Note 7. Share-Based Payments

Stock-based compensation in the amount of $2.8 million and $2.4 million was recognized for years ended April 30, 2014 and 2013, respectively. Stock-based compensation costs were recorded as follows (in thousands):

	Year Ended April 30,
	2014		2013

General and administrative	$	2,298	$	1,984
Sales and marketing		352		263
Research and development		36		37
TOS cost of sales		56		20
POS cost of sales		65		72

Total stock-based compensation expense	$	2,807	$	2,376

2010 Equity Incentive Plan

On February 18, 2011, shareholders owning a majority of the issued and outstanding shares of the Company executed a written consent approving the 2010 Equity Incentive Plan (“2010 Equity Plan”). The purpose of the 2010 Equity Plan is to grant (i) Non-statutory Stock Options; (ii) Restricted Stock Awards; and (iii) Stock Appreciation Rights (collectively, stock-based compensation) to its employees, directors and non-employees. Total stock awards under the 2010 Equity Plan shall not exceed 30,000,000 shares of common stock. Options and Stock Appreciation Rights expire no later than ten years from the date of grant and the awards vest as determined by the Board of Directors. Options and Stock Appreciation Rights have a strike price not less than 100% of the fair market value of the common stock subject to the option or right at the date of grant.

2008 Equity Incentive Plan

The Company has previously granted (i) Non-statutory Stock Options; (ii) Restricted Stock Awards; and (iii) Stock Appreciation Rights (collectively, stock-based compensation) to its employees, directors and non-employees under a 2008 Equity Incentive Plan (the “2008 Equity Plan”). Such awards may be granted by the Company’s Board of Directors. Options granted under the 2008 Equity Plan expire no later than ten years from the date of grant and the awards vest as determined by the Board of Directors.

For share-based payments to non-employee consultants under both the 2010 and 2008 Equity Incentive Plan, the fair value of the share-based consideration issued is used to measure the transaction, as management believes this to be a more reliable measure of fair value than the services received. The fair value of the award is expensed over the period service is provided to the Company; however, it is ultimately measured at the price of the Company’s common stock or the fair value of stock options using the Black-Scholes valuation model on the date that the commitment for performance by the non-employee consultant has been reached or performance is complete, which is generally the vesting date of the award.

Director Compensation Plan

On December 12, 2013, the Compensation Committee of the Board of Directors of the Company adopted changes to the Director Compensation Plan of 2010 (the “Director Plan”) effective commencing December 1, 2013. Under the Director Plan, independent directors of the Company are entitled to an annual award of a five-year option to purchase 100,000 shares of the Company’s common stock, and the Chairman of the Board of the Company is entitled to an annual award of a five year option to purchase 200,000 shares of the Company’s common stock. Independent directors who serve as chairperson of a committee will also receive an annual grant of a five-year option to purchase 20,000 shares of the Company’s unregistered common stock. All options issued under the Director Plan vest quarterly at a rate of 25%. Option grants will typically be issued after the annual shareholder meeting which will generally be held in September of each year. New directors will receive a grant upon joining the Board equal to the pro-rata annual grant for the remainder of the year.

Stock Option Grants

Black-Scholes assumptions used to calculate the fair value of options granted during the years ended April 30, 2014 and 2013 were as follows:

	Year Ended April 30,
	2014	2013

Expected term in years	3.0 - 6.0	3.0 - 6.0
Risk-free interest rates	0.7% - 2.4%	0.7% - 1.3%
Volatility	84% - 102%	88% - 104%
Dividend yield	0%	0%

The weighted average fair value of stock options granted during the years ending April 30, 2014 and 2013, was $0.96 and $0.41, respectively. The Company’s stock options activity and related information as of and for the years ended April 30, 2014 and 2013 is as follows (dollars in thousands):

									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		-		9,793,332		9,793,332		1.23
Exercised		-		(33,750)		(33,750)		0.63
Canceled		-		-		-		-
Forfeited		-		(72,500)		(72,500)		0.82
Expired		-		(226,250)		(226,250)		0.73

Outstanding, April 30, 2014		765,000		22,586,037		23,351,037		1.01		7.5	$	985,000

Vested and expected to vest as of April 30, 2014		765,000		22,586,037		23,351,037				7.5	$	985,000

Exercisable as of April 30, 2014		522,292		13,042,285		13,564,577		0.85		6.1	$	927,000

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

Outstanding, May 1, 2012		1,410,000		13,456,038		14,866,038	$	0.88		7.6	$	-
Granted		130,000		611,250		741,250		0.41
Exercised		-		-		-		-
Canceled		-		(25,000)		(25,000)		0.62
Forfeited		-		(551,250)		(551,250)		0.72
Expired		(775,000)		(365,833)		(1,140,833)		0.95

Outstanding, April 30, 2013		765,000		13,125,205		13,890,205		0.85		7.0	$	89,000

Vested and expected to vest as of April 30, 2013		765,000		13,125,205		13,890,205				7.0	$	89,000

Exercisable as of April 30, 2013		458,334		10,886,120		11,344,454		0.86		6.9	$	54,000

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 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 for the years ended April 30, 2014 and 2013 is as follows (dollars in thousands):

	2014			2013
		Weighted			Weighted
		Average			Average
		Grant Date			Grant Date
	Total	Fair Value		Total	Fair Value
	Shares	Per Share		Shares	Per Share

Nonvested, beginning of period	50,000	$	0.30	25,000	$	0.75
Granted	-		-	100,000		0.30
Vested	(50,000)		0.30	(75,000)		0.45
Forfeited	-		-	-
Expired	-		-	-

Nonvested, end of period	-		-	50,000		0.30

The total fair value of shares vested during the years ended April 30, 2014 and 2013 was $15,000 and $34,000, respectively. As of April 30, 2014, there was no unrecognized stock compensation expense related to nonvested restricted stock awards.

Stock Purchase Warrants

As of April 30, 2014, 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 7. The remaining 150,000 warrants are accounted for as equity instruments and expire 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	-		-
Forfeited	-		-
Expired	-		-

Outstanding, April 30, 2014	3,276,667	$	0.61	2.9	$	984,333

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

Outstanding, May 1, 2012		1,416,667	$	0.50		3.8	$	-
Granted		1,860,000		0.66		4.8
Exercised		-		-
Forfeited		-		-
Expired		-		-

Outstanding, April 30, 2013		3,276,667	$	0.61		3.9	$	-