7. Share-based Compensation

6 Months Ended

Jun. 30, 2014

Notes to Financial Statements

7. Share-based Compensation

Stock Options

The following is a summary of stock option activity for the six month period ended June 30, 2014, and the status of stock options outstanding at June 30, 2014:

	Six Month Period Ended
	June 30, 2014
				Wtd. Avg.
				Exercise
	Options			Price
Outstanding at beginning of year		1,417,309		$	1.36
Granted		65,000			3.70
Exercised		(65,842	)		1.22
Forfeited		(49,002	)		1.52
Expired		––			––
Outstanding at June 30, 2014		1,367,465		$	1.38
Stock options exercisable at June 30, 2014		1,192,545		$	1.20

As of June 30, 2014, there was $1,377,514 of aggregate intrinsic value of outstanding stock options, including $1,302,375 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, 2014.  This amount will change based on the fair market value of the Company’s stock.

The fair value of share-based payments made with stock options 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				Six Month Period Ended
	June 30,				June 30,
	2014		2013		2014		2013
Risk free interest rate		2.14%		––		2.14%		––
Dividend yield		0.0%		––		0.0%		––
Expected term (in years)		7		––		7		––
Volatility		105.20%		––		105.20%		––

We recorded stock compensation expense related to options for the three and six month periods ended June 30, 2014 and 2013, as follows:

	Three Month Period Ended				Six Month Period Ended
	June 30,				June 30,
	2014		2013		2014		2013
Research and development costs	$	9,351	$	6,954	$	17,486	$	13,908
Sales and marketing costs		2,563		630		5,286		1,260
General and administrative costs		39,111		1,378		65,276		49,314
Cost of product sales		6,532		11,209		21,128		23,071
Total	$	57,557	$	20,171	$	109,176	$	87,553

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, 2014 and 2013 was approximately 7%.

As of June 30, 2014, we had approximately $209,726 of unrecognized compensation expense related to unvested stock options.  We expect to recognize this compensation expense over a weighted average period of approximately 1.5 years.

During the six months ended June 30, 2014, we issued or committed to issue company stock with a value of $150,000 for services rendered during the period. These costs were recorded in general and administrative expenses during the period.

Restricted Stock

At June 30, 2014, there were no unvested restricted stock units outstanding.