(

)

Share-Based Compensation

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

2002

Stock Plan in

2002,

or 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, or 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.

Stock compensation attributable to manufacturing operations was

not

significant and was expensed directly to cost of goods sold in the condensed consolidated statements of operations. Share-based compensation expense for the

three

and

six

months ended

June 30, 2017

and

2016

was recorded as follows (in thousands):

	Three Months ended June 30,				Six Months ended June 30,
	2017		2016		2017		2016
Cost of goods sold	$	33	$	—	$	74	$	1
Research and development		154		—		326		1
Selling, general and administrative		489		28		898		56
Share-based compensation expense	$	676	$	28	$	1,298	$	58

The following table summarizes the activity of stock options and related information:

	Options outstanding

				Weighted
				average
	Number of			exercise
	shares			price

Balance, December 31, 2016		41,903,728		$	0.15
Stock options granted		6,714,410			0.73
Stock options exercised		(107,153	)		0.20
Stock options cancelled		(407,382	)		0.04
Balance, June 30, 2017		48,103,603		$	0.23

The weighted average grant-date fair value of options granted during the

six

months ended

June 30, 2017

was

$0.57

per share.

Employee Share-Based Compensation (Stock Options)

During the

six

months ended

June 30, 2017,

the Company granted stock options to certain non-employee directors and employees to purchase

4,766,627

shares of common stock. 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.

Risk-free interest rate	1.88	–	2.12%
Volatility	85	–	89%
Dividend yield		None
Expected terms (in years)	5.50	–	6.25

Unrecognized share-based compensation for employee options granted through

June 30, 2017

is approximately

$4.4

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

3.0

years.

Employee Share-Based Compensation (RSUs)

During the

six

months ended

June 30, 2017,

the Company granted to certain non-employee directors

1,176,000

restricted stock units, or RSUs. The fair value of each RSU is estimated on the closing market price on the grant date.

The following summarizes the activity of non-vested RSUs:

			Weighted
			average
			grant date
	Number of		fair value
	shares		per share
Balance, December 31, 2016		—
RSUs granted		1,176,000	$	0.73
RSUs vested		—
RSUs forfeited		—
Balance, June 30, 2017		1,176,000	$	0.73

Unrecognized share-based compensation for employee RSUs granted through

June 30, 2017

is approximately

$742,000

to be recognized over a remaining weighted average service period of

2.1

years.

Nonemployee Share-Based Compensation

During the

six

months ended

June 30, 2017,

the Company granted options to purchase

1,947,783

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. The Company recorded approximately

$277,000

and

$1,000

for the

three

months ended

June 30, 2017

and

2016,

respectively, and approximately

$510,000

and

$2,000

for the

six

months ended

June 30, 2017

and

2016,

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 as of

June 30, 2017:

Risk-free interest rate	2.25	–	2.28%
Volatility		87%
Dividend yield		None
Expected terms (in years)	9.1	–	9.5