[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed financial statements, including balance sheets, statements of operations, and cash flows, highlighting the impact of the April 2022 IPO and recurring net losses [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents unaudited condensed financial statements, including balance sheets, statements of operations, and cash flows, highlighting the impact of the April 2022 IPO and recurring net losses Condensed Balance Sheet Data (Unaudited) | Account | June 30, 2022 (in dollars) | Dec 31, 2021 (in dollars) | | :--- | :--- | :--- | | **Total Assets** | **$5,620,989** | **$1,889,465** | | Cash | $3,792,880 | $432,530 | | **Total Liabilities** | **$1,381,419** | **$7,618,784** | | **Total deficiency in stockholders' equity** | **$4,239,570** | **($12,831,606)** | Condensed Statements of Operations (Unaudited) | Metric | Three Months Ended June 30, 2022 (in dollars) | Three Months Ended June 30, 2021 (in dollars) | Six Months Ended June 30, 2022 (in dollars) | Six Months Ended June 30, 2021 (in dollars) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $10,676 | $25,620 | $19,702 | $37,450 | | Gross Margin | ($3,573) | $5,316 | ($11,279) | $581 | | Net Loss | ($3,707,515) | ($465,844) | ($4,643,603) | ($983,703) | | Net Loss Per Share (basic and diluted) | ($0.49) | ($0.75) | ($1.16) | ($1.56) | - On April 26, 2022, the company completed its IPO of 2,165,000 units at $4.35 per unit, receiving net proceeds of approximately **$8.6 million**[16](index=16&type=chunk) - The company's recurring losses from operations and need for additional financing raise substantial doubt about its ability to continue as a going concern; management believes existing cash will be sufficient to fund operations into the second quarter of 2023[25](index=25&type=chunk)[24](index=24&type=chunk) Condensed Statements of Cash Flows (Unaudited) | Cash Flow Activity | Six Months Ended June 30, 2022 (in dollars) | Six Months Ended June 30, 2021 (in dollars) | | :--- | :--- | :--- | | Net cash used in operations | ($3,081,011) | ($738,669) | | Net cash used in investing activities | ($120,957) | ($74,824) | | Net cash provided by financing activities | $6,552,318 | $2,889,500 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=10&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses a significant year-over-year revenue decline and substantial increase in operating expenses, reiterating the "going concern" risk due to limited cash runway into Q2 2023 [Results of Operations](index=10&type=section&id=Results%20of%20operations) This section details financial performance, showing a **58.3%** Q2 2022 revenue decline to **$10,676** and a **365.9%** surge in G&A expenses, alongside a **$1.3 million** increase in interest expense - Total revenues for Q2 2022 decreased by **$14,944** (**58.3%**) compared to Q2 2021, resulting from a decrease in the number of medical professionals ordering Nociscan reports[54](index=54&type=chunk) - General and administrative expenses for Q2 2022 increased by **$1,479,578** (**365.9%**) YoY, primarily driven by increased compensation expense from the vesting of the Executive Chairman's stock options upon IPO, management bonuses, and higher D&O liability insurance[54](index=54&type=chunk) - Research and development expenses for Q2 2022 increased by **$190,512** (**117.1%**) YoY, with approximately **$123,000** of the increase related to a milestone payment to UCSF[54](index=54&type=chunk) - Interest expense for the six months ended June 30, 2022, increased by **$1,363,364** YoY, mainly due to a **$1.3 million** beneficial conversion rate charged to interest expense upon the conversion of secured promissory notes in connection with the IPO[55](index=55&type=chunk) [Liquidity and Capital Resources](index=12&type=section&id=Liquidity%20and%20capital%20resources) The company's liquidity, bolstered by **$8.5 million** IPO proceeds, shows **$3.8 million** cash as of June 30, 2022, but recurring losses raise substantial doubt about its going concern beyond Q2 2023 - As of June 30, 2022, the company had cash of **$3,802,880**, primarily from its IPO in April 2022 which raised net proceeds of **$8,527,318**[61](index=61&type=chunk) - Management believes that existing cash will be sufficient to fund current operating plans into the second quarter of 2023, but recurring losses raise substantial doubt about the company's ability to continue as a going concern[60](index=60&type=chunk) Cash Flow Summary (Six Months Ended June 30) | Description | 2022 (in dollars) | 2021 (in dollars) | | :--- | :--- | :--- | | Cash used in operating activities | $(3,081,011) | $(738,669) | | Cash used in investing activities | $(120,957) | $(74,824) | | Cash provided by financing activities | $6,552,318 | $2,889,500 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=13&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) As a smaller reporting company, the company is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, Aclarion is not required to provide quantitative and qualitative disclosures about market risk[65](index=65&type=chunk) [Item 4. Controls and Procedures](index=13&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal controls during the quarter - Based on an evaluation as of June 30, 2022, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[66](index=66&type=chunk) - There were no changes in the company's internal control over financial reporting during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[67](index=67&type=chunk) [PART II. OTHER INFORMATION](index=13&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, other disclosures, and a list of exhibits filed with the report [Item 1. Legal Proceedings](index=13&type=section&id=Item%201.%20Legal%20Proceedings.) The company is not currently involved in any material legal proceedings that would adversely affect its operations or financial position - The company is not currently a party to any material legal proceedings[68](index=68&type=chunk) [Item 1A. Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors.) No material changes have occurred to the risk factors previously disclosed in the Prospectus dated April 21, 2022 - There have been no material changes to the risk factors disclosed in the Company's Prospectus dated April 21, 2022[69](index=69&type=chunk) [Items 2, 3, 4, and 5: Other Information](index=13&type=section&id=Items%202%2C%203%2C%204%2C%20and%205) This section confirms no unregistered equity sales, no defaults on senior securities, and no other material disclosures, with mine safety disclosures being inapplicable - The company reported no unregistered sales of equity securities, no defaults upon senior securities, and no other information to disclose; mine safety disclosures are not applicable[69](index=69&type=chunk) [Item 6. Exhibits](index=13&type=section&id=Item%206.%20Exhibits.) This section lists all exhibits filed with the Form 10-Q, including key agreements, corporate documents, and required CEO and CFO certifications - The report includes a list of filed exhibits, such as the Underwriting Agreement, corporate governance documents, forms of securities, and key contracts like the License Agreement with UCSF[70](index=70&type=chunk) - Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act are included as exhibits[71](index=71&type=chunk)

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Q1 2022 unaudited financial statements show a worsening position with increased net loss and negative operating cash flow, partially offset by a post-quarter $8.6 million IPO [Condensed Balance Sheets](index=3&type=section&id=Condensed%20Balance%20Sheets) As of March 31, 2022, total assets decreased to $1.81 million, liabilities rose to $8.74 million, and stockholders' equity deficiency worsened to $14.03 million Condensed Balance Sheet Summary (unaudited) | Metric | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$1,807,990** | **$1,889,465** | | Cash | $50,449 | $432,530 | | Total current assets | $565,480 | $732,204 | | Intangible assets, net | $1,231,591 | $1,144,625 | | **Total Liabilities** | **$8,737,590** | **$7,618,784** | | **Total deficiency in stockholders' equity** | **$(14,031,887)** | **$(12,831,606)** | [Condensed Statements of Operations](index=4&type=section&id=Condensed%20Statements%20of%20Operations) Q1 2022 net loss increased 80.8% to $936,088, driven by a 23.7% revenue decrease and a 67.9% surge in operating expenses Statement of Operations Highlights (Three Months Ended March 31) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Revenue | $9,026 | $11,830 | -23.7% | | Loss from operations | $(773,100) | $(460,542) | +67.9% | | Net loss | $(936,088) | $(517,860) | +80.8% | | Net loss per share (basic and diluted) | $(1.35) | $(0.81) | +66.7% | [Condensed Statements of Cash Flows](index=6&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) Q1 2022 saw $259,427 used in operating cash and $132,654 in investing cash, decreasing total cash to $60,449 Cash Flow Summary (Three Months Ended March 31) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operations | $(259,427) | $(246,468) | | Net cash used in investing activities | $(132,654) | $(23,626) | | Net cash provided by financing activities | $0 | $319,000 | | **Net (decrease) increase in cash** | **$(392,081)** | **$48,906** | | **Cash and restricted cash, end of period** | **$60,449** | **$63,890** | [Notes to Condensed Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Financial%20Statements) Notes detail a 1-for-7.47 reverse stock split, management's going concern doubt from recurring losses, and a post-quarter IPO raising $8.6 million net proceeds - The company is an early-stage healthcare technology firm subject to risks including a limited operating history and the impact of the COVID-19 pandemic[26](index=26&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) - A **1-for-7.47 reverse stock split** of common stock was effected on April 21, 2022, with all share and per-share data retrospectively adjusted[30](index=30&type=chunk) - Management concluded there is **substantial doubt about the company's ability to continue as a going concern** due to recurring losses and the need for additional financing[39](index=39&type=chunk)[104](index=104&type=chunk) - On April 26, 2022, the company completed its IPO, selling 2,165,000 units at $4.35 per unit and receiving **net proceeds of approximately $8.6 million**[83](index=83&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes Q1 2022's 23.7% revenue decrease to fewer Nociscan reports and significant operating expense increases, reiterating going concern doubt despite a post-quarter IPO Key Operational Changes (Q1 2022 vs Q1 2021) | Expense Category | Q1 2022 | Q1 2021 | Change | Reason | | :--- | :--- | :--- | :--- | :--- | | Revenue | $9,026 | $11,830 | -23.7% | Decrease in number of Nociscan reports ordered | | Research & Development | $204,803 | $167,751 | +22.1% | Additional personnel and increased quality/regulatory services | | General & Administrative | $491,283 | $222,188 | +121.1% | Higher payroll costs (no reduction program in 2022) and new management | | Interest Expense | $162,740 | $57,214 | +184.4% | Accruing 33% interest on $2.0M promissory notes issued in June 2021 | - The company believes net proceeds from its recent IPO and existing cash will fund operating plans into the second quarter of 2023, but acknowledges these estimates may be wrong and additional capital may be needed sooner[102](index=102&type=chunk) - As of March 31, 2022, the company had financed operations primarily through **$24.2 million in gross proceeds** from private placements of preferred stock and debt financing[105](index=105&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=20&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, the company is exempt from providing market risk disclosures - The company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is exempt from this disclosure requirement[118](index=118&type=chunk) [Item 4. Controls and Procedures](index=20&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of March 31, 2022, with no material changes in internal control over financial reporting - Based on an evaluation as of March 31, 2022, the CEO and CFO concluded that **disclosure controls and procedures were effective** at a reasonable assurance level[120](index=120&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[121](index=121&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=21&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings that could adversely affect its operations or financial position - The company is not currently a party to any material legal proceedings that could have a material adverse effect on its operations or financial position[122](index=122&type=chunk) [Item 1A. Risk Factors](index=21&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred to the risk factors previously disclosed in the company's April 25, 2022 Prospectus - Investors are directed to the Risk Factors section of the company's Prospectus dated April 21, 2022, as there have been no material changes since its filing[123](index=123&type=chunk) [Other Items (2, 3, 4, 5)](index=21&type=section&id=Other%20Items%20(2,%203,%204,%205)) The company reported no unregistered equity sales, no defaults on senior securities, no other material information, and mine safety disclosures are not applicable - Item 2 (Unregistered Sales of Equity Securities and Use of Proceeds): None[123](index=123&type=chunk) - Item 3 (Defaults Upon Senior Securities): None[123](index=123&type=chunk) - Item 4 (Mine Safety Disclosures): Not applicable[123](index=123&type=chunk) - Item 5 (Other Information): None[124](index=124&type=chunk) [Item 6. Exhibits](index=21&type=section&id=Item%206.%20Exhibits) This section lists and incorporates by reference all exhibits filed with the Form 10-Q, including key corporate and financial agreements - The report lists and incorporates by reference exhibits filed, including the Underwriting Agreement, Certificate of Incorporation, Bylaws, and various employment and strategic agreements[125](index=125&type=chunk)[127](index=127&type=chunk)