Note 13

Employee Stock Benefit Plans:

Post-Reverse Merger

Following the closing of the December 2011 reverse acquisition, the previous Non-Employee Director Stock Option Plan of PhotoMedex (the acquired entity) was adopted by the group. This plan has authorized 120,000 shares; of which 7,000 shares had been issued or were reserved for issuance as awards of shares of common stock, and 14,578 shares were reserved for outstanding stock options. On July 31, 2014, the shareholders approved an increase in the authorized shares to 370,000 shares under the stock based benefit plan.

In addition, following the closing of the December 2011 reverse acquisition, the previous 2005 Equity Compensation Plan (“2005 Equity Plan”) of Pre-merged PhotoMedex (the acquired entity) was also adopted for use by the group. The 2005 Equity Plan has authorized 3,000,000 shares, of which 867,432 shares had been issued or were reserved for issuance as awards of shares of common stock, and 1,293,601 shares were reserved for outstanding options. On July 31, 2014, the shareholders approved an increase in the authorized shares to 6,000,000 shares under the stock based benefit plan.

Stock option activity under all of the Company’s share-based compensation plans for the nine months ended September 30, 2014 was as follows:

	Number of Options			Weighted Average Exercise Price
Outstanding, January 1, 2014		1,132,678		$	16.51
Granted		180,500			14.11
Exercised		-			-
Cancelled		(4,999	)		58.63
Outstanding, September 30, 2014		1,308,179		$	16.02
Options exercisable at September 30, 2014		517,179		$	16.45

At September 30, 2014, there was $8,004 of total unrecognized compensation cost related to non-vested option grants and stock awards that is expected to be recognized over a weighted-average period of 2.5 years. The intrinsic value of options outstanding and exercisable at September 30, 2014 was not significant.

The Company calculates expected volatility for a share-based grants based on historic daily stock price observations of its common stock. For estimating the expected term of share-based grants made in the three and nine months ended September 30, 2014, the Company has adopted the simplified method. The Company has used historical data to estimate expected employee behaviors related to option exercises and forfeitures and included these expected forfeitures as a part of the estimate of expense as of the grant date.

The Company uses the Black-Scholes option-pricing model to estimate fair value of grants of stock options with the following weighted-average assumptions:

	Nine Months Ended September 30, 2014
Risk-free interest rate		2.17%
Volatility		78.41%
Expected dividend yield		0%
Expected life	5.5 years
Estimated forfeiture rate		0%

With respect to grants of options, the risk-free rate of interest is based on the U.S. Treasury rates appropriate for the expected term of the grant or award.

On April 17, 2014, the Company issued 5,000 shares of common stock to a non-employee director for an aggregate fair value of $75.

On May 12, 2014, the Company granted 141,337 restricted stock units to three LCA employees as part of their respective employment agreements related to the acquisition. These restricted shares have a purchase price of $0.01 per share and vest, and cease to be subject to the Company’s right of repurchase, over a three-year period. The Company determined the fair value of the awards to be the fair value of the Company’s common stock on the date of issuance less the value paid for the award. The aggregate fair value of these restricted stock issued was $1,936. The Company also granted an aggregate of 109,000 options to purchase common stock to a number of employees with a strike price of $13.70, which was higher than the quoted market value of our stock at the date of grants. The options vest over four years and expire ten years from the date of grant. The aggregate fair value of these options granted was $975.

On February 27, 2014, the Company granted an aggregate of 71,500 options to purchase common stock to a number of employees and consultants with a strike price of $14.80, which was higher than the quoted market value of our stock at the date of grants. The options vest over five years and expire ten years from the date of grant. The aggregate fair value of the options granted was $718.

Total stock based compensation expense was $3,944 and $3,795 for the nine months ended September 30, 2014 and 2013, including amounts relating to consultants.