7. Share-based Compensation

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

7. Share-based Compensation

Stock Options

We have a stock-based compensation plan, the Amended and Restated 2013 Performance Incentive Plan (the “2013 Plan”), which allows us to grant options or restricted stock units to all employees, including executive officers, outside consultants, and non-employee directors.  The Plan was amended by stockholder approval on May 4, 2015, to increase the number of shares of common stock available to be granted under the Plan to 3,100,000, plus any shares of common stock underlying any option granted pursuant to an equity compensation plan other than the 2013 Plan that was outstanding on June 20, 2013, the date the stockholders originally approved the 2013 Plan, and that subsequently terminated or expired.

The following is a summary of stock option activity for the nine month period ended September 30, 2015, and the status of stock options outstanding at September 30, 2015:

	Nine Month Period Ended
	September 30, 2015
				Wtd. Avg.
				Exercise
	Options			Price
Outstanding at beginning of year		1,390,770		$	1.50
Granted		1,290,881		$	2.06
Exercised		(87,856	)	$	1.14
Forfeited		(3,438	)	$	3.77
Outstanding at September 30, 2015		2,590,357		$	1.79
Stock options exercisable at September 30, 2015		1,215,230		$	1.41

As of September 30, 2015, there was $1,131,568 of aggregate intrinsic value of outstanding stock options, including $1,065,275 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, 2015.  This amount will change based on the fair market value of the Company’s stock.  During the three and nine months ended September 30, 2015 intrinsic value of awards exercised was $18,196 and $90,118, respectively. During the three and nine months ended September 30, 2014 intrinsic value of awards exercised was $0 and $153,216, respectively. Weighted average grant date fair value for options granted during the three and nine months ended September 30, 2015 was $1.90 and $1.75 per share and $2.22 and $2.96 for the three and nine months, respectively, ended September 30, 2014.

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,
	2015		2014		2015		2014
Risk free interest rate		1.77%		1.93%		1.77%		2.02%
Dividend yield		0.0%		0.0%		0.0%		0.0%
Expected term (in years)		7		7		7		7
Volatility		105%		105%		105%		105%

We recorded stock compensation expense related to options for the three and nine month periods ended September 30, 2015 and 2014, as follows:

	Three Month Period Ended				Nine Month Period Ended
	September 30,				September 30,
	2015		2014		2015		2014
Research and development costs	$	26,751	$	1,064	$	53,109	$	18,550
Sales and marketing costs		26,746		7,624		51,771		12,910
General and administrative costs		93,955		46,671		159,405		111,947
Cost of product sales		30,807		18,966		72,345		40,094
Total	$	178,259	$	74,325	$	336,630	$	183,501

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, 2015 and 2014 was approximately 7%.

As of September 30, 2015, we had approximately $2,231,126 of unrecognized compensation expense related to unvested stock options.  We expect to recognize this compensation expense over a weighted average period of approximately 3.4 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, 2015, there were no unvested restricted stock units outstanding.