STOCK OPTION PLANS

9 Months Ended

Sep. 30, 2022

Share-Based Payment Arrangement [Abstract]

STOCK OPTION PLANS

NOTE 12. STOCK OPTION PLANS

2022 Aclarion Equity Incentive Plan

On April 21, 2022, in connection with the IPO, the Company adopted the 2022 Aclarion Equity Incentive Plan, or “2022 Plan”. Our board of directors has appointed the compensation committee of our board of directors as the committee under the 2022 Plan with the authority to administer the 2022 Plan. The aggregate number of our shares of common stock that may be issued or used for reference purposes under the 2022 Plan may not exceed 2,000,000 shares, subject to adjustments as described in the 2022 Plan.

Options granted under the 2022 Plan may be incentive stock options or non-statutory stock options, as determined by the administrator at the time of grant of an option. Restricted stock may also be granted under the 2022 Plan. The options vest in accordance with the grant terms and are exercisable for a period of up to 10 years from grant date.

The fair value of the options granted for the three months and nine months ended September 30, 2022, were estimated at the date of grant using the Black-Scholes-Merton option pricing model with the following assumptions:

Risk-free interest rate (4/2022 – 8/2022)	1.99%
Risk-free interest rate (9/2022)	3.67%
Dividend yield	0.00
Expected term	6-8 years
Expected volatility	66.35%

Nocimed, Inc. 2015 Stock Plan

The Company maintains the Nocimed, Inc. 2015 Stock Plan, or the “Existing Plan”, under which the Company could grant 2,440,931 post-split shares or options of the Company to our employees, consultants, and other service providers. The Company has suspended the Existing Plan in connection with the IPO. No further awards will be granted under the Existing Plan, but awards granted prior to the suspension date will continue in accordance with their terms and the terms of the Existing Plan.

The fair value of the options granted for the nine months ended September 30, 2022, and 2021, were estimated at the date of grant using the Black-Scholes-Merton option pricing model with the following assumptions:

Risk-free interest rate	1.99%
Dividend yield	0.00
Expected term	6-8 years
Expected volatility	25.00%

Determining Fair Value of Stock Options

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.

Stock Award Activity

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

	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (In Years)		Aggregate Intrinsic Value of Unexercised Options
Balance at December 31, 2021		2,255,672		$	1.84		9.2
Options granted		529,619
Options exercised
Options forfeited/expired		(50,201	)
Balance at September 30, 2022		2,735,090		$	1.91		8.6
Exercisable at December 31, 2021		592,532		$	1.58			$	215,641
Exercisable at September 30, 2022		2,101,708		$	1.86			$	0

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 September 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:

	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Sales and marketing	$	848	$	1,850	$	2,544	$	2,890
Research and development		4,272		10,994		10,401		12,610
General and administrative		321,079		71,168		1,037,882		77,976
	$	326,199	$	84,012	$	1,050,826	$	93,476

As of September 30, 2022, total unrecognized compensation cost related to stock options was $615,973 and the weighted average period over which this cost is expected to be recognized is 8.6 years.