Stockholders' Equity

3 Months Ended

Mar. 31, 2013

Stockholders' Equity [Abstract]

Stockholders' Equity

5. Stockholders' Equity

Preferred Stock

Subsequent to the issuances of the preferred stock, the Company has undertaken a number of common stock offerings that would impact the preferred stock conversion ratios. Previous preferred stockholders who have converted their preferred shares will receive an additional 141,448 shares of common stock as a result of the conversion ratio adjustments. As of March 31, 2013, current Series A and B preferred stockholders holding 73,332 preferred shares are entitled to receive an aggregate of 121,089 shares of common stock upon conversion of their holdings, as a result of the conversion ratio adjustments. The number of shares issuable upon conversion is subject to further adjustment should the Company in the future undertake one or more offerings of its common stock at less than the prevailing market price.

The 141,448 incremental shares associated with the conversion ratio adjustment will be recorded to common stock at par with the offset to additional paid in capital when issued as all of the convertible preferred stock was issued prior to the November 16, 2000 effective date of certain provisions of ASC 470 (formerly, EITF 00-27 Application of Issue No. 98-5 to Certain Convertible Instruments).

Common Stock

During the three months ended March 31, 2013, the Company issued: 216,462 shares of common stock upon the exercise of stock purchase warrants and options and received $1,608,106 (net of $22,577 in expenses); 19,712 shares of common stock in connection with the vesting of 27,900 shares of restricted common stock net of the shares withheld for payment of withholding taxes; and 4,450 shares of common stock to a retired director of the Company for consulting services.

At March 31, 2013, the Company had warrants outstanding to purchase 2,743,050 shares of the Company's common stock consisting of the following:

Series	Number of Warrants		Exercise Price		Expiration Date
J		200,893	$	6.16		May 31, 2013
K		236,564	$	9.60		April 1, 2013
L		6,250	$	3.12		March 31, 2014
N		100,000	$	6.25		February 22, 2015
O		230,900	$	5.50		February 22, 2015
P		2,508	$	6.25		February 16, 2015
Q		133,333	$	5.50		February 22, 2015
R		1,832,602	$	9.90		June 22, 2016
Total		2,743,050

During the three months ended March 31, 2013, 131,250 Series K, 53,667 Series O and 2,187 Series P warrants were exercised on a for cash and cashless basis. A total of 185,940 shares of common stock were issued in connection with the 2013 warrant exercises.

Equity Based Compensation

Under the Equity Incentive Plan (the "EIP Plan") the Company is authorized to issue 2,812,500 shares of common stock. The EIP Plan authorizes the Company to grant equity-based and cash-based incentive compensation in the form of stock options, stock appreciation rights, restricted shares, restricted share units, other share-based awards and cash-based awards, for the purpose of providing the Company's employees, non-employee directors and consultants with incentives and rewards for performance. At March 31, 2013, options to purchase 1,794,401 shares and 764,000 restricted share units were issued and outstanding under the EIP Plan and 1,964 shares were available for grant.

Stock Options

The EIP Plan permits the granting of both incentive and nonqualified stock options to employees and nonqualified stock options to non-employee directors and consultants of the Company. The option exercise price may not be less than the fair market value of the stock on the date of the grant of the option. The duration of each option may not exceed 10 years from the date of grant.

For the three months ended March 31, 2013 and 2012, the fair value of each option award was estimated at the date of grant using the Black-Scholes option pricing model. The weighted-average assumptions used were as follows:

	Three Months Ended March 31,
	2013			2012
Risk-free interest rate		1.27	%		1.23	%
Volatility factor		69.9	%		75.4	%
Dividend yield		0	%		0	%
Expected option life (years)		6.25			6.25

The risk-free rate utilized represents the U.S. treasury yield curve rate for the expected option life at the time of grant. The volatility factor was calculated based on the Company's historical stock price volatility equal to the expected life of the option at the grant date. The dividend yield is 0% since the Company does not anticipate paying dividends in the near future. The simplified expected option life method is used to determine the 6.25 year expected option life for Company employees and directors while the 10 year contractual option life period is utilized for consultants.

Based on the Company's historical experience of options that were forfeited before becoming fully vested, the Company has assumed an annualized forfeiture rate of 1.0% for all options. The Company will record additional expense if the actual forfeiture rate is lower than estimated, and will record a recovery of prior expense if the actual forfeiture rate is higher than estimated.

A summary of the Company's stock option activity and related information for the three months ended March 31, 2013 was as follows:

	Options			Weighted Average Exercise Price
Outstanding - January 1, 2013		1,639,985		$	6.38
Granted		193,980		$	12.00
Exercised		(36,626	)	$	4.15
Forfeited		(2,938	)	$	9.16
Outstanding - March 31, 2013		1,794,401		$	7.08
Expected to vest - March 31, 2013		1,776,457		$	7.08
Exercisable at March 31, 2013		1,392,012		$	6.33

During 2013, the Company granted 173,980 service based options and 20,000 performance based options to Company employees and consultants. The weighted average fair value per share of options granted during the three months ended March 31, 2013 was $7.59.

During the three months ended March 31, 2013, 36,626 stock options were exercised on a for cash and cashless basis. A total of 30,522 shares of common stock were issued in connection with the 2013 stock option exercises. The intrinsic value of options exercised in 2013 was $294,696.

During 2013, the Company granted 82,000 service based options and 95,600 performance based options to Company executives subject to stockholder approval of increasing the authorized EIP Plan share limit from 2,812,500 to 4,500,000. During the three months ended March 31, 2013, no stock compensation expense was recognized on these conditional awards. If approved, the Company will recognize stock compensation expense based on the fair value of the awards at the time of approval.

During the three months ended March 31, 2013 and 2012, stock option compensation expense was recorded as follows:

	Three Months Ended March 31,
	2013		2012
Cost of sales	$	54,707	$	43,917
Selling, general and administrative expenses		508,606		355,546
Research and development		57,760		6,133
Total stock option compensation expense	$	621,073	$	405,596

As of March 31, 2013, there was $1,593,932 of unrecognized compensation cost related to nonvested service based awards and $7,550 related to nonvested performance based awards. These costs are expected to be recognized over the options' remaining weighted average vesting period of 1.81 years for the service and 0.25 years for the performance based awards.

Restricted Share Units

The Company has issued service, performance and market based restricted share units to employees and directors of the Company. Expense for restricted share awards is amortized on a straight-line basis over the awards' vesting period. The fair value of service and performance awards are determined using the quoted market price of the Company's common stock on the date of grant, while market based performance awards are valued using a binomial/lattice pricing model.

The following table summarizes the restricted share unit activity for the period:

	Number of Shares			Weighted Average Fair Value
Unvested January, 1, 2013		786,900		$	7.07
Granted		5,000			12.08
Vested		(27,900	)		9.35
Unvested, March 31, 2013		764,000		$	8.78

During 2013, the Company granted 29,600 performance based restricted share units to Company executives subject to shareholder approval of increasing the authorized EIP Plan share limit. During the three months ended March 31, 2013 no restricted share unit compensation expense was recognized in connection with the conditionally granted restricted share units. If approved, the Company will recognize restricted share unit compensation expense based on the fair value of the awards at the time of approval.

In connection with the vesting of restricted share unit awards during the three months ended March 31, 2013, 8,188 common stock shares with a fair value of $76,446 were withheld in satisfaction of employee tax withholding obligations.

During the three months ended March 31, 2013 and 2012, restricted share unit compensation expense was recorded as follows:

	Three Months Ended March 31,
	2013		2012
Cost of sales	$	-	$	5,198
Selling, general and administrative expenses		531,596		84,124
Total restricted share unit compensation expense	$	531,596	$	89,322

As of March 31, 2013, there was $5,785,281 of unrecognized compensation cost related to unvested restricted share units. These costs are expected to be recognized over the restricted shares units' remaining weighted average vesting period of 3.01 years.

In consideration of prior service to the Company, a retiring director received 5,000 restricted share units, acceleration of the vesting of any unvested stock options and restricted share units and extension of the date to exercise vested stock options to the earlier of 36 months or the awards original expiration date (versus 90 days) from the date of the retirement. Also during the three months ended March 31, 2013, the Company granted 4,450 shares of common stock to a former director for consulting services. An additional $337,422 of stock based compensation expense was recognized during the three months ended March 31, 2013 and included in selling, general and administrative expense in connection with these activities.

Shares Reserved for Future Issuance

At March 31, 2013, the Company had reserved the following shares of common stock for future issuance:

Convertible preferred shares (series A - B)	73,332
Additional stock issuable related to conversion of preferred stock	189,205
Common stock options outstanding	1,794,401
Common stock warrants outstanding	2,743,050
Restricted share units outstanding	764,000
Common stock equivalents available for grant	1,964
Total common stock shares reserved	5,565,952