STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

NOTE 7. STOCK-BASED COMPENSATION

Under our stock option plans, our board of directors may grant options to purchase common shares to our key employees, officers, non-employees, directors and consultants. We account for stock options in accordance with FASB ASC Topic 718, Compensation – Stock Compensation, with option expense amortized over the vesting period based on the trinomial lattice option-pricing model fair value on the grant date, which includes a number of estimates that affect the amount of our expense. During the six months ended June 30, 2016, we expensed approximately $360,000 in stock-based compensation.

Activity in our stock options during the period ended June 30, 2016 was as follows:

	Number of Options		Weighted Average Exercise
	(in thousands)		Price
Outstanding at December 31, 2015		3,131	$	3.38
Granted		626	$	1.74
Outstanding at June 30, 2016		3,757	$	3.09

The grant date fair value of options granted during the first six months of 2016 were estimated on the grant date using a trinomial lattice option-pricing model and the following assumptions: expected volatility of 49.5%, expected term of between 5-8 years, risk-free interest rate of 0.71%, and expected dividend yield of 0%.

On June 30, 2016, the Company entered into a sales channel partnership agreement with Arteriocyte LLC. As part of the agreement, Arteriocyte was granted 240,000 ten-year options with a four year performance based vesting schedule and an exercise price of $1.64 per option.

Expected volatility is based on a five year average of the historical volatility of the Company's stock. The risk-free rate is based on the rate of U.S. Treasury zero-coupon issues with a remaining term equal to the expected life of the options. The Company uses historical data to estimate pre-vesting forfeiture rates.