Stock Options

The Company granted stock options to its directors, officers and an employee during the year ended April 30, 2015, based on compensation and director agreements.

The Company has adopted the provisions of ASC 718, “Compensation-Stock,” which requires the measurement and recognition of compensation expense for all stock-based awards made to employees.

The fair value of the stock options at the date of grant was estimated using the Black-Scholes option-pricing model, based on the following assumptions:

The Company’s computation of expected volatility is based on the historical daily volatility of its publicly traded stock. For stock option grants issued during years ended April 30, 2015, 2014 and 2013, the Company used a calculated volatility for each grant. The Company lacks adequate information about the exercise behavior at this time and has determined the expected term assumption under the simplified method provided for under ASC 718, which averages the contractual term of the Company’s stock options of five years with the average vesting term of two and one half years for an average of three years. The dividend yield assumption of zero is based upon the fact the Company has never paid cash dividends and presently has no intention of paying cash dividends. The risk-free interest rate used for each grant is equal to the U.S. Treasury rates in effect at the time of the grant for instruments with a similar expected life. Based on historical experience, for the year ended April 30, 2015, the Company has estimated an annualized forfeiture rate of 5% for stock options granted to its employees, 5% for stock options granted to officers and 5% for stock options granted to directors. Compensation costs will be adjusted for future changes in estimated forfeitures. The Company will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeiture rates are higher than estimated. No amounts relating to employee stock-based compensation have been capitalized.

At April 30, 2015, there remained approximately $533,000 of unrecognized compensation expense related to unvested stock options granted to current and former employees and directors, to be recognized as expense over a weighted-average period of one year.

Presented below is the Company’s stock option activity for employees and directors:

The weighted average fair value of stock options granted during the years ended April 30, 2015, 2014 and 2013 are $0.10, $0.00 and $0.00, respectively.

A summary of the activity for unvested employee stock options during the three years ended April 30, 2015 is presented below:

The Company recorded approximately $5,237,000, $0 and $0 of non-cash charges related to the issuance of stock options to certain directors and employees in exchange for services during the years ended April 30, 2015, 2014 and 2013, respectively.

At April 30, 2015, there remained approximately $558,000 (subject to change in the future based on vesting date fair value) of unrecognized compensation expense related to unvested employee stock options to be recognized as expense over a weighted-average period of one year.

Presented below is the Company’s employee stock option activity during the three years ended April 30, 2015:

The following table summarizes ranges of outstanding stock options at April 30, 2015:

The aggregate intrinsic value of outstanding options as of April 30, 2015 was approximately $1,360,000. This represents options whose exercise price was less than the closing fair market value of the Company’s common stock on April 30, 2015 of $0.16 per share.

Warrants (As Restated)

The Company issued certain warrants to purchase common stock with a cashless exercise feature (“cashless warrants”) in connection with its entry into a marketing and consulting agreement (“Consultant Agreement”) with a consultant on March 23, 2015.  The Company accounted for the cashless warrants as a derivative liability, as disclosed in the Original Filing. However, upon further analysis, the Company determined that the cashless warrants should have been accounted for as equity in accordance with U.S. GAAP in the Original Filing. Additionally, the Company determined that the Consultant Agreement, issuance of shares of common stock to the consultant pursuant to the Consultant Agreement and the issuance of certain warrants to purchase common stock with a cash exercise feature (“cash warrants”) and the cashless warrants to the consultant should have been recorded as a prepaid asset and amortized over the term of the Consultant Agreement in accordance with U.S. GAAP in the Original Filing.

The warrants issued by the Company are classified as equity. The fair value of the warrants was recorded as additional-paid-in-capital, and no further adjustments are made.

On January 21, 2014, the Company began the implementation of its “Warrant Conversion Program”. The program consists of offering every holder of Class A warrants the ability to exercise their Class A warrants, with an exercise price of $0.075 per share, into shares of common stock and an equal number of new Class D warrants, with an exercise price of $0.25 per warrant share. As of April 30, 2015, 18,755,200 Class A warrants were converted for total cash proceeds of $1,380,720 and conversion of $25,920 of debt to an officer. The Company has also begun to offer holders of its Class B warrants, with a conversion price of $0.12 per share, with the same terms. As of April 30, 2015, 2,318,000 Class B warrants were exercised for total cash proceeds of $278,160. An aggregate of 18,755,200 Class D Warrants have been issued in connection with this program.

On September 1, 2014 the Company granted 854,308 Class D Warrants to purchase common stock as part of the Warrant Conversion Program. This resulted in an expense of $100,000 under a consulting agreement to facilitate the Warrant Conversion Program. This expense is included in general and administrative expense.

On March 23, 2015, the Company granted 5,000,000 warrants to purchase common stock at an exercise price of $0.11 per share, which expire on December 31, 2015.

On March 23, 2015, the Company granted 10,000,000 cashless warrants to acquire stock at an exercise price of $0.11 per share, which expire on March 23, 2020.

For stock warrants paid in consideration of services rendered by non-employees, the Company recognizes consulting expense in accordance with the requirements of ASC 505-50 and ASC 505, as amended.

A summary of the Company’s warrant activity and related information for the three years ended April 30, 2015 are shown below:

There were no cashless exercises of warrants on April 30, 2015 and 2014. 

The following table summarizes additional information concerning warrants outstanding and exercisable at April 30, 2015: