(14)	Share-Based Compensation

BioCardia Lifesciences adopted, and the BioCardia Lifesciences shareholders approved, the

2002

Stock Plan in

2002

(the

“2002

Plan”), and the Company assumed the

2002

Plan in the Merger. We will not grant any additional awards under the

2002

Plan following the Merger. In

2016,

BioCardia Lifesciences adopted, and the BioCardia Lifesciences shareholders approved, the

2016

Equity Incentive Plan (the

“2016

Plan”), and the Company assumed the

2016

Plan in the Merger. We will grant awards, including incentive stock options and nonstatutory stock options, under the

2016

Plan following the Merger. Under the

2002

Plan and the

2016

Plan, the number of shares, terms, and vesting periods are determined by the Company’s board of directors or a committee thereof on an option-by-option basis. Options generally vest ratably over service periods of

four

years and expire

ten

years from the date of grant. The per share exercise price shall be no less than the fair market value on the date of grant. Compensation cost for employee share-based awards is based on the grant-date fair value and is recognized over the vesting period of the applicable award on a straight-line basis.

The Company recognizes in the consolidated statements of operations the grant-date fair value of stock options and other equity-based compensation. Stock compensation attributable to manufacturing operations was not significant and was expensed directly to cost of goods sold in the consolidated statements of operations. Share-based compensation expense for the years ended

December

31,

2016

and

2015

was recorded as follows (in thousands):

	Years ended December 31,
	2016		2015
Cost of goods sold	$	14	$	4
Research and development		127		29
Selling, general and administrative		801		250
Share-based compensation expense	$	942	$	283

As discussed in Note

the Company assumed all of the outstanding options to purchase shares of BioCardia Lifesciences, whether or not vested, under the

2002

and

2016

Plans, with such options henceforth representing the right to purchase a number of shares of the Company’s common stock equal to approximately

19.3678009

multiplied by the number of shares of BioCardia Lifesciences common stock previously represented by such options.

As discussed in Note

for accounting purposes, however, BioCardia Lifesciences is considered to be the acquirer in the Merger; thus, BioCardia Lifesciences is deemed to have assumed in the Merger all of the outstanding options to purchase shares of the Company’s common stock, which were fully vested prior to the Merger.

The exchange of options to purchase shares of BioCardia Lifesciences common stock for options to purchase shares of the Company, was accounted for as a modification of the awards because the legal exchange of the awards is considered a modification of BioCardia Lifesciences stock options. The modification of the stock options did not result in any incremental compensation expense as the modification did not increase the fair value of the stock options.

The following table summarizes activity under the Company’s stock option plans, including the

2002

Plan and the

2016

Plan and related information (in thousands, except share and per share amounts and term):

	Options outstanding
						Weighted
				Weighted		average
				average		remaining		Aggregate
	Number of			exercise		contractual		intrinsic
	shares			price		term (years)		value
								(In thousands)
Balance, December 31, 2015		13,788,475			0.15		6.6
Options assumed in the Merger		80,000			0.22
Stock options granted		32,177,804			0.15
Stock options exercised		(161,521	)		0.14
Stock options cancelled		(3,981,030	)		0.15
Balance, December 31, 2016		41,903,728			0.15		8.7	$	39,046
Exercisable, December 31, 2016		9,306,443			0.14		5.7	$	8,731
Vested and expected to vest, December 31, 2016		40,273,850			0.15		8.6	$	37,530

The total intrinsic value of options exercised during the years ended

December

31,

2016

and

2015

was approximately

$144,000

and

$137,000,

respectively. The weighted average grant-date fair value of options granted in

2016

was

$0.11

per share.

Employee Share-Based Compensation

During the year ended

December

31,

2016,

BioCardia Lifesciences granted stock options to employees to purchase

26,287,617

shares of common stock. There were

grants to employees during the year ended

December

31,

2015.

The fair value of each option grant is estimated on the date of the grant using the BSM option pricing model with the weighted average assumptions in the table below.

	2016
Risk-free interest rate	1.28	-	1.58%
Volatility		88%
Dividend yield	None
Expected term (in years)		6.25

Unrecognized share-based compensation for employee options granted through

December

31,

2016

is approximately

$2.8

million to be recognized over a remaining weighted average service period of

3.6

years.

The Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records share-based compensation expense only for those awards that are expected to vest.

Nonemployee Share-Based Compensation

During the year ended

December

31,

2016,

BioCardia Lifesciences granted options to purchase

5,890,187

shares of common stock to consultants

. These options were granted in exchange for consulting services to be rendered and vest over the term specified in the grant, which correlates to the period the services are rendered. No options to non-employees were granted during the year ended

December

31,

2015.

The Company recorded

$545,000

and

$10,000

for the years ended

December

31,

2016

and

2015,

respectively, as nonemployee share-based compensation expense.

The Company accounts for share-based compensation arrangements with nonemployees, using the BSM option pricing model, based on the fair value as these instruments vest. Accordingly, at each reporting date, the Company revalues the unearned portion of the share-based compensation and the resulting change in fair value is recognized in the consolidated statements of operations over the period the related services are rendered. The following assumptions were used to value the awards.

	2016			2015
Risk-free interest rate	1.60	-	2.42%	1.26	-	2.30%
Volatility	89	-	91%	71	-	95%
Dividend yield	None			None
Expected term (in years)	9.6	-	9.9	8.5	-	9.7