4. Share-based Compensation

3 Months Ended

Mar. 31, 2014

Notes to Financial Statements

NOTE 4 - Share-based Compensation

Stock Options

The following is a summary of stock option activity for the three month period ended March 31, 2014, and the status of stock options outstanding at March 31, 2014:

	Three Month Period Ended
	March 31, 2014
				Wtd. Avg.
				Exercise
	Options			Price
Outstanding at beginning of year		1,417,309		$	1.36
Granted		––			––
Exercised		––			––
Forfeited		(46,844	)		1.39
Expired		––			––
Outstanding at March 31, 2014		1,370,465		$	1.36
Stock options exercisable at March 31, 2014		1,248,342		$	1.20

As of March 31, 2014, there was $3,314,296 of aggregate intrinsic value of outstanding stock options, including $3,114,674 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, 2014.  This amount will change based on the fair market value of the Company’s stock.

We recorded stock compensation expense related to options of $51,619 in the three months ended March 31, 2014 and $67,382 for the three month periods ended March 31, 2013, as follows:

	Three Month Period Ended
	March 31,
	2014		2013
Research and development costs	$	8,135	$	6,954
Sales and marketing costs		2,723		630
General and administrative costs		26,165		47,936
Cost of product sales		14,596		11,862
Total	$	51,619	$	67,382

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, 2014 and 2013 was approximately 7%.

As of March 31, 2014, we had approximately $243,765 of unrecognized compensation expense related to unvested stock options.  We expect to recognize this compensation expense over a weighted average period of approximately 1.7 years.

Restricted Stock

At March 31, 2014, there were no unvested restricted stock units outstanding.