NOTE 12 — STOCK-BASED COMPENSATION

	A.	Stock Incentive Plan — In July 2003, the Company implemented the 2003 Stock Incentive Plan (the “2003 Plan”), which provides for awards of incentive and non-qualified stock options, restricted stock and stock appreciation rights for its officers, employees, consultants and directors to attract and retain such individuals. Stock option grants under the Plan are granted with an exercise price at or above the fair market value of the underlying common stock at the date of grant, generally vest over a three to five year period and expire ten years after the grant date.

		As established, there were 2,000,000 shares of common stock available for distribution under the 2003 Plan. In January 2009, the Company’s shareholders approved an amendment to the 2003 Plan to increase the number of shares available under the 2003 Plan from 2,000,000 to 12,000,000 and to establish the maximum number of shares issuable to any one individual in any particular year. As of August 2013, no new awards may be issued under the 2003 Plan.

		In October 2012, the Company’s shareholders approved the 2013 Incentive Compensation Plan (“2013 Plan”) which provides for awards of incentive and non-qualified stock options, restricted stock and stock appreciation rights for its officers, employees, consultants and directors to attract and retain such individuals. As of March 31, 2015, 2,779,000 shares had been issued under the 2013 Plan, with 7,221,000 shares remaining available for issuance.

Stock-based compensation expense for the years ended March 31, 2015 and 2014 amounted to $787,710 and $393,914, respectively, of which $178,137 and $81,567, respectively, is included in selling expense and $609,573 and $312,347, respectively, is included in general and administrative expense for the years ended March 31, 2015 and 2014, respectively. At March 31, 2015, total unrecognized compensation cost amounted to approximately $1,608,518, representing 4,924,055 unvested options. This cost is expected to be recognized over a weighted-average period of 2.22 years. There were 677,127 options and 80,758 options exercised during the years ended March 31, 2015 and 2014, respectively. The Company did not recognize any related tax benefit for the years ended March 31, 2015 and 2014, as the effects were de minimis.

Stock Options — A summary of the options outstanding under the 2003 and 2013 Plans is as follows:

	Years ended March 31,
	2015				2014
			Weighted				Weighted
			Average				Average
			Exercise				Exercise
	Shares		Price		Shares		Price
Outstanding at beginning of year		11,174,007	$	0.51		8,120,765	$	0.64
Granted		2,525,000		1.04		3,300,000		0.43
Exercised		(677,127)		0.33		(80,758)		0.32
Forfeited		(1,033,692)		1.10		(166,000)		5.79

Outstanding and expected to vest at end of period		11,988,188	$	0.58		11,174,007	$	0.51

Exercisable at period end		7,064,133	$	0.49		5,511,447	$	0.63

Weighted average fair value of grants during the period			$	0.65			$	0.26

The following table summarizes activity pertaining to options outstanding and exercisable at March 31, 2015:

	Options Outstanding				Options Exercisable
			Weighted
			Average				Weighted
			Remaining				Average		Aggregate
Range of			Life in				Exercise		Intrinsic
Exercise Prices	Shares		Years		Shares		Price		Value
$0.01 — $0.25		580,300		3.60		580,300	$	0.22	$	682,957
$0.26 — $0.40		8,532,888		6.28		6,076,833		0.34		6,470,305
$1.01 — $2.00		2,741,000		9.05		273,000		1.26		69,870
$6.01 — $7.00		17,000		1.99		17,000		6.36		—
$7.01 — $8.00		109,500		1.21		109,500		7.57		—
$8.01 — $9.00		7,500		1.86		7,500		9.00		—

		11,988,188		6.73		7,064,133	$	0.49	$	7,223,132

Total stock options exercisable as of March 31, 2015 were 7,064,133. The weighted average exercise price of these options was $0.49. The weighted average remaining life of the options outstanding was 6.73 years and of the options exercisable was 5.56 years.

The following summarizes activity pertaining to the Company’s unvested options for the years ended March 31, 2015 and 2014:

			Weighted
			Average
			Exercise
	Shares		Price
Unvested at March 31, 2013		3,871,807	$	0.32

Granted		3,300,000		0.43
Canceled or expired		(10,000)		0.32
Vested		(1,499,247)		0.32

Unvested at March 31, 2014		5,662,560	$	0.32

Granted		2,525,000		1.04
Canceled or expired		(954,083)		0.44
Vested		(2,309,422)		0.41

Unvested at March 31, 2015		4,924,055	$	0.70

The fair value of each award under the 2003 and 2013 Plans is estimated on the grant date using the Black-Scholes option pricing model and is affected by assumptions regarding a number of complex and subjective variables. The use of an option pricing model also requires the use of a number of complex assumptions including expected volatility, risk-free interest rate, expected dividends, and expected term. Expected volatility is based on the Company’s historical volatility and the volatility of a peer group of companies over the expected life of the option. The expected term and vesting of the options represents the estimated period of time until exercise. The expected term was determined using the simplified method available under current guidance. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The Company has not paid dividends on its common stock in the past and does not plan to pay any dividends on its common stock in the near future. Current authoritative guidance also requires the Company to estimate forfeitures at the time of grant and revise these estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company estimates forfeitures based on its expectation of future experience while considering its historical experience.

The fair value of options at grant date was estimated using the Black-Scholes option pricing model utilizing the following weighted average assumptions:

	March 31,
	2015			2014
Risk-free interest rate		1.47% - 1.76	%		0.86% - 1.85	%
Expected option life in years		5.5 - 6.25			5.5 - 6.25
Expected stock price volatility		74% - 77	%		65% - 76	%
Expected dividend yield		0	%		0	%

Warrants — The Company has entered into various warrant agreements.

2011 Warrants issued in connection with the Series A Preferred Stock

The warrants issued in connection with the Series A Preferred Stock (the “2011 Warrants”) had an exercise price of $0.38 per share, subject to adjustment, and were exercisable for a period of five years. The exercise price of the 2011 Warrants was equal to 125% of the conversion price of the Series A Preferred Stock.

The Company accounted for the 2011 Warrants issued in June 2011 in the consolidated financial statements as a liability at their initial fair value of $487,022 and accounted for the 2011 Warrants issued in October 2011 as a liability at their initial fair value of $780,972. Changes in the fair value of the 2011 Warrants were recognized in earnings for each subsequent reporting period. In November 2013, in accordance with certain terms of the 2011 Warrants, the down-round provisions included in the terms of the warrant ceased to be in force or effect as a result of the historical volume weighted average price and trading volume of the Company’s common stock. The Company then reclassed the fair value of the outstanding warrant liability of $6,187,968 to equity, resulting in an increase to additional paid-in capital.

For the year ended March 31, 2014 the Company recorded a loss on the change in the value of the 2011 Warrants of $5,392,594.

The fair value of the warrants is a Level 3 fair value under the valuation hierarchy and was estimated using the Black-Scholes option pricing model utilizing the following assumptions:

	At Conversion
Stock price	$	0.92
Risk-free interest rate		0.61	%
Expected option life in years		2.63
Expected stock price volatility		55	%
Expected dividend yield		0	%

2011 Warrants exercised – On April 2, 2014, the Company called for the cancellation of all 1,657,802 unexercised 2011 Warrants pursuant to the terms of such 2011 Warrants after satisfying applicable conditions. Pursuant to the call for cancellation, holders of all 1,657,802 unexercised 2011 Warrants exercised such 2011 Warrants and received 1,657,802 shares of common stock. The Company received $629,965 in cash upon the exercise of these warrants. In the year ended March 31, 2014, holders of 2011 Warrants exercised 10,127,123 2011 Warrants and received shares of common stock. The Company received $3,848,332 in cash upon the exercise of these warrants. These exercised warrants had a weighted average fair market value of $0.50 at exercise date.

For the year ended March 31, 2014, 1,543,214 warrant shares expired unexercised with a weighted average fair market value of $0.00.

The following is a summary of the Company’s outstanding warrants for the periods presented:

			Weighted
			Average
			Exercise
			Price
	Warrants		Per Warrant
Warrants outstanding and exercisable, March 31, 2013		11,904,925	$	0.46

Granted		—		—
Exercised		(10,127,123)		0.38
Forfeited		—		—

Warrants outstanding and exercisable, March 31, 2014		1,777,802	$	0.90

Granted		—		—
Exercised		—		—
Forfeited		(1,657,802)		0.38

Warrants outstanding and exercisable, March 31, 2015		120,000	$	8.00