Stock-Based Compensation

3 Months Ended

Mar. 31, 2012

Stock-Based Compensation [Abstract]

Stock-Based Compensation

Note 5:  Stock-based Compensation

The Company uses the fair value method of accounting for share-based compensation arrangements. The fair value of stock options is estimated at the date of grant using the Black-Scholes option valuation model.  Stock-based compensation expense is reduced for estimated forfeitures and is amortized over the vesting period using the straight-line method of attribution.

The following table summarizes the allocation of non-cash stock-based compensation to our expense categories for the three month periods ended March 31, 2012 and 2011 (in thousands):

	Three Months Ended March 31, (unaudited)
	2012		2011
Cost of goods sold	$	64	$	25
Research and development		141		19
Selling, general and administrative		544		812
Total stock-based compensation expense	$	749	$	856

At March 31, 2012, total unrecognized compensation costs related to stock options was approximately $4.0 million, net of estimated forfeitures and is expected to be recognized over a weighted average period of approximately 2.3 years.  

The key assumptions used in the Black-Scholes option pricing model to determine the fair value of stock options granted and the weighted average grant date fair value per share are as follows:

	Three Months Ended March 31, (unaudited)
	2012			2011
Dividend yield		0	%		0	%
Risk free interest rates		0.51 to 0.87	%		1.04 to 2.37	%
Expected  volatility		71.8 to 81.2	%		67.1 to 85.7	%
Expected term (in years)		3.5 to 5.5			3.5 to 5.5
Weighted average grant date fair value per share		$2.25			$3.92

The Company has not declared or paid any dividends and does not expect to do so in the near future.  The risk-free interest rate used in the Black-Scholes option pricing model is based on the implied yield currently available on U.S. Treasury securities with an equivalent term.   Expected volatility is based on the weighted average historical volatility of the Company’s common stock for the most recent five year period.  The expected term of options represents the period that our stock-based awards are expected to be outstanding and was determined based on historical experience and vesting schedules of similar awards.

A summary of the Company’s stock option activity for the three months ended March 31, 2012 is presented in the following tables:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (In Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2011		4,242,251		$	3.93
Options granted		410,500			3.88
Options exercised		(24,000	)		1.20
Options forfeited		—			—
Options cancelled		—			—
Outstanding at March 31, 2012		4,628,751		$	3.94		5.93	$	3,676,255
Vested or expected to vest at March 31, 2012 (1)		4,555,187		$	3.91		5.94	$	3,673,636
Exercisable at March 31, 2012		3,157,477		$	3.03		6.14	$	3,623,865

(1) The expected to vest options are the result of applying the pre-vesting forfeiture rate assumptions to total unvested options.

The aggregate intrinsic value in the table above represents the difference between the exercise price of the underlying options and the quoted price of the Company’s common stock.   During the three months ended March 31, 2012, the aggregate intrinsic value of options exercised was $62 thousand. The Company issues new shares of common stock upon exercise of stock options.