Note 8. Stock-Based Compensation

Warrant Activity

We typically issue warrants to purchase shares of our common stock to investors as part of a financing transaction or in connection with services rendered by placement agents and consultants. Our outstanding warrants expire on varying dates through July 2019. A summary of warrant activity is as follows:

	Number of Shares		Weighted- Average Exercise Price/Share		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (1)
Outstanding — March 31, 2014		61,194,343	$	0.84
Issued		3,621,929		0.50
Exercised		(50,000)		0.20
Forfeited		—		—
Expired		(243,187)		2.47
Outstanding — September 30, 2014		64,523,085	$	0.81		2.6	$	1,139,800
Vested (exercisable) — September 30, 2014		64,523,085	$	0.81		2.6	$	1,139,800

(1)

Aggregate intrinsic value represents the difference between the exercise price of the warrant and the closing market price of our common stock on September 30, 2014, which was $0.40 per share.

The fair value of each warrant grant was estimated on the date of grant using Black-Scholes with the following weighted average assumptions:

Expected life (years)		4.5 – 4.9
Risk-free interest rate		1.45% - 1.64%
Volatility		118.9% – 125.3%
Dividend yield		0%

Stock Options

We have three stock incentive plans: the 2002 Stock Incentive Plan, or the 2002 Plan, the 2009 Stock Incentive Plan, or the 2009 Plan and the 2011 Stock Incentive Plan, or the 2011 Plan (collectively, the “Plans”). The 2002 Plan authorizes the grant of incentive awards, including stock options, for the purchase of up to a total of 500,000 shares and has no shares available for future issuances as the 2002 Plan has expired. Subsequent to the adoption of the 2011 Plan, no new options have been granted pursuant the 2009 Plan or 2002 Plan. In September 2009, the stockholders approved the issuance of up to 1,200,000 shares of common stock available for issuance under the 2009 Plan and as of September 30, 2014, the Company has 303,768 shares available for future awards under the 2009 Plan. In September 2011, the stockholders authorized the issuance of up to 2,300,000 shares of the Company's common stock. On September 13, 2012, the stockholders approved an increase to the number of shares of the Company’s common stock available for issuance by 3,000,000 shares. On September 6, 2013 the stockholders approved an increase to the number of shares of the Company’s common stock available for issuance by 7,100,000 shares. On August 29, 2014 the stockholders approved an increase to the number of shares of the Company’s common stock available for issuance by 1,500,000 shares. As of September 30, 2014, there were 8,098,373 incentive awards available for grant under the 2011 Plan.

We granted stock options at exercise prices equal to or greater than the quoted market price of our common stock on the grant date. The fair value of each option grant was estimated on the date of grant using Black-Scholes with the following weighted average assumptions:

Expected life (years)		1.6 – 6.1
Risk-free interest rate		0.31% - 2.03%
Volatility		117.2% – 127.7%
Dividend yield		0%

The expected option life assumption is estimated based on the simplified method. Accordingly, the Company has utilized the average of the contractual term of the options and the weighted average vesting period for all options to calculate the expected option term. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of our employee stock options. The expected volatility is based on the historical volatility of our stock commensurate with the expected life of the stock-based award. We do not anticipate paying dividends on the common stock in the foreseeable future.

We recognize stock-based compensation cost over the vesting period using the straight-line single option method. Stock-based compensation expense is recognized only for those awards that are ultimately expected to vest. An estimated forfeiture rate has been applied to unvested awards for the purpose of calculating compensation cost. The estimated forfeiture rate of 0% per year is based on the historical forfeiture activity of unvested stock options. These estimates are revised, if necessary, in future periods if actual forfeitures differ from the estimates. Changes in forfeiture estimates impact compensation cost in the period in which the change in estimate occurs. The summary of stock option activity is as follows:

	Number of Shares		Weighted- Average Exercise Price/Share		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (1)
Outstanding — March 31, 2014		11,894,205	$	0.35
Granted (weighted-average fair value of $0.39 per share)		1,029,000		0.46
Exercised		(7,892)		0.27
Forfeited		(222,369)		0.30
Expired		(22,200)		2.29

Outstanding — September 30, 2014		12,670,744	$	0.36		7.8	$	1,314,300

Vested (exercisable) — September 30, 2014		6,593,032	$	0.40		6.8	$	705,600

Unvested (unexercisable) — September 30, 2014		6,077,712	$	0.32		8.8	$	608,700

(1)

Aggregate intrinsic value represents the difference between the exercise price of the option and the closing market price of our common stock on September 30, 2014, which was $0.40 per share.

As of September 30, 2014, there was unrecognized compensation expense of $1.6 million related to unvested stock options, which we expect to recognize over a weighted average period of 2.7 years.