6. Share-based Compensation

3 Months Ended

Mar. 31, 2013

Notes to Financial Statements

NOTE 6 - 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,
	2013		2012
Risk free interest rate		––		0.83%
Dividend yield		––		0.0%
Expected term (in years)		––		6.0
Volatility		––		101%

We recorded stock compensation expense of $67,382 and $46,688 for the three month periods ended March 31, 2013 and 2012, respectively, as follows:

	Three Month Period Ended
	March 31,
	2013		2012
Research and development costs	$	6,954	$	6,368
Sales and marketing costs		630		––
General and administrative costs		47,936		37,299
Cost of product sales		11,862		3,021
Total	$	67,382	$	46,688

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, 2013 and 2012 was 6.94% and 7.85%, respectively.

As of March 31, 2013, there was $4,006,927 of aggregate intrinsic value of outstanding stock options, including $3,156,078 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, 2013. This amount will change based on the fair market value of the Company’s stock.

As of March 31, 2013, we had approximately $296,782 of unrecognized compensation expense related to unvested stock options. We expect to recognize this compensation expense over a weighted average period of approximately 2.82 years.

The following is a summary of stock option activity for the three month period ended March 31, 2013, and the status of stock options outstanding at March 31, 2013:

	Three Month Period Ended
	March 31, 2013
				Wtd. Avg.
				Exercise
	Shares			Price
Outstanding at beginning of year		20,379,602		$	0.09
Granted		––			––
Exercised		(355,856	)		(0.08	)
Forfeited		(150,000	)		(0.08	)
Outstanding at March 31, 2013		19,873,746		$	0.09
Stock options exercisable at March 31, 2013		15,285,695		$	0.08

There were no options granted during the three month period ended March 31, 2013. Weighted average fair value of options granted was $0.08 per share for the three month period ended March 31, 2012.