The accompanying condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information required by U.S. GAAP for complete financial statements. The interim condensed financial statements reflect all adjustments that are of a normal recurring nature and that are considered necessary for a fair representation of the results for the periods presented and should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2023, which include a complete set of footnote disclosures, including our significant accounting policies. The December 31, 2023, condensed balance sheet was derived from the December 31, 2023, audited financial statements. They should be read in conjunction with the financial statements and notes thereto included in our Annual report on Form 10-K, filed with the SEC on March 28, 2024. The results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year or for any other future period.

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

In March 2023 the Company’s stockholders approved a reverse stock split proposal at a ratio in the range of one-for-five to one-for-fifty, with the final ratio to be determined by the Company's board in its discretion without further approval from the Company's stockholders. In January 2024, the Company's board subsequently approved the final reverse stock split ratio of one-for-sixteen (the “2024 Stock Split”), which resulted in a reduction in the number of outstanding shares of common stock, warrants, stock options and restricted share units and a proportionate increase in the value of each share or strike price of the warrants and stock options. The common stock began trading on a reverse split-adjusted basis on the NASDAQ on January 4, 2024.

As a result of the 2024 Stock Split, unless described otherwise, all references to common stock, share data, per share data and related information contained in these financial statements have been retrospectively adjusted to reflect the effect of the stock splits for all periods presented. In addition, any fractional shares that would otherwise be issued as a result of the stock splits were rounded up to the nearest whole share. Further, the number of shares issuable and exercise prices of stock options and warrants have been retrospectively adjusted in these financial statements for all periods presented to reflect the 2024 Stock Split.

The following tables present selected share information reflecting on a retroactive basis the reverse stock splits as of and for the year ended December 31, 2023:


	December 31,
	2023
Common shares issued and outstanding - pre-2024 split, 13,206,229 shares	$	132
Common shares issued and outstanding - post-2024 split, 825,459 shares	$	8
Additional paid-in capital - pre-2024 split	$	43,553,399
Additional paid-in capital - post-2024 split	$	43,553,523


	Year ended December 31,
	2023
Weighted average shares outstanding, basic and diluted - pre-2024 split		8,908,934
Weighted average shares outstanding, basic and diluted - post-2024 split		556,808
Basic and diluted net loss per shares attributable to common stockholders - pre-2024 split	$	(0.55	)
Basic and diluted net loss per shares attributable to common stockholders - post-2024 split	$	(8.82	)

Nasdaq notice regarding compliance with the $1.00 Minimum Bid Price requirement

On April 8, 2024, Aclarion, Inc. (the “Company”) received a written notice (the “Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) indicating that the Company is not in compliance with the $1.00 Minimum Bid Price requirement set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market (the “Bid Price Requirement”).

The Notice does not result in the immediate delisting of the Company’s common stock from The Nasdaq Capital Market.

The Nasdaq Listing Rules require listed securities to maintain a minimum bid price of $1.00 per share and, based upon the closing bid price of the Company’s common stock for the 30 consecutive business days for the period ending April 5, 2024, the Company no longer meets this requirement.

The Notice indicated that the Company will be provided 180 calendar days (or until October 7, 2024) in which to regain compliance. If at any time during this 180 calendar day period the bid price of the Company’s common stock closes at or above $1.00 per share for a minimum of ten consecutive business days, the Nasdaq staff (the “Staff”) will provide the Company with a written confirmation of compliance and the matter will be closed.

Alternatively, if the Company fails to regain compliance with Rule 5550(a)(2) prior to the expiration of the initial 180 calendar day period, the Company may be eligible for an additional 180 calendar day compliance period, provided (i) it meets the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on The Nasdaq Capital Market (except for the Bid Price Requirement) and (ii) it provides written notice to Nasdaq of its intention to cure this deficiency during the second compliance period by effecting a reverse stock split, if necessary. In the event the Company does not regain compliance with Rule 5550(a)(2) prior to the expiration of the initial 180 calendar day period, and if it appears to the Staff that the Company will not be able to cure the deficiency, or if the Company is not otherwise eligible, the Staff will provide the Company with written notification that its securities are subject to delisting from The Nasdaq Capital Market. At that time, the Company may appeal the delisting determination to a Hearings Panel.

The Company intends to monitor the closing bid price of its common stock and is considering its options to regain compliance with the Bid Price Requirement. The Company’s receipt of the Notice does not affect the Company’s business, operations or reporting requirements with the Securities and Exchange Commission.

Nasdaq Stockholder Equity Notice

On March 3, 2023, the Company received a written notice (the “Stockholder Equity Notice”) from Nasdaq indicating that it is not in compliance with Nasdaq Listing Rule 5550(b)(1), which requires companies listed on The Nasdaq Stock Market to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing. In its annual report on Form 10-K filed on February 27, 2023 for the period ended December 31, 2022, the Company reported stockholders’ equity of $1,787,751, and, as a result, does not currently satisfy Listing Rule 5550(b)(1).

The Stockholder Equity Notice also indicated that the Company had a period of 45 calendar days from the date of the Stockholder Equity Notice, or until April 17, 2023, to submit a plan to regain compliance with the stockholders’ equity requirement under Nasdaq Listing Rule 5550(b)(1). The Company submitted such a plan to Nasdaq on April 12, 2023.

On April 20, 2023, the Company received a letter (the “Extension Notice”) from Nasdaq notifying the Company that it has been granted an additional 180-day period, or until August 30, 2023, to regain compliance with Nasdaq Listing Rule 5550(b)(1).

On August 31, 2023, the Nasdaq staff notified the Company that it had not met the terms of the Extension Notice. Accordingly, the Nasdaq staff had determined to delist the Company’s common stock from Nasdaq, unless the Company timely requests an appeal of the staff’s determination to a hearings panel (the “Panel”), pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series.

The Company requested a hearing before a hearings panel (the “Panel”) to appeal the delisting notice from the staff. The Company's hearing with the Panel occurred on October 19, 2023.

On November 7, 2023, we were notified by the Panel that the Company’s request for continued listing on Nasdaq was granted, subject to the Company demonstrating compliance with the stockholders’ equity requirement and bid price requirement on or before January 31, 2024. The Panel subsequently extended this compliance date to February 27, 2024. On February 27, 2024, the Company completed a public offering of 5,175,000 units (“Units”) at a price of $0.58 per Unit, for gross proceeds of approximately $3.0 million, before deducting offering expenses. Each Unit was comprised of (i) one share of common stock or, in lieu of common stock, one prefunded warrant to purchase a share of common stock, and (ii) two common warrants, each common warrant to purchase a share of common stock.

On May 15, 2024, the Company filed a Quarterly Report on Form 10-Q for the three months ending March 31, 2024, and reported stockholders’ equity of $2,505,450.

As of June 30, 2024, the Company had Stockholders’ Equity of $1,642,177.

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.

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 Consolidated 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 at June 30, 2024 and December 31, 2023. The Company maintains cash deposits at several financial institutions, which are insured by the FDIC up to $250,000. The Company’s cash balance may at times exceed these limits. On June 30, 2024, and December 31, 2023, the Company had $818,591 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 June 30, 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 June 30, 2024, and December 31, 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.

Liquidity, Capital Resources and Going Concern

The Company believes that the net proceeds from the February 2024 initial public offering, and subsequent funding from the April 2024 equity line agreement described in Note 11, will be sufficient to fund current operating plans into the third quarter of 2024, approaching our final maturity repayment of our unsecured non-convertible note, which is due in September 2024. The Company has based these estimates, however, on assumptions that may prove to be wrong, and could spend available financial resources much faster than we currently expect. The Company will need to raise additional funds to continue funding our technology development. Management plans to secure such additional funding.

As a result of the Company’s recurring losses from operations and the need for additional financing to fund its operating and capital requirements, there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern.

Share-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.

The exercise or strike price of each option is not less than 100% of the fair market value of the Common Stock subject to the option on the date the option is granted.

The Company issues restricted stock unit awards to non-employee consultants who are providing various services. The awards are valued at the market price on the date of the grant. The awards vest over the contract life and based on achievement of targeted performance milestones.

On occasion, the Company grants common stock to compensate vendors for services rendered.

Deferred Financing Costs

The Company capitalizes certain legal, accounting, and other fees and costs that are directly attributable to in-process equity financings as deferred offering costs until such financings are completed. Upon the completion of an equity financing, these costs are recorded as a reduction of additional paid-in capital of the related offering. Upon the completion of the public offering in February 2024, approximately $566,200 of offering costs related to the public offering were reclassified to additional paid-in capital ($310,105 deducted from proceeds, and $256,094 paid or accrued). Upon the completion of the issuance of shares pursuant to the equity line in the first quarter of 2024, $133,000 of offering costs were reclassified to additional paid-in capital.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay the adoption of new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period to comply with certain new or revised accounting standards that have different effective dates for public and private companies.

NOTE 3: FAIR VALUE MEASUREMENTS

In accordance with ASC 820 (Fair Value Measurements and Disclosures), the Company uses various inputs to measure the outstanding warrants, certain embedded redemption features associated with the senior note to Aclarion, Inc. on a recurring basis to determine the fair value of the liability.


	Fair value measured as of June 30, 2024
	Fair value on June 30, 2024		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Warrant liability	$	23,861	$	–	$	–	$	23,861
Derivative Liability		18,601		–		–		18,601
Total Fair value	$	42,462	$	–	$	–	$	42,462

There were no transfers between Level 1, 2, and 3 during the six months ended June 30, 2024.

The following table presents changes in Level 3 liabilities measures at fair value for the six months ended June 30, 2024. Both observable and unobservable inputs were used to determine the fair value positions that the Company has classified within the Level 3 category.


	Warrant Liability			Derivative Liability			Total
Balance – December 31, 2023	$	289,165		$	121,326		$	410,491
Exchange and Payoff of Notes Payable		–			(44,988	)		(44,988	)
Change in fair value		(265,304	)		(57,737	)		(323,041	)
Balance – June 30, 2024	$	23,861		$	18,601		$	42,462

The fair value of the embedded derivative liabilities associated with the Senior Notes Payable was estimated using a probability weighted discounted cash flow model to measure the fair value. This involves significant Level 3 inputs and assumptions including an (i) estimated probability and timing of certain financing events and event of default, and (ii) the Company’s risk-adjusted discount rate.

The fair value of the warrants to purchase shares of common stock was estimated using a Monte Carlo simulation using the following assumptions.

Schedule of assumptions
	As of Dec 31, 2023		As of June 30, 2024
	Warrant Liability		Warrant Liability
Strike Price	$	4.32	$	0.29
Contractual term (years)		5.0		5.0
Volatility (annual)		80.0%		80.0%
Risk-free rate		3.89%		4.39-4.44%
Floor Financing price	$	2.24	$	0.14

NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS

To date, there have been no recent accounting pronouncements not yet effective that have significance, or potential significance, to our Consolidated Financial Statements.

NOTE 5. REVENUE

Contract Balances

The timing of revenue recognition, billings, and cash collections may result in trade, unbilled receivables, and deferred revenues on the balance sheets. At times, revenue recognition may occur before the billing, resulting in an unbilled receivable, which would represent a contract asset. The contract asset would be a component of accounts receivable and other assets for the current and non-current portions, respectively. In the event the Company receives advances or deposits from customers before revenue is recognized, this would result in a contract liability.

NOTE 6. SUPPLEMENTAL FINANCIAL INFORMATION

Balance Sheets

Prepaids and other current assets:


	June 30, 2024		December 31, 2023
Short term deposits	$	50,000	$	50,000
Deferred offering costs		74,648		100,588
Prepaid insurance D&O		241,445		34,769
Prepaid insurance, other		5,010		17,884
Prepaid clinical costs		165,417		–
Prepaid exchange fees		53,720		–
Prepaid other		59,117		41,635
Other receivables		–		154
	$	649,357	$	245,030

Accounts payable

Schedule of accounts payable
	June 30, 2024		December 31, 2023
Accounts payable	$	177,610	$	758,821
Credit cards payable		1,513		1,714
	$	179,123	$	760,535

Accrued and other liabilities:


	June 30, 2024		December 31, 2023
Accrued payroll	$	–	$	162,887
Accrued bonus		127,875		262,580
D&O financing		126,605		–
Accrued audit and legal expenses		40,226		89,082
Accrued interest		58,666		98,685
Accrued board compensation		46,250		92,500
Other accrued liabilities		48,350		151,988
	$	447,972	$	857,722

NOTE 7. LEASES

The Company had no office lease for the quarter ended June 30, 2024, and the year ended December 31, 2023.

NOTE 8. INTANGIBLE ASSETS

The Company’s intangible assets are as follows:

SEC Form 10-Q filed by Aclarion Inc.