Share-based Compensation

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Note 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
	March 31,
	2012			2011
Risk free interest rate		0.83	%		2.25	%
Dividend yield		0.0	%		0.0	%
Expected term (in years)		6.0			6.0
Volatility		101	%		93	%

Management applies an estimated forfeiture rate that is derived from historical employee termination data. The estimated forfeiture rate applied for the three month periods ended March 31, 2012 and 2011 was 7.85% and 6.47%, respectively.

The following is a summary of stock option activity for the three month period ended March 31, 2012, and the status of stock options outstanding at March 31, 2012:

	Three Month Period Ended
	March 31, 2012
					Wtd. Avg.
					Exercise
		Shares			Price
Outstanding at beginning of year		17,873,227		$	0.08
Granted		1,100,000			0.10
Exercised		—			—
Forfeited		(206,250	)		(0.08	)
Outstanding at March 31, 2012		18,766,977		$	0.09
Stock options exercisable at March 31, 2012		11,722,906		$	0.09

Weighted average fair value of options granted was $0.08 and $0.06 per share for the three month periods ended March 31, 2012 and 2011, respectively.

As of March 31, 2012, there was $299,363 of aggregate intrinsic value of outstanding stock options, including $195,359 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 the quarter 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 on March 31, 2012. This amount will change based on the fair market value of the Company’s stock.

We recorded stock compensation expense of $46,688 and $78,628 for the three month periods ended March 31, 2012 and 2011, respectively, as follows:

	Three Month Period Ended
	March 31,
	2012		2011
Research and development costs	$	6,368	$	10,433
Sales and marketing costs		—		862
General and administrative costs		37,299		60,693
Cost of product sales		3,021		6,640
Total	$	46,688	$	78,628

As of March 31, 2012, we had approximately $354,092 of unrecognized compensation expense related to unvested stock options. We expect to recognize this compensation expense over a weighted average period of approximately 2.40 years.