Share-based Compensation

6 Months Ended

Jun. 30, 2011

Share-based Compensation

The fair value of share-based payments made to employees and non-employee directors was estimated on the measurement date using the Black-Scholes model using the following weighted average assumptions:

	Three Month Period Ended				Six Month Period Ended
	June 30,				June 30,
	2011		2010		2011		2010
Risk free interest rate		-		2.26%		2.25%		2.22%
Dividend yield		-		0.0%		0.0%		0.0%
Expected term (in years)		-		7		6.0		6.8
Volatility		-		89.18%		93.0%		87.76%

Management applies an estimated forfeiture rate that is derived from historical employee termination data. The estimated forfeiture rate applied for the three months ended June 30, 2011 and 2010 was 9.37% and 7.45%, respectively.

A summary of the Company’s stock option activity and related information for the six-months ended June 30, 2011 is as follows: 

		Wgtd. Avg.
		Exercise
	Shares	Price
Outstanding at December 31, 2010	14,564,815	$0.09
Granted	5,570,873	0.08
Exercised	-	-
Forfeited/expired	(2,852,579)	0.08
Outstanding at June 30, 2011	17,283,109	$0.09
Outstanding options vested and exercisable at June 30, 2011	9,971,841	$ 0.09

During the six-months ended June 30, 2011, options to purchase an aggregate of 750,000 shares were awarded to five outside directors which vest 100% on the first anniversary date of the awards. During the six-months ended June 30, 2011, options to purchase 2,172,934 shares were awarded to employees, which vest as follows: twenty-five percent on the first anniversary date of the award, and then one-thirty sixth of the remaining balance in each of the ensuing thirty-six months following the first anniversary date of the award. During the six-months ended June 30, 2011, options to purchase 400,000 shares were awarded to the CEO, which vested 100% upon grant of the awards, and options to purchase 2,247,939 shares were awarded to the CEO, which vest at the end of the quarter the Company achieves certain milestones.

We recorded stock compensation expense of $53,242 and $42,614 for the three months ended June 30, 2011 and 2010, respectively, and $131,870 and $79,221 for the six months ended June 30, 2011 and 2010, respectively, as follows:

	Three Month Period Ended				Six Month Period Ended
	June 30,				June 30,
	2011		2010		2011		2010
Research and development costs	$	7,693	$	-	$	18,126	$	-
Sales and marketing costs		663		-		1,525		-
General and administrative costs		42,406		42,614		103,099		79,221
Cost of goods sold		2,480		-		9,120		-
Total	$	53,242	$	42,614	$	131,870	$	79,221

As of June 30, 2011, we had approximately $465,340 of unrecognized compensation expense related to unvested stock options. We expect to recognize this compensation expense over a weighted average period of approximately 2.25 years.

There were no options granted during the quarter ended June 30, 2011. The weighted average grant-date fair value of option awards granted was $0.07 per share during the three months ended June 30, 2010. The weighted average grant-date fair value of option awards granted was $0.06 and $0.08 per share during the six-months ended June 30, 2011 and 2010, respectively.

As of June 30, 2011, there was $36,500 of aggregate intrinsic value of outstanding stock options, including $28,000 of aggregate intrinsic value of exercisable stock options. Intrinsic value is the total pretax intrinsic value for all “in-the-money” options (i.e., the difference between the Company’s closing stock price on the last trading day of June 2011 and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options as of June 30, 2011. This amount may change, based on the fair market value of the Company’s stock.