SEC Info - Aclarion, Inc. - ‘10-Q’ for 6/30/22

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		Alternative Formats (Word, et al.) Condensed Balance Sheets Condensed Statements of Cash Flows Condensed Statements of Changes in Mezzanine Shares and Deficiency in Stockholders' Equity Condensed Statements of Operations Controls and Procedures Defaults Upon Senior Securities Exhibits Financial Information Financial Statements Item 1 Item 1A Item 2 Item 3 Item 4 Item 5 Item 6 Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Mine Safety Disclosures Notes to Condensed Financial Statements Other Information Part I Part Ii Quantitative and Qualitative Disclosures About Market Risk Risk Factors Signatures Unregistered Sales of Equity Securities and Use of Proceeds
1	1st Page – Filing Submission
"	Part I
"	Financial Information
"	Item 1
"	Financial Statements
"	Condensed Balance Sheets
"	Condensed Statements of Operations
"	Condensed Statements of Changes in Mezzanine Shares and Deficiency in Stockholders' Equity
"	Condensed Statements of Cash Flows
"	Notes to Condensed Financial Statements
"	Item 2
"	Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Item 3
"	Quantitative and Qualitative Disclosures About Market Risk
"	Item 4
"	Controls and Procedures
"	Part Ii
"	Other Information
"	Legal Proceedings
"	Item 1A
"	Risk Factors
"	Unregistered Sales of Equity Securities and Use of Proceeds
"	Defaults Upon Senior Securities
"	Mine Safety Disclosures
"	Item 5
"	Item 6
"	Exhibits
"	Signatures

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

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

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. i 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). i 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.

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. i ☐

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

As of August 15, 2022, there were i 7,821,515 shares of the registrant's common stock, $0.00001 par value per share, outstanding.

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 Prospectus dated April 21, 2022, as filed with the Securities and Exchange Commission on April 25, 2022, 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.

Condensed Statements of Changes in Mezzanine Shares and Deficiency in Stockholders Equity

In February 2020, NuVasive and the Company renegotiated and amended their prior marketing agreement. In consideration of changing the marketing agreement, NuVasive and the Company entered into a $ i 2.0 million (Simple Agreement for Future Equity “SAFE”) agreement. i The SAFE provided that NuVasive would receive $2 million of capital stock if the Company would raise a minimum of $10.0 million of new capital on or before December 31, 2020, which was later extended to June 30, 2021. If the $10.0 million was not raised, the Company would issue to NuVasive 1,584,660 Series B-2 preferred shares . The $ i 10.0 million was not raised and the Company issued i 1,584,660 Series B-2 preferred shares to NuVasive in December 2021.

The Company recorded the SAFE when issued at its fair value, which has been measured at $ i 2 million, as NuVasive was to receive a variable number of shares with an aggregate value of $ i 2 million.

The Company recorded the liability to issue the 1,584,660 Series B-2 preferred shares at its fair value of $ i 2 million (a per-share value of $ i 1.2621), based on third-party valuations at June 30, 2021, and marked the liability to fair value on September 30, 2021, and at the time the B-2 preferred shares were issued December 3, 2021.

In March 2020, the Company negotiated an additional investment agreement with NuVasive whereby NuVasive purchased $ i 308,720 of convertible notes under the same terms as the existing holders of the Company's convertible notes.

In June 2021, NuVasive’s convertible note principal plus accrued, but unpaid, interest was converted (in accordance with the terms of all of the convertible notes) into Series B-3 Preferred shares (see Convertible Notes above). The B-3 preferred shares were issued December 3, 2021.

In April 2020 and February 2021, the Company entered into two promissory notes evidencing an unsecured loan (the “Loans”) in the amounts of $ i 245,191 and $ i 125,000, respectively, made to the Company under the Paycheck Protection Program (the “PPP”). The PPP was established under the CARES Act administered by the U.S. Small Business Administration.

The PPP promissory notes were to mature in March 2022 (2020 note) and January 2026 (2021 note) and bear interest at a rate of i 1% per annum, payable monthly commencing in June 2019 and November 2020. The Loans could be prepaid by the Company at any time prior to maturity with no prepayment penalties. The proceeds from the Loans could only be used for payroll costs (including benefits), interest on mortgage obligations, rent, utilities and interest on certain other debt obligations.

The Loans contained customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the lender, or breaching the terms of the Loan documents. The occurrence of an event of default would result in an increase in the interest rate to i 18% per annum and provide the lender with customary remedies, including the right to require immediate payment of all amounts owed under the promissory note.

Pursuant to the terms of the CARES Act and the PPP, the Company applied in February 2021 to the lender for forgiveness of the amount due on the Loans. In May 2021, the Company was notified that 100% of the first loan of $ i 245,191 and related interest of $ i 2,622 had been forgiven, and in August 2021 the Company was notified that 100% of the second loan of $ i 125,000 and related interest of $ i 698 had been forgiven. The amounts eligible for forgiveness was based on the amount of Loan proceeds used by the Company for the payment of certain covered costs, including payroll costs (including benefits), interest on mortgage obligations, rent and utilities, subject to certain limitations and reductions in accordance with the CARES Act and the PPP.

In June 2021, the Company issued $ i 2.0 million of promissory notes that matured at the earlier of the consummation of a Qualified Financing or May 31, 2022. The promissory notes incorporated the following major attributes: secured by a lien and security interest on substantially all of the Company’s assets; interest accrues at i 33%; holder option to convert the accrued interest into the Company securities being offered in a Qualified Financing at i 30% (i.e. i 70% discount) of the price being paid by other investors in the Qualified Financing; and automatic conversion in the case of a Qualifying IPO of the accrued interest into the Company securities being offered in the Qualifying IPO at i 30% ( i 70% discount) of the price being paid by other investors in the Qualifying IPO. If the promissory notes remained outstanding after May 31, 2022, the Company had the option to extend the promissory notes upon the payment of an extension fee, which consisted of i 150,000 warrants ( i 20,080 warrants post-split) with a five-year term, to purchase shares of the Company’s common stock at a price of $ i 0.01 per share ($ i 0.0747 post-split).

On April 21, 2022, the registration statement for our initial public offering (IPO) was declared effective. In connection with the effectiveness of the IPO registration statement, all accrued interest on the Company's outstanding secured promissory notes was converted into (i) i 426,768 post-split common shares and (ii) i 426,768 post-split common stock warrants, with a $ i 1,299,507 beneficial conversion rate charged to interest expense.

On April 27, 2022, the Company used $ i 2 million of the IPO proceeds to retire all outstanding secured promissory notes.

During the years ended December 31, 2021, and 2020, the Company issued i 17,286 and i 58,846 warrants, respectively, to certain investors who participated over an agreed investment minimum amount in the purchase of our convertible notes. The value of the warrants was recorded as a debt discount and expensed based on the fair value. Just prior to the IPO, these common stock warrants were exercised on a net share basis for i 60,408 common shares (451,245 pre-split shares). A loss on warrants exercised of $ i 152,653 was recorded.

On April 26, 2022, the Company completed its IPO of i 2,165,000 units, at a public offering price of $ i 4.35 per unit. Each unit consisted of (i) one share of common stock and (ii) one common stock warrant with an exercise price of $ i 4.35 per share. The common stock and warrants were immediately separable and issued separately in the offering. Each warrant is immediately exercisable at the option of the holder and expires five years from the date of issuance.

Following the commencement of the IPO, the underwriters partially exercised their over-allotment option and purchased an additional i 324,750 common stock warrants at a price per warrant of $ i 0.01. Each warrant is immediately exercisable at the option of the holder and expires five years from the date of issuance.

In connection with the IPO, we issued to the representative of the underwriters a common stock warrant for i 173,200 shares with an exercise price of $ i 5.44 per share. The representative's warrants are exercisable commencing October 26, 2022 and will expire on April 26, 2027.

The Company evaluated the terms of the warrants issued at the IPO and determined that they should be classified as equity instruments based upon accounting guidance provided in ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging. Since the Company determined that the warrants were equity classified, the Company recorded the proceeds from the IPO, net of issuance costs, within common stock at par value and the balance of proceeds to additional paid in capital.

As of June 30, 2022, the outstanding warrants are exercisable into i 3,089,718 shares of common stock whose fair value was $ i 0.36 per share, based on the closing trading price on that day.

The fair value of each grant of stock options was determined by the Company using the methods and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment to determine.

Valuation and Amortization Method —The Company estimates the fair value of its stock options using the Black-Scholes-Merton option-pricing model. This fair value is then amortized over the requisite service periods of the awards.

Expected Term—The Company estimates the expected term of stock option by taking the average of the vesting term and the contractual term of the option, as illustrated by the simplified method.

Expected Volatility—The expected volatility is derived from the Company’s expectations of future market volatility over the expected term of the options.

Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield curve on the date of grant.

Dividend Yield—The dividend yield assumption is based on the Company’s history and expectation of no dividend payouts.

A summary of option activity under the Company’s incentive plans is as follows:

The aggregate intrinsic value in the table above of the unexercised options reflects the total pre-tax intrinsic value (the difference between the Nasdaq closing price on June 30, 2022 and the exercise price of the options that would have been received by option holders if all options exercisable had been exercised).

The following table summarizes the total stock-based compensation expense included in the Company’s statements of operations for the periods presented:

As of June 30, 2022, total unrecognized compensation cost related to stock options was $ i 952,234 and the weighted average period over which this cost is expected to be recognized is i 8.6 years.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the unaudited condensed financial statements and related notes included elsewhere in this Quarterly Report and our audited financial statements and related notes included in our Prospectus dated April 21, 2022 as filed with the SEC on April 25, 2022 under Rule 424(b)(4). This discussion and analysis and other parts of this Quarterly Report contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report. You should carefully read the “Risk Factors” section of this Quarterly Report and of our Prospectus dated April 21, 2022 as filed with the SEC on April 25, 2022 under Rule 424(b)(4) to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.”

The COVID-19 Pandemic is not currently impacting plans for marketing our products or our continuing development efforts, as all such activities have been conducted by us using remote work strategies. The Company cannot accurately predict the longer- term impact of the COVID-19 Pandemic on its business.

The following table summarizes our results of operations for the three months ended June 30, 2022, and 2021.

Total revenues. Total revenues for the quarter ended June 30, 2022 were $10,676, which was a decrease of $14,944, or 58.3%, from $25,620 for the quarter ended June 30, 2021. The decrease in revenues resulted from a decrease in the number of medical professionals ordering Nociscan reports for their patients, with no material changes in prices during the year.

Cost of Revenue. Direct cost of revenue is comprised of hosting and software costs, field support, UCSF royalty cost, NuVasive commission of 6%, partner fees (Radnet), and credit card fees. Total cost of revenue was $14,249 for the quarter ended June 30, 2022, compared to $20,304 for the quarter ended June 30, 2021, a decrease of 29.8%. This change is due to the decrease in revenues and related costs.

Sales and Marketing. Sales and marketing expenses were $124,759 for the quarter ended June 30, 2022, compared to $64,961 for the quarter ended June 30, 2021, an increase of $59,798 or 92.1%. This increase was driven by investment in website and branding development.

Research and Development. Research and development expenses were $353,226 for the quarter ended June 30, 2022, compared to $162,714 for the quarter ended June 30, 2021, an increase of $190,512 or 117.1%. Approximately $123,000 of the increase was related to the milestone payment to UCSF. The remaining increase was due to additional project engineering services.

General and Administrative. General and administrative expenses were $1,883,843 for the quarter ended June 30, 2022, an increase of $1,479,578 or 365.9%, from $404,265 for the quarter ended June 30, 2021. The increase in general and administrative expenses was primarily driven by increased compensation expense related to the vesting of the Company's Executive Chairman’s outstanding common stock options in connection with the completion of the IPO, increased compensation expense related to new management (incremental to Q1 2021) in place, increased compensation expense related to management and director bonuses in connection with the completion of the IPO, and an increase in directors’ and officers’ liability insurance.

Interest Expense. Interest expense was $1,340,667 for the quarter ended June 30, 2022, an increase of $1,257,838, from the $82,829 for the quarter ended June 30, 2021. The increase in interest expense was primarily driven by the $1.3 million beneficial conversion rate charged to interest expense for the conversion of all accrued interest on the Company's outstanding secured promissory notes into common shares and common stock warrants in connection with the effectiveness of the IPO.

The following table summarizes our results of operations for the six months ended June 30, 2022, and 2021.

Total revenues. Total revenues for the six months ended June 30, 2022 were $19,702, which was a decrease of $17,748, or 47.4%, from $37,450 for the six months ended June 30, 2021. The decrease in revenues resulted from a decrease in the number of medical professionals ordering Nociscan reports for their patients, with no material changes in prices during the year.

Cost of Revenue. Direct cost of revenue is comprised of hosting and software costs, field support, UCSF royalty cost, NuVasive commission of 6%, partner fees (Radnet), and credit card fees. Total cost of revenue was $30,981 for the six months ended June 30, 2022, compared to $36,869 for the six months ended June 30, 2021, a decrease of 16.0%. This change is due to the decrease in revenues and related costs.

Sales and Marketing. Sales and marketing expenses were $194,067 for the six months ended June 30, 2022, compared to $130,829 for the six months ended June 30, 2021, an increase of $63,238 or 48.3%, This increase was driven by investment in website and branding development.

Research and Development. Research and development expenses were $558,029 for the six months ended June 30, 2022, compared to $330,465 for the six months ended June 30, 2021, an increase of $227,564 or 68.9%. Approximately $123,000 of the increase was related to the milestone payment to UCSF. The remaining increase was due to additional project engineering services.

General and Administrative. General and administrative expenses were $2,375,126 for the six months ended June 30, 2022, an increase of $1,748,673 or 279.1%, from $626,453 for the six months ended June 30, 2021. The increase in general and administrative expenses was primarily driven by increased compensation expense related to the vesting of the Company's Executive Chairman’s outstanding common stock options in connection with the completion of the IPO, increased compensation expense related to new management (incremental to Q1 2021) in place, increased compensation expense related to management and director bonuses in connection with the completion of the IPO, and an increase in directors’ and officers’ liability insurance.

Interest Expense. Interest expense was $1,503,407 for the six months ended June 30, 2022, an increase of $1,363,364, from the $140,043 for the six months ended June 30, 2021. The increase in interest expense was primarily driven by the $1.3 million beneficial conversion rate charged to interest expense for the conversion of all accrued interest on the Company's outstanding secured promissory notes into common shares and common stock warrants in connection with the effectiveness of the IPO.

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 appearing at the end of this prospectus, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

The Company derives its revenues from one source, the delivery of Nociscan reports to medical professionals. Revenues are recognized when a contract with a customer exists, and the control of the promised services are transferred to our customers. The amount of revenue recognized reflects the consideration we expect to receive in exchange for those services. Substantially all of our revenues are generated from contracts with customers in the United States.

Certain of our employees and consultants have received grants of common stock options in our company. These awards are accounted for in accordance with guidance prescribed for accounting for equity-based compensation. Based on this guidance and the terms of the awards, the awards are equity classified.

Until our April 2022 IPO, we were a private company with no active public market for our common equity. Therefore, we have 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. Once a public trading market for our common stock has been established in connection with the completion of our IPO, it will no longer be necessary for us to estimate the fair value of our common stock in connection with our accounting for equity awards we may grant, as the fair value of our common stock will be its public market trading price.

For financial reporting purposes, we performed common stock valuations as a private company with the assistance of a third-party specialist. Subsequent to the initial public offering, the fair value of the Company’s common stock underlying its equity awards is based on the quoted market price of the Company’s common stock on the grant date.

We believe that the net proceeds from our recent IPO and our existing cash will be sufficient to fund our current operating plans into the second quarter of 2023. We have based these estimates, however, on assumptions that may prove to be wrong, and we could spend our available financial resources much faster than we currently expect and need to raise additional funds sooner than we anticipate. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce, or eliminate our technology development and commercialization efforts.

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

To date, we have financed our operations primarily through private placements of preferred shares and debt financing, PPP loans that were forgiven, and an initial public offering on April 21, 2022.

Through June 30, 2022, we raised an aggregate of $33,145,148 of gross proceeds from $19,319,098 of preferred and common stock, $2,928,541 from the sale of convertible notes, $2,000,000 from secured promissory notes payable, $370,191 of PPP loans that were forgiven, and net proceeds of $8,527,318 from the IPO, after underwriter compensation and deductions. As of June 30, 2022, we had cash of $3,802,880.

The following table summarizes our sources and uses of cash for each of the periods presented:

During the six months ended June 30, 2022, operating activities used $3,081,011 of cash. This use of cash consisted primarily of compensation and benefit expense, bonuses in connection with the completion of the IPO, a milestone payment to UCSF, directors’ and officers’ liability insurance, and pre-IPO marketing activities. During the six months ended June 30, 2021, operating activities used $738,669 of cash, consisting primarily of compensation and benefit expense, consulting, and professional fees.

During the six months ended June 30, 2022 and 2021, investing activities used $120,957 and $74,824 of cash, respectively. These investing activities consisted almost entirely of patent and license maintenance.

During the six months ended June 30, 2022, net cash provided by financing activities was $6,552,318, which included the net of $8,552,318 (net of underwriter compensation and deductions, but excluding $25,000 pre-payment in 2021) of initial public offering proceeds and $2,000,000 repayment of promissory notes. During the six months ended June 30, 2021, net cash provided by financing activities was $2,889,500, which included $2,000,000 from issuance of promissory notes, $764,500 from our sale of convertible notes and the issuance of a $125,000 PPP loan to the Company.

Developing medical technology products is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate meaningful revenues. Accordingly, we may need to obtain substantial additional funds to achieve our business objectives.

Adequate additional funds may not be available to us on acceptable terms, or at all. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity securities, the ownership interest of existing stockholders may be diluted. Any debt or preferred equity financing, if available, may involve agreements that include restrictive covenants that may limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, which could adversely impact our ability to conduct our business, and may require the issuance of warrants, which could potentially dilute existing stockholders’ ownership interests.

If we raise additional funds through licensing agreements and strategic collaborations with third parties, we may have to relinquish valuable rights to our technology, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds, we may be required to delay, limit, reduce and/or terminate development of our product candidates or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Our current office lease and sublease expired on June 30, 2022. The Company does not have any contractual obligations not on our balance sheet as of June 30, 2022.

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 SEC.

We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our condensed financial statements appearing in this quarterly report, such standards will not have a material impact on our financial statements or do not otherwise apply to our operations.

The JOBS Act permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected not to “opt out” of this extended transition period and, as a result, we will not adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for public entities. Accordingly, our financial statements may not be comparable to other public companies that do not elect the extended transition period.

We are also a “smaller reporting company” meaning that the market value of our stock held by non-affiliates is less than $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.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Our management, with the participation of our chief executive and financial officers, evaluated the effectiveness of our disclosures controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.

Management determined that, as of June 30, 2022, there were no changes in our internal control over financial reporting that occurred during the fiscal quarter then ended that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently a party to any material legal proceedings, the adverse outcome of which, in our management’s opinion, individually or in the aggregate, could have a material adverse effect on the results of our operations or financial position. There are no material proceedings in which any of our directors, officers or affiliates or any registered or beneficial stockholder of more than 5% of our common stock is an adverse party or has a material interest adverse to our interest.

In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors disclosed in the Risk Factors section of the Company’s Prospectus dated April 21, 2022, as filed with the SEC on April 25, 2022, under Rule 424(b)(4). There have been no material changes to our risk factors from those included in such Prospectus. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

The exhibits required by Item 601 of Regulation S-K and Item 15(b) of this Quarterly Report are listed in the Exhibit Index below. The exhibits listed in the Exhibit Index are incorporated by reference herein.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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

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

	June 30, 2022			Dec 31, 2021
	(unaudited)
ASSETS
Current assets:
Cash	$	i 3,792,880		$	i 432,530
Restricted cash		i 10,000			i 20,000
Accounts receivable, net		i 5,037			i 6,280
Prepaids & other current assets		i 581,446			i 273,394
Total current assets		i 4,389,363			i 732,204

Non-current assets:
Property and equipment, net		i 6,628			i 12,636
Intangible assets, net		i 1,224,998			i 1,144,625
Total non-current assets		i 1,231,626			i 1,157,261

Total assets	$	i 5,620,989		$	i 1,889,465

LIABILITIES AND DEFICIENCY IN SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	i 1,184,376		$	i 1,065,304
Accrued and other liabilities		i 197,043			i 696,582
Promissory note payable		i -			i 2,000,000
Preferred dividends payable		i -			i 3,856,898
Total current liabilities		i 1,381,419			i 7,618,784

Commitments and contingencies (See Note 9)

Redeemable preferred stock: (See Note 8)
Series B-2 preferred stock - $ i 0.0001 par value, i 1,600,000 authorized and i 1,584,660 shares issued and outstanding at December 31, 2021		i -			i 16
Series B-3 preferred stock - $ i 0.0001 par value, i 4,300,000 authorized and i 4,228,149 shares issued and outstanding at December 31, 2021		i -			i 42
Additional paid-in capital - series B2 and B3 preferred stock		i -			i 7,102,229
Total mezzanine equity		i -			i 7,102,287

Deficiency in stockholders' equity:
Series A preferred stock - $ i 0.00001 par value, i 6,247,695 authorized and i 6,247,695 shares issued and outstanding at December 31, 2021		i -			i 62
Series B preferred stock - $ i 0.00001 par value, i 5,180,814 authorized and i 5,160,096 shares issued and outstanding at December 31, 2021		i -			i 52
Series B-1 preferred stock - $ i 0.00001 par value, i 10,758,338 authorized and i 7,274,404 shares issued and outstanding at December 31, 2021		i -			i 73
Common stock - $ i 0.00001 par value, i 200,000,000 authorized and i 7,821,515 and i 905,685 shares issued and outstanding (see Note 1)		i 78			i 9
Additional paid-in capital		i 41,184,654			i 19,054,234
Accumulated deficit		( i 36,945,162	)		( i 31,886,036	)
Total deficiency in stockholders’ equity		i 4,239,570			( i 12,831,606	)

Total liabilities, mezzanine, and deficiency in stockholders’ equity	$	i 5,620,989		$	i 1,889,465

	Six months ended June 30,
	2022			2021
Cash flows from operating activities
Net income (loss)	$	( i 4,643,603	)	$	( i 983,703	)
Adjustments to reconcile net loss to net cash used in operation activities
Depreciation and amortization		i 94,705			i 94,122
Share-based compensation		i 724,627			i 9,464
Warrants issued as non-cash finance charge		i -			i 30,393
Gain on forgiveness of PPP loans		i -			( i 247,813	)
Loss on sale of furniture		i 1,886
Change in assets and liabilities
Accounts receivable		i 1,243			i 11,919
Prepaids and other current assets		( i 308,052	)		( i 33,198	)
Accounts payable		i 119,072			i 78,223
Accrued and other liabilities		i 728,399			i 187,520
Accrued interest on promissory and convertible notes		i 200,712			i 114,404
Net cash used in operations		( i 3,081,011	)		( i 738,669	)
Cash flows from investing activities
Increase in intangible assets Patents		( i 121,957	)		( i 74,824	)
Proceeds from sale of furniture		i 1,000
Purchase of property and equipment		i -			i -
Net cash used in investing activities		( i 120,957	)		( i 74,824	)
Cash flows from financing activities
Proceeds from issuance of PPP Loan		i -			i 125,000
Proceeds from issuance of convertible notes		i -			i 764,500
(Repayment) proceeds from issuance of promissory notes		( i 2,000,000	)		i 2,000,000
Issuance of common stock and warrants related to IPO, net issuance costs		i 8,552,318			i -
Net cash provided by financing activities		i 6,552,318			i 2,889,500

Net increase in cash and restricted cash		i 3,350,350			i 2,076,007
Cash and restricted cash, beginning of period		i 452,530			i 14,984
Cash and restricted cash, end of period	$	i 3,802,880		$	i 2,090,991

Non-cash financing activities:
Dividends accrued on preferred shares	$	i 415,523		$	i 425,838
Exercise of convertible note warrants		i 262,171			i -
Conversion of preferred stock to common stock		i 25,754,379			i -
Conversion of preferred stock dividends to common stock		i 4,272,420			i -
Conversion of accrued interest on promissory notes to common stock and warrants		i 1,856,438			i -
Issuance of underwriter's warrants related to IPO	$	i 74,677		$	i -

	·	we effected a 1-for-7.47 reverse stock split of our outstanding common stock;

	·	accordingly, all common share amounts and per share data presented in our condensed financial statements have been retrospectively adjusted to reflect the reverse stock split for all periods presented;

	·	we filed a restated Certificate of Incorporation with the State of Delaware and we adopted new restated Bylaws;

	·	certain outstanding common stock warrants were exercised on a net share basis for 60,408 common shares (451,245 pre-split shares);

	·	24,495,004 (pre-split) outstanding shares of our preferred stock were converted into 3,279,117 post-split shares of common stock;

	·	all accrued dividends on our outstanding Series B, B-1, B-2 and B-3 preferred stock were converted to 984,429 post-split common shares; and

	·	all accrued interest on the Company's outstanding secured promissory notes was converted into (i) 426,768 post-split common shares and (ii) 426,768 post-split common stock warrants, with beneficial conversion rates charged to interest expense upon conversion.

Aclarion, Inc. – ‘10-Q’ for 6/30/22

On: Monday, 8/15/22, at 8:01am ET · For: 6/30/22 · Accession #: 1654954-22-11263 · File #: 1-41358

Previous ‘10-Q’: ‘10-Q’ on 6/6/22 for 3/31/22 · Next: ‘10-Q’ on 11/14/22 for 9/30/22 · Latest: ‘10-Q’ on 11/14/23 for 9/30/23 · 6 References:

Quarterly Report — Form 10-Q

Filing Table of Contents

‘10-Q’ — Quarterly Report

Document Table of Contents

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Dates Referenced Herein and Documents Incorporated by Reference

6 Previous Filings that this Filing References

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

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	4
	Condensed Balance Sheets	4
	Condensed Statements of Operations	5
	Condensed Statements of Changes in Mezzanine Shares and Deficiency in Stockholders' Equity	6
	Condensed Statements of Cash Flows	7
	Notes to Condensed Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	24
	Signatures	25

	June 30, 2022		December 31, 2021

Accrued salaries and expenses		i 197,043		i 340,363
Accrued interest		i -		i 356,219
	$	i 197,043	$	i 696,582

	June 30, 2022			December 31, 2021

Patents and licenses	$	i 2,060,815		$	i 1,938,858
UC royalty		i 200,000			i 150,000
Other		i 5,017			i 5,017
		i 2,265,832			i 2,093,875
Less: accumulated amortization		( i 1,040,834	)		( i 949,250	)
Intangible assets, net	$	i 1,224,999		$	i 1,144,625

Preference Amounts	Issue Date	Total Face Value of Investment		Issue Purchase Price/Share

Series A-1 Preferred Stock	i 12/31/2014	$	i 1,247,541	$	i 0.70
Series A-1 has a 1x liquidation preference junior to B/B1 plus participation on an as-converted to common basis, which participation is capped at 3x, conversion into common stock at a ratio of 1:1, limited anti-dilution protection, and voting rights on an as-converted to common basis.

Series A-2 Preferred Stock	i 12/31/2014	$	i 1,114,797	$	i 0.77
Series A-2 has a 1x liquidation preference junior to B/B1 plus participation on an as-converted to common basis, which participation is capped at 3x, conversion into common stock at a ratio of 1:1, limited anti-dilution protection, and voting rights on an as-converted to common basis.

Series A-3 Preferred Stock	i 12/31/2014	$	i 795,002	$	i 0.85
Series A-3 has a 1x liquidation preference junior to B/B1 plus participation on an as-converted to common basis, which participation is capped at 3x, conversion into common stock at a ratio of 1:1, limited anti-dilution protection, and voting rights on an as-converted to common basis.

Series A-4 Preferred Stock	i 12/31/2014	$	i 1,965,288	$	i 0.94
Series A-4 has a 1x liquidation preference junior to B/B1 plus participation on an as-converted to common basis, which participation is capped at 3x, conversion into common stock at a ratio of 1:1, limited anti-dilution protection, and voting rights on an as-converted to common basis.

Series B Preferred Stock	i 12/5/2015	$	i 5,013,579	$	i 1.00
Series B has a 1x senior liquidation preference junior to B/B1 plus participation on an as-converted to common basis, which participation is capped at 3x, conversion into common stock at a ratio of 1:1, limited anti-dilution protection, and voting rights on an as-converted to common basis.

The dividend rate is 6.0% Dividends are cumulative. Accrued and unpaid dividends are payable in shares of common stock in certain events (including an IPO) at the then current fair market value of the common stock.

Preference Amounts	Issue Date	Total Face Value of Investment		Issue Purchase Price/Share

Series B-1 Preferred Stock	i 7/27/2017	$	i 1,500,000	$	i 1.26
	i 8/2/2018	$	i 5,217,698	$	i 1.26
	i 3/1/2019	$	i 2,463,328	$	i 1.26

Series B-1 has a 1x senior liquidation preference junior to B2/B3 plus participation on an as-converted to common basis, which participation is capped at 3x, conversion into common stock at a ratio of 1:1, limited anti-dilution protection, and voting rights on an as-converted to common basis.

The dividend rate is 6.0%. Dividends are cumulative. Accrued and unpaid dividends are payable in shares of common stock in certain events (including an IPO) at the then current fair market value of the common stock.

Series B-2 Preferred Stock	i 12/3/2021	$	i 1,774,819	$	i 1.12

Series B-2 has a 1x senior liquidation preference plus participation on an as-converted to common basis, which participation is capped at 3x, conversion into common stock at a ratio of 1:1, limited anti-dilution protection, and voting rights on an as-converted to common basis.

The dividend rate is 6.0%. Dividends are cumulative. Accrued and unpaid dividends are payable in shares of common stock in certain events (including an IPO) at the then current fair market value of the common stock. Redemption is available by a majority vote of holders commencing after fifth anniversary from issuance, payable in three annual installments.

Series B-3 Preferred Stock	i 12/3/2021	$	i 5,327,468	$	i 1.26

Series B-3 has a 2x senior liquidation preference, conversion into common stock at a ratio of 1:1, limited anti-dilution protection, and voting rights on an as-converted to common basis.

The dividend rate is 6.0%. Dividends are cumulative. Accrued and unpaid dividends are payable in shares of common stock in certain events (including an IPO) at the then current fair market value of the common stock. Redemption is available by a majority vote of holders commencing after fifth anniversary from issuance, payable in three annual installments.

Risk-free interest rate	i 1.99	%
Dividend yield	i 0.00	%
Expected term	i 6- i 8 years
Expected volatility	i 66.35	%

	Three Months Ended June 30,						Change
	2022			2021			Amount

Revenue	$	10,676		$	25,620		$	(14,944	)
Cost of revenue		14,249			20,304			(6,055	)
Gross margin		(3,573	)		5,316			(8,889	)

Operating expenses:
Sales and marketing		124,759			64,961			59,798
Research and development		353,226			162,714			190,512
General and administrative		1,883,843			404,265			1,479,578
Total operating expenses		2,361,828			631,940			1,729,888

Income (loss) from operations		(2,365,401	)		(626,624	)		(1,738,777	)

Other income (expense):
PPP loan forgiveness		-			245,191			(245,191	)
Interest expense		(1,340,667	)		(82,829	)		(1,247,838	)
Other, net		(1,447	)		(1,582	)		135
Total other income (expense)		(1,342,114	)		160,780			(1,502,894	)

Income (loss) before income taxes		(3,707,515	)		(465,844	)		(3,241,671	)
Income tax provision		-			-			-
Net income (loss)	$	(3,707,515	)		(465,844	)	$	(3,241,671	)

Dividends accrued for preferred stockholders:	$	(128,208	)	$	(212,919	)	$	(84,711	)
Net income (loss) allocable to common stockholders:	$	(3,835,723	)	$	(678,763	)	$	(3,156,960	)
Net income (loss) per share allocable to common stockholders, basic and diluted:	$	(0.49	)	$	(0.75	)	$	(0.26	)
Weighted average shares of common stock outstanding, basic and diluted: (1)		7,821,515			905,685			6,915,830

Exhibit Number		Description of Document	Incorporated by reference from Form	Filing Date	Exhibit Number	Filed Herewith

1.1		Underwriting Agreement dated April 21, 2022	8-K	04-27-2022	1.1
3.1		Certificate of Incorporation of the Company	8-K	04-27-2022	3.1
3.2		Bylaws of the Company	8-K	04-27-2022	3.2
4.1		Form of Common Stock Certificate	10-Q	06-06-2022	4.1
4.2		Form of Public Warrant	8-K	04-27-2022	4.1
4.3		Form of Representative’s Common Stock Purchase Warrant	8-K	04-27-2022	4.2
4.4		Description of Securities	10-Q	06-06-2022	4.4
10.1	#	Employment Agreement of Jeff Thramann	S-1/A	03-23-2022	10.1
10.2	#	Employment Agreement of Brent Ness	S-1/A	03-23-2022	10.2
10.3	#	Employment Agreement of John Lorbiecki	S-1/A	03-23-2022	10.3
10.4	#	Form of Aclarion, Inc. 2022 Equity Incentive Plan	S-1	01-06-2022	10.4
10.5		Senior Secured Bridge Note	S-1/A	03-04-2022	10.5
10.6		License Agreement with UCSF the Regents of the University of California	S-1	01-06-2022	10.6
10.7		Amendment to UC License Agreement	S-1/A	03-04-2022	10.7
10.8	**	NuVasive Amended and Restated Commission Agreement dated February 28, 2020	S-1/A	03-23-2022	10.8
10.9		Amended and Restated Investor Rights Agreement dated July 27, 2017	S-1/A	03-23-2022	10.9
10.10		First Amendment to Amended and Restated Investor Rights Agreement dated February 20, 2020	S-1/A	03-23-2022	10.10
10.11		NuVasive SAFE (Simple Agreement for Future Equity) dated February 28, 2020	S-1/A	03-23-2022	10.11
10.12	**	Right of First Offer Agreement	S-1/A	03-23-2022	10.12
10.13		First Amendment to Right of First Offer Agreement	S-1/A	03-23-2022	10.13
10.14		Second Amendment to Right of First Offer Agreement	S-1/A	03-23-2022	10.14
10.15		Convertible Note and Warrant Purchase Agreement	S-1/A	03-23-2022	10.16
10.16		Warrant Agent Agreement dated April 21, 2022	8-K	04-27-2022	10.1
10.17		Siemens Strategic Collaboration Agreement	S-1	01-06-2022	10.17
10.18	#	Aclarion, Inc. 2022 Equity Incentive Plan – Form of Option Grant Notice and Stock Option Agreement	S-1	01-06-2022	10.20
10.19	#	Aclarion, Inc. 2022 Equity Incentive Plan – Form of RSU Grant Notice and RSU Agreement	S-1	01-06-2022	10.21
10.20	#	Nocimed, Inc. 2015 Stock Plan	S-8	05-26-2022	99.4
10.21	#	Nocimed, Inc. 2015 Stock Plan – Form of Option Grant Notice and Stock Option Agreement	S-8	05-26-2022	99.5
31.1		Section 302 Certification by the Corporation’s Chief Executive Officer				X
31.2		Section 302 Certification by the Corporation’s Chief Financial Officer				X
32.1		Section 906 Certification by the Corporation’s Chief Executive Officer				X
32.2		Section 906 Certification by the Corporation’s Chief Financial Officer				X

101.INS		Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101).

#	Indicates management contract or compensatory plan.
**	Certain portions of the exhibit have been omitted pursuant to Rule 601(b)(10) of Regulation S-K. The omitted information is (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed.

	ACLARION, INC.

	By:	/s/ *John Lorbiecki*
		John Lorbiecki
		Chief Financial Officer (Principal Financial and Accounting Officer
Date: August 15, 2022

This ‘10-Q’ Filing	Date	Other Filings

	4/26/27
	12/15/23
	12/15/22
	10/26/22
Filed on:	8/15/22
For Period end:	6/30/22
	5/31/22
	5/13/22
	5/2/22
	4/29/22
	4/27/22	8-K
	4/26/22
	4/25/22	3/A, 4, 424B4
	4/21/22	3, 3/A, 4, 8-K, CERT, EFFECT
	12/31/21
	12/15/21
	12/3/21
	9/30/21
	6/30/21
	12/31/20
		List all Filings