6. Share-based Compensation

6 Months Ended

Jun. 30, 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. The Company did not issue stock options during the six month period ended June 30, 2013.

	Three Month Period Ended				Six Month Period Ended
	June 30,				June 30,
	2013		2012		2013		2012
Risk free interest rate		––		0.76%		––		0.80%
Dividend yield		––		0.0%		––		0.0%
Expected term (in years)		––		7		––		6.5
Volatility		––		104.95%		––		103.12%

We recorded stock compensation expense for the three and six month periods ended June 30, 2013 and 2012, as follows:

	Three Month Period Ended				Six Month Period Ended
	June 30,				June 30,
	2013		2012		2013		2012
Research and development costs	$	6,954	$	7,119	$	13,908	$	13,487
Sales and marketing costs		630		210		1,260		210
General and administrative costs		1,378		38,523		49,314		75,822
Cost of product sales		11,209		5,073		23,071		8,094
Total	$	20,171	$	50,925	$	87,553	$	97,613

Management applies an estimated forfeiture rate that is derived from historical employee termination data.  The estimated forfeiture rate applied for the three and six month periods ended June 30, 2013 and 2012 was approximately 7% and 8%, respectively.

As of June 30, 2013, there was $5,389,589 of aggregate intrinsic value of outstanding stock options, including $4,492,875 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 June 30, 2013.  This amount will change based on the fair market value of the Company’s stock.

As of June 30, 2013, we had approximately $263,181 of unrecognized compensation expense related to unvested stock options.  We expect to recognize this compensation expense over a weighted average period of approximately 2.5 years.

The following is a summary of stock option activity for the six month period ended June 30, 2013, and the status of stock options outstanding at June 30, 2013:

	Six Month Period Ended
	June 30, 2013
				Wtd. Avg.
				Exercise
	Shares			Price
Outstanding at beginning of year		20,379,602		$	0.09
Granted		––			––
Exercised		(355,855	)		(0.08	)
Forfeited		(200,000	)		(0.16	)
Outstanding at June 30, 2013		19,823,747		$	0.09
Stock options exercisable at June 30, 2013		16,236,389		$	0.08

There were no options granted during the six month period ended June 30, 2013. Weighted average fair value of options granted was $0.07 per share for the three and six month periods ended June 30, 2012.