STOCK-BASED COMPENSATION

9 Months Ended

Sep. 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 nine months ended September 30, 2016, we expensed approximately $533,000 in stock-based compensation.

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

	Number of			Weighted
	Options			Average
	(in thousands)			Exercise Price
Outstanding at December 31, 2015		3,131		$	3.38
Granted		786		$	1.76
Exercised		(31	)		3.81
Cancelled		(68	)		3.35
Outstanding at September 30, 2016		3,818		$	3.02

The grant date fair value of options granted during the first nine 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 1.5%, 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 the average of the historical volatility of the Company's stock over the expected term of the options. 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.