Note 3. Share-Based Payments

The Company has in place a 2010 Equity Incentive Plan and a 2008 Equity Incentive Plan. In general, these plans provide for stock-based compensation in the form (i) Non-statutory Stock Options; (ii) Restricted Stock Awards; and (iii) Stock Appreciation Rights to the Company’s employees, directors and non-employees. The plans also provide for limits on the aggregate number of shares that may be granted, the term of grants and the strike price of option awards.

Stock-based compensation in the amount of $941,000 and $570,000 was recognized for the three months ended January 31, 2014 and 2013, respectively, and $1,968,000 and $1,934,000 for the nine months ended January 31, 2014 and 2013, respectively. Stock-based compensation expense was recognized as follows (in thousands):

	Three Months Ended				Nine Months Ended
	January 31,				January 31,
	2014		2013		2014		2013

General and administrative	$	866	$	500	$	1,686	$	1,619
Sales and marketing		63		56		189		199
Research and development		4		4		19		33
TOS cost of sales		2		4		12		16
POS cost of sales		6		6		62		67

Total stock-based compensation expense	$	941	$	570	$	1,968	$	1,934

Stock Option Grants

Black-Scholes assumptions used to calculate the fair value of options granted during the three and nine months ended January 31, 2014 and 2013 were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	January 31,				January 31,
	2014		2013		2014		2013

Expected term in years		5 - 6		6.0		5 - 6		6.0
Risk-free interest rates		1.4% - 2.1%		0.9% - 1.0%		0.8% - 2.4%		0.8% - 1.0%
Volatility		97% - 102%		100% - 102%		97% - 102%		99% - 102%
Dividend yield		0%		0%		0%		0%

The weighted average fair value of stock options granted during the three months ended January 31, 2014 and 2013 was $0.97 and $0.27, respectively. The weighted average fair value of stock options granted during the nine months ended January 31, 2014 and 2013 was $0.96 and $0.36, respectively. The Company’s stock options activity for the nine months ended January 31, 2014 is as follows:

									Weighted
							Weighted		Average
			Directors				Average		Remaining		Aggregate
	Non-		and				Exercise		Contractual		Intrinsic
	Employees		Employees		Total		Price		Life (Years)		Value

Outstanding, May 1, 2013		765,000		13,125,205		13,890,205	$	0.85		7.0	$	89,000
Granted		-		8,850,000		8,850,000		1.23		9.7		148,000
Exercised		-		(15,000)		(15,000)		0.62
Forfeited		-		(65,000)		(65,000)		0.84
Expired		-		(26,250)		(26,250)		0.75

Outstanding, January 31, 2014		765,000		21,868,955		22,633,955		1.00		7.6		2,224,000

Vested and expected to vest as of January 31, 2014		765,000		21,868,955		22,633,955		1.00		7.6		2,224,000

Exercisable as of January 31, 2014		522,292		13,090,203		13,612,495		0.85		6.2		2,132,000

Included in the balances outstanding in the table above are 3,000,000 options (which vest based on service criteria) granted to the Company’s Chief Executive Officer and its President as of November 5, 2013 as part of their new employment agreements. In addition to the above, there are 3,000,000 additional options granted to the Company’s Chief Executive Officer and President which vest based on both service and performance criteria. The service-based conditions of these options provide for vesting to occur monthly over a period of three years. The performance-based conditions have not been finalized as of January 31, 2014. The service-based options, like all of the Company’s service-based options, are expensed on a straight-line basis. Since the straight-line method is not available for performance or market-based share-based payments, the 3,000,000 performance-based options will be expensed on an accelerated basis once the Company determines it is probable that the performance-based conditions will be met.

Restricted Stock Grants

A summary of the activity related to restricted stock grants is as follows (in thousands):

			Weighted
			Average Grant
			Date Fair Value
	Shares		Per Share

Nonvested as of May 1, 2013		50,000	$	0.30
Granted		-		-
Vested		(50,000)		0.30
Forfeited		-		-
Expired		-		-

Nonvested as of January 31, 2014		-		-

Stock Purchase Warrants

As of January 31, 2014 and April 30, 2013, the Company had warrants outstanding for the purchase of 3,276,667 shares of its common stock, all of which were exercisable. Of these warrants, 1,266,667 were issued in connection with the April 2011 Private Placement and 1,860,000 were issued in connection with the January 2013 Private Placement and are accounted for as liabilities as further discussed in Note 4. The remaining 150,000 warrants are accounted for as equity instruments and expire on July 31, 2014. Activity related to these warrants, which expire at various dates through April 2016, is summarized as follows (dollars in thousands):

					Weighted
			Weighted		Average
	Number		Average		Remaining		Aggregate
	of		Exercise		Contractual		Intrinsic
	Shares		Price		Life (Years)		Value

Outstanding, May 1, 2013		3,276,667	$	0.61		3.9		-
Granted		-		-		-		-
Exercised		-		-		-		-
Expired		-		-		-		-

Outstanding, January 31, 2014		3,276,667	$	0.61		3.2	$	1,265,734