7. Share-based Compensation

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

7. Share-based Compensation

Stock Options

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

	Nine Month Period Ended
	September 30, 2014
				Wtd. Avg.
				Exercise
	Options			Price
Outstanding at beginning of year		1,417,309		$	1.36
Granted		85,000			3.49
Exercised		(65,842	)		1.22
Forfeited		(49,002	)		1.52
Expired		(3,124	)		2.23
Outstanding at September 30, 2014		1,384,341		$	1.49
Stock options exercisable at September 30, 2014		1,209,061		$	1.28

As of September 30, 2014, there was $1,148,872 of aggregate intrinsic value of outstanding stock options, including $1,093,647 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 September 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				Nine Month Period Ended
	September 30,				September 30,
	2014		2013		2014		2013
Risk free interest rate		1.93%		2.25%		2.02%		2.25%
Dividend yield		0.0%		0.0%		0.0%		0.0%
Expected term (in years)		7		7		7		7
Volatility		105.20%		105.20%		105.20%		105.20%

The weighted average grant-date fair value for the three and nine months ended September 30, 2014 was $2.22 and $2.96, respectively. The weighted average grant-date fair value for the three and nine months ended September 30, 2013 was $8.91.

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

	Three Month Period Ended				Nine Month Period Ended
	September 30,				September 30,
	2014		2013		2014		2013
Research and development costs	$	1,064	$	5,893	$	18,550	$	19,801
Sales and marketing costs		7,624		1,265		12,910		2,525
General and administrative costs		46,671		71,294		111,947		120,608
Cost of product sales		18,966		9,782		40,094		32,853
Total	$	74,325	$	88,234	$	183,501	$	175,787

Management applies an estimated forfeiture rate that is derived from historical employee termination data.  The estimated forfeiture rate applied for the three and nine month periods ended September 30, 2014 and 2013 was approximately 7%.

As of September 30, 2014, we had approximately $359,132 of unrecognized compensation expense related to unvested stock options.  We expect to recognize this compensation expense over a weighted average period of approximately 2.9 years.

During the nine months ended September 30, 2014, we issued or committed to issue common stock of the Company with a value of $210,000 for services rendered during the period. These costs were recorded in general and administrative expenses during the period.

Restricted Stock

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