. Summary of Stock Options

Stock Option Plans

The Company has issued equity awards in the form of stock options and restricted stock awards from

three

employee benefit plans. The plans include the Company

’s

2005

Stock Incentive Plan (the

“2005

Plan”), the Viveve Amended and Restated

2006

Stock Plan (the

“2006

Plan”) and the Company’s Amended and Restated

2013

Stock Option and Incentive Plan (the

“2013

Plan”).

There

are currently

outstanding stock option awards issued from the

2005

Plan and

shares are available for future awards.

The

2006

Plan was adopted by the board of directors of Viveve, Inc.

and was terminated in conjunction with the merger that took place on

September 23, 2014

between PLC Systems Inc., Viveve, Inc. and PLC Systems Acquisition Corp. (the “Merger”). Prior to the Merger, the board of directors voted to accelerate the vesting of all unvested options that were outstanding as of the date of the Merger such that all options would be immediately vested and exercisable by the holders. In conjunction with the Merger, the Company agreed to assume and administer the

2006

Plan and all outstanding options to purchase shares of Viveve, Inc. common stock issued from the

2006

Plan were converted into options to purchase shares of the Company’s common stock (rounded down to the nearest whole share). There are currently outstanding stock option awards issued from the

2006

Plan covering a total of

38,378

shares of the Company’s common stock and

shares are available for future awards. The weighted average exercise price of the outstanding stock options is

$10.49

per share and the weighted average remaining contractual term is

5.13

years.

The

2013

Plan was also adopted by

the Company’s board of directors and approved by its stockholders. The

2013

Plan is administered by the compensation committee of the Company’s board of directors (the “Administrator”). Under the

2013

Plan, the Company

may

grant equity awards to eligible participants which

may

take the form of stock options (both incentive stock options and non-qualified stock options), stock appreciation rights, restricted, deferred or unrestricted stock awards, performance based awards or dividend equivalent rights. Awards

may

be granted to officers, employees, nonemployee directors (as defined in the

2013

Plan) and other key persons (including consultants and prospective employees). The term of any stock option award

may

not

exceed

years and

may

be subject to vesting conditions, as determined by the Administrator. Options granted generally vest over

four

years. Incentive stock options

may

be granted only to employees of the Company or any subsidiary that is a “subsidiary corporation” within the meaning of Section

424

(f) of the Internal Revenue Code. The exercise price of any stock option award cannot be less than the fair market value of the Company’s common stock, provided, however, that an incentive stock option granted to an employee who owns more than

10%

of the Company’s outstanding voting power must have an exercise price of

less than

110%

of the fair market value of the Company’s common stock and a term that does

not

exceed

five

years.

August 22, 2016,

the Company

’s stockholders approved an amendment to the

2013

Plan to add an “evergreen” provision to the

2013

Plan which will automatically increase annually, on the

first

day of each

January,

the maximum number of shares of common stock reserved and available for awards under the

2013

Plan (the “Stock Issuable”) by an amount equal to the lesser of (i) the number of shares that will increase the Stock Issuable by

of the total number of shares of common stock outstanding (on a fully diluted basis) or (ii) an amount determined by the board of directors. On

December 23, 2016,

the board of directors approved the

2017

evergreen increasing the total stock reserved for issuance under the

2013

Plan by

523,209

shares from

2,000,000

shares to a total of

2,523,209

shares, which was effective

January 1, 2017.

August 15, 2017,

the Company’s stockholders approved an amendment to the

2013

Plan increasing the number of shares of common stock authorized for awards under the

2013

Plan from

2,523,209

shares to a total of

4,000,000

shares.

As of

September 30, 2017,

there are outstanding stock option awards issued from the

2013

Plan covering a total of

2,451,601

shares of the Company’s common stock and there remain reserved for future awards

1,408,655

shares of the Company’s common stock. The weighted average exercise price of the outstanding stock options is

$5.80

per share, and the remaining contractual term is

8.76

years.

Activity under the

2005

Plan, the

2006

Plan and the

2013

Plan is as follows:

	Nine Months Ended September 30, 2017
						Weighted
				Weighted		Average		Aggregate
	Number			Average		Remaining		Intrinsic
	of			Exercise		Contractual		Value
	Shares			Price		Term (years)		(in thousands)

Options outstanding, beginning of period		1,909,764		$	6.19		9.12	$	211,396
Options granted		739,985		$	5.86
Options exercised		(7,730	)	$	4.02
Options cancelled		(152,040	)	$	9.82
Options outstanding, end of period		2,489,979		$	5.88		8.70	$	387,178

Vested and exercisable and expected to vest, end of period		2,337,350		$	5.88		8.67	$	369,478

Vested and exercisable, end of period		734,721		$	5.90		7.81	$	162,632

The aggregate intrinsic value reflects the difference between the exercise price of the underlying stock options and the Company

’s closing share price as of

September 30, 2017.

The options outstanding and exercisable as of

September 30, 2017

are as follows:

			Options Outstanding						Options Exercisable
							Weighted
			Number		Weighted		Average		Number		Weighted
			Outstanding		Average		Remaining		Exercisable		Average
Range of			as of		Exercise		Contractual		as of		Exercise
Exercise Prices			September 30, 2017		Price		Term (Years)		September 30, 2017		Price

	$2.64			12,500	$	2.64		7.62		7,553	$	2.64
$3.68	-	$3.76		66,876	$	3.76		7.35		43,191	$	3.76
$4.46	-	$4.92		400,329	$	4.63		8.25		161,941	$	4.77
	$5.22			567,679	$	5.22		9.20		108,555	$	5.22
$5.58	-	$5.67		254,000	$	5.62		9.93		-	$	-
	$6.00			557,753	$	6.00		8.22		244,023	$	6.00
$6.24	-	$6.61		150,639	$	6.44		8.21		45,574	$	6.34
$7.00	-	$7.92		441,825	$	7.65		9.10		85,506	$	7.72
	$9.92			38,135	$	9.92		5.14		38,135	$	9.92
$56.00	-	$296.00		243	$	100.46		3.21		243	$	100.46
				2,489,979	$	5.88		8.70		734,721	$	5.90

Restricted Stock Awards

January 2016,

the Company granted restricted stock awards (“RSAs”) for

39,494

shares of common stock under the

2013

Plan to employees for

2015

accrued bonuses with a weighted average grant date fair value of

$6.24

per share, based on the market price of the Company

’s common stock on the award date. A total of

shares pursuant to an RSA were cancelled in

September 2016.

The remaining RSAs vested on the

one

-year anniversary of the award date in

January 2017

and

39,405

shares of common stock were issued.

August 2016,

the Company granted RSAs for

5,998

shares of common stock under the

2013

Plan to board members as director compensation with a weighted average grant date fair value of

$7.89

per share, based on the market price of the Company

’s common stock on the award date. The RSAs were fully vested on the date of grant and

5,998

shares of common stock were issued.

September 2016,

the Company granted

25,000

shares to a consultant with a weighted average grant date fair value of

$7.58

per share, based on the market price of the Company

’s common stock on the award date. The RSA vests over

one

year at a rate of

1/4

per quarter beginning as of the award date. As of

September 30, 2017,

25,000

shares were vested and issued.

November 2016,

the Company granted RSAs for

6,544

shares of common stock under the

2013

Plan to board members as director compensation with a weighted average grant date fair value of

$5.91

per share, based on the market price of the Company

’s common stock on the award date. The RSAs were fully vested on the date of grant and

6,544

shares of common stock were issued.

May 2017,

the Company granted RSAs for

4,797

shares of common stock under the

2013

Plan to board members as director compensation with a weighted average grant date fair value of

$7.07

per share, based on the market price of the Company

’s common stock on the award date. The RSAs were fully vested on the date of grant and

4,797

shares of common stock were issued.

September 2017,

the Company granted RSAs for

6,947

shares of common stock under the

2013

Plan to board members as director compensation with a weighted average grant date fair value of

$5.58

per share, based on the market price of the Company

’s common stock on the award date. The RSAs were fully vested on the date of grant and

6,947

shares of common stock were issued.

The

re were

zero

shares of common stock underlying RSAs as of

September 30, 2017.

2017

Employee Stock Purchase Plan

August 2017,

the stockholders approved the Company

’s

2017

Employee Stock Purchase Plan (the

“2017

ESPP”). The Company reserved a total of

400,000

shares of common stock for issuance under the

2017

ESPP. Eligible employees

may

purchase shares of common stock through periodic payroll deductions, with a maximum purchase of

2,000

shares of common stock in any offering period. The price of common stock purchased under the

2017

ESPP is equal to

85%

of the lesser of the fair market value of common stock on the

first

or last day of the offering period. Each offering period is for a period of

three

months. The

first

offering period under the

2017

ESPP began on

October 1, 2017

and will end on

December 31, 2017.

Stock-Based Compensation

During the

three

months ended

September 30, 2017

and

2016,

the Company granted stock options to employees to purchase

305,000

and

220,915

shares of common stock with a weighted average grant date fair value of

$3.19

and

$3.58

per share, respectively. During the

nine

months ended

September 30, 2017

and

2016,

the Company granted stock options to employees to purchase

720,110

and

378,932

shares of common stock with a weighted average grant date fair value of

$2.83

and

$3.54

per share, respectively. A total of

7,730

and

3,020

shares pursuant to stock options issued to employees were exercised in the

nine

months ended

September 30, 2017

and

2016,

respectively. The aggregate intrinsic value of options exercised during the

nine

months ended

September 30, 2017

and

2016

was

$31,000

and

$5,000,

respectively.

The Company estimated the fair value of stock options using the Black-Scholes option pricing model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards. The fair value of employee stock options granted was estimated using the following weighted average assumptions:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016

Expected term (in years)	5		5		5		5
Average volatility	64	%	46	%	55	%	54	%
Risk-free interest rate	1.73	%	1.14	%	1.83	%	1.31	%
Dividend yield	0	%	0	%	0	%	0	%

During the

three

and

nine

months ended

September 30, 2017,

the Company granted stock options to nonemployees to purchase

14,000

and

19,875

shares of common stock with a weighted average grant date fair value of

$3.66

and

$4.09,

respectively. During the

three

and

nine

months ended

September 30, 2016,

the Company granted stock options to nonemployees to purchase

50,000

shares of common stock with a with weighted average grant date fair value of

$4.81

There were

stock options exercised by nonemployees during the

nine

months ended

September 30, 2017

and

2016.

Option-pricing models require the input of various subjective assumptions, including the option

’s expected life and the price volatility of the underlying stock. The expected stock price volatility is based on analysis of the Company’s stock price history over a period commensurate with the expected term of the options, trading volume of comparable companies’ stock, look-back volatilities and Company specific events that affected volatility in a prior period. The expected term of employee stock options represents the weighted average period the stock options are expected to remain outstanding and is based on the history of exercises and cancellations on all past option grants made by the Company, the contractual term, the vesting period and the expected remaining term of the outstanding options. The risk-free interest rate is based on the U.S. Treasury interest rates whose term is consistent with the expected life of the stock options.

dividend yield is included as the Company has

not

issued any dividends and does

not

anticipate issuing any dividends in the future.

The following table shows stock-based compensation expense included in the condensed consolidated statements of operations for the

three

and

nine

months ended

September 30, 2017

and

2016

(in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016

Cost of revenue	$	5	$	-	$	12	$	-
Research and development		62		31		170		80
Selling, general and administrative		420		241		1,132		582
Total	$	487	$	272	$	1,314	$	662

As of

September 30, 2017,

the total unrecognized compensation cost in connection with unvested stock options was approximately

$4,400,000.

These costs are expected to be recognized over a period of approximately

2.86

years.