Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

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 Annual Report on Form 10-K for the year ended December 31, 2025, which was filed with the SEC on March 18, 2026. 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 Annual Report on Form 10-K for the year ended December 31, 2025, which was as filed with the SEC on March 18, 2026, 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."

Overview

Corporate Information

The Company currently operates as a Delaware corporation, under the name Aclarion, Inc.

Results Of Operations:

For the Three Months Ended June 30, 2026, and 2025:

The following table summarizes our results of operations for the three months ended June 30, 2026, and 2025.

		Three Months Ended June 30,
		2026				2025				$ Change
Revenue:
Revenue		$	25,208			$	19,319			$	5,889
Cost of revenue			16,911				14,179				2,732
Gross profit			8,297				5,140				3,157
			32.9%				26.6%
Operating expenses:
Sales and marketing			877,160				343,765				533,395
Research and development			297,070				270,434				26,636
General and administrative			1,733,789				1,127,449				606,340
Total operating expenses			2,908,019				1,741,648				1,166,371
Loss from operations			(2,899,722	)			(1,736,508	)			(1,163,214	)
Other income (expense):
Changes in fair value of warrant and derivative liabilities			-				45				(45	)
Interest income			157,346				135,865				21,481
Other, net			(5,175	)			(159	)			(5,016	)
Total other income			152,171				135,751				16,420
Loss before income taxes			(2,747,551	)			(1,600,757	)			(1,146,794	)
Income tax provision			-				-				-
Net loss		$	(2,747,551	)		$	(1,600,757	)		$	(1,146,794	)
Dividends on preferred stock			-				-				-
Net loss allocable to common stockholders		$	(2,747,551	)		$	(1,600,757	)		$	(1,146,794	)
Net loss per share allocable to common stockholders		$	(1.12	)		$	(2.75	)		$	1.63
Weighted average shares of common stock outstanding, basic and diluted			2,462,250				582,371				1,879,879

Total Revenues.

Total revenues for the three months ended June 30, 2026 were $25,208, which was an increase of $5,889 or 30.5%, from $19,319 for the three months ended June 30, 2025. This increase in revenue was driven primarily by the growing volume of NOCISCAN® reports sold into the UK market following recent local coverage decisions. We expect this increase in revenue to continue as we bring on more insurance payors, and our scan volumes increase.

Cost of Revenue.

Direct cost of revenue is comprised of hosting and software costs, field support, UCSF royalty cost, partner fees (Radnet), and credit card fees. Total cost of revenue was $16,911 for the three months ended June 30, 2026, compared to $14,179 for the same period ended June 30, 2025, an increase of $2,732 or 19.3%. The increase was primarily attributable to the growth in our sales as well as higher hosting software costs, partially offset by a reduction in partner fees.

Sales and Marketing.

Sales and marketing expenses primarily consist of post-clearance clinical services related to the CLARITY Trial, product marketing consulting, travel and entertainment costs, and salaries and benefits. Sales and marketing expenses totaled $877,160 for the three months ended June 30, 2026, compared to $343,765 for the three months ended June 30, 2025, representing an increase of $533,395 or 155.2%.

The increase in sales and marketing expenses was primarily driven by increased salaries and benefits due to adding three new salespeople in the United States and the United Kingdom. The increase was $286,804 to $382,014 for the three months ended June 30, 2026, compared to $95,210 for the same period in 2025, primarily due to increased salary expense and accruals for incentive-based performance payouts. We expect salaries and benefits to continue at this higher rate through 2026.

Sales and Marketing expense also increased due to higher post-clearance clinical services, which was $189,724 for the three months ended June 30, 2026, compared to $140,517 for the same period in 2025, an increase of $49,207, reflecting costs associated with the initiation of the CLARITY Trial, for which the first patient enrolled in June 2025. With continued enrollment in the CLARITY Trial in 2026, we expect these expenses will continue to increase for the remainder of 2026.

Product marketing consulting expenses increased by $89,336 to $101,374 for the three months ended June 30, 2026, compared to $12,038 for the same period in 2025, reflecting expanded use of external marketing consultants.

Reimbursement consulting expenses were $66,712 for the three months ended June 30, 2026, compared to $12,000 for the three months ended June 30, 2025, an increase of $54,712. The increase was primarily attributable to the startup and implementation of the Company's hybrid reimbursement and patient access program and ongoing strategic reimbursement support.

Travel and entertainment expenses increased by $12,619 to $75,158 for the three months ended June 30, 2026, compared to $62,539 for the same period in 2025, primarily due to the new sales personnel activities supporting local coverage determinations in the United States and United Kingdom.

Research and Development.

Research and development expenses increased by $26,636, or 9.8% to $297,070 for the three months ended June 30, 2026, compared to $270,434 for the three months ended June 30, 2025.

The increase was primarily driven by higher quality system and consulting expenses increased by $26,516 to $130,640 for the three months ended June 30, 2026, compared to $104,124 for the same period in 2025, primarily as a result of expanded regulatory compliance and documentation activities. We expect research and development expenses to continue to increase as we continue the development of the Nociscan 3.0 product.

In addition, patent maintenance fees, which totaled $19,053 for the three months ended June 30, 2026, compared to $11,705 for the same period in 2025, an increase of $7,348. This rise reflects the Company's ongoing efforts to strengthen and expand protection of its intellectual property portfolio.

General and Administrative.

General and administrative expenses were $1,733,789 for the three months ended June 30, 2026, compared to $1,127,449 for the three months ended June 30, 2025, representing an increase of $606,340 or 53.8%.

The increase was primarily driven by legal expenses which were $250,871 compared to $99,483 in the same period in 2025, an increase of $151,388 primarily due to increased legal and advisory fees associated with corporate governance and shareholder-related matters.

For the three months ended June 30, 2026, salaries and benefits increased by $131,784 to $562,605 for the three months ended June 30, 2026, compared to $430,821 for the same period in 2025, primarily due to accruals for incentive-based performance and stock-based compensation. The Company recorded accruals under its 2026 incentive bonus program totaling $213,125 for the three months ended June 30, 2026, compared to $154,688 for the same period in 2025, an increase of $58,437, primarily due to the addition of new participants to the program. Stock-based compensation expense was $73,542 for the three months ended June 30, 2026, compared to $28,360 for the same period in 2025, an increase of $45,182, primarily attributable to restricted stock unit expense recognized following the equity awards granted under the Company's 2022 Equity Incentive Plan in June 2026.

Investor relations expenses also increased to $205,648 for the three months ended June 30, 2026, compared to $155,297 in the corresponding prior-year period, representing an increase of $50,351 primarily reflecting expanded investor outreach activities and increased use of third-party investor relations service providers.

Delaware franchise tax expense increased to $80,190 for the three months ended June 30, 2026, from $10,190 in the prior-year period, an increase of $70,000, primarily due to changes in the Company's capital structure and the methodology used to calculate the Company's Delaware franchise tax obligation.

Changes in Fair Value of Warrant Liabilities.

The Company's warrant liabilities are measured at fair value at each reporting date. For the three months ended June 30, 2026, remeasurement of the outstanding warrants resulted in no material fair value adjustment, compared to a favorable adjustment of $45 recognized in the same period of the prior year.

Interest Income.

Interest income was $157,346 for the three months ended June 30, 2026, compared to $135,865 for the same period in 2025, an increase of $21,481, primarily reflecting higher average cash balances following the Company's fundraising activities and related interest earned on money market deposits.

For the Six Months Ended June 30, 2026, and 2025:

The following table summarizes our results of operations for the six months ended June 30, 2026, and 2025.

		Six Months Ended June 30,
		2026				2025				$ Change
Revenue:
Revenue		$	46,348			$	38,309			$	8,039
Cost of revenue			34,301				37,658				(3,357	)
Gross profit			12,047				651				11,396
Operating expenses:
Sales and marketing			1,785,957				646,350				1,139,607
Research and development			612,487				468,622				143,865
General and administrative			3,500,266				2,114,112				1,386,154
Total operating expenses			5,898,710				3,229,084				2,669,626
Loss from operations			(5,886,663	)			(3,228,433	)			(2,658,230	)
Other income (expense):
Gain on extinguishment of debt			-				73,272				(73,272	)
Changes in fair value of warrant and derivative liabilities			18				11,766				(11,748	)
Penalties and settlements			-				(672,500	)			672,500
Interest income			290,381				178,028				112,353
Other, net			(4,862	)			(326	)			(4,536	)
Total other income (expense)			285,537				(409,760	)			695,297
Loss before income taxes			(5,601,126	)			(3,638,193	)			(1,962,933	)
Income tax provision			-				-				-
Net loss		$	(5,601,126	)		$	(3,638,193	)		$	(1,962,933	)
Dividends on preferred stock			-				(6,683	)			6,683
Net loss allocable to common stockholders		$	(5,601,126	)		$	(3,644,876	)		$	(1,956,250	)
Net loss per share allocable to common stockholders		$	(2.44	)		$	(9.09	)		$	6.65
Weighted average shares of common stock outstanding, basic and diluted			2,296,061				400,868				1,895,193

Total Revenues.

Total revenues for the six months ended June 30, 2026 were $46,348 which was an increase of $8,039 or 21.0%, from $38,309 for the six months ended June 30, 2025. This increase in revenue was driven primarily by the growing volume of NOCISCAN® reports sold into the UK market following recent local coverage decisions. We expect this increase in revenue to continue as we bring on more insurance payors, and our scan volumes increase.

Cost of Revenue.

Direct cost of revenue is comprised of hosting and software costs, field support, UCSF royalty cost, partner fees (Radnet), and credit card fees. Total cost of revenue was $34,301 for the six months ended June 30, 2026, compared to $37,658 for the same period ended June 30, 2025, a decrease of $3,357 or 8.9%. The decrease was primarily attributable to improved operating efficiencies with an higher gross margin over increased revenues.

Sales and Marketing.

Sales and marketing expenses primarily consist of post-clearance clinical services related to the CLARITY Trial, product marketing consulting, travel and entertainment costs, and salaries and benefits. Sales and marketing expenses totaled $1,785,957 for the six months ended June 30, 2026, compared to $646,350 for the six months ended June 30, 2025, representing an increase of $1,139,607 or 176.3%.

The increase in sales and marketing expenses was primarily driven by increased salaries and benefits due to adding three new salespeople in the United States and the United Kingdom. The increase was $514,975 to $685,858 for the six months ended June 30, 2026, compared to $170,883 for the same period in 2025, primarily due to increased salary expense and accruals for incentive-based performance payouts. We expect salaries and benefits to continue at this higher rate through 2026.

Sales and Marketing expenses also increased due to higher post-clearance clinical services, which was $380,745 for the six months ended June 30, 2026, compared to $291,049 for the same period in 2025, an increase of $89,696, reflecting costs associated with the initiation of the CLARITY Trial, for which the first patient enrolled in June 2025. With continued enrollment in the CLARITY Trial in 2026, we expect these expenses will continue to increase for the remainder of 2026.

Product marketing consulting expenses increased by $328,737 to $351,748 for the six months ending June 30, 2026, compared to $23,011 for the same period in 2025, reflecting expanded use of external marketing consultants.

Reimbursement consulting expenses were $116,050 for the six months ended June 30, 2026, compared to $12,000 for the six months ended June 30, 2025, an increase of $104,050. The increase was primarily attributable to the startup and implementation of the Company's hybrid reimbursement and patient access program and ongoing strategic reimbursement support.

Travel and entertainment expenses increased by $36,601 to $140,753 for the six months ended June 30, 2026, compared to $104,152 for the same period in 2025, primarily due to the new sales personnel activities supporting local coverage determinations in the United States and United Kingdom.

Research and Development.

Research and development expenses increased by $143,865 or 30.7% to $612,487 for the six months ended June 30, 2026, compared to $468,622 for the six months ended June 30, 2025.

The increase was primarily driven by higher quality system and consulting expenses which increased by $63,216 to $238,107 for the six months ended June 30, 2026, compared to $174,891 for the same period in 2025, primarily as a result of expanded regulatory compliance and documentation activities. We expect research and development expenses to continue to increase as we continue the development of the Nociscan 3.0 product.

In addition, patent maintenance fees, which totaled $59,932 for the six months ended June 30, 2026, compared to $12,019 for the same period in 2025, an increase of $47,913. This rise reflects the Company's ongoing efforts to strengthen and expand protection of its intellectual property portfolio.

General and Administrative.

General and administrative expenses were $3,500,266 for the six months ended June 30, 2026, compared to $2,114,112 for the six months ended June 30, 2025, representing an increase of $1,386,154 or 65.6%.

The increase was primarily driven by investor relations expenses of $566,198 for the six months ended June 30, 2026, compared to $211,931 in the corresponding prior-year period, representing an increase of $354,267 primarily reflecting expanded investor outreach activities and increased use of third-party investor relations service providers.

For the six months ended June 30, 2026, legal expenses were $466,363 compared to $188,288 in the same period in 2025, an increase of $278,075 primarily due to increased legal and advisory fees associated with corporate governance and shareholder-related matters.

Delaware franchise tax expense increased to $317,190 for the six months ended June 30, 2026, compared to $19,137 for the same period in 2025, an increase of $298,053, primarily due to changes in the Company's capital structure and the methodology used to calculate the Company's Delaware franchise tax obligation.

Salaries and benefits increased by $237,652 to $980,119 for the six months ended June 30, 2026, compared to $742,467 for the same period in 2025, primarily due to accruals for incentive-based performance and stock-based compensation. The Company recorded accruals under its 2026 incentive bonus program totaling $325,000 for the six months ended June 30, 2026, compared to $154,688 for the same period in 2025, an increase of $170,312 primarily due to the addition of new participants to the program. Stock-based compensation expense was $78,236 for the six months ended June 30, 2026, compared to $84,257 for the same period in 2025, a decrease of $6,021, primarily due to a lower level of stock option expense recognized in the current period, partially offset by restricted stock unit expense recognized following the equity awards granted under the Company's 2022 Equity Incentive Plan in June 2026.

Gain On Extinguishment Of Debt.

Gain on extinguishment of debt was $0 for the six months ended June 30, 2026, compared to $73,272 in the corresponding prior-year period, reflecting the absence of debt extinguishment activity in the current period. The prior-year gain primarily related to the retirement of an obligation associated with commitment shares.

Changes in Fair Value of Warrant Liabilities.

The Company's warrant liabilities are measured at fair value at each reporting date. For the six months ended June 30, 2026, remeasurement of the outstanding warrants resulted in a favorable adjustment of $18, compared to a favorable adjustment of $11,766 for the same period in 2025, a decrease of $11,748. The decrease was primarily attributable to a reduction in the number of outstanding warrants subject to remeasurement.

Penalties and Settlements.

Penalties and settlements expense were $0 for the six months ended June 30, 2026, compared to $672,500 for the same period in 2025, reflecting the absence of settlement-related charges in the current period. The prior-year expense primarily related to a payment to settle a dispute under the "fee tail" provision of a previously executed investment banking agreement, partially offset by a favorable accounts payable settlement.

Interest Income.

Interest income was $290,381 for the six months ended June 30, 2026, compared to $178,028 for the same period in 2025, an increase of $112,353, primarily reflecting higher average cash balances following the Company's fundraising activities and related interest earned on money market deposits.

Critical Accounting Policies and Use of Estimates

Our Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our condensed financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our condensed 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 condensed 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 condensed financial statements, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our condensed financial statements.

Revenue Recognition

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

Equity-Based Compensation

The Company accounts for stock-based awards in accordance with provisions of ASC Topic 718, Compensation-Stock Compensation, under which the Company recognizes the grant-date fair value of stock-based awards issued to employees and nonemployee board members as compensation expense on a straight-line basis over the vesting period of the award, while awards containing a performance condition are recognized as expense when the achievement of the performance criteria is achieved. The Company uses the Black-Scholes option pricing model to determine the grant-date fair value of stock options. The Company records expense for forfeitures in the periods they occur.

Liquidity and capital resources

Sources of liquidity

To date, we have financed our operations primarily through private placements and public offerings of our equity and debt securities.

As of June 30, 2026, we had cash and cash equivalents of $16,310,462, including $25,000 of restricted cash.

During the six months ended June 30, 2026, the Company completed a registered direct public offering of (i) 200,000 shares of the Company's common stock, and (ii) pre-funded warrants (the "Pre-funded Warrants") to purchase up to 1,800,000 shares of common stock, at an offering price of $5.18 per share. The purchase price of each Pre-funded Warrant was $5.17999, which represents the offering price per share of common stock, minus the exercise price of $.00001 per share. The Pre-funded Warrants are immediately exercisable. The aggregate gross proceeds to the Company from this offering were approximately $10.4 million, before deducting placement agent fees of 6% of the aggregate gross proceeds and other offering expenses payable by the Company.

The Company believes its current cash resources are sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months from the issuance date of these condensed financial statements and into the second half of 2027. Management continues to actively monitor and manage the Company's cash position.

Cash flows

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

		Six Months Ended June 30,
		2026				2025
Net cash used in operating activities		$	(5,298,896	)		$	(4,376,394	)
Net cash used in investing activities			(92,524	)			(122,290	)
Net cash provided by financing activities			9,661,093				16,885,680
Net increase in cash and cash equivalents		$	4,269,673			$	12,386,996

Operating activities

During the six months ended June 30, 2026, the Company used $5,298,896 in cash for operating activities, compared to $4,376,394 for the same period in 2025, representing an increase in cash used of $922,502. The increase was primarily driven by a higher net loss after adjusting for non-cash items, partially offset by favorable changes in working capital.

Net loss after non-cash adjustments was $5,371,555 for the six months ended June 30, 2026, compared to $3,351,614 for the same period in 2025, an increase of $2,019,941. This increase was primarily attributable to a higher net loss of $1,962,933, together with lower non-cash adjustments in the current period. The prior-year period included non-cash charges that did not recur in 2026, consisting of warrant amendment costs of $48,087 and non-cash settlements of $58,272. The change in fair value related to warrants and derivative liabilities produced a smaller non-cash gain in 2026 of $18, compared to $11,766 in 2025. These factors were partially offset by increases in share-based compensation, which rose $22,554 to $106,811, and depreciation and amortization, which rose $15,049 to $122,778.

Changes in working capital affected cash used in operating activities. Prepaid expenses and other current assets used $129,339 of cash for the six months ended June 30, 2026, compared to a use of $232,111 for the same period in 2025. Accounts payable provided $372,842 of cash, compared to a use of $268,237 in the prior-year period. Accrued and other liabilities used $172,352 of cash, compared to a use of $521,837 for the same period in 2025.

The Company expects that cash used in operating activities may increase in future periods as it continues to develop its business. Potential increases in cash usage may be driven by higher legal and professional fees, increased investor outreach programs, and expanded sales and marketing activities. In addition, as the Company advances its commercialization efforts, operating expenses may increase to support these activities, which could result in higher cash utilization.

Investing activities

Net cash used in investing activities decreased to $92,524 for the six months ended June 30, 2026, compared to $122,290 for the same period in 2025, a decrease in cash used of $29,766. Investing activities in both periods consisted primarily of capitalized patent costs. The decrease was primarily attributable to lower expenditures on patent and license filings, which fell $31,094 to $90,716, partially offset by a $1,328 increase in fixed asset purchases.

Financing activities

Net cash provided by financing activities decreased to $9,661,093 for the six months ended June 30, 2026, compared to $16,885,680 for the six months ended June 30, 2025, a decrease of $7,224,587.

Cash provided by financing activities for the six months ended June 30, 2026, was primarily attributable to $10,359,982 in aggregate proceeds from a registered direct offering, consisting of $1,036,000 from common stock and $9,323,982 from prefunded warrants, partially offset by $698,889 in issuance costs.

In comparison, cash provided by financing activities for the six months ended June 30, 2025, was primarily driven by $19,722,472 in aggregate proceeds from public and registered direct offerings of common stock and warrants, partially offset by $1,959,643 in issuance costs and $1,213,590 related to the redemption of Series B Preferred Stock. The prior-year period also included $336,441 in proceeds from the exercise of Series C warrants.

Funding requirements

We believe that our cash and cash equivalents of $16,310,462 as of June 30, 2026, including $25,000 of restricted cash, provide sufficient capital to fund our planned operations into the second half of 2027 without the need for additional financing. However, the development and commercialization of medical technology products is a time-consuming, costly, and uncertain process that may take years to complete, and we may never generate meaningful revenue. Accordingly, we may need to raise substantial additional capital to achieve our long-term business objectives.

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

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

Contractual obligations and commitments

The Company does not have any contractual obligations, not otherwise on our balance sheet as of June 30, 2026.

Off-balance sheet arrangements

We did not have, during the periods presented, and we do not currently have any off-balance sheet arrangements as defined in the rules and regulations of the Securities and Exchange Commission ("SEC").

Recently issued accounting pronouncements

We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 4 to our condensed financial statements appearing at the end of this quarterly report, such standards will not have a material impact on our condensed financial statements or do not otherwise apply to our operations.

Emerging growth company and smaller reporting company status

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

We will remain an emerging growth company until the earliest of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO, which is January 1, 2028, (b) in which we have total annual gross revenue of at least $1.235 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior December 31st, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

We are also a "smaller reporting company" meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.