Share-based Compensation

9 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Share-based Compensation

5. 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					Nine Month Period Ended
	September 30,					September 30,
	2011			2010		2011			2010
Risk free interest rate		1.02	%		—		2.15	%		2.22	%
Dividend yield		0.0	%		—		0.0	%		0.0	%
Expected term (in years)		6			—		6.0			6.8
Volatility		92.35	%		—		92.72	%		87.76	%

Management applies an estimated forfeiture rate that is derived from historical employee termination data. The estimated forfeiture rate applied for the three and nine months ended September 30, 2011 and 2010 was 9.39% and 7.48%, respectively.

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

				Wgtd. Avg.
				Exercise
	Shares			Price
Outstanding at December 31, 2010		14,564,815		$	0.09
Granted		6,070,873			0.08
Exercised		—			—
Forfeited/expired		(2,912,461	)		0.08
Outstanding at September 30, 2011		17,723,227		$	0.09
Outstanding options vested and exercisable at September 30, 2011		9,877,272		$	0.09

During the nine months ended September 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 nine months ended September 30, 2011, options to purchase 2,672,934 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 nine months ended September 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 $51,788 and $42,639 for the three months ended September 30, 2011 and 2010, respectively, and $183,657 and $121,860 for the nine months ended September 30, 2011 and 2010, respectively, as follows:

	Three Month Period Ended				Nine Month Period Ended
	September 30,				September 30,
	2011		2010		2011		2010
Research and development costs	$	6,620	$	—	$	24,746	$	—
Sales and marketing costs		—		—		1,525		—
General and administrative costs		42,030		42,639		145,128		121,860
Cost of goods sold		3,138		—		12,258		—
Total	$	51,788	$	42,639	$	183,657	$	121,860

As of September 30, 2011, we had approximately $383,783 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.

The weighted average grant-date fair value of option awards granted was $0.04 during the three months ended September 30, 2011. There were no options granted during the quarter ended September 30, 2010. The weighted average grant-date fair value of option awards granted was $0.06 and $0.08 per share during the nine months ended September 30, 2011 and 2010, respectively.

As of September 30, 2011, there was $44,000 of aggregate intrinsic value of outstanding stock options, including $27,000 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 September 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 September 30, 2011. This amount may change, based on the fair market value of the Company’s stock.