11.	Stockholders' equity

Stock incentive plan

The Company has three share-based compensation plans, the MiMedx Group, Inc. Assumed 2006 Stock Incentive Plan (the “2006 Plan”), the MiMedx Inc. 2007 Assumed Stock Plan (the “Assumed 2007 Plan”) and the MiMedx Group Inc. Amended and Restated Assumed 2005 Stock Plan (the “Assumed 2005 Plan”) which provide for the granting of qualified incentive and non-qualified stock options, stock appreciation awards and restricted stock awards to employees, directors, consultants and advisors. The awards are subject to a vesting schedule as set forth in each individual agreement. The Company intends to use only the 2006 Plan to make future grants. The number of assumed options under the Assumed 2005 Plan and Assumed 2007 Plan outstanding at December 31, 2011, totaled 375,000 and the maximum number of shares of common stock which can be issued under the 2006 Plan is 12,500,000 at December 31, 2011.

Activity with respect to the stock options is summarized as follows:

	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at January 1, 2010		6,182,500		$	1.10
Granted		2,385,400		$	1.40
Exercised		(210,250	)	$	0.74
Forfeited or cancelled		(100,000	)	$	0.88
Outstanding at December 31, 2010		8,257,650		$	1.20		6.3	$	2,833,198

Vested or expected to vest at December 31, 2010		5,577,863		$	1.22		5.3	$	2,015,963

Outstanding at January 1, 2011		8,257,650		$	1.20
Granted		3,918,500		$	1.17
Exercised		(490,000	)	$	0.60
Forfeited or cancelled/expired		(1,352,567	)	$	1.55
Outstanding at December 31, 2011		10,333,583		$	1.17		7.1	$	1,457,218

Vested or expected to vest at December 31, 2011		6,000,497		$	1.16		5.7	$	1,257,772

The intrinsic value of options exercised during the year ended December 31, 2011, was approximately $258,000.

Following is a summary of stock options outstanding and exercisable at December 31, 2011:

		Options Outstanding						Options Exercisable
Range of Exercise Prices		Number outstanding		Weighted- Average Remaining Contractual Term (in years)		Weighted- Average Exercise Price		Number Exercisable		Weighted- Average Exercise Price
$	0.50		587,250		2.9	$	0.50		513,268	$	0.50
$	0.65 - $1.00		2,967,500		5.7	$	0.79		2,730,224	$	0.79
$	1.04 - $1.80		6,228,833		8.8	$	1.30		2,207,005	$	1.45
$	2.40		550,000		0.7	$	2.40		550,000	$	2.40
			10,333,583		7.1	$	1.17		6,000,497	$	1.16

A summary of the status of the Company's unvested stock options as of December 31, 2011, and changes during the year ended December 31, 2011, is presented below:

Unvested Stock Options	Number of Shares			Weighted- Average Grant Date Fair Value
Unvested at January 1, 2011		2,679,787		$	0.87
Granted		3,918,500		$	0.63
Cancelled/expired		(1,352,567	)	$	0.59
Vested		(912,634	)	$	0.81
Unvested at December 31, 2011		4,333,086		$	0.72

Total unrecognized compensation expense at December 31, 2011, was approximately $3,214,000 and will be charged to expense through July 2015.

The fair value of the options granted was estimated on the date of grant using the Black-Scholes-Merton option-pricing model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. Expected volatilities are based on historical volatility of peer companies and other factors estimated over the expected term of the options. The term of employee options granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus the contract term. The simplified method was used due to the Company's lack of sufficient historical data to provide a reasonable basis upon which to estimate the expected term due to the limited period of time its equity shares have been publically traded. The term for non-employee options is generally based upon the contractual term of the option. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term or contractual term as described.

The assumptions used in calculating the fair value of options using the Black-Scholes-Merton option-pricing model are set forth in the following table:

	Year ended December 31,
	2011			2010
Expected volatility		57.3-58.1	%		57.9-60.2	%
Expected life (in years)		6			6
Expected dividend yield		-			-
Risk-free interest rate		0.86% - 2.24	%		1.15% - 2.75	%

The weighted-average grant date fair value for options granted during the year ended December 31, 2011, was approximately $0.63.

Warrants

The Company grants common stock warrants in connection with equity share purchases by investors as an additional incentive for providing long term equity capital to the Company and as additional compensation to consultants and advisors. The warrants are granted at negotiated prices in connection with the equity share purchases and at the market price of the common stock in other instances. The warrants have been issued for terms of five years.

Common Stock warrants issued, redeemed and outstanding during the years ended December 31, 2011 and 2010, are as follows:

	Number of Warrants			Weighted- Average Exercise Price per Warrant		Number of Contingent Warrants		Weighted- Average Exercise Price per ContingentWarrant
Warrants outstanding at January 1, 2010		6,991,371		$	1.17		-	$	-
Issued in connection with private placement of common stock		1,856,662		$	1.50		1,202,500	$	0.01
Issued in connection with convertible promissory notes		550,490		$	1.05		50,490	$	0.01
Issued in connection with line of credit with related party		-		$	-		-	$	-
Expired warrants		(175,251	)	$	1.80		-	$	-
Exercised in connection with private placement of common stock		(3,219,348	)	$	1.00		-	$	-
Warrants outstanding at December 31, 2010		6,003,924		$	1.21		1,252,990	$	0.01

Issued in connection with private placement of common stock		1,889,161		$	1.50		1,889,162	$	0.01
Issued in connection with convertible promissory notes		203,332		$	1.50		203,332	$	0.01
Issued in connection with line of credit with related party		-		$	-		650,000	$	0.01
Issued in connection with Senior Secured Promissory Notes		1,250,000		$	0.01		1,250,000	$	0.01
Placement agent		42,400		$	1.09		-	$	-
Warrants outstanding at December 31, 2011		9,388,817		$	1.00		5,245,484	$	0.01

Warrants may be exercised in whole or in part by:

•	notice given by the holder accompanied by payment of an amount equal to the warrant exercise price multiplied by the number of warrant shares being purchased ; or

•

election by the holder to exchange the warrant (or portion thereof) for that number of shares equal to the product of (a) the number of shares issuable upon exercise of the warrant (or portion) and (b) a fraction, (x) the numerator of which is the market price of the shares at the time of exercise minus the warrant exercise price per share at the time of exercise and (y) the denominator of which is the market price per share at the time of exercise.

These warrants are not mandatorily redeemable, do not obligate the Company to repurchase its equity shares by transferring assets or issue a variable number of shares.

The warrants require that the Company deliver shares as part of a physical settlement or a net-share settlement, at the option of the holder, and do not provide for a net-cash settlement.

All of our warrants are classified as equity as of December 31, 2011 and 2010.

In April 2010, the Company offered investors in the October 2009 Private Placement a discount to their existing $1.50 warrant exercise price to $1.00 if they exercised their warrants to purchase common stock for cash by May 1, 2010. As a result of this offer, the Company received proceeds of approximately $3,200,000, net of placement agent fees, and issued 3,200,000 shares of common stock as of May 1, 2010. The aggregate proceeds include $833,000 in common stock issued to the Chairman and CEO, $20,850 to the President and Chief Operating Officer and $20,833 to one other company director. As a result of this activity, the number of warrants outstanding as of December 31, 2010, was 6,003,924.