0001513162-15-000658.txt : 20151223 0001513162-15-000658.hdr.sgml : 20151223 20151222173748 ACCESSION NUMBER: 0001513162-15-000658 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 76 CONFORMED PERIOD OF REPORT: 20151031 FILED AS OF DATE: 20151223 DATE AS OF CHANGE: 20151222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ITUS Corp CENTRAL INDEX KEY: 0000715446 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 112622630 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-37492 FILM NUMBER: 151303741 BUSINESS ADDRESS: STREET 1: 12100 WILSHIRE BOULEVARD CITY: LOS ANGELES STATE: CA ZIP: 90025 BUSINESS PHONE: 31044845200 MAIL ADDRESS: STREET 1: 12100 WILSHIRE BOULEVARD CITY: LOS ANGELES STATE: CA ZIP: 90025 FORMER COMPANY: FORMER CONFORMED NAME: COPYTELE INC DATE OF NAME CHANGE: 19920703 10-K 1 itus10k.htm FORM 10-K FORM 10K


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K


[x]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 31, 2015

or

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________

Commission file number:  0-11254

ITUS CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Delaware


11-2622630

 (State or Other Jurisdiction of Incorporation or Organization)


(I.R.S. Employer Identification No.)

12100 Wilshire Boulevard, Suite 1275

Los Angeles, CA 90025

(310) 484-5200

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrants Principal Executive Offices)


Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $.01 par value

Securities registered pursuant to Section 12(g) of the Act:

None


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes [_]  No [x]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.                          Yes [_]  No [x]

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  [x]   No  [_]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [x]  No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer [__]

Accelerated filer  [__]

Non-accelerated filer  [__] (Do not check if a smaller reporting company)

Smaller reporting company  [x]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes [_]  No [x]

Aggregate market value of the voting stock (which consists solely of shares of common stock) held by non-affiliates of the registrant as of April 30, 2015 (the last business day of the registrants most recently completed second fiscal quarter), computed by reference to the closing sale price of the registrants common stock on the OTCQB on such date ($3.00 ): $23,589,150

On December 17, 2015, the registrant had outstanding 8,724,878 shares of common stock, par value $.01 per share, which is the registrants only class of common stock.

DOCUMENTS INCORPORATED BY REFERENCE:  

NONE     





 



TABLE OF CONTENTS





Page

PART I


 




 

Item 1.

Business

2

Item 1A.

Risk Factors

6

Item 1B.

Unresolved Staff Comments

18

Item 2.

Properties.

18

Item 3.

Legal Proceedings

18

Item 4.

Mine Safety Disclosures

18



PART II





Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

18

Item 6.

Selected Financial Data

19

Item 7.

Managements Discussion and Analysis of Financial Condition and Results of Operations.

20

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

27

Item 8.

Financial Statements and Supplementary Data

27

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

27

Item 9A.

Controls and Procedures

27

Item 9B.

Other Information

28





PART III


Item 10.

Directors, Executive Officers and Corporate Governance

28

Item 11.

Executive Compensation

34

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

42

Item 13.

Certain Relationships and Related Transactions, and Director Independence

46

Item 14.

Principal Accounting Fees and Services

47



PART IV


Item 15.

Exhibits, Financial Statement Schedules

48 



1




 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING

STATEMENTS


Information included in this Annual Report on Form 10-K (this Report) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act).  Forward-looking statements are not statements of historical facts, but rather reflect our current expectations concerning future events and results.  We generally use the words believes, expects, intends, plans, anticipates, likely, will and similar expressions to identify forward-looking statements.  Such forward-looking statements, including those concerning our expectations, involve risks, uncertainties and other factors, some of which are beyond our control, which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.   These risks, uncertainties and factors include, but are not limited to, those factors set forth in this Report under Item 1A. Risk Factors below.  Except as required by applicable law, including the securities laws of the United States, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this Report.


CERTAIN TERMS USED IN THIS REPORT


References in this Report to we, us, our, the Company or ITUS means ITUS Corporation unless otherwise indicated.  



PART I

Item 1.  Business.     

Overview     


We were incorporated on November 5, 1982 under the laws of the State of Delaware.  From inception through October 2012, our primary operations involved the development of patented technologies in the areas of thin-film displays and encryption.  In October of 2012 under the leadership of a new management team, the Company undertook a transformation process to recapitalize the Company, unencumber the Companys assets, seek reparations from a previous joint development partner, change the Companys name and ticker symbol, relocate the Companys headquarters and modernize its systems, and monetize patented technologies developed by the Company, or acquired from third parties. In July of 2015, the Companys stock was accepted for listing and began trading on the NASDAQ Capital Market.


In June of 2015, the Company announced the formation of a new subsidiary, Anixa Diagnostics Corporation (Anixa), to develop non-invasive blood tests for the early detection of solid tumor based cancers. In July of 2015, Anixa entered into a collaborative research agreement with The Wistar Institute (Wistar), the nations first independent biomedical

2




research institute and a leading National Cancer Institute designated cancer research center, for the purpose of validating Anixas cancer detection methodologies and establishing protocols for identifying certain biomarkers in the blood stream identified by Anixa and associated with solid tumors. In October of 2015, Anixa and Wistar announced very favorable results from initial testing of a small group of breast cancer patients and healthy controls. One hundred percent (100%) of the blood samples tested from breast cancer patients showed the presence of the biomarkers identified by Anixa, and none of the healthy patient blood samples contained the biomarkers. A more extensive clinical study is currently being conducted.   


Based upon and following the results of the more extensive clinical study, Anixa will determine what further studies are necessary and whether and when to begin the process of seeking regulatory approval for a cancer screening test or tests utilizing Anixas technology. One manner of seeking regulatory approval is to have a lab certified to run the Anixa cancer screening tests pursuant to the Clinical Laboratory Improvement Act of 1988 (CLIA). Among other things, CLIA requires clinical laboratories that perform diagnostic testing to be certified by the state in which the lab is located, as well as the Center for Medicare and Medicaid Services. If Anixa seeks regulatory approval pursuant to CLIA, only those laboratories that are certified under CLIA to run the Anixa diagnostic test would be able to process test samples. CLIA certification may or may not require additional studies. Anixa could seek to establish its own CLIA certified laboratory to run the diagnostic tests, or Anixa could potentially contract with an existing CLIA certified lab, and seek to have that laboratory certified to run the Anixa diagnostic test.


Another manner of obtaining regulatory approval would be to seek to have an Anixa diagnostic test or tests approved by The Food and Drug Administration (FDA) pursuant to what are commonly referred to as either the 510(K) process, or the Premarket Application (PMA) process. The appropriate pathway for FDA approval would depend upon a variety of factors, including the intended use of the test, and the risks associated with such use. FDA approval can take several years and would entail additional clinical studies.


The decision of whether and when to seek CLIA certification or FDA approval of a diagnostic test or tests utilizing Anixas technology will be dependent on a variety of factors, including the results from Anixas more extensive clinical study, the capital requirements of each approval process, the landscape for competitive diagnostic testing, and the time and resources required by each approval process. It is possible that Anixa may seek to have one or more diagnostic tests approved via CLIA certification, and other diagnostic test or tests approved by the FDA, or that Anixa may seek simultaneous approval of a particular diagnostic test or tests.


Over the next several quarters, we expect Anixa to be the primary focus of the Company. As part of our legacy operations, the Company has outsourced a small development project in connection with one of the Companys thin-film display technologies, and through certain of its subsidiary companies, the Company remains engaged in limited patent licensing activities in the areas of encryption and advanced materials.  We do not expect these activities to be a significant part of the Companys ongoing operations.


Over the past several quarters, our revenue has been derived from technology licensing and the sale of patented technologies, including in connection with the settlement of litigation. In


 

3



 

addition to Anixa, the Company expects to make investments in and form new companies to develop additional emerging technologies.

 

AU Optronics Lawsuit and Settlement


On December 29, 2014, the Company and AU Optronics Corporation (AUO) entered into a Settlement Agreement, and a Patent Assignment Agreement, resolving a lawsuit filed by the Company against AUO in connection with the joint development and commercialization of two of the Companys thin-film display technologies. The Company received an aggregate of $9,000,000 from AUO, and transferred certain patents to AUO as part of the settlement.


Competition


Background


Continuing scientific advances and discoveries, the ability to more quickly process and analyze large amounts of scientific data, and decreases in the cost of sophisticated equipment and technologies, have resulted in the potential for significant advances in cancer treatment, and in particular, cancer diagnostics. Cancer statistics gathered over the past several decades provide overwhelming evidence that the earlier that cancers are detected, the greater the survival rates. Up until now, doctors have primarily relied upon technologies such as imaging (x-rays, CT Scans, MRIs, PET Scans, Ultrasounds) and biopsies and other invasive procedures for cancer detection and cancer diagnoses. In many cases, these diagnostic procedures were performed after patients exhibited one or more symptoms of cancer, at which point the cancer may likely no longer be at an early stage. Existing diagnostic technologies such as imaging have gotten better, and invasive diagnostic procedures such as colonoscopies have become more accurate and less risky, and we expect these types of traditional diagnostic tools to continue to predominate the cancer diagnostic market for the foreseeable future.


However, we believe that with advancing medical knowledge, improvements in equipment and technologies, and reduction in costs of new technologies, our industry will create new types of cancer diagnostic testing that will outperform many of the traditional diagnostic tests, eliminate many of the negative consequences of existing diagnostic testing, and ultimately predominate the cancer diagnostic market.  


Anixa has identified a class of biomarkers that it believes are present in the blood of patients with tumor based cancers, and is perfecting a process and methodology for detecting those biomarkers. The goal is to create a platform that can be used to launch a series of simple and affordable blood tests that can be used to detect and monitor many of the most deadly forms of cancer, including lung cancer, breast cancer, ovarian cancer, colon cancer, pancreatic cancer, and others. It is unlikely that the Company will initially simultaneously launch tests for each of the cancers identified above, and that specific and individual cancer tests for both the cancer screening and cancer monitoring markets will be launched over time.


Statistics from The American Cancer Society indicate that one out of every two males, and one out of every three females, will develop some form of cancer during their lifetimes. With approximately 200 million adults in the United States alone, we believe that the market for new,


 

4



non-invasive cancer diagnostic technologies and testing will be enormous, and that there will be sufficient demand to support many different technologies and tests.


Cancer Diagnostic Technologies


If successful, we believe Anixas cancer diagnostic testing will have several advantages over existing diagnostic technologies. For example, repeated exposure to radiation from x-ray technologies, such as mammograms, has become an increasing concern for the medical community, causing authorities to re-evaluate the recommended frequency of such x-ray based tests.  Traditional biopsies are often impossible for some tumor based cancers depending on the location of the tumor, and are invasive, expensive, and painful enough to warrant only limited use for other tumor based cancers even when the tumor can be accessed. In addition, such biopsies are limited in their inability to detect the heterogeneity of many cancerous tumors, and the ongoing mutations that are often evident as the tumor progresses. False positives in existing testing such as the PSA test, result in otherwise healthy patients being misdiagnosed, and subject to unnecessary follow-on treatments and medical procedures.  Patient inconvenience, risk of side effects from anesthesia, and risk of other complications result in low patient compliance with otherwise effective cancer screening tests such as the colonoscopy.  These are just a few examples of the challenges with traditional tests that Anixas technology seeks to eliminate.  Such will be the foundation for the competitive advantages that Anixas expects to have over existing diagnostic testing.


Many public and private companies have announced plans and ongoing research efforts to launch non-invasive cancer diagnostic tests, and tools that can be used for non-invasive cancer testing. These companies include well established, and successful biotech companies, start-ups, and companies of all sizes.  Almost every bodily fluid, including blood, plasma, urine, saliva, and excrement, are being studied for biomarkers or indicators of one or more types of cancer. The term that has been used to describe the category of this type of non-invasive cancer diagnostic testing is Liquid Biopsy.  In general, most of these companies are focused on identifying and analyzing one of three types of biomarkers: circulating tumor cells (CTCs), circulating tumor DNA (ctDNA), and Exosomes. Each of these types of biomarkers has their advantages and disadvantages, and we expect that tests incorporating these and other biomarkers will make their way into the cancer diagnostic marketplace.


Anixa believes that its diagnostic platform has the potential for at least three distinct advantages over the types of biomarker tests referred to above. First, it appears that the biomarkers that Anixa is using may be present in multiple types of tumor based cancers. As a result, our technology could become the basis of a diagnostic platform from which multiple tests could be launched for multiple types of solid tumor based cancers.  Most biomarkers are associated with and useful for only one type or sub-type of cancer. Second, it appears that the biomarkers that Anixa is using may be present in both advanced, and early stages of cancers. Third, Anixas potential methodology for detecting the biomarkers that Anixa is using is significantly less expensive than the technologies commonly used for tests based on CTCs, ctDNA, and Exosomes.


Employees


As of October 31, 2015, on a consolidated basis, we had six full-time employees.

 


 

5



 

Other


We were incorporated on November 5, 1982 under the laws of the State of Delaware.  From inception through the end of October 2012, our primary operations involved the development of patented technologies in the areas of thin-film displays and encryption.  Our current business model includes investing in and forming new companies to develop emerging technologies, including our Anixa Diagnostics Corporation, our cancer diagnostics subsidiary.

 

Our principal executive offices are located at 12100 Wilshire Boulevard, Suite 1275, Los Angeles, California 90025, our telephone number is 310-484-5200 and our Internet website address is www.ITUScorp.com.  We make available free of charge on or through our Internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements on Schedule 14A, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the Securities and Exchange Commission (the SEC).  Alternatively, you may also access our reports at the SECs website at www.sec.gov. You may also read and copy any document we file with the SEC at the SECs public reference room located at 100 F Street, NE, Washington, DC 20549, on official business days during the hours of 10:00 a.m. and 3:00 p.m. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room.


Item 1A.

Risk Factors.                       

Our business involves a high degree of risk and uncertainty, including the following risks and uncertainties:


Risks Related to Our Financial Condition and Operations


We have a history of losses and may incur additional losses in the future.


On a cumulative basis we have sustained substantial losses and negative cash flows from operations since our inception.  As of October 31, 2015, our accumulated deficit was approximately $146,149,000.  As of October 31, 2015, we had approximately $6,769,000 in cash and cash equivalents and short-term investments, and working capital of approximately $6,302,000. We incurred losses of approximately $1,379,000 in fiscal year 2015. We expect to incur material research and development expenses and to continue incurring significant legal and general and administrative expenses in connection with our operations.  As a result, we anticipate that we will incur losses in the future.  


We may need additional funding in the future which may not be available on acceptable terms, or at all, and, if available, may result in dilution to our stockholders.


Based on currently available information as of December 21, 2015, we believe that our existing cash, cash equivalents, short-term investments and expected cash flows will be sufficient to enable us to continue our business activities for at least 12 months.  However, our projections of future cash needs and cash flows may differ from actual results. If current cash on hand, cash equivalents, short term investments and cash that may be generated from our business operations


 

6



are insufficient to satisfy our liquidity requirements, we may seek to sell equity securities or obtain loans from various financial institutions where possible.  The sale of additional equity securities or convertible debt could result in dilution to our stockholders. Additionally, the sale of equity securities or issuance of debt securities may be subject to certain security holder approvals or may result in the downward adjustment of the exercise or conversion price of our outstanding securities. We can give no assurance that we will generate sufficient cash flows in the future to satisfy our liquidity requirements or sustain future operations, or that other sources of funding, such as sales of equity or debt, would be available or would be approved by our security holders, if needed, on favorable terms or at all.  If we cannot obtain such funding if needed or if we cannot sufficiently reduce operating expenses, we would need to curtail or cease some or all of our operations. 


If we encounter unforeseen difficulties with our business or operations in the future that require us to obtain additional working capital, and we cannot obtain additional working capital on favorable terms, or at all, our business will suffer.


Our consolidated cash, cash equivalents and short-term investments on hand totaled approximately $6,769,000 and $5,861,000 at October 31, 2015 and 2014, respectively.  To date, we have relied primarily upon cash from the public and private sale of equity and debt securities, as well as net proceeds from the December 2014 AUO settlement, to generate the working capital needed to finance our operations.


Although we received an aggregate of $9,000,000 from a Settlement Agreement and Patent Assignment Agreement with AU Optronics Corporation, resolving a lawsuit by the Company, we may need substantial additional capital to continue to operate our business.


We may encounter unforeseen difficulties with our business or operations in the future that may deplete our capital resources more rapidly than anticipated.  As a result, we may be required to obtain additional working capital in the future through bank credit facilities, public or private debt or equity financings, or otherwise.  Other than as disclosed in this Annual Report, we have not identified other sources for additional funding and cannot be certain that additional funding will be available on acceptable terms, or at all.  If we are required to raise additional working capital in the future, such financing may be unavailable to us on favorable terms, if at all, or may be dilutive to our existing stockholders.  If we fail to obtain additional working capital as and when needed, such failure could have a material adverse impact on our business, results of operations and financial condition.  Furthermore, such lack of funds may inhibit our ability to respond to competitive pressures or unanticipated capital needs, or may force us to reduce operating expenses, which would significantly harm the business and development of operations.


Failure to effectively manage our potential growth could place strains on our managerial, operational and financial resources and could adversely affect our business and operating results.


Our business strategy and potential growth may place a strain on managerial, operational and financial resources and systems.  Although we may not grow as we expect, if we fail to manage our growth effectively or to develop and expand our managerial, operational and financial resources and systems, our business and financial results will be materially harmed.

 


 

7



Risks Related to Anixa


Anixa is a pre-revenue biotechnology company and is thus subject to the risks associated with new businesses in that industry.


Since the Companys primary focus for the foreseeable future will likely be on Anixa, shareholders should understand that Anixa is an early stage biotechnology company with no history of revenue-generating operations, and its only assets consist of certain intellectual property and know-how of its officers. Therefore, this subsidiary is, and expects for the foreseeable future to be, subject to all the risks and uncertainties inherent in a new business, in particular new businesses engaged in the early detection of certain cancers. Anixa still must establish and implement many important functions necessary to operate a business, including securing its intellectual property rights.


Accordingly, you should consider the Companys prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in their pre-revenue generating stages, particularly those in the biotechnology field. Shareholders should carefully consider the risks and uncertainties that a new subsidiary with no operating history will face. In particular, shareholders should consider that there is a significant risk that Anixa will not be able to:

 

·

demonstrate the effectiveness of its tests:

·

implement or execute Anixas current business plan, or that Anixas business plan is sound;

·

raise sufficient funds in the capital markets or otherwise to fully effectuate Anixas business plan;

·

maintain its management team, including the members of its scientific advisory board;

·

determine that the processes and technologies that Anixa has developed or will develop are commercially viable; and/or

·

attract, enter into or maintain contracts with potential commercial partners such as licensors of technology and suppliers.


If Anixa cannot execute any one of the foregoing, its business may fail and the Company will be adversely effected. In addition, we expect to encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. Anixa will need to transition at some point from a company with a research and development focus to a company capable of supporting commercial activities. Anixa may not be able to reach such point of transaction or make such a transition, which would have a material adverse effect on our Company.


We may have difficulty in raising capital for Anixa and may consume resources faster than expected.


Anixa currently does not generate any revenue from its diagnostic technology or otherwise and as of October 31, 2015, the Company only had $6,769,000 in cash. Therefore, we have a limited source of cash to meet Anixas future capital requirements, which may include the expensive process of obtaining FDA approval for our technology for each type of cancer for


 

8



which we desire to launch a diagnostic test. We do not expect Anixa to generate revenues for the foreseeable future, and we may not be able to raise funds for Anixa in the future, which would leave us without resources to continue Anixas operations and force us to resort to the Company raising additional capital in the form of equity or debt financings, which may not be available to us. We may have difficulty raising needed capital in the near or longer term as a result of, among other factors, the very early stage of Anixa and Anixas lack of revenues as well as the inherent business risks associated with Anixa and present and future market conditions. Also, Anixa may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner than anticipated. Our inability to raise funds for Anixa could lead to decreases in the price of our common stock and the failure of Anixas business which would have a material adverse effect on the Company.


While Anixas diagnostic technology has shown favorable results from initial testing, we cannot guarantee that these results will be replicated in future testing nor can we guarantee the success of the technology at all.


We have initially used Anixas diagnostic technology to test the blood of a small group of individuals consisting of breast cancer patients and healthy patients. While one hundred percent of the blood samples tested from the breast cancer patients showed the presence of the biomarkers identified by Anixa and none of the healthy patient blood samples contained the biomarkers, there is no guarantee that these results will be replicable when we test a larger group of patients or at all. If we are unable to replicate these results, or if we begin to see a high degree of false positives in future testing, Anixas diagnostic technology will not have any monetary value and we will be unable to generate any revenue from this product.


Even if we are able to replicate the results from the initial testing of Anixas diagnostic technology, our ability to commercialize Anixas technology in the future will depend on our ability to provide evidence of clinical utility.


Our ability to successfully commercialize Anixas diagnostic technology will depend on numerous factors, including whether health care providers believe that Anixas diagnostic tests provide sufficient incremental clinical utility; whether the medical community accepts that Anixas diagnostic tests have sufficient sensitivity (there are no or very few false positives), specificity (detects the cancer the test is supposed to detect) and predictive value to be meaningful in patient care and treatment decisions; whether the technology and the cost of a test is reasonably priced and commercially viable; and whether health insurers, government health programs and other third-party payers will cover and pay for Anixas diagnostic tests and the amount that they will reimburse for such tests. These factors may present obstacles to commercial acceptance of our diagnostic tests.  To the extent these obstacles arise, we will need to devote substantial time and resources to overcome these obstacles, and we might not be successful. Failure to achieve widespread market acceptance of Anixas diagnostic tests would materially harm our business, financial condition and results of operations.


We are unable to give any assurance that we will be successful in providing sufficient evidence of clinical utility or any assurance that we will have adequate managerial, technical or financial resources to support the studies necessary to provide sufficient evidence of clinical utility of Anixas diagnostic testing or differentiate from other diagnostic products in the manner,


 

9



timeframe or cost parameters we anticipate, if at all. If we are unable to provide evidence of clinical utility and differentiate Anixas diagnostic testing, we will not be able to generate the revenues and market growth that we seek. Our failure to generate revenue from the sale of our products would materially adversely impact our business, financial condition, results of operations and prospects.


Diagnostic test development involves a lengthy and complex process, and we may be unable to commercialize on a timely basis, or at all, Anixas diagnostic technology.


We have begun to devote considerable resources to research and development for Anixas diagnostic technology, however there can be no assurance that Anixas technology will be capable of reliably predicting the occurrence or recurrence of any cancers with the sensitivity and specificity necessary to be clinically and commercially useful, or, even if such technology is clinically and commercially useful, that it will result in commercially successful products. In addition, before we can fully develop Anixas diagnostic technology and commercialize any new products, we will need to:


·

conduct substantial research and development;

·

conduct validation studies;

·

expend significant funds;

·

enter into agreements and maintain relationships with third party vendors to provide third party blood samples;

·

obtain regulatory approval (either CLIA, FDA or both); and

·

establish or contract with the owner of a CLIA certified laboratory to process test samples.


Accordingly, Anixas product development process involves a high degree of risk and may take several years, especially if the Company seeks FDA approval for each of the diagnostic tests. If Anixas biomarker technology should fail at the research or development stage, not produce sufficient clinical validation data to support the effectiveness of the product or not gain regulatory approval or if we should run out of cash to devote towards the commercialization of the technology or fail to establish agreements with necessary third party vendors, Anixas diagnostic technology will not make it to commercialization and we will not generate any revenue from the product.


If we fail to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize Anixas diagnostic technology, and our ability to generate revenue and the viability of Anixa and our Company will be materially impaired.


Commercialization of Anixas diagnostic technology will require that we obtain either CLIA certification, FDA approval or both. If we are unable to obtain regulatory approval for Anixas diagnostic tests, we will be unable to commercialize and generate revenue from the technology which would have a material adverse effect on our business, financial condition and results of operations.

 


 

10




Unless we obtain FDA approval for Anixas biomarker testing, we will be dependent on laboratory contractors for testing of patient samples that are essential to the development and validation of Anixas diagnostic tests.


To pursue the development and validation of Anixas diagnostic tests, Anixa will require access to test results obtained from patient blood samples. Anixa has currently contracted with Wistar to provide these services. Unless and until Anixas biomarker tests receive FDA approval, Anixa may elect to seek CLIA certification for one or more of its biomarker tests. Failure to receive FDA approval or CLIA certification would have a material adverse effect on our ability to develop and validate Anixas diagnostic tests.


We will be dependent on third parties for the patient samples that are essential to the development and validation of Anixas diagnostic tests.


To pursue our development and validation of Anixas diagnostic tests, we are likely to need access, over time, to patient blood samples and such patients will need to consent to the use of their blood. We do not have direct access to a supply of patient samples. As a result, we have made arrangements with Wistar that has given us access to patient samples for the development and validation of Anixas diagnostic tests. We may lose access to patient samples provided by third parties, or have that access limited, because the third parties decrease the number of patient samples they provide, due to changes in privacy laws governing the use and disclosure of medical information or due to changes in the laws restricting Anixas ability to obtain patient samples and associated information. If Anixa fails to secure and maintain an adequate supply of patient samples, Anixas ability to pursue its development efforts may be slowed or halted, which could have a material adverse effect on our business, financial condition and results of operations.


Anixas business could be harmed from the loss or suspension of a license or imposition of a fine or penalties under, or future changes in, or changing interpretations of, the law or regulations of the Clinical Laboratory Improvement Act of 1967, the Clinical Laboratory Improvement Amendments of 1988, or the FDA or other federal, state or local agencies.


The clinical laboratory testing industry is subject to extensive federal and state regulation, and many of these statutes and regulations have not been interpreted by the courts. The CLIA are federal regulatory standards that apply to virtually all clinical laboratories (regardless of the location, size or type of laboratory), including those operated by physicians in their offices, by requiring that they be certified under federal law. CLIA does not pre-empt state law, which in some cases may be more stringent than federal law and require additional personnel qualifications, quality control, record maintenance and proficiency testing. The sanction for failure to comply with CLIA and state requirements may be suspension, revocation or limitation of a laboratorys CLIA certificate, which is necessary to conduct business, as well as significant fines and/or criminal penalties. Several states have similar laws and we may be subject to similar penalties. The FDA regulates diagnostic products and periodically inspects and reviews their manufacturing processes and product performance. We may choose to seek FDA approval for Anixas biomarker tests. We cannot assure that applicable statutes and regulations will not be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that would adversely affect our business. Potential sanctions for violation of these statutes and regulations


 

11



 

include significant fines and the suspension or loss of various licenses, certificates and authorizations, which could have a material adverse effect on our business. In addition, compliance with future legislation could impose additional requirements on us, which may be costly, including FDA regulation of laboratory developed tests.


Health insurers and other third-party payers may decide not to reimburse Anixas diagnostic testing or may provide inadequate reimbursement, which could jeopardize our commercial prospects and require customers to pay for the tests out of pocket.


In the United States, the regulatory process that allows diagnostic tests to be marketed is independent of any coverage determinations made by third-party payers. For new diagnostic tests, private and government payers decide whether to cover the test, the reimbursement amount for a covered test and the specific conditions for reimbursement. Physicians may order diagnostic tests that are not reimbursed by third-party payers, but coverage determinations and reimbursement levels and conditions are critical to the commercial success of a diagnostic product. Each third-party payer makes its own decision about which tests it will cover and how much it will pay, although many payers will follow the lead of Medicare. As a result, the coverage determination process will be a time-consuming and costly process that requires us to provide scientific, clinical and economic support for the use of Anixas diagnostic testing to each payer separately, with no assurance that approval will be obtained. If third-party payers decide not to cover Anixas diagnostic tests or if they offer inadequate payment amounts, our ability to generate revenue from Anixas diagnostic tests could be limited since patients who want to take the diagnostic tests would have to pay for it out of pocket. Even if one or more third-party payers decide to reimburse for Anixas tests, a third-party payer may stop or lower payment at any time, which could reduce revenue. We cannot predict whether third-party payers will cover Anixas tests or offer adequate reimbursement. We also cannot predict the timing of such decisions. In addition, physicians or patients may decide not to order Anixas tests if third-party payments are inadequate, especially if ordering the test could result in financial liability for the patient.


Whether or not health insurers and other third-party payers decide to reimburse Anixas diagnostic testing, the technology may cost patients more than we anticipate.


We believe that Anixas diagnostic technology will significantly reduce the cost to patients of screening for certain types of cancer. If, however, the cost to utilize Anixas technology is more expensive than we anticipate, many patients and third-party payers may elect not to utilize the technology which would significantly impact our ability to generate revenue on the technology.


We operate in a competitive market and expect to face intense competition, often from companies with greater resources and experience than us.


The clinical diagnostics industry is highly competitive and subject to rapid change. We are aware of many different types of diagnostic tests available to detect cancer that are currently in use or being developed and many more types of diagnostic tests may be developed in the future. If we are able to successfully commercialize our diagnostic technology, all of these tests will compete with our product. If our diagnostic technology is more expensive than and/or does not have sufficient specificity, sensitivity or predictive value to compete with tests that are currently on the market, or if any other diagnostic tests that are under development, once


 

12



successfully developed and commercialized, have greater specificity, sensitivity or predictive value and/or are cheaper than our technology, we may be unable to compete successfully with such products which would have a material adverse effect on our business, financial condition and results of operations.

 

Furthermore, as the industry continues to expand and evolve, an increasing number of competitors and potential competitors may enter the market. Many of these competitors and potential competitors have substantially greater financial, technological, managerial and research and development resources and experience than we do. Some of these competitors and potential competitors have more experience than we do in the development of diagnostic products, including validation procedures and regulatory matters. In addition, our diagnostic tests will compete with product offerings from large and well established companies that have greater marketing and sales experience and capabilities than we do. If we are unable to compete successfully, we may be unable to sustain and grow our revenue.

If we are unable to obtain and maintain intellectual property protection, Anixas competitive position will be harmed.


Anixas ability to compete and to achieve sustained profitability will be impacted by its ability to protect its proprietary discoveries and technologies, including its technology for detecting biomarkers. We expect to rely on a combination of patent protection, copyrights, trademarks, trade secrets, know-how, and regulatory approvals to protect Anixas technologies. Anixas intellectual property strategy is intended to help develop and maintain its competitive position. However, we cannot assure you that Anixa will be able to obtain patent protection for its methods of detecting biomarkers and processing its diagnostic tests, nor can we be certain that the steps we will have taken will prevent the misappropriation and unauthorized use of our technologies. If we are not able to obtain and maintain patent protection over Anixas technologies, our competitive position will be harmed.  


We are dependent upon a few key personnel and the loss of their services could adversely affect us.

Our future success of developing our cancer diagnostics subsidiary will depend on the efforts of ITUSs Vice Chairman, and the Executive Chairman of Anixa, Dr. Amit Kumar.  We do not maintain key person life insurance on Dr. Kumar. The loss of the services of Dr. Kumar could have a material adverse effect on our business and operating results.

 Risks Related to Patent Licensing Activities


We may not be able to license our patent portfolios which may have an adverse impact on our future operations.


We may generate revenues and related cash flows from the licensing and enforcement of patents that we currently own, from technologies that we develop and from the rights to license and enforce additional patents we have obtained, and may obtain in the future, from third parties.  However, we can give no assurances that we will be able to identify opportunities to exploit such patents or that such opportunities, even if identified, will generate sufficient revenues to sustain future operations.

 


 

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We, in certain circumstances, rely on representations, warranties and opinions made by third parties that, if determined to be false or inaccurate, may expose us to certain material liabilities.


From time to time, we may rely upon the opinions of purported experts.  In certain instances, we may not have the opportunity to independently investigate and verify the facts upon which such opinions are made. By relying on these opinions, we may be exposed to liabilities in connection with the licensing and enforcement of certain patents and patent rights which could have a material adverse effect on our operating results and financial condition.

In connection with patent licensing activities conducted by certain of our subsidiaries, a court that has ruled unfavorably against us may also impose sanctions or award attorneys fees, exposing us and our operating subsidiaries to certain material liabilities.


In connection with any of our patent licensing activities, it is possible that a court that has ruled against us may also impose sanctions or award attorneys fees to defendants, exposing us or our operating subsidiaries to material liabilities, which could materially harm our operating results and our financial condition.

Our patented technologies have an uncertain market value.

Many of our patents and technologies are in the early stages of adoption in the commercial and consumer markets. Demand for some of these technologies is untested and is subject to fluctuation based upon the rate at which our licensees will adopt our patents and technologies in their products and services.

We may choose to further develop our patented technologies or invest in new patented technologies which are in need of development.

Early stage technologies involve a high degree of risk, and the development of early stage technologies can be capital intensive. Should we decide to further develop our patented technologies, or invest in new patented technologies, we may not have the capital necessary to continually fund the development of the technologies, and the likelihood of achieving commercial success with any early stage technology is highly speculative.


Risks Related to Our Common Stock

 

The availability of shares for sale in the future could reduce the market price of our common stock.

In the future, we may issue securities to raise cash for operations and acquisitions of patents and/or companies.  We have and in the future may issue securities convertible into our common stock. Any of these events may dilute stockholders' ownership interests in our company and have an adverse impact on the price of our common stock.

In addition, sales of a substantial amount of our common stock in the public market, or the perception that these sales may occur, could reduce the market price of our common stock. This could also impair our ability to raise additional capital through the sale of our securities.


 

14



Any actual or anticipated sales of shares by our stockholders may cause the trading price of our common stock to decline.  The sale of a substantial number of shares of our common stock by our stockholders, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.

Delaware law and our charter documents contain provisions that could discourage or prevent a potential takeover of our company that might otherwise result in our stockholders receiving a premium over the market price of their shares.

Provisions of Delaware General Corporation Law (DGCL) and our certificate of incorporation, as amended (the Certificate of Incorporation) and by-laws (By-Laws) could make the acquisition of our company by means of a tender offer, proxy contest or otherwise, and the removal of incumbent officers and directors, more difficult. These provisions include:

·

Section 203 of the DGCL, which prohibits a merger with a 15%-or-greater stockholder, such as a party that has completed a successful tender offer, until three years after that party became a 15%-or-greater stockholder;

·

The authorization in our Certificate of Incorporation of undesignated preferred stock, which could be issued without stockholder approval in a manner designed to prevent or discourage a takeover; and

·

Provisions in our By-Laws regarding stockholders' rights to call a special meeting of stockholders limit such rights to stockholders holding together at least a majority of shares of the Company entitled to vote at the meeting, which could make it more difficult for stockholders to wage a proxy contest for control of our Board of Directors or to vote to repeal any of the anti-takeover provisions contained in our Certificate of Incorporation and By-Laws.

Together, these provisions may make the removal of management more difficult and may discourage transactions that could otherwise involve payment of a premium over prevailing market prices for our common stock.

We may fail to meet market expectations because of fluctuations in quarterly operating results, which could cause the price of our common stock to decline.

Our reported revenues and operating results have fluctuated in the past and may continue to fluctuate significantly from quarter to quarter in the future, specifically as we continue to devote more of our resources towards Anixa and our diagnostic technology. It is possible that in future periods, we will have no revenue or, in any event, revenues could fall below the expectations of securities analysts or investors, which could cause the market price of our common stock to decline. The following are among the factors that could cause our operating results to fluctuate significantly from period to period:

·

clinical trial results relating to our diagnostic technology;  


 

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·

progress with regulatory authorities towards the certification/approval of our diagnostic technology;

·

commercialization of our diagnostic technology; and

·

costs related to acquisitions, alliances and licenses;

Technology company stock prices are especially volatile, and this volatility may depress the price of our common stock.

The stock market has experienced significant price and volume fluctuations, and the market prices of technology companies have been highly volatile. We believe that various factors may cause the market price of our common stock to fluctuate, perhaps substantially, including, among others, the following:

·

announcements of developments in the cancer diagnostic testing industry;

·

developments in relationships with third party vendors and laboratories;

·

announcements of developments in our remaining patent enforcement actions;

·

developments or disputes concerning our patents and other intellectual property;

·

our or our competitors' technological innovations;

·

variations in our quarterly operating results;

·

our failure to meet or exceed securities analysts' expectations of our financial results;

·

a change in financial estimates or securities analysts' recommendations;

·

changes in management's or securities analysts' estimates of our financial performance;

·

debt crises affecting several countries in the European Union and concerns about sovereign debt of the United States;

·

announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, capital commitments, new technologies, or patents; and

·

the timing of or our failure to complete significant transactions.

In addition, we believe that fluctuations in our stock price during applicable periods can also be impacted by changes in governmental regulations in the diagnostic testing industry and/or court rulings and/or other developments in our remaining patent licensing and enforcement actions. For example, if government regulators no longer allow for the use of


 

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diagnostic technology that has not been granted FDA approval (e.g. denying products that have only received CLIA certification), the time and cost to bring our technology to market will increase which will likely have an adverse impact on our stock price.

In the past, companies that have experienced volatility in the market price of their stock have been the objects of securities class action litigation. If our common stock was the object of securities class action litigation, it could result in substantial costs and a diversion of management's attention and resources, which could materially harm our business and financial results.

 Our common stock is currently listed on NASDAQ Capital Market, however if our common stock is delisted for any reason, it will become subject to the SECs penny stock rules which may make our shares more difficult to sell.

If our common stock is delisted from NASDAQ Capital Market, our common stock will then fit the definition of a penny stock and therefore would be subject to the rules adopted by the SEC regulating broker-dealer practices in connection with transactions in penny stocks.  The SEC rules may have the effect of reducing trading activity in our common stock making it more difficult for investors to sell their shares.  The SECs rules require a broker or dealer proposing to effect a transaction in a penny stock to deliver the customer a risk disclosure document that provides certain information prescribed by the SEC, including, but not limited to, the nature and level of risks in the penny stock market.  The broker or dealer must also disclose the aggregate amount of any compensation received or receivable by him in connection with such transaction prior to consummating the transaction.  In addition, the SECs rules also require a broker or dealer to make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchasers written agreement to the transaction before completion of the transaction.  The existence of the SECs rules may result in a lower trading volume of our common stock and lower trading prices.

We do not anticipate declaring any cash dividends on our common stock which may adversely impact the market price of our stock.

We have never declared or paid cash dividends on our common stock and do not plan to pay any cash dividends in the near future. Our current policy is to retain all funds and any earnings for use in the operation and expansion of our business. If we do not pay dividends, our stock may be less valuable to you because a return on your investment will only occur if our stock price appreciates.

The securities issued in our private placements and registered direct offering may dilute your percentage ownership interest and may also result in downward pressure on the price of our common stock.

In connection with our private placements in February 2011, January 2013 and November 2013 and our registered direct offering in July 2014, we have outstanding shares of preferred stock (following the conversion of the Debenture issued in November 2013) and warrants which are convertible into or exercisable for an aggregate of 1,768,889 shares of our common stock, at prices ranging from $4.465 to $10.00 per share.  In addition, as we have registered these shares for resale by the holders, it is possible that a significant number of shares could be sold at the same time.  Because the market for our common stock is thinly traded, the


 

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sales and/or the perception that those sales may occur, could adversely affect the market price of our common stock.  Furthermore, the mere existence of a significant number of shares of common stock issuable upon conversion of the preferred stock or the exercise of warrants may be perceived by the market as having a potential dilutive effect, which could lead to a decrease in the price of our common stock.


Item 1B.

Unresolved Staff Comments.

None.


Item 2.

Properties.

We lease approximately 3,000 square feet of office space at 12100 Wilshire Boulevard, Los Angeles, California (our principal executive offices) from an unrelated party pursuant to a lease that expires March 30, 2016.  Our base rent is approximately $9,000 per month and the lease provides an escalation clause for increases in certain operating costs.


Item 3.

Legal Proceedings.


On December 29, 2014, we settled our lawsuit against AU Optronics Corporation which had been filed on January 28, 2013. For a more detailed description of the settlement with AU Optronics, see the section above entitled AU Optronics Lawsuit and Settlement.  


Other than suits we bring to enforce our patent rights we are not a party to any material pending legal proceedings other than that which arise in the ordinary course of business.  We believe that any liability that may ultimately result from the resolution of these matters will not, individually or in the aggregate, have a material adverse effect on our financial position or results of operations.


Item 4.

Mine Safety Disclosures.

Not applicable.


PART II


Item 5.

Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.


Market Information


Since July 2015, our common stock has traded on the NASDAQ Capital Market under the symbol ITUS.  Prior to July 2015, our common stock traded on the OTCQB. The high and low sales prices as reported by the NASDAQ Capital Market and OTCBQ for each quarterly fiscal period during our fiscal years ended October 31, 2015 and 2014 is as follows (all sales prices below reflect our one-for-twenty-five reverse stock split which was effected in June 2015):  


 

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Fiscal Period

High

Low

 4th quarter 2015

 3rd quarter 2015

2nd quarter 2015

 1st quarter 2015


$ 6.00

8.95

4.10

5.53


$ 3.72

1.75

1.75

2.25


4th quarter 2014

3rd quarter 2014

2nd quarter 2014

 1st quarter 2014


$ 6.75

10.00

10.00

12.00


$ 3.28

5.88

5.27

4.00



Holders


As of December 17, 2015, the approximate number of record holders of our common stock was 1,009 and the closing price of our common stock was $2.49 per share.


Securities Authorized for Issuance Under Equity Compensation Plans


See Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.


Dividend Policy


No cash dividends have been paid on our common stock since our inception.  We have no present intention to pay any cash dividends in the foreseeable future.


Recent Sales of Unregistered Securities


During the fiscal year ended October 31, 2015, the Company issued an aggregate of 11,600 shares of our common stock to various companies in payment of public relations and investor relations services. The common stock was issued in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act as they were issued to accredited investors, without a view to distribution, and were not issued through any general solicitation or advertisement.



 

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Item 7.

Managements Discussion and Analysis of Financial Condition and Results of Operations.

General


In reviewing Managements Discussion and Analysis of Financial Condition and Results of Operations, you should refer to our Consolidated Financial Statements and the notes related thereto.


Results of Operations


Fiscal Year ended October 31, 2015 compared with Fiscal Year ended October 31, 2014


Revenue from Licensing Activities

In fiscal year 2015, we recorded revenue from licensing activities of $255,000 from 6 license agreements. In fiscal year 2014, we recorded revenue from licensing activities of $2,480,000 from 27 license agreements. The license agreements provided for one-time, non-recurring, lump sum payments in exchange for non-exclusive retroactive and future licenses, and/or covenants not to sue.  Accordingly, the earning process from these licenses was complete and 100% of the revenue was recognized upon execution of the license agreements.


Display Technology Development and License Fees

We did not record any display technology development and license fees during the fiscal year 2015. In fiscal year 2014, we recorded approximately $1,187,000 of display technology development and license fees revenue, representing the balance of the initial $3 million payment received from AUO Optronics Corporation (AUO) in fiscal year 2011, based on our assessment during fiscal 2014 that we have no further performance obligations under the license agreements with AUO.  


Revenue from Settlement with AU Optronics Corporation

Revenue from the settlement with AUO was $9,000,000 in fiscal year 2015, compared to $-0- in fiscal year 2014.  On December 29, 2014, the Company and AUO entered into a Settlement Agreement (the AUO Settlement Agreement) and a Patent Assignment Agreement (the AUO Patent Assignment Agreement) pursuant to which the Company received an aggregate of $9,000,000 from AUO.  The AUO Settlement Agreement and the AUO Patent Assignment Agreement were entered into to resolve a lawsuit filed by the Company against AUO in January of 2013, in connection with the joint development and commercialization of two of the Companys thin-film display technologies.


  Inventor Royalties and Contingent Legal Fees


Inventor royalties and contingent legal fees decreased by approximately $1,265,000 in fiscal year 2015, to approximately $148,000, from approximately $1,413,000 in fiscal year 2014.  The decrease was due to the decrease in revenue from licensing activities.  Inventor royalties and

 

20



contingent legal fees are expensed in the period that the related revenues are recognized.  The economic terms of patent agreements and contingent legal fee arrangements vary across the patent portfolios owned or controlled by the Company.  


Amortization of Patents


Amortization of patents was approximately $325,000 in fiscal year 2015, compared to approximately $314,000 in fiscal year 2014.  We capitalize patent and patent rights acquisition costs and amortize the cost over the estimated economic useful life.  


Litigation and Licensing Expenses


Litigation and licensing expenses increased by approximately $2,926,000 to approximately $3,501,000 in fiscal year 2015, from approximately $575,000 in fiscal year 2014. Litigation and licensing expenses include approximately $3,298,000 and $306,000 of legal fees and litigation costs in fiscal years 2015 and 2014, respectively, related to the settlement with AUO.


Marketing, General and Administrative Expenses

Marketing, general and administrative expenses decreased by approximately $183,000 to approximately $6,226,000 in fiscal year 2015, from approximately $6,409,000 in fiscal 2014.  The decrease in marketing, general and administrative expenses was principally due to a decrease in consultant stock option expense of approximately $538,000, a decrease in employee compensation and related costs, other than stock option expense, of approximately $151,000, a decrease in investor relations and public relations expense of approximately $125,000, offset by an increase in legal and accounting fees of approximately $231,000, an increase in research and development expense of approximately $151,000, an increase in consulting and outside services expense other than stock option expenses of approximately $147,000 and non-recurring costs associated with former employees severance arrangements of approximately $101,000.


As of October 31, 2015, there was unrecognized compensation cost related to non-vested share-based compensation arrangements for stock options granted to employees and directors of approximately $432,000, which will be recognized in future periods upon vesting of the stock options.  


Loss on Extinguishment of Debt


Loss on extinguishment of debt was $-0- in fiscal year 2015, compared to a loss of approximately $2,699,000 in fiscal year 2014.  Loss on extinguishment of debt in fiscal year 2014 consisted of approximately $483,000 related to the conversion of $1,240,000 principal amount of Convertible Debentures due January 2015 into shares of our common stock and the prepayment of $200,000 principal amount of Convertible Debentures due January 2015, and approximately $2,216,000 related to the conversion of $3,500,000 principal amount of Convertible Debentures due November 2016 into shares of our common stock and preferred stock.

 


 

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Interest Expense


Interest expense decreased by approximately $812,000 to approximately $452,000 in fiscal year 2015, from approximately $1,264,000 in fiscal 2014.  Interest expense in fiscal year 2015 consisted of accreted interest on our patent acquisition obligation.  Interest expense in fiscal year 2014 consisted of approximately $642,000 of amortization of debt discount and deferred financing costs on convertible debentures, approximately $386,000 of accreted interest on our patent acquisition obligation, approximately $174,000 of accrued interest on the Convertible Debenture due November 2016 and approximately $62,000 of common stock issued to pay interest on the Convertible Debentures due January 2016 and the Convertible Debentures due September 2016.  


Change in Fair Value of Derivative Liability


The change in value of derivative liability was $-0- in fiscal year 2015 and a loss of approximately $593,000 in fiscal year 2014. The derivative liability was related to the Convertible Debentures due January 2015 and the Convertible Debentures due November 2016, and changed each reporting period based upon the market price of common stock and the time remaining to the maturity of the debentures. As of October 31, 2015 and 2014, the Company no longer has any convertible debentures.


Dividend Income


There was no dividend income in fiscal year 2015.  Dividend income of approximately $48,000 received in the fiscal year 2014 was related to the Videocon Industries Limited (Videocon) global depository receipts (GDRs).

 

Interest Income


Interest income increased to approximately $18,000 in fiscal year 2015 compared to approximately $9,000 in fiscal year 2014, due to an increase in funds available for short-term investments.


Liquidity and Capital Resources


Our primary sources of liquidity are cash, cash equivalents and short term investments.

 

Based on currently available information as of December 21, 2015, we believe that our existing cash, cash equivalents, short-term investments and expected cash flows will be sufficient to enable us to continue our business activities for at least 12 months.  However, our projections of future cash needs and cash flows may differ from actual results. If current cash on hand, cash equivalents, short term investments and cash that may be generated from our business operations are insufficient to satisfy our liquidity requirements, we may seek to sell equity securities or obtain loans from various financial institutions where possible.  The sale of additional equity securities or convertible debt could result in dilution to our stockholders. Additionally, the sale of equity securities or issuance of debt securities may be subject to certain security holder approvals or may result in the downward adjustment of the exercise or conversion price of our outstanding securities. We can give no assurance that we will generate sufficient cash flows in the future to


 

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satisfy our liquidity requirements or sustain future operations, or that other sources of funding, such as sales of equity or debt, would be available or would be approved by our security holders, if needed, on favorable terms or at all.  If we cannot obtain such funding if needed or if we cannot sufficiently reduce operating expenses, we would need to curtail or cease some or all of our operations. 

 

During the year ended October 31, 2015, cash provided by operating activities was approximately $1,363,000.  Cash provided by investing activities was approximately $45,000, which resulted from the proceeds on maturity of certificates of deposit totaling $3,000,000 which was offset by the purchase of certificates of deposit totaling $2,900,000 and the purchase of property and equipment of approximately $55,000.  Our cash used in financing activities was approximately $401,000, which resulted from approximately $445,000 for the repurchase of 92,232 shares of our common stock and the cancellation of warrants to purchase 16,000 shares of our common stock, offset by the proceeds from exercise of stock options of approximately $45,000.  As a result, our cash, cash equivalents, and short-term investments at October 31, 2015 increased approximately $908,000 to approximately $6,769,000 from approximately $5,861,000 at the end of fiscal year 2014.


On December 29, 2014, the Company and AUO entered into the AUO Settlement Agreement and AUO Patent Assignment Agreement pursuant to which the Company received an aggregate of $9,000,000 from AUO.  The AUO Settlement Agreement and the AUO Patent Assignment Agreement were entered into to resolve a lawsuit filed by the Company against AUO in January of 2013, in connection with the joint development and commercialization of two of the Companys thin-film display.

 

In October 2015, the “Company entered into an At Market Issuance Sales Agreement (the “Agreement”) with National Securities Corporation (“National”) to create an at-the-market equity program under which it may sell up to $10,000,000 worth of its common stock (the “Shares”) from time to time through National, as sales agent. The Company has no obligation to sell any of the Shares, and may at any time suspend offers under the Agreement or terminate the Agreement. The Shares will be issued pursuant to the Company’s previously filed registration statement that was declared effective by the SEC on September 18, 2015. As of October 31, 2015, no Shares have been sold under the Agreement.


Off-Balance Sheet Arrangements


We have no variable interest entities or other significant off-balance sheet obligation arrangements.


Critical Accounting Policies


The Companys consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America.  In preparing these financial statements, we make assumptions, judgments and estimates that can have a significant impact on amounts reported in our consolidated financial statements. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates and make changes accordingly.

 

We believe that, of the significant accounting policies discussed in Note 2  to our consolidated financial statements, the following accounting policies require our most difficult, subjective or complex judgments:

 

·         Revenue Recognition;

·         Stock-Based Compensation; and


 

23



 

·         Convertible Instruments

Revenue Recognition

 

Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been substantially performed pursuant to the terms of the arrangement, (iii) amounts are fixed or determinable, and (iv) the collectability of amounts is reasonably assured.

 

Patent Licensing


In certain instances, our past revenue arrangements have provided for the payment of contractually determined fees in settlement of litigation and in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company.  These arrangements typically include some combination of the following:  (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patented technologies owned or controlled by the Company, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv) the dismissal of any pending litigation.  In such instances, the intellectual property rights granted have been perpetual in nature, extending until the expiration of the related patents.  Pursuant to the terms of these agreements, we have no further obligations.   As such, the earnings process was complete and revenue has been recognized upon the execution of the agreement, when collectability was reasonably assured, and when all other revenue recognition criteria were met.


Display Technology Development and License Fees


We assessed the revenue guidance of Accounting Standards Codification (ASC) 605-25 Multiple-Element Arrangements (ASC 605-25) to determine whether multiple deliverables in our arrangements with AUO represent separate units of accounting.  Under certain license agreements with AUO (the AUO License Agreements), we received initial development and license fees of $3 million, of aggregate development and license fees of up to $10 million.  The additional $7 million in development and license fees were to be payable upon completion of certain conditions for the respective technologies.  We determined that the transfer of the licensed patents and technology and the effort involved in completion of the conditions for the respective technologies represent a single unit of accounting for each technology.  Accordingly, using a proportional performance method, during the third quarter of fiscal year 2011 we began recognizing the $3 million initial development and license fees over the estimated periods that we expected to complete the conditions for the respective technologies. Each of the license agreements also provided for the basis for royalty payments on future production, if any, by AUO to the Company, which we have determined represent separate units of accounting.  We did not recognize any portion of the $7 million of additional development and license fees or any royalty income under the AUO License Agreements.


As a result of the lawsuit brought by the Company against AUO and E Ink Corporation in connection with the AUO License Agreements we did not record any display technology development and license fee revenue during the period from the fourth quarter of fiscal 2012 through the second quarter of fiscal year 2014 due to uncertainty as to our remaining performance obligations, if any.  Based on our assessment performed for the third quarter of


 

24



fiscal 2014, we determined that we have no further performance obligations under the AUO License Agreements and accordingly we recognized display technology development and license fee revenue of approximately $1,187,000, representing the balance of the initial $3 million payment received from AUO.


On December 29, 2014, we settled our lawsuit against AUO and received gross proceeds of $9 million which was recognized as revenue in the first quarter of fiscal 2015 (see Note 1 to the consolidated financial statements Business and Funding Description of Business - AUO Lawsuit and Settlement ).


Stock-Based Compensation

 

We account for stock options granted to employees and directors using the accounting guidance in ASC 718.  We recognize compensation expense for stock option awards over the requisite or implied service period of the grant.  We recorded stock-based compensation expense, related to stock options granted to employees and directors, of approximately $2,192,000 and $2,128,000 during the years ended October 31, 2015 and 2014, respectively.  We account for stock options granted to consultants using the accounting guidance under ASC 505-50.  We recognized stock-based compensation expense for stock options granted to non-employee consultants during the years ended October 31, 2015 and 2014, of approximately $484,000 and $1,022,000, respectively.  

 

Determining the appropriate fair value model and calculating the fair value of stock-based awards requires judgment, including estimating stock price volatility, forfeiture rates and expected term.  If factors change and we employ different assumptions in the application of ASC 718 and ASC 505-50 in future periods, the compensation expense that we record may differ significantly from what we have recorded in the current period.  See Note 2 to the consolidated financial statements for additional information.


 Convertible Instruments

 

The Company accounts for hybrid contracts that feature conversion options in accordance with applicable generally accepted accounting principles (GAAP).  ASC  815 Derivatives and Hedging Activities, (ASC 815) requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. 

 

            Conversion options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host instrument.

 


 

25



 

            The Company accounts for convertible instruments, when the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, in accordance with ASC 470-20 Debt with Conversion and Other Options (ASC 470-20). Under ASC 470-20 the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The Company accounts for convertible instruments (when the Company has determined that the embedded conversion options should be bifurcated from their host instruments) in accordance with ASC 815.  Under ASC 815, a portion of the proceeds received upon the issuance of the hybrid contract are allocated to the fair value of the derivative. The derivative is subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.


Effect of Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-09 (ASU 2014-09), Revenue from Contracts with Customers.  This amendment updates addressing revenue from contracts with customers, which clarifies existing accounting literature relating to how and when a company recognizes revenue. Under the standard, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services.  The amendments for this standard update are effective for interim and annual reporting periods beginning after December 15, 2016, and are to be applied retrospectively or the cumulative effect as of the date of adoption, with early application not permitted.  In July 2015, a one year deferral of the effective date of the new guidance was approved. We are currently evaluating the impact ASU 2014-09 will have on our consolidated financial statements and related disclosures.


In June 2014, the FASB issued Accounting Standards Update 2014-12 (ASU 2014-12), Compensation Stock Compensation.  This amendment requires that a performance target that affects vesting and could be achieved after the requisite service period shall be treated as a performance condition. Adoption of this standard is required for annual periods beginning after December 15, 2015. Early adoption is permitted. We are currently evaluating the impact ASU 2014-12 will have on our consolidated financial statements and related disclosures.

    

In August 2014, the FASB issued Accounting Standards Update 2014-15 (ASU 2014-15).  This amendment requires management to assess an entitys ability to continue as a going concern every reporting period including interim periods, and to provide related footnote disclosure in certain circumstances. Adoption of this standard is required for annual periods beginning after December 15, 2016 and are to be applied retrospectively or the cumulative effect as of the date of adoption. We do not expect this update to have a significant impact on our consolidated financial statements.


In April 2015, the FASB issued Accounting Standards Update 2015-03 (ASU 2015-03) to simplify the presentation of debt issuance costs. This amendment requires debt issuance costs be presented on the balance sheet as a direct reduction from the carrying amount of the debt liability, consistent with debt discounts or premiums. Adoption of this standard is required for


 

26



interim and annual periods beginning after December 15, 2015 and is to be applied retrospectively. We are currently evaluating the impact ASU 2015-03 will have on our consolidated financial statements and related disclosures.


In November 2015, the FASB issued Accounting Standards Update 2015-17 (ASU 2015-17) to simplify the presentation of deferred taxes. This amendment requires that all deferred tax assets and liabilities, along with any related valuation allowances, be classified as noncurrent on the balance sheet.  Adoption of this standard is required for annual periods beginning after December 15, 2016. We are currently evaluating the impact ASU 2015-17 will have on our consolidated financial statements and related disclosures.

 


Item 8.

Financial Statements and Supplementary Data.

See accompanying Index to Consolidated Financial Statements.


Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.


Item 9A.    

Controls and Procedures


Disclosure Controls and Procedures


We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.  Under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Chief Financial Officer and Vice President - Finance, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15 of the Exchange Act.  Based upon that evaluation, our President and Chief Executive Officer and the Chief Financial Officer and Vice President - Finance concluded that our disclosure controls and procedures were effective as of the end of fiscal year 2015.


Managements Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act.  Our management, including the principal executive officer and principal financial officer, does not expect that our internal controls over financial reporting will prevent all errors and all fraud.  A control system, no matter how well designed and operated, cannot provide full assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.  Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of

 


 

27



consolidated financial statements for external purposes in accordance with generally accepted accounting principles.


Under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, we conducted an evaluation as to the effectiveness of our internal control over financial reporting as of October 31, 2015.  In making this assessment, our management used the criteria for effective internal control set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 Internal Control Integrated Framework.  Based on this assessment, our management concluded that our internal control over financial reporting was effective as of October 31, 2015.


This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Managements report was not subject to attestation by the Companys independent registered public accounting firm pursuant to a permanent exemption of the Commission that permits the Company to provide only managements report in this Annual Report on Form 10-K.  Accordingly, our managements assessment of the effectiveness of our internal control over financial reporting as of October 31, 2015 has not been audited by our auditors, Haskell & White LLP.

 

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the fourth quarter of fiscal year 2015 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.


Item 9B.

Other Information.

None.




PART III


Item 10.

Directors, Executive Officers and Corporate Governance.


(a)

Our Directors and Executive Officers


The following table sets forth certain information with respect to all of our directors and executive officers:



 

28




 



Name


Position with the Company and

Principal Occupation


Age

Director and/or Executive Officer Since

Lewis H. Titterton

Chairman of the Board

71

2010

Robert A. Berman

Director, President and Chief Executive Officer

52

2012

Dr. Amit Kumar

Vice Chairman of the Board, Executive Chairman and Chief Executive Officer of Anixa Diagnostics

51

2012

Bruce F. Johnson

Director

73

2012

Dale Fox

Director

48

2014

Henry P. Herms

Chief Financial Officer and Vice President Finance

70

2000

  

We believe that our Board represents a desirable mix of backgrounds, skills, and experiences. The principal occupation and business experience during the last five years for our executive officers and directors and some of the specific experiences, qualifications, attributes or skills that led to the conclusion that each person should serve as one of our directors in light of our business and structure is as follows:


Lewis H. Titterton, 71, Chairman of the Board. Mr. Titterton has served as a director since August 16, 2010, the Chairman of the Board since July 20, 2012 and interim Chief Executive Officer from August 21, 2012 until September 19, 2012.  Mr. Titterton is currently also Chairman of the Board of NYMED, Inc., a diversified health services company.  His background is in high technology with an emphasis on health care and he has been with NYMED, Inc. since 1989.  Mr. Titterton founded MedE America, Inc. in 1986 and was Chief Executive Officer of Management and Planning Services, Inc. from 1978 to 1986.  Mr. Titterton also served as one of our Directors from July 1999 to January 2003.  He holds a M.B.A. from the State University of New York at Albany, and a B.A. degree from Cornell University. Mr. Titterton has been involved with our Company as a director or investor for over nineteen years. Mr. Titterton also has substantial experience with advising on the strategic development of technology companies and over forty years of experience in various aspects of the technology industry.


Robert A. Berman, 52, Director, President and Chief Executive Officer. Mr. Berman has served as our President and Chief Executive Officer since September 19, 2012 and was elected to our Board on November 30, 2012. Mr. Berman has experience in a broad variety of areas including finance, acquisitions, marketing, and the development, licensing, and monetization of intellectual property.  He was recently the CEO of IP Dispute Resolution Corporation (IPDR), a consulting company focused on technology licensing and product development, from March 2007 to September 2012. Prior to IPDR, Mr. Berman was the Chief Operating Officer and General Counsel of Acacia Research Corporation from 2000 to March 2007.   Mr. Berman holds a J.D. from the Northwestern University School of Law and a B.S. in Entrepreneurial Management from the Wharton School of the University of Pennsylvania.  Mr. Berman has experience in both investing in and starting new ventures and new technologies, in


 

29



areas including finance, acquisitions, operations, and marketing, and has served as an officer of another publicly traded company.


Dr. Amit Kumar, 51, Vice Chairman of the Board, Executive Chairman and Chief Executive Officer of Anixa Diagnostics. Dr. Kumar has served on our Board since November 30, 2012 and has been a strategic advisor to the Company since September 19, 2012.  On June 15, 2015, Dr. Kumar was appointed Vice Chairman of the Company and Executive Chairman and Chief Executive Officer of Anixa Diagnostics Corporation, a wholly-owned subsidiary of the Company. Upon his appointment as Executive Chairman of Anixa, Dr. Kumar resigned from his position as the CEO of Geo Fossil Fuels LLC, an energy company, which he had held since December 2010.  From September 2001 to June 2010, Dr. Kumar was President and CEO of CombiMatrix Corporation, a NASDAQ listed biotechnology company and also served as director from September 2000 to June 2012.  Dr. Kumar was Vice President of Life Sciences of Acacia Research Corporation, a publicly traded investment company, from July 2000 to August 2007 and also served as a director from January 2003 to August 2007.   Dr. Kumar has served as Chairman of the board of directors of Ascent Solar Technologies, Inc., a publicly-held solar energy company, since June 2007, and as a director of Aeolus Pharmaceuticals, Inc. since June 2004.  Dr. Kumar holds an A.B. in Chemistry from Occidental College and Ph.D. from Caltech and completed his post-doctoral training at Harvard University. Dr. Kumar has experience in technology driven startups, both at the board and operating levels, in a  broad variety of areas including finance, acquisitions, R&D, and marketing, and has served as a director and officer of another publicly traded company.


Bruce F. Johnson, 73, Director. Mr. Johnson has served on our Board since August 29, 2012.  Mr. Johnson has been a commodity trader on the Chicago Mercantile Exchange for over 40 years. He served as a member of the board of directors of CME Group Inc. from 1998 to May 2015. He had previously served as President, Director and part-owner of Packers Trading Company, a former futures commissions merchant/clearing firm at the CME from 1969 to 2003. He also serves on the board of directors of the Chicago Crime Commission. Mr. Johnson holds a B.S. in Marketing from Bradley University and a J.D. from John Marshall Law School.  Mr. Johnson has been involved with the Company as an investor for over 12 years and has over 30 years experience in the capital markets as a result of his investment background.


Dale Fox, 48, Director. Mr. Mr. Fox is an entrepreneur and innovator who has launched many companies. He is currently the CEO of Tribogenics, a start-up company he co-founded in 2010 that develops portable, powerful X-ray devices based, in part, upon a technology conceived and licensed from the University of California, Los Angeles.  Mr. Fox has raised numerous rounds of capital for many types of companies, including venture capital, strategic investments, and other financings.  Mr. Fox has built executive and advisory teams. He received a Bachelor of Business Administration degree from Southern Methodist Universitys Cox School of Business. Since 2009, Mr. Fox has taught at the Founders Institute where he teaches classes on start-ups and continues to mentor young entrepreneurs.  Mr. Fox is an experienced startup entrepreneur and inventor who has successfully launched a number of companies.  As a result, Mr. Fox has gained experience is a broad variety of other areas including finance, research and development and marketing.


Henry P. Herms, 70, Chief Financial Officer and Vice President Finance.  Mr. Herms has served as our Chief Financial Officer and Vice President Finance since November


 

30



2000 and served as one of our Directors from August 2001 through August 2014. Mr. Herms was also our Chief Financial Officer from 1982 to 1987. He is also a former audit manager and CPA with the firm of Arthur Andersen LLP. He holds a B.B.A. degree from Adelphi University.


Except for Dr. Kumar and Mr. Johnson, none of our current directors or executive officers has served as a director of another public company within the past five years.


 (c)

Our Significant Employees


We have no significant employees other than our executive management team.


(d)

Family Relationships


There are no family relationships between or among the directors, executive officers or persons nominated or chosen by the Company to become directors or executive officers.


(e)

Involvement of Certain Legal Proceedings


To the best of our knowledge, during the past ten years, none of the following occurred with respect to a present or former director or executive officer of the Company: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; (4) being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated; (5) being subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree or finding relating to an alleged violation of the federal or state securities, commodities, banking or insurance laws or regulations or any settlement thereof or involvement in mail or wire fraud in connection with any business entity not subsequently reversed, suspended or vacated and (6) being subject of, or a party to, any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-regulatory organization.


Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers and ten percent stockholders to file initial reports of ownership and reports of changes in ownership of our common stock with the Commission. Directors, executive officers and ten percent stockholders are also required to furnish us with copies of all Section 16(a) forms that they file.  Based upon a review of these filings, we believe that all required Section 16(a) reports were made on a timely basis during fiscal year 2015.


 

31



Code of Ethics

We have adopted a formal code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions.  We will provide a copy of our code of ethics to any person without charge, upon request.  For a copy of our code of ethics write to Secretary, ITUS Corporation, 12100 Wilshire Boulevard, Suite 1275, Los Angeles, California.


Nomination Procedures

On July 9, 2015, the Board established a nominating and corporate governance committee (the Nominating Committee). The Nominating Committee has a charter which will be reviewed on an annual basis by members of the committee and will be at all times composed of exclusively independent directors. The principal duties and responsibilities of the Nominating Committee are to identify qualified individuals to become board members, recommend to the Board individuals to be designated as nominees for election as directors at the annual meetings of stockholders, and develop and recommend to the Board the Companys corporate governance guidelines. In selecting directors, the Nominating Committee will consider candidates that possess qualifications and expertise that will enhance the composition of the Board, including the considerations set forth below.  The considerations set forth below are not meant as minimum qualifications, but rather as guidelines in weighing all of a candidates qualifications and expertise.


·

Candidates should be individuals of personal integrity and ethical character.

·

Candidates should have background, achievements, and experience that will enhance our Board.  This may come from experience in areas important to our business, substantial accomplishments or prior or current associations with institutions noted for their excellence. 

·

Candidates should have demonstrated leadership ability, the intelligence and ability to make independent analytical inquiries and the ability to exercise sound business judgment.

·

Candidates should be free from conflicts that would impair their ability to discharge the fiduciary duties owed as a director to ITUS and its stockholders, and we will consider directors independence from our management and stockholders.

·

Candidates should have, and be prepared to devote, adequate time and energy to the Board and its committees to ensure the diligent performance of their duties, including by attending meetings of the Board and its committees.

·

Due consideration will be given to the Boards overall balance of diversity of perspectives, backgrounds and experiences, as well as age, gender and ethnicity.

·

Consideration will also be given to relevant legal and regulatory requirements.


We are of the view that the continuing service of qualified incumbents promotes stability and continuity in the board room, contributing to the Boards ability to work as a collective body, while giving us the benefit of the familiarity and insight into our affairs that our directors accumulate during their tenure.  Accordingly, the process of the Nominating Committee for identifying nominees for directors will reflect our practice of generally re-nominating incumbent directors who continue to satisfy the Boards criteria for membership on the Board, whom the


 

32



 

Nominating Committee believes continue to make important contributions and who consent to continue their service on the Board.  If the Nominating Committee determines that an incumbent director consenting to re-nomination continues to be qualified and has satisfactorily performed his or her duties as director during the preceding term, and that there exist no reasons, including considerations relating to the composition and functional needs of the Board as a whole, why in the Nominating Committees view the incumbent should not be re-nominated, the Nominating Committee will, absent special circumstances, generally propose the incumbent director for re-election.  Although we do not have a formal policy regarding the consideration of diversity in identifying and evaluating potential director candidates, the Nominating Committee will take into account the personal characteristics (gender, ethnicity and age), skills and experience, qualifications and background of current and prospective directors diversity as one factor in identifying and evaluating potential director candidates, so that the Board, as a whole, will possess what the nominating and corporate governance committee believes are appropriate skills, talent, expertise and backgrounds necessary to oversee our Companys business.


If the incumbent directors are not nominated for re-election or if there is otherwise a vacancy on the Board, the Nominating Committee may solicit recommendations for nominees from persons that the Nominating Committee believes are likely to be familiar with qualified candidates, including from members of the Board and management.  While the Nominating Committee may also engage a professional search firm to assist in identifying qualified candidates, the Nominating Committee did not engage any third party to identify or evaluate or assist in identifying or evaluating the Director Nominees.   We do not have a policy with regard to the consideration of director candidates recommended by stockholders.  Due to the size of our Company and Board, the Nominating Committee does not believe that such a policy is necessary.


Depending on its level of familiarity with the candidates, the Nominating Committee may choose to interview certain candidates that it believes may possess qualifications and expertise required for membership on the Board.  It may also gather such other information it deems appropriate to develop a well-rounded view of the candidate.  Based on reports from those interviews or from Board members with personal knowledge and experience with a candidate, and on all other available information and relevant considerations, the Nominating Committee will select and nominate candidates who, in its view, are most suited for membership on the Board.

 

The members of the nominating committee are Messrs. Titterton (Chairman), Johnson and Fox.


Audit Committee and Audit Committee Financial Expert

On July 9, 2015, the Board established a separately-designated standing audit committee (the Audit Committee) established in accordance with Section 3(a)(58)(A) of the Exchange Act, and Nasdaq Listing Rules. The Audit Committee has a charter which will be reviewed on an annual basis by members of the committee and will be at all times composed of exclusively independent directors who are financially literate, meaning they are able to read and understand fundamental financial statements, including the Companys balance sheet, income statement and cash flow statement. In addition, the committee will have at least one member who qualifies as an audit committee financial expert as defined in rules and regulations of the SEC.

 


 

33



 

The principal duties and responsibilities of the Companys Audit Committee are to appoint the Companys independent auditors, oversee the quality and integrity of the Companys financial reporting and the audit of the Companys financial statements by its independent auditors and in fulfilling its obligations, the Companys Audit Committee will review with the Companys management and independent auditors the scope and result of the annual audit, the auditors independence and the Companys accounting policies.

 

The Audit Committee will be required to report regularly to the Board to discuss any issues that arise with respect to the quality or integrity of the Companys financial statements, its compliance with legal or regulatory requirements and the performance and independence of the Companys independent auditors.


The members of the Audit Committee are Messrs. Titterton (Chairman), Johnson and Fox. Our Board has determined that Mr. Titterton qualifies as an Audit Committee financial expert as defined by SEC rules, based on his education, experience and background. Please see Mr. Tittertons biographical information above for a description of his relevant experience.


Item 11.

Executive Compensation.

The following table sets forth certain information for the fiscal years ended October 31, 2015 and 2014, with respect to compensation awarded to, earned by or paid to our current Chief Executive Officer and our Chief Financial Officer and the Executive Chairman and Chief Executive Officer of Anixa (the Named Executive Officers).  No other executive officer received total compensation in excess of $100,000 during fiscal year 2015. 






 

34





 

SUMMARY COMPENSATION TABLE


Name and

Principal Position



Year


Salary

($)


Bonus

($)

Option Awards

($) (2)

All Other

Compensation

($) (3)

Total

Compensation

($)

Robert A. Berman

Chief Executive Officer and Director

2015

2014

   $300,000

   $300,000

  $150,000

  $200,000

   $   169,081

   $   254,480

    $     4,160

    $     8,320

   $   623,241

   $   762,800

Dr. Amit Kumar (1)

Vice Chairman of the Board, Executive Chairman and Chief Executive Officer of Anixa Diagnostics

2015

   $112,500

  $     -

   $       -

    $        -

   $   112,500

Henry P. Herms

Chief Financial Officer, Vice President- Finance

2015

2014

 

   $168,000

   $168,000

 

  $     -

  $     -

 

   $     16,252

   $     92,455

    $        -

    $        - 

    $  184,252

    $  260,455


(1) On June 15, 2015, Dr. Kumar was appointed Vice Chairman of the Company and Executive Chairman and Chief Executive Officer of Anixa Diagnostics Corporation, a wholly-owned subsidiary of the Company. The above table represents Dr. Kumars compensation subsequent to June 15, 2015.  Prior to that date Dr. Kumar received compensation for his services as a consultant. For more information about Dr. Kumars consultancy arrangements, see the section entitled Transactions with Related Persons below.


(2)  Amounts in the Option Awards column reflects repricing of outstanding options on February 5, 2015. See the section entitled Option Re-Pricing below.  A discussion of assumptions used in valuation of option awards may be found in Notes 2 and 6 to our Consolidated Financial Statements for fiscal year ended October 31, 2015, included elsewhere in this Annual Report on Form 10-K. 


(3)  Amounts in the All Other Compensation column reflect, for each Named Executive Officer, the sum of the incremental cost to us of all perquisites and personal benefits, which consisted solely of life insurance premiums


Employment Agreements


Employment Agreement with Robert Berman


On September 19, 2012, the Company entered into an Employment Agreement with Mr. Berman (the Berman Agreement) to serve as President and Chief Executive Officer of the Company.  Pursuant to the Berman Agreement, Mr. Berman was to receive an annual base salary of $290,000, provided, however that payment of his salary was to be deferred until the Cash Milestone (as described below) was achieved.  In February 2013, the Board elected to commence paying Mr. Berman his salary effective February 1, 2013, but his deferred salary, which was earned and accrued, was not paid until fiscal year 2015.  In August 2013, the Cash Milestone was achieved.


In addition to his base salary, Mr. Berman was entitled to a cash bonus of $50,000, if the Company generated aggregate cash payments in excess of a specified amount (the Cash

 

35




Milestone) prior to September 19, 2013.  The Cash Milestone bonus, which was earned and accrued, was not paid until fiscal year 2015.  Mr. Berman was also entitled to two additional cash bonuses of $50,000 if the average trading price of the Companys common stock exceeded two separate price targets (the Stock Price Targets) prior to September 19, 2013, which Stock Price Targets were not achieved prior to September 19, 2013. 

 

The Company also granted Mr. Berman options to purchase 640,000 shares of the Companys common stock, with an exercise price of $5.4375 which was the average of the high and the low sales price of the common stock on the trading day immediately preceding the approval of such options by the Board (on February 5, 2015 the exercise price was reduced to $2.575 per share). Half of the options vest in 36 equal monthly installments commencing on October 31, 2012, provided that if the Berman Agreement is terminated or constructively terminated by the Company without cause (as defined below), an additional 12 months of vesting will be accelerated and such accelerated options will become immediately exercisable. The balance of the options vest in three equal installments upon achievement of the Cash Milestone (which Cash Milestone has been achieved) and the Stock Price Targets (without regard to the 12 month period). The vesting conditions of the Stock Price Target options have been amended as described below. The options otherwise have the same terms and conditions as options granted under the Companys 2010 Share Incentive Plan (as defined below). 


If Mr. Bermans employment is terminated by the Company or he terminates his employment for any reason or no reason, the Company shall be obligated to pay to Mr. Berman only any earned compensation and/or bonus due under the Berman Agreement, any unpaid reasonable and necessary expenses, and any accrued and unpaid benefits due to him in accordance with the terms and conditions of the Companys benefit plans and policies including any accrued but unpaid vacation up to the cap of 20 days through the date of termination.  All such payments shall be made in a lump sum immediately following termination as required by law.

 

Cause means (i) commission of or entrance of a plea of guilty or nolo contendere to a felony; (ii) conviction for engaging or having engaged in fraud, breach of fiduciary duty, a crime of moral turpitude, dishonesty, or other acts of willful misconduct or gross negligence in connection with the business affairs of the Company or its affiliates; (iii) a conviction for theft, embezzlement, or other intentional misappropriation of funds by employee from the Company or its affiliates; or (iv) a conviction in connection with the willful engaging by employee in conduct which is demonstrably and materially injurious to the Company or its affiliates, monetarily or otherwise.


Amendment to Employment and Stock Option Agreements


Robert A. Bermans employment agreement includes the grant of certain stock options.  On November 8, 2013, in light of the cost and expense of valuing the unvested portion of the options on a quarterly basis for financial reporting purposes, the Board approved an amendment to the Stock Price Target stock options awarded on September 19, 2012 (the Option Awards) to Mr. Berman.  The amendment modifies the Option Awards vesting conditions to provide that the unvested portion of the stock options will vest in 23 consecutive monthly installments, commencing on November 30, 2013 through September 30, 2015.  As of October 31, 2015, all Option Awards have vested.  Prior to the amendment, the Option Awards had provided

 

36




that the stock options would vest if certain milestone targets were met.  All the other terms and conditions of the Option Awards remain unchanged.


Stock Options


The following table sets forth certain information with respect to unexercised stock options held by the Named Executive Officers outstanding on October 31, 2015:


OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE

Option Awards

Name

Number of Securities Underlying Unexercised Options (#)

Exercisable

Number of Securities Underlying Unexercised Options (#)

Un -Exercisable

Option Exercise Price

($)

Option Expiration Date

Robert A. Berman

       320,000(1)

       106,667(2)

       213,333(3)

          28,889(4)

   


   

      11,111(4)

$2.575

$2.575

$2.575

$2.575

9/19/2022

9/19/2022

9/19/2022

11/8/2023

Dr. Amit Kumar

        320,000(1)

        106,667(2)

        213,333(3)

          28,889(4)




      11,111(4)

$2.575

$2.575

$2.575

$2.575

9/19/2022

9/19/2022

9/19/2022

11/8/2023

Henry P. Herms

        2,000

         2,000

         3,000

                4,000

                4,000

              12,000

            15,889(4)






              

        6,111(4)

$2.575

$2.575

$2.575

$2.575

$2.575

$2.575

$2.575

5/31/2016

11/20/2016

11/11/2017

10/7/2019

6/1/2021

9/19/2022

11/8/2018


(1)   Options vested and became exercisable in 36 consecutive monthly installments, beginning October 31, 2012 and continuing through September 30, 2015.


(2)   Options vested upon achievement of the Cash Milestone.


(3)   Options were to vest in two equal installments upon achievement of the Stock Price Targets.  On November 8, 2013, the vesting conditions were modified by the Board to provide that the unvested portion of the stock options vest in 23 consecutive monthly installments, commencing on November 30, 2013 through September 30, 2015. 

 

37





(4)   Options vest and became exercisable in 36 consecutive monthly installments, beginning December 31, 2013 and continuing through November 30, 2016.


There were no grants of stock options to Named Executive Officers during fiscal year 2015.


The following table summarizes the exercise of stock options during fiscal 2015 by Named Executive Officers:


OPTION EXERCISES AND STOCK VESTED TABLE

Name

Option Awards


Number of Shares Acquired on Exercise

(#)

Value Realized

on Exercise

($) (1)

Henry P. Herms

4,000

$4,460


(1)

The value realized on exercise is calculated based on the difference between the exercise price of the options and the market price of the stock at the time of exercise.

 

Option Re-Pricing


On January 28, 2015, the Board of Directors authorized management of the Company to re-price issued and outstanding stock options for all of the officers, directors and employees of the Company, at any time prior to February 16, 2015.  On February 5, 2015, management acted to re-price 87,365 issued and outstanding stock options (the Re-Priced Options) pursuant to the authority granted by the Board of Directors. The new exercise price of the Re-Priced Options is $2.575, the closing sales price of the Companys common stock on February 5, 2015.  All other terms of the previously granted Re-Priced Options remain the same.  


The following stock option grants and related stock option agreements issued to the Companys Named Executive Officers and directors are affected by the re-pricing:



38






 

Name

# of Shares

Old Option Price

New Option Price

Expiration

Date

Lewis A. Titterton

           30,000

      2,400

           16,000

     40,000

   120,000

     16,000

     16,000

      $5.625

$5.025

$4.875

$5.875

$5.000

$4.750

$2.800

$2.575

$2.575

$2.575

$2.575

$2.575

$2.575

$2.575

9/19/2022

11/30/2017

12/31/2022

2/15/2023

11/8/2023

1/2/2024

1/2/2025

Robert A. Berman

    320,000

    106,667

    213,333

      40,000

$5.7375

$5.7375

$5.7375

$5.7375

$2.575

$2.575

$2.575

$2.575

9/19/2022

9/19/2022

9/19/2022

11/8/2023

Dr. Amit Kumar

     320,000

    106,667

    213,333

      40,000

$5.7375

$5.7375

$5.7375

$5.7375

$2.575

$2.575

$2.575

$2.575

9/19/2022

9/19/2022

9/19/2022

11/8/2023

Bruce F. Johnson

      2,400

      2,400

    12,000

    12,000

    12,000

$3.000

$5.025

$4.875

$4.750

$2.800

$2.575

$2.575

$2.575

$2.575

$2.575

8/30/2014

11/30/2017

12/31/2022

1/2/2024

1/2/2025

Dale Fox

      6,000

    12,000

$6.250

$2.800

$2.575

$2.575

8/8/2024

1/2/20255

Henry P. Herms

      2,000

      2,000

      3,000

      4,000

      4,000

     12,000

     22,000

$3.625

$17.500  

$3.625

$3.625

      $9.250

      $5.875 

      $5.000    

$2.575

$2.575

$2.575

$2.575

$2.575

$2.575

$2.575

5/31/2016

11/20/2016

11/11/2017

10/7/2019

6/1/2021

9/19/2022

11/8/2018


Potential Payments upon Termination or Change in Control


Robert A. Berman

           

Options granted Mr. Berman on November 8, 2013 provide for the vesting of the unvested portion of his options to be accelerated and such accelerated options to become immediately exercisable if Mr. Berman is terminated without cause or upon a change in control as defined below. The intrinsic value of such options would be $16,540, which was calculated by multiplying (a) 14,445 options (being the number of options granted to him on November 8,

 

39




2013 that would be accelerated) by (b) an amount equal to the excess of (x) our closing share price on October 31, 2015 of $3.72 and (y) the options exercise price of $2.575 per share.

 

In addition to the acceleration of the options, if Mr. Bermans employment is terminated by the Company or he terminates his employment for any reason or no reason, the Company shall be obligated to pay to Mr. Berman only any earned compensation and/or bonus due under the Berman Agreement, any unpaid reasonable and necessary expenses, and any accrued and unpaid benefits due to him in accordance with the terms and conditions of the Companys benefit plans and policies including any accrued but unpaid vacation up to the cap of 20 days through the date of termination (which accrued and unpaid benefits would have a maximum value of $23,077).

 

            Henry P. Herms

 

Options granted Mr. Herms on November 8, 2013 provide for the vesting of the unvested portion of his options to be accelerated and such accelerated options to become immediately exercisable if Mr. Herms is terminated without cause or upon a change in control as defined below. The intrinsic value of such options would be $9,097, which was calculated by multiplying (a) 7,945 options (being the unvested portion of options granted to him on November 8, 2014 that he held on October 31, 2015) by (b) an amount equal to the excess of (x) our closing share price on October 31, 2015 of $3.72 and (y) the options exercise price of $2.575 per share.

 

Under the 2010 Share Incentive Plan, change in control means:

 

·

Change in Ownership: A change in ownership of the Company occurs on the date that any one person, or more than one person acting as a group, acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company, excluding the acquisition of additional stock by a person or more than one person acting as a group who is considered to own more than 50% of the total fair market value or total voting power of the stock of the Company.

 

·

Change in Effective Control: A change in effective control of the Company occurs on the date that either:

 

o   Any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company; or

 

o   a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of the appointment or election; provided, that this paragraph will apply only to the Company if no other corporation is a majority shareholder.

 

40





·

Change in Ownership of Substantial Assets: A change in the ownership of a substantial portion of the Company's assets occurs on the date that any one person, or more than one person acting as a group, acquires (or has acquired  during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of the assets of the Company immediately before such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

 

It is the intent that this definition be construed consistent with the definition of Change of Control as defined under Code Section 409A and the applicable treasury regulations, as amended from time to time.


Directors Compensation

There is no present arrangement for cash compensation of directors for services in that capacity.  Consistent with the non-employee director compensation approved on March 28, 2013 for calendar year 2013, on November 8, 2013, the Board approved an amendment to the 2010 Share Incentive Plan to provide that on January 1st of each year commencing on January 1, 2014, each non-employee director (a Director Participant) of the Company at that time shall automatically be granted a 10 year nonqualified stock option to purchase 12,000 shares of common stock (or 16,000 in the case of the Chairman of the Board to the extent he qualifies as a Director Participant), with an exercise price equal to the closing price on the date of grant, that will vest in four equal quarterly installments in the year of grant.  In addition, each person who is a Director Participant and joins the Board after January 1 of any year, shall be granted on the date such person joins the Board, a nonqualified stock option to purchase 12,000 shares of common stock (or 16,000 in the case of the Chairman of the Board) pro-rated based upon the number of calendar quarters remaining in the calendar year in which such person joins the Board (rounded up for partial quarters). 

 

Our employee directors, Robert A. Berman and Dr. Amit Kumar, did not receive any additional compensation for services provided as a director during fiscal year 2015.  The following table sets forth compensation of Lewis H. Titterton, Bruce F. Johnson and Dale Fox, our non-employee directors and Dr. Andrea Belz, our former non-employee director, for fiscal year 2015:


 

41




DIRECTORS COMPENSATION

Name

Option Awards

($) (1)

 

Bonus

($)

All Other

Compensation

($)

Lewis H. Titterton

$84,177

-

-

Bruce F. Johnson

$32,832

-

-

Dr. Andrea Belz

$15,375

-

-

Dale Fox

$29,265

-

-

Dr. Amit Kumar (2)

-

-

-

 

(1)    Amounts in the Option Awards column represent the aggregate grant date fair value of stock option awards made during the fiscal year ended October 31, 2015, in accordance with ASC 718 and reflects repricing of outstanding options on February 5, 2015. See the section entitled Option Re-Pricing above.  A discussion of assumptions used in valuation of option awards may be found in Notes 2 and 6 to our Consolidated Financial Statements for fiscal year ended October 31, 2015, included elsewhere in this Annual Report on Form 10-K. At October 31, 2015, Lewis H. Titterton, Bruce F. Johnson, Dr. Andrea Belz and Dale Fox held unexercised stock options to purchase 240,400 40,800, 12,000 and 18,000 shares respectively, of our common stock.


(2)

Dr. Kumar did not receive any compensation for his services as a director.  However, Dr. Kumar did receive compensation for his services as a consultant.  For more information about Dr. Kumars consultancy arrangements, see the section entitled Transactions with Related Persons below.


Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth certain information with respect to our common stock beneficially owned as of December 17, 2015 (or exercisable within 60 days of such date) by (a) each person who is known by our management to be the beneficial owner of more than 5% of our outstanding common stock, (b) each of our directors and executive officers, and (c) all directors and executive officers as a group:  



 

42






Name and Address of Beneficial Owner

Amount and Nature of
Beneficial Ownership
(1)(2)(3)(4)(5)

Percent of Class (6)

Lewis H. Titterton

12100 Wilshire Boulevard, Suite 1275

Los Angeles, CA 90025

704,004

7.88%

Robert A. Berman12100 Wilshire Boulevard, Suite 1275

Los Angeles, CA 90025

721,113

7.67%

Dr. Amit Kumar

12100 Wilshire Boulevard, Suite 1275

Los Angeles, CA 90025

786,629

8.36%

Bruce F. Johnson12100 Wilshire Boulevard, Suite 1275

Los Angeles, CA 90025

458,217

5.22%

Dale Fox

12100 Wilshire Boulevard, Suite 1275

Los Angeles, CA 90025

18,000

*

Henry P. Herms12100 Wilshire Boulevard, Suite 1275

Los Angeles, CA 90025

65,014

*

All Directors and Executive Officers as a Group (6 persons)

    2,752,976

26.46%


* Less than 1%.


(1)

A beneficial owner of a security includes any person who directly or indirectly has or shares voting power and/or investment power with respect to such security or has the right to obtain such voting power and/or investment power within sixty (60) days.  Except as otherwise noted, each designated beneficial owner in this Annual Report on Form 10-K has sole voting power and investment power with respect to the shares of common stock beneficially owned by such person.


(2)

Includes 121,067 shares, 28,889 shares, 28,889 shares, 28,800 shares, 18,000 shares, 31,889 shares and 257,533 shares which Lewis H. Titterton, Robert A. Berman, Dr. Amit Kumar, Bruce F. Johnson, Dale Fox, Henry P. Herms and all directors and executive officers as a group, respectively, have the right to acquire within 60 days upon exercise of options granted pursuant to the 2003 Share Incentive Plan and/or the 2010 Share Incentive Plan.  


(3)

Includes 2,000 shares, 6,666 shares, 15,332 shares, 13,332 and 37,330 shares that Lewis H. Titterton, Robert A. Berman, Dr. Amit Kumar, Bruce F. Johnson and all directors and executive officers as a group, respectively, have the right to acquire within 60 days upon exercise of warrants purchased by them in the private placements on January 25, 2013 and July 15, 2014.

 

 

43




(5)

Includes 86,000 shares, 640,000 shares, 640,000 shares, 12,000 shares and 1,378,000 shares which Lewis H. Titterton, Robert A. Berman, Dr. Amit Kumar, Bruce F. Johnson and all directors and executive officers as a group, respectively, respectively, have the right to acquire within 60 days pursuant to option agreements with the Company.


(6)

Based on 8,720,878 shares of common stock outstanding as of December 17, 2015.


Change in Control


We are not aware of any arrangement that might result in a change in control of the Company in the future.


Equity Compensation Plan Information

The following is information as of October 31, 2015 about shares of our common stock that may be issued upon the exercise of options, warrants and rights under all equity compensation plans in effect as of that date, including our 2003 Share Incentive Plan and our 2010 Share Incentive Plan.  See Note 6 to Consolidated Financial Statements for more information on these plans.


Plan category


Number of securities to be issued upon exercise of outstanding options, warrants and rights(a)


Weighted average exercise price of outstanding options, warrants and rights


Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)



 








Equity compensation plans not approved by security holders (1)(2)





2,672,471






$4.91






988,955



(1)

On April 23, 2003 the Board adopted the 2003 Share Incentive Plan.  Officers, key employees and non-employee directors of, and consultants to, the Company or any of its subsidiaries and affiliates were eligible to participate in the 2003 Share Incentive Plan.  The 2003 Share Incentive Plan provided for the grant of stock options, stock appreciation rights, stock awards, performance awards and stock units (the 2003 Benefits).  The maximum number of shares of common stock available for issuance under the 2003 Share Incentive Plan was 2,800,000.  The 2003 Share Incentive Plan was administered by the Stock Option Committee through June 2004, from June 2004 through July 2010 by the Board, from July 2010 through August 2012, by the Stock Option Committee, from August 2012 through November 2012, by the Executive Committee of the Board and since November 2012 by the Board, which determined the option price, term and provisions of the 2003 Benefits.  The 2003 Share Incentive Plan contains provisions for equitable adjustment of the 2003 Benefits in the event of a merger, consolidation, reorganization, recapitalization, stock dividend, stock split, reverse stock split, spinoff,

 

44



combination of shares, exchange of shares, dividends in kind or other like change in capital structure or distribution (other than normal cash dividends) to stockholders of the Company.  The 2003 Share Incentive Plan terminated with respect to additional grants on April 21, 2013.  


(2)

On July 14, 2010 the Board adopted the 2010 Share Incentive Plan.  Officers, key employees and non-employee directors of, and consultants to, the Company or any of its subsidiaries and affiliates are eligible to participate in the 2010 Share Incentive Plan.  The 2010 Share Incentive Plan provides for the grant of stock options, stock appreciation rights, stock awards, and performance awards and stock units (the 2010 Benefits).  The maximum number of shares of common stock available for issuance under the 2010 Share Incentive Plan was initially 600,000 shares.   On July 6, 2011 and August 29, 2012, the 2010 Share Incentive Plan was amended by our Board to increase the maximum number of shares of common stock that may be granted to 1,080,000 and 1,200,000 shares, respectively.  On November 8, 2013, the Board approved an amendment to provide that effective and following November 8, 2013, the maximum aggregate number of shares available for issuance will be 800,000 shares.  Additionally, commencing on the first business day in 2014 and on the first business day of each calendar year thereafter, the maximum aggregate number of shares available for issuance shall be replenished such that, as of such first business day, the maximum aggregate number of shares available for issuance shall be 800,000 shares. Current and future non-employees directors are automatically granted a 10 year nonqualified stock option to purchase 12,000 shares of Common Stock (or 16,000 in the case of the Chairman of the Board) on January 1st of each year that will vest in four equal quarterly installments.  The 2010 Share Incentive Plan was administered by the Stock Option Committee through August 2012, by the Stock Option Committee, from August 2012 through November 2012, by the Executive Committee of the Board and since November 2012 by the Board of Directors, which determines the option price, term and provisions of each option.  The 2010 Share Incentive Plan terminates with respect to additional grants on July 14, 2020.  The Board may amend, suspend or terminate the 2010 Share Incentive Plan at any time.


 

 

45








Item 13.

Certain Relationships and Related Transactions, and Director Independence.


Transactions with Related Persons


As more fully described in Executive Compensation - Employment Agreements, on September 19, 2012, we entered into an employment agreement with Robert A. Berman, the

 

46



Companys President, Chief Executive Officer and a director, and concurrently issued to Mr. Berman options to purchase 640,000 shares of the Companys common stock. 


On September 19, 2012, the Company entered into a Consulting Agreement with Dr. Amit Kumar (the "Kumar Agreement"), a director of the Company, pursuant to which Dr. Kumar agreed to provide business consulting services for an annual consulting fee of $120,000. In connection with the Kumar Agreement, the Company granted Dr. Kumar options to purchase 640,000 shares of the Company's common stock, with an exercise price of $5.4375. Dr. Kumar has also earned a $50,000 bonus pursuant to the Kumar Agreement. The Kumar Agreement was amended on November 8, 2013 to modify the vesting schedule of any unvested options.


Related Person Transaction Approval Policy

While we have no written policy regarding approval of transactions between us and a related person, our Board, as matter of appropriate corporate governance, reviews and approves all such transactions, to the extent required by applicable rules and regulations.  Generally, management would present to the Board for approval at the next regularly scheduled Board meeting any related person transactions proposed to be entered into by us.  The Board may approve the transaction if it is deemed to be in the best interests of our stockholders and the Company.


Director Independence


Our Board oversees the activities of our management in the handling of the business and affairs of our company.  Our common stock trades on the NASDAQ Capital Markets and we are subject to listing requirements which include the requirement that our Board be comprised of a majority of independent directors.  Lewis H. Titterton, Bruce F. Johnson and Dale Fox currently meet the definition of independent as defined by the SEC.  The Board of Directors has separately designated audit, nominating and compensation committees. Our directors, Robert A. Berman and Dr. Amit Kumar, are employees of, or consultants to, the Company and as such do not qualify as independent directors.  


Item 14.

Principal Accounting Audit Fees and Services.

 The following table describes fees for professional audit services rendered and billed by Haskell & White LLP, our present independent registered public accounting firm and principal accountant, for the audit of our consolidated financial statements and for other services during fiscal years 2015 and 2014.


 Type of Fee

     2015


       2014





Audit Fees (1)

$

  97,390


$

 82,280

Audit Related Fees (2)

  34,500


 37,130

Tax Fees (3)

 20,000 


     -

All Other Fees

 

    -


 

  -

Total

$

159,290


$

 119,410

 

 

47




(1)

Audit fees for fiscal years 2015 and 2014 represent fees billed for services rendered by Haskell & White LLP for the audit of our consolidated financial statements and review of our quarterly reports on Form 10-Q.


(2)

Audit related fees for fiscal years 2015 and 2014 represent fees billed for services rendered by Haskell & White in connection with our Registration Statements filed during fiscal years 2015 and 2014


(3)

Tax Fees for fiscal year 2015 represent fees billed for services rendered by Haskell & White for the preparation of Federal and State income tax returns.

  

Procedures For Board of Directors Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor


Our Board was responsible for reviewing and approving, in advance, any audit and any permissible non-audit engagement or relationship between us and our independent registered public accounting firm.  On July 9, 2015, the Board established an Audit Committee which assumed these responsibilities.  Haskell & White LLPs engagement to conduct our fiscal year 2015 audit was approved by our Board on June 15, 2015.    


PART IV


Item 15.

Exhibits, Financial Statement Schedules

(a)(1)(2) Financial Statement Schedules

See accompanying Index to Consolidated Financial Statements.

 

48



(b)

Exhibits

3.1

Certificate of Incorporation, as amended.  (Incorporated by reference to Form 10-Q for the fiscal quarter ended July 31, 1992 and Form S-3, dated February 11, 2014.)

3.2

Amendment to the Certificate of Incorporation. (Incorporated by reference to Form 10-K for the fiscal year ended October 31, 2013.)

3.3

Certificate of Amendment to the Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 on Form 8-K, dated September 4, 2014.)

3.4

Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock. (Incorporated by reference to Exhibit 3.1 of our Form 8-K, dated September 10, 2014.)

3.5

Amended and Restated By-laws. (Incorporated by reference to Exhibit 3.1 to our Form 8-K dated, November 8, 2012.)

3.6

Certificate of Amendment to the Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 on Form 8-K, dated June 25, 2015.)

4.1

Registration Rights Agreement, dated as of April 23, 2013, by and between the Company and Aspire Capital Fund, LLC. (Incorporated by reference to Exhibit 4.3 to our Form S-1, dated April 24, 2013.)

10.1

2003 Share Incentive Plan.  (Incorporated by reference to Exhibit 4 to our Form S-8 dated May 5, 2003.)

10.2

Amendment No. 1 to the 2003 Share Incentive Plan. (Incorporated by reference to Exhibit 4(e) to our Form S-8 dated November 9, 2004.)

10.3

Amendment No. 2 to the 2003 Share Incentive Plan. (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2006.)

10.4

Amendment No. 3 to the 2003 Share Incentive Plan. (Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2006.)

10.5

Amendment No. 4 to the 2003 Share Incentive Plan. (Incorporated by reference to Exhibit 4(g) to our Form S-8 dated September 21, 2007.)

10.6

Amendment No. 5 to the 2003 Share Incentive Plan. (Incorporated by reference to Exhibit 4(g) to our Form S-8 dated January 21, 2009.)

10.7

Amendment No. 6 to the 2003 Share Incentive Plan. (Incorporated by reference to Exhibit 10.5 to our Form 8-K, dated July 20, 2010.)

10.8

2010 Share Incentive Plan. (Incorporated by reference to Exhibit 10.1 to our Form 8-K, dated July 20, 2010.)

10.9

Amendment No. 1 to the 2010 Share Incentive Plan. (Incorporated by reference to Exhibit 10.1 to our Form 8-K, dated July 7, 2011.)

10.10

Amendment No. 2 to the 2010 Share Incentive Plan. (Incorporated by reference to Exhibit 10.1 to our Form 8-K, dated September 5, 2012.)

10.11

Amendment No. 3 to the 2010 Share Incentive Plan (Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the fiscal quarter ended January 31, 2014.)

10.12

Loan and Pledge Agreement, dated November 2, 2007, by and between Mars Overseas Limited and CopyTele International Ltd. (Incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2008.)

10.13

Loan and Pledge Agreement, dated November 2, 2007, by and between CopyTele International Ltd. and Mars Overseas Limited. (Incorporated by reference to Exhibit 10.6 to our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2008.)

10.14

Employment Agreement, dated as of September 19, 2012, between the Company and Robert Berman. (Incorporated by reference to Exhibit 10.35 to our Form 10-K for the fiscal year ended October 31, 2012.)  (Portions of Section 4 of this exhibit have been redacted and filed separately with the Commission in accordance with a request for, and related Order by the Commission, dated May 3, 2013, File No. 0-11254-CF#29240, granting confidential treatment for portions of Section 4 of this exhibit to pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.)

10.15

Employment Agreement, dated as of September 19, 2012, between the Company and John Roop. (Incorporated by reference to Exhibit 10.36 to our Form 10-K for the fiscal year ended October 31, 2012.)  (Portions of Section 4 of this exhibit have been redacted and filed separately with the Commission in accordance with a request for, and related Order by the Commission, dated May 3, 2013, File No. 0-11254-CF#29240, granting confidential treatment for portions of Section 4 of this exhibit to pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.)

10.16

Consulting Agreement, dated as of September 19, 2012, between the Company and Amit Kumar.  (Incorporated by reference to Exhibit 10.37 to our Form 10-K for the fiscal year ended October 31, 2012.)  (Portions of Section 4 of this exhibit have been redacted and filed separately with the Commission in accordance with a request for, and related Order by the Commission, dated May 3, 2013, File No. 0-11254-CF#29240, granting confidential treatment for portions of Section 4 of this exhibit to pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.)

10.17

Securities Purchase Agreement, dated July 15, 2014, between the Company and the Purchasers named therein in connection with the Companys registered direct offering. (Incorporated by reference to Exhibit 10.1 to Form 8-K, dated July 15, 2014.)

10.18

Form of Warrant issued to investors in connection with the Companys registered direct offering. (Incorporated by reference to Exhibit 4.1 to Form 8-K, dated July 15, 2014).

10.19

Termination Agreements, each dated August 29, 2014, relating to the Companys transaction with Videocon Industries Limited. (Incorporated by reference to Exhibit 10.20 to our Form S-1 dated December 8, 2014.)

10.20

Debt Conversion Agreement, dated September 9, 2014, between the Company and Adaptive Capital, LLC. (Incorporated by reference to Exhibit 10.21 to our Form S-1 dated December 8, 2014.)

10.21

Warrant issued to Adaptive Capital, LLC. (Incorporated by reference to Exhibit 10.22 to our Form S-1 dated December 8, 2014.)

10.22

At Market Issuance Sales Agreement, dated October 2, 2015, between the Company and National Securities Corporation (Incorporated by reference to Exhibit 10.1 to Form 8-K, dated October 2, 2015.)

21

Subsidiaries of ITUS Corporation. (Filed herewith.)

23.1

Consent of Haskell & White LLP.  (Filed herewith.)

31.1

Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated December 22, 2015.  (Filed herewith.)

31.2

Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated December 22, 2015.  (Filed herewith.)

32.1

Statement of Chief Executive Officer, pursuant to Section 1350 of Title 18 of the United States Code, dated December 22, 2015.  (Furnished herewith.)

32.2

Statement of Chief Financial Officer, pursuant to Section 1350 of Title 18 of the United States Code, dated December 22, 2015.  (Furnished herewith.)

 

 

49



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ITUS CORPORATION

By:  /s/ Robert A. Berman


Robert Berman
President and

December 22, 2015

Chief Executive Officer


 


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

By:  /s/ Robert A. Berman


Robert A. Berman

President, Chief Executive Officer

December 22, 2015

and Director (Principal Executive Officer)



By:  /s/ Henry P. Herms


Henry P. Herms

Vice President - Finance,

Chief Financial Officer and

Director (Principal Financial

December 22, 2015

and Accounting Officer)


By:  /s/ Lewis H. Titterton


Lewis H. Titterton

December 22, 2015

Chairman of the Board



By:  /s/ Dr. Amit Kumar

 

Dr. Amit Kumar

December 22, 2015

Director

 


By:  /s/ Bruce F. Johnson

 

Bruce F. Johnson

December 22, 2015

       Director



By:  /s/ Dale Fox

Dale Fox

December 22, 2015

       Director



 

50





EXHIBITS


3.1

Certificate of Incorporation, as amended.  (Incorporated by reference to Form 10-Q for the fiscal quarter ended July 31, 1992 and Form S-3, dated February 11, 2014.)

3.2

Amendment to the Certificate of Incorporation. (Incorporated by reference to Form 10-K for the fiscal year ended October 31, 2013.)

3.3

Certificate of Amendment to the Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 on Form 8-K, dated September 4, 2014.)

3.4

Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock. (Incorporated by reference to Exhibit 3.1 of our Form 8-K, dated September 10, 2014.)

3.5

Amended and Restated By-laws. (Incorporated by reference to Exhibit 3.1 to our Form 8-K dated, November 8, 2012.)

3.6

Certificate of Amendment to the Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 on Form 8-K, dated June 25, 2015.)

4.1

Registration Rights Agreement, dated as of April 23, 2013, by and between the Company and Aspire Capital Fund, LLC. (Incorporated by reference to Exhibit 4.3 to our Form S-1, dated April 24, 2013.)

10.1

2003 Share Incentive Plan.  (Incorporated by reference to Exhibit 4 to our Form S-8 dated May 5, 2003.)

10.2

Amendment No. 1 to the 2003 Share Incentive Plan. (Incorporated by reference to Exhibit 4(e) to our Form S-8 dated November 9, 2004.)

10.3

Amendment No. 2 to the 2003 Share Incentive Plan. (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2006.)

10.4

Amendment No. 3 to the 2003 Share Incentive Plan. (Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2006.)

10.5

Amendment No. 4 to the 2003 Share Incentive Plan. (Incorporated by reference to Exhibit 4(g) to our Form S-8 dated September 21, 2007.)

10.6

Amendment No. 5 to the 2003 Share Incentive Plan. (Incorporated by reference to Exhibit 4(g) to our Form S-8 dated January 21, 2009.)

10.7

Amendment No. 6 to the 2003 Share Incentive Plan. (Incorporated by reference to Exhibit 10.5 to our Form 8-K, dated July 20, 2010.)

10.8

2010 Share Incentive Plan. (Incorporated by reference to Exhibit 10.1 to our Form 8-K, dated July 20, 2010.)

10.9

Amendment No. 1 to the 2010 Share Incentive Plan. (Incorporated by reference to Exhibit 10.1 to our Form 8-K, dated July 7, 2011.)

10.10

Amendment No. 2 to the 2010 Share Incentive Plan. (Incorporated by reference to Exhibit 10.1 to our Form 8-K, dated September 5, 2012.)

10.11

Amendment No. 3 to the 2010 Share Incentive Plan (Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the fiscal quarter ended January 31, 2014.)

10.12

Loan and Pledge Agreement, dated November 2, 2007, by and between Mars Overseas Limited and CopyTele International Ltd. (Incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2008.)

10.13

Loan and Pledge Agreement, dated November 2, 2007, by and between CopyTele International Ltd. and Mars Overseas Limited. (Incorporated by reference to Exhibit 10.6 to our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2008.)

10.14

Employment Agreement, dated as of September 19, 2012, between the Company and Robert Berman. (Incorporated by reference to Exhibit 10.35 to our Form 10-K for the fiscal year ended October 31, 2012.)  (Portions of Section 4 of this exhibit have been redacted and filed separately with the Commission in accordance with a request for, and related Order by the Commission, dated May 3, 2013, File No. 0-11254-CF#29240, granting confidential treatment for portions of Section 4 of this exhibit to pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.)

10.15

Employment Agreement, dated as of September 19, 2012, between the Company and John Roop. (Incorporated by reference to Exhibit 10.36 to our Form 10-K for the fiscal year ended October 31, 2012.)  (Portions of Section 4 of this exhibit have been redacted and filed separately with the Commission in accordance with a request for, and related Order by the Commission, dated May 3, 2013, File No. 0-11254-CF#29240, granting confidential treatment for portions of Section 4 of this exhibit to pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.)

10.16

Consulting Agreement, dated as of September 19, 2012, between the Company and Amit Kumar.  (Incorporated by reference to Exhibit 10.37 to our Form 10-K for the fiscal year ended October 31, 2012.)  (Portions of Section 4 of this exhibit have been redacted and filed separately with the Commission in accordance with a request for, and related Order by the Commission, dated May 3, 2013, File No. 0-11254-CF#29240, granting confidential treatment for portions of Section 4 of this exhibit to pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.)

10.17

Securities Purchase Agreement, dated July 15, 2014, between the Company and the Purchasers named therein in connection with the Companys registered direct offering. (Incorporated by reference to Exhibit 10.1 to Form 8-K, dated July 15, 2014.)

10.18

Form of Warrant issued to investors in connection with the Companys registered direct offering. (Incorporated by reference to Exhibit 4.1 to Form 8-K, dated July 15, 2014).

10.19

Termination Agreements, each dated August 29, 2014, relating to the Companys transaction with Videocon Industries Limited. (Incorporated by reference to Exhibit 10.20 to our Form S-1 dated December 8, 2014.)

10.20

Debt Conversion Agreement, dated September 9, 2014, between the Company and Adaptive Capital, LLC. (Incorporated by reference to Exhibit 10.21 to our Form S-1 dated December 8, 2014.)

10.21

Warrant issued to Adaptive Capital, LLC. (Incorporated by reference to Exhibit 10.22 to our Form S-1 dated December 8, 2014.)

10.22

At Market Issuance Sales Agreement, dated October 2, 2015, between the Company and National Securities Corporation (Incorporated by reference to Exhibit 10.1 to Form 8-K, dated October 2, 2015.)

21

Subsidiaries of ITUS Corporation. (Filed herewith.)

23.1

Consent of Haskell & White LLP.  (Filed herewith.)

31.1

Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated December 22, 2015.  (Filed herewith.)

31.2

Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated December 22, 2015.  (Filed herewith.)

32.1

Statement of Chief Executive Officer, pursuant to Section 1350 of Title 18 of the United States Code, dated December 22, 2015.  (Furnished herewith.)

32.2

Statement of Chief Financial Officer, pursuant to Section 1350 of Title 18 of the United States Code, dated December 22, 2015.  (Furnished herewith.)

 

51



 

ITUS CORPORATION AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2015

 


Page



Report of Independent Registered Public Accounting Firm

F-1

Consolidated Balance Sheets as of October 31, 2015 and 2014

F-2

Consolidated Statements of Operations for the years ended October 31, 2015 and 2014

F-3


Consolidated Statements of Shareholders Equity for the years ended October 31, 2015

    and 2014

F-4


Consolidated Statements of Cash Flows for the years ended October 31, 2015 and 2014

F-5

Notes to Consolidated Financial Statements

F-6    F-38



Additional information required by schedules called for under Regulation S-X is either not applicable or is included in the financial statements or notes thereto.

 

 


 



ITUS CORPORATION AND SUBSIDIARIES

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


  

The Board of Directors and Shareholders

ITUS Corporation

We have audited the accompanying consolidated balance sheets of ITUS Corporation (the Company) as of October 31, 2015 and 2014, and the related consolidated statements of operations, shareholders equity, and cash flows for each of the years ended October 31, 2015 and 2014.  These consolidated financial statements are the responsibility of the Companys management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of October 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the years ended October 31, 2015 and 2014, in conformity with accounting principles generally accepted in the United States.  



/s/ Haskell & White LLP

HASKELL & WHITE LLP


Irvine, California
December 22, 2015 

F-1

 

 


 

ITUS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



 

 

 

 

 

October 31,

 

October 31,

 

2015

 

2014

ASSETS

 

 

 

Current assets:

 

 

 

    Cash and cash equivalents

$

 4,369,219

 

$

  3,361,246

Shortterm investments in certificates of deposit

  2,400,000

 

 2,500,000

Accounts receivable

  -

 

 400,000

    Prepaid expenses and other current assets

 

 126,528

 

 

 60,577

               Total current assets

 6,895,747

 

 6,321,823

 

 

 

 

Patents, net of accumulated amortization of $639,744 and $314,453, respectively

 2,396,367

 

  2,721,658

Property and equipment, net of accumulated depreciation of  $13,617  and $48,842, respectively

 

  43,456

 

 

 11,875

 

 

 

               Total assets

$

   9,335,570

 

$

 9,055,356

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS EQUITY

 

 

 

Current liabilities:

 

 

 

     Accounts payable and accrued expenses

$

    380,765

 

$

  1,249,426

     Royalties and contingent legal fees payable

 

  213,017

 

  

         560,076

               Total current liabilities

  593,782

 

    1,809,502

 

 

 

 

Patent acquisition obligation (Note 7)

 

    3,688,187

 

 

 3,236,281

               Total liabilities

 

  4,281,969

 

 

  5,045,783

 

 

 

 

Commitments and contingencies (Notes 7 and 8)

 

 

 

Shareholders equity:

 

 

 

     Preferred stock, par value $100 per share; 19,860 shares authorized; no shares

 

 

 

        issued or outstanding

 -

 

-

     Series A convertible preferred stock, par value $100 per share; 140 shares             

 

 

 

        issued and outstanding

14,000

 

 14,000

    Common stock, par value $.01 per share; 24,000,000 shares authorized;

 

 

          8,724,878 and 8,788,176 shares issued and outstanding, respectively

 87,249

 

  87,882

     Additional paid-in capital

  151,101,117

 

 148,677,413

 Accumulated deficit

 

(146,148,765)

 

(144,769,722)

            Total shareholders equity

 

5,053,601

 

 4,009,573

 

 

 

 

            Total liabilities and shareholders equity

$

  9,335,570

$

 9,055,356



The accompanying notes are an integral part of these statements.

F-2

 

 



ITUS CORPORATION AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF OPERATIONS  

         

 For the years ended October 31,  

 

2015

 

2014

Revenue:

 

 

     Revenue from licensing activities

$

  255,000

$

 2,480,000

     Amortization of display technology development and license fees

         received from AU Optronics Corporation in fiscal year 2011

 -

1,187,320

     Settlement with AU Optronics Corporation

 

 9,000,000

 

 -

               Total revenue

 

 9,255,000

 

 3,667,320

 

 

 

Operating costs and expenses:

 

 

     Inventor royalties and contingent legal fees

         147,670

     1,412,661

     Litigation and licensing expenses

      3,500,852

        575,413

     Amortization of patents

         325,291

        314,453

     Marketing, general and administrative expenses (including non-cash stock

        option compensation expense of $2,676,309 and $3,149,799, respectively)

 

 6,225,946

 

  6,408,861

               Total operating costs and expenses

    10,199,759

 

     8,711,388

 

 

 

Loss from operations

       (944,759)

    (5,044,068)

 

 

  

Impairment in value of Videocon Industries Limited global depository

     receipts

 -

(62,825)

 

 

 

Change in value of derivative liability (Note 5)

 -

      (592,945)

 

 

 

Loss on extinguishment of debt (Note 5)

   -

   (2,699,022)

 

 

 

Interest expense (Notes 5 and 7)

  (451,906)

   (1,263,617)

 

 

 

Dividend income

 -

          47,568

 

 

 

Interest income

 

17,622

 

 8,595

 

 

 

Loss before income taxes

 (1,379,043)

 (9,606,314)

 

 

 

Provision for income taxes (Note 8)

 

 -

 

 - 

 

 

 

Net loss

$

(1,379,043)

$

(9,606,314)

 

 

 

 

 

 

Net loss per share:

 

 

     Basic and diluted

$

  (0.16)

$

 (1.10)

 

 

 

Weighted average common shares outstanding:

 

 

     Basic and diluted

 

 8,760,126

 

 8,710,867

 

 

 

 

The accompanying notes are an integral part of these statements.

 

F-3

 

 



ITUS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY

FOR THE YEARS ENDED OCTOBER 31, 2015 and 2014


 

 

 

 

 

 

 

 

 

 

 

 

Loan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivable

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Additional

 

From

 

 

 

 

Shareholders

 

Preferred Stock

 

Common Stock

 

Paid-in

 

Former

 

Accumulated

 

Equity

 

Shares

 

  Par Value

 

Shares

 

Par Value

 

Capital

 

 Affiliate

 

Deficit

 

(Deficiency)

 

 

 

 

 

 

 

 

 

 

BALANCE, October 31, 2013

  -

  $

   -

 

8,371,558

  $

  83,716

  $

136,759,099

  $

(5,000,000)

  $

(135,163,408)

  $

(3,320,593)

 

 

 

 

 

 

 

 

 

Stock option compensation to employees and consultants

 -

  -

    -

  -

 3,149,799

 -

     -

 3,149,799

Common stock issued upon exercise of stock options

  -

  -

 20,600

   206

 75,669

   -

     -

  75,875

Common stock issued to consultants

 -

  -

  12,400

 124

  84,574

     -

     -

 84,698

Common stock issued upon conversion of convertible
debentures due January 2015  

   -

  -

 330,683

 3,307

 2,732,042

   -

     -

  2,735,349

Common stock and preferred stock issued upon conversion
of convertible debentures due November 2016

 140

   14,000

100,800

 1,008

 5,214,633

   -

     -

  5,229,641

Common stock issued in lieu of interest on convertible
debentures

-

  -

 10,537

  105

   61,673

      -

     -

  61,778

Sale of common stock, net of expense

 -

   -

640,000

  6,400

  3,666,735

   -

     -

 3,673,135

Acquisition of common stock in exchange for investment in
Videocon Industries Limited global depository receipts

 -

   -

   -

 -

(4,134,516)

       -

     -

(4,134,516)

Retire common stock acquired in exchange for investment in
Videocon Industries Limited global depository receipts

  -

   -

(800,000)

(8,000)

   8,000

  -

     -

       -

Warrants issued in connection with issuance of   
convertible debentures

  -

-

  -

 -

 513,112

  -

     -

 513,112

Common stock issued upon exercise of warrants

  -

   -

 53,598

  536

  299,473

      -

     -

  300,009

Common stock issued to acquire patent license

   -

  -

 48,000

 480

247,120

     -

     -

  247,600

Satisfaction of loan receivable from former affiliate

 -

  -

  -

   -

    -

5,000,000

     -

  5,000,000

Net Loss

  -

 

  -

 -

 

  -

 

  -

     -

 

(9,606,314)

(9,606,314)

 

 

 

 

 

 

 

 

BALANCE, October 31, 2014

  140

14,000

8,788,176

  87,882

148,677,413

  -

(144,769,722)

  4,009,573

 

 

 

 

 

 

 

 

Stock option compensation to employees and consultants

   -

  -

 -

-

 2,676,309

     -

     -

 2,676,309

Common stock issued upon exercise of stock options

   -

   -

 17,334

 173

 44,462

  -

  -

   44,635

Common stock issued to consultants

  -

  -

 11,600

  116

   45,984

  -

   -

 46,100

Repurchase 92,232 shares of common stock and cancellation
of warrants to purchase 16,000 shares of common stock

   -

  -

        -

   -

(343,973)

  -

 -

  (343,973)

Retire common stock repurchased

  -

  -

 (92,232)

(922)

   922

   -

  -

      -

Net Loss

  -

 

    -

   -

 

   -

 

  -

 

  -

 

  (1,379,043)

 

(1,379,043)

 

 

 

 

 

 

 

 

 

BALANCE, October 31, 2015

  140

$

14,000

8,724,878

$

87,249

$

151,101,117

$

   -

$

 (146,148,765)

$

 5,053,601


The accompanying notes are an integral part of this statement.

 

 

F-4

 

 



 

ITUS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended October 31,

 

2015

 

2014

Reconciliation of net loss to net cash provided by (used in) operating activities:

 

 

Net loss

$

   (1,379,043)

$

 (9,606,314)

    Stock option compensation to employees and consultants

2,676,309

       3,149,799

    Common stock issued to consultants

46,100

            84,698

    Amortization of patents

325,291

          314,453

    Accretion of interest on patent acquisition obligations to interest expense

451,906

          385,770

    Loss on acquisition of common stock and warrants to purchase common stock

101,280

                     -

    Change in value of derivative liability

                     -

          592,945

    Loss on extinguishment of debt

                     -

       2,699,022

    Accrued interest reversed on conversion of convertible debenture

                     -

          173,833

    Amortization of convertible debenture discount charge to interest expense

                     -

          634,267

    Impairment in value of  investment in Videocon Industries Limited GDRs                    

                     -

            62,825

    Common stock issued to pay interest on convertible debentures

                     -

            61,778

    Common stock issued to acquire patent license

                     -

            16,400

    Other

            23,195

            38,225

    Change in operating assets and liabilities:

 

 

        Accounts receivable

           400,000

         (225,000)

    Prepaid expenses and other current assets

           (65,951)

           100,069

    Accounts payable and accrued expenses

         (868,661)

           (27,044)

        Royalties and contingent legal fees payable

         (347,059)

           352,333

        Deferred revenue   

   -

    (  1,187,320)

Net cash provided by (used in) operating activities

        1,363,367

      (2,379,261)

 

 

 

Cash flows from investing activities:

 

 

    Disbursements to acquire short-term investments in certificates of deposit    

     (2,900,000)

     (5,200,000)

    Proceeds from maturities of short-term investments in certificates of deposit          

       3,000,000

       2,700,000

    Purchase of property and equipment

      (54,776)

            (6,684)

             Net cash provided by (used in) investing activities

        45,224

     (2,506,684)

 

 

 

Cash flows from financing activities:

 

 

    Proceeds from issuance of convertible debentures

                    -

      3,500,000

    Proceeds from sale of common stock, net of expense

                    -

      3,673,135

    Proceeds from exercise of warrants to purchase common stock

                     -

         300,009

    Proceeds from exercise of employee stock options

            44,635

           75,875

    Payments to acquire 92,232 shares of common stock and cancellation of warrants

        to purchase 16,000 shares of common stock


         (445,253)


                    -

    Payments to redeem convertible securities

      - 

        (200,000)

Net cash (used in) provided by financing activities

  (400,618)

      7,349,019

 

 

 

Net increase in cash and cash equivalents

       1,007,973

       2,463,074

Cash and cash equivalents at beginning of year

   3,361,246

    898,172

Cash and cash equivalents at end of year

$

   4,369,219

$

     3,361,246

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

    Non-cash patent acquisition

$

    -

$

   3,036,011

    Common stock issued to acquire patent license

$

     -

$

     185,600

    Common stock issued upon conversion of debentures

$

     -

$

   2,735,349

    Fair value of debenture embedded conversion feature, at issuance

$

    -

$

   1,570,000

    Relative fair value of convertible debenture warrant, at issuance

$

      -

$

     513,112

    Non-cash acquisition of 20,000,000 shares of common stock

$

     -

$

  4,134,516

    Common stock and preferred stock issued upon conversion of convertible

 

 

        debentures due November 2016

$

       -

$

    5,229,641

    Cancellation of loan receivable from former affiliate

$

      -

$

  (5,000,000)

    Cancellation of loan payable to former affiliate

$

    -

$

    5,000,000


The accompanying notes are an integral part of these statements.



F-5

 

 


ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.

BUSINESS AND FUNDING

Description of Business

As used herein, we, us, our, the Company or ITUS means ITUS Corporation and its wholly-owned subsidiaries.  From inception through October 2012, our primary operations involved the development of patented technologies in the areas of thin-film displays and encryption.  In October of 2012 under the leadership of a new management team, the Company undertook a transformation process to recapitalize the Company, unencumber the Companys assets, seek reparations from a previous joint development partner, change the Companys name and ticker symbol, relocate the Companys headquarters and modernize its systems, and monetize patented technologies developed by the Company, or acquired from third parties. In July of 2015, the Companys stock was accepted for listing and began trading on the NASDAQ Capital Market.


In June of 2015, the Company announced the formation of a new subsidiary, Anixa Diagnostics Corporation, to develop non-invasive blood tests for the early detection of solid tumor based cancers. In July of 2015, Anixa entered into a collaborative research agreement  with The Wistar Institute, the nations first independent biomedical research institute and a leading National Cancer Institute designated cancer research center, for the purpose of validating Anixas cancer detection methodologies and establishing protocols for identifying certain biomarkers in the blood stream identified by Anixa and associated with solid tumors. In October of 2015, Anixa and Wistar announced very favorable results from initial testing of a small group of breast cancer patients and healthy controls. One hundred percent (100%) of the blood samples tested from breast cancer patients showed the presence of the biomarkers identified by Anixa, and none of the healthy patient blood samples contained the biomarkers. A more extensive clinical study is currently being conducted.   


Over the next several quarters, we expect Anixa to be the primary focus of the Company. As part of our legacy operations, the Company has outsourced a small development project in connection with one of the Companys thin-film display technologies, and through certain of its subsidiary companies, the Company remains engaged in limited patent licensing activities in the areas of encryption, and advanced materials.  We do not expect these activities to be a significant part of the Companys ongoing operations.


Over the past several quarters, our revenue has been derived from technology licensing and the sale of patented technologies, including in connection with the settlement of litigation. In addition to Anixa, the Company expects to make investments in and form new companies to develop additional emerging technologies.


AUO Lawsuit and Settlement


On December 29, 2014, the Company and AUO Optronics Corporation (AUO) entered into a Settlement Agreement (the Settlement Agreement) and a Patent Assignment Agreement (the Patent Assignment Agreement and together with the Settlement Agreement, the Agreements) pursuant to which the Company received an aggregate of $9,000,000 from AUO.  The Agreements were entered into to resolve a lawsuit filed by the Company against AUO, relating to the Companys patented ePaper® Electrophoretic Display, and Nano Field Emission Display (nFED) technologies.


 

F-6




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Background


In May 2011, the Company entered into an Exclusive License Agreement (the EPD License Agreement) and a License Agreement (the Nano Display License Agreement) with AUO (together the AUO License Agreements).  Under the EPD License Agreement, the Company provided AUO with an exclusive, non-transferable, worldwide license to its ePaper® Electrophoretic Display (EPD) patents and technology, in connection with AUO jointly developing EPD products with the Company.  Under the Nano Display License Agreement, the Company provided AUO with a non-exclusive, non-transferable, worldwide license to its Nano Field Emission Display patents and technology, in connection with AUO jointly developing nFED products with the Company.

 

On January 28, 2013, the Company terminated the AUO License Agreements due to numerous alleged material and continual breaches of the agreements by AUO.  On January 28, 2013, the Company also filed a lawsuit in the United States District Court for the Northern District of California against AUO and E Ink Corporation in connection with the AUO License Agreements, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, fraudulent inducement, unjust enrichment, unfair business practices, and other charges (the AUO/E Ink Lawsuit).  In June 2013, the Company and AUO agreed to arbitrate the charges (the case against E Ink Corporation had been dismissed without prejudice) (the AUO/E Ink Arbitration).


The Agreements


Pursuant to the Settlement Agreement, AUO paid the Company $2,000,000 in U.S. currency, net of any Taiwanese withholding taxes. The Settlement Agreement further provides that:


·

the Company will dismiss the AUO/E Ink Lawsuit and AUO/E Ink Arbitration, with prejudice;


·

the AUO License Agreements are terminated;


·

AUO gives up all rights to the nFED Technology;


·

for a period of two years, the Company agrees not to initiate (whether on its own or through a third party) any patent infringement lawsuits against AUO or its affiliates alleging infringement by AUOs or AUOs affiliates products or services, for patents owned or controlled by the Company as of the date of the Settlement Agreement.  Any potential damages for patent infringement will toll uninterrupted during this two year period. The prohibition does not apply to patents acquired by the Company after the date of the Settlement Agreement; and

 

·

each of AUO and the Company mutually released each other from all claims that either may have against the other in connection with the AUO License Agreements, including any claims relating to the ePaper® Electrophoretic Display and nFED patents and technologies.


 

F-7




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 Pursuant to the Patent Assignment Agreement, AUO paid the Company $7,000,000 in U.S. currency, net of any Taiwanese withholding taxes in exchange for the Companys ePaper® Electrophoretic Display patent portfolio for which AUO was previously the exclusive licensee, consisting of:


·

10 active U.S. patents and 1 U.S. pending patent application; and


·

103 expired and/or abandoned U.S. and foreign patents and/or patent applications.


In connection with the lawsuit and settlement, the Company incurred a total of approximately $3,604,000 of legal fees and litigation costs.


Unwinding of Business Relationship and Interests with Videocon


On August 29, 2014, the Company and CopyTele International Ltd., a wholly-owned subsidiary of the Company (the Subsidiary), terminated their business relationship (the Business Relationship) with Videocon Industries Limited (Videocon) and Mars Overseas Limited, an affiliate of Videocon (Mars and together with the Company, the Subsidiary and Videocon, the Parties).  The Business Relationship began in November 2007 and related to a proposed joint development effort between the Company and Videocon to develop a certain Nano Field Emission Display technology (the Technology).  In connection with the proposed joint venture, (i) the Company granted a non-transferable, worldwide license to Videocon for the Technology (the License), (ii) the Subsidiary made a $5 million dollar loan to Mars (the Subsidiary Loan), (iii) Mars made an identical $5 million dollar loan to the Subsidiary (the Mars Loan and together with the Subsidiary Loan, the Loans), (iv) the Company sold to Mars 800,000 shares of the Companys common stock (the Shares) and (v) Global EPC Ventures Limited sold to the Company 1,495,845 global depository receipts of Videocon (the GDRs). The Shares and GDRs were subsequently used to secure the Loans.


Because Videocon was unable to continue with its joint development responsibilities, the Technology was not jointly developed by the Parties. Accordingly, the Company and Videocon agreed to terminate the Business Relationship. In order to terminate the Business Relationship, the Parties entered into several agreements whereby: (i) the License was terminated, (ii) both of the Loans were canceled and (iii) the Shares and GDRs were exchanged for each other (collectively, the Termination Transactions). The result of these Termination Transactions was to undo the initial transactions between the Parties that set forth the Business Relationship. Aside from this business relationship there is no other material relationship between the Parties.  In accounting for the unwinding of this business relationship, the Company offset the two loans and then recorded its repurchased shares of common stock at the then current fair value of the GDRs and then retired and cancelled those shares.


Funding

In November 2013, the Company completed a private placement with a single institutional investor, pursuant to which the Company issued a $3,500,000 principal amount 6% convertible debenture due November 11, 2016.  On September 9, 2014, the Company and the holder of the Convertible Debenture agreed to a transaction resulting in the conversion of the principal and accrued interest of the Convertible Debenture into 739,958 shares of the Companys common stock, and the concurrent conversion of 639,159 of such shares of common stock into 3,500 shares of Series A Convertible Preferred Stock.  For further details of this transaction see Note 5 Convertible Debentures herein.

F-8




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


In July 2014, the Company completed the sale of 640,000 shares of its common stock at the offering price of $6.25 per share.  The net proceeds from this sale totaled approximately $3,673,000.  See Note 6, Shareholders Equity Sale of Common Stock for additional information regarding this transaction.


In October 2015, the Company entered into an At Market Issuance Sales Agreement (the Agreement) with National Securities Corporation (National) to create an at-the-market equity program under which it may sell up to $10,000,000 worth of its common stock (the Shares) from time to time through National, as sales agent. The Company has no obligation to sell any of the Shares, and may at any time suspend offers under the Agreement or terminate the Agreement. The Shares will be issued pursuant to the Companys previously filed registration statement that was declared effective by the Securities and Exchange Commission (the "SEC") on September 18, 2015. As of October 31, 2015, no Shares have been sold under the Agreement.


During the year ended October 31, 2015, cash provided by operating activities was approximately $1,363,000.  Cash provided by investing activities was approximately $45,000, which resulted from the proceeds on maturity of certificates of deposit totaling $3,000,000 which was offset by the purchase of certificates of deposit totaling $2,900,000 and the purchase of property and equipment of approximately $55,000.  Our cash used in financing activities was approximately $401,000, which resulted from approximately $445,000 for the repurchase of 92,232 shares of our common stock and the cancellation of warrants to purchase 16,000 shares of our common stock, offset by the proceeds from exercise of stock options of approximately $45,000.  As a result, our cash, cash equivalents, and short-term investments at October 31, 2015 increased approximately $908,000 to approximately $6,769,000 from approximately $5,861,000 at the end of fiscal year 2014.

 

Based on currently available information as of December 21, 2015, we believe that our existing cash, cash equivalents, short-term investments and expected cash flows will be sufficient to enable us to continue our business activities for at least 12 months.  However, our projections of future cash needs and cash flows may differ from actual results. If current cash on hand, cash equivalents, short term investments and cash that may be generated from our business operations are insufficient to satisfy our liquidity requirements, we may seek to sell equity securities or obtain loans from various financial institutions where possible.  The sale of additional equity securities or convertible debt could result in dilution to our stockholders. Additionally, the sale of equity securities or issuance of debt securities may be subject to certain security holder approvals or may result in the downward adjustment of the exercise or conversion price of our outstanding securities. We can give no assurance that we will generate sufficient cash flows in the future to satisfy our liquidity requirements or sustain future operations, or that other sources of funding, such as sales of equity or debt, would be available or would be approved by our security holders, if needed, on favorable terms or at all.  If we cannot obtain such funding if needed or if we cannot sufficiently reduce operating expenses, we would need to curtail or cease some or all of our operations. 


 

F-9




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of ITUS Corporation and its wholly owned subsidiaries.  All intercompany transactions have been eliminated.

 Revenue Recognition


Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been substantially performed pursuant to the terms of the arrangement, (iii) amounts are fixed or determinable, and (iv) the collectability of amounts is reasonably assured.


Patent Licensing


In certain instances, our past revenue arrangements have provided for the payment of contractually determined fees in settlement of litigation and in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company.  These arrangements typically include some combination of the following:  (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patented technologies owned or controlled by the Company, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv) the dismissal of any pending litigation.  In such instances, the intellectual property rights granted have been perpetual in nature, extending until the expiration of the related patents.  Pursuant to the terms of these agreements, we had no further obligations.   As such, the earnings process was complete and revenue has been recognized upon the execution of the agreement, when collectability was reasonably assured, and when all other revenue recognition criteria were met.


Display Technology Development and License Fees


We assessed the revenue guidance of Accounting Standards Codification (ASC) 605-25 Multiple-Element Arrangements (ASC 605-25) to determine whether multiple deliverables in our arrangements with AUO represent separate units of accounting.  Under the AUO License Agreements, we received initial development and license fees of $3 million, of aggregate development and license fees of up to $10 million.  The additional $7 million in development and license fees were to be payable upon completion of certain conditions for the respective technologies.  We determined that the transfer of the licensed patents and technology and the effort involved in completion of the conditions for the respective technologies represent a single unit of accounting for each technology.  Accordingly, using a proportional performance method, during the third quarter of fiscal year 2011 we began recognizing the $3 million initial development and license fees over the estimated periods that we expected to complete the conditions for the respective technologies. Each of the license agreements also provided for the basis for royalty payments on future production, if any, by AUO to the Company, which we have determined represent separate units of accounting.  We did not recognize any portion of the $7 million of additional development and license fees or any royalty income under the AUO License Agreements.


As a result of the AUO/E Ink Lawsuit described above we did not record any display technology development and license fee revenue during the period from the fourth quarter of fiscal 2012 through the second quarter of fiscal year 2014 due to uncertainty as to our remaining performance obligations, if any.  Based on our assessment performed for the third quarter of fiscal 2014, we determined that we have no further performance obligations under the AUO License Agreements and accordingly we recognized display technology development and license fee revenue of approximately $1,187,000, representing the balance of the initial $3 million payment received from AUO.


 

F-10




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 


On December 29, 2014, we settled our lawsuit against AUO and received gross proceeds of $9 million which was recognized as revenue in the first quarter of fiscal 2015 (see Note 1 Business and Funding Description of Business - AUO Lawsuit and Settlement ).


Inventor Royalties and Contingent Legal Fees


Inventor royalties and contingent legal fees are expensed in the consolidated statements of operations in the period that the related revenues are recognized.


Anixa Development Expenses

Anixa development expenses are expensed in the consolidated statements of operations in the period incurred.

Fair Value Measurements

ASC 820 Fair Value Measurements and Disclosures (ASC 820) defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements.  In accordance with ASC 820, we have categorized our financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below.  If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.


Financial assets and liabilities recorded in the accompanying consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:


Level 1 - Financial instruments whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market which we have the ability to access at the measurement date.


Level 2 - Financial instruments whose values are based on quoted market prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets.  


Level 3 Financial instruments whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.  These inputs reflect managements own assumptions about the assumptions a market participant would use in pricing the instrument.  


The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of October 31, 2015:



  

Level 1


Level 2


Level 3


Total

Money market funds Cash  

   and cash equivalents

        

  $       467,967


        

 $                -


        

 $              -


        

  $          467,967

Certificates of deposit -

   Short term investments

-


2,400,000


-


2,400,000


Total financial assets


  $       467,967


   

$    2,400,000


   

 $               -



  $        2,867,967


F-11




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 


The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of October 31, 2014:

 

  

Level 1


Level 2


Level 3


Total

Money market funds Cash  

   and cash equivalents

        

  $       155,964


        

 $                -


        

 $              -


        

  $          155,964

Certificates of deposit -

   Short term investments

-


2,500,000


-


2,500,000


Total financial assets


  $       155,964


   

$    2,500,000


   

 $               -



  $        2,655,964


The following table presents the hierarchy for our financial liabilities measured at fair value on the transaction date and then adjusted for the subsequent accretion of interest, as of October 31, 2015:


 


Level 1

 


Level 2

 


Level 3

 


Total


 

 

 

 

 

 

 


 

 


Patent acquisition obligation

 

-

 

 

-

 

 

$  3,688,187

 

 

  $  3,688,187

The following table presents the hierarchy for our financial liabilities measured at fair value on the transaction date and then adjusted for the subsequent accretion of interest, as of October 31, 2014:

 


Level 1

 


Level 2

 


Level 3

 


Total


 

 

 

 

 

 

 


 

 


Patent acquisition obligation

 

-

 

 

-

 

 

 $  3,236,281

 

 

  $  3,236,281


The following table sets forth a summary of the changes in the fair value of the Companys Level 3 financial liabilities that are measured at fair value on a recurring basis:

 

F-12




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 

For the two
years ended
October 31,
2015

Patent acquisition obligation:

 

Balance October 31, 2013

$

                    -

Initial fair value

        2,850,511

Accretion of interest on patent obligation

 

           385,770

Balance October 31, 2014

        3,236,281

Accretion of interest on patent obligation

 

           451,906

Balance October 31, 2015

$

      3,688,187


Our non-financial assets that are measured on a non-recurring basis include our property and equipment which are measured using fair value techniques whenever events or changes in circumstances indicate a condition of impairment exists.  The estimated fair value of prepaid expenses, accounts payable and accrued expenses approximates their individual carrying amounts due to the short term nature of these measurements.  Cash and cash equivalents are stated at carrying value which approximates fair value.

 

Cash and Cash Equivalents

 

Cash equivalents consists of highly liquid, short term investments with original maturities of three months or less when purchased.


Short-term Investments

At October 31, 2015 and 2014, we had certificates of deposit with maturities greater than 90 days when acquired of $2,400,000 and $2,500,000, respectively, that were classified as short-term investments and reported at fair value.   


Patents


Our only identifiable intangible assets are patents and patent rights.  We capitalize patent and patent rights acquisition costs and amortize the cost over the estimated economic useful life.  Patent acquisition costs capitalized during the years ended October 31, 2015 and 2014, was approximately $-0- and $3,036,000, respectively.  We recorded patent amortization expense of approximately $325,000 and $314,000 during the years ended October 31, 2015 and 2014, respectively.


Investment Securities


We classify our investment securities as available-for-sale.  Available-for-sale securities are recorded at fair value.  Unrealized gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a component of accumulated other comprehensive income (loss) until realized.  Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis.  Dividend and interest income are recognized when earned.

F-13




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


We monitor the value of our investments for indicators of impairment, including changes in market conditions and the operating results of the underlying investment that may result in the inability to recover the carrying value of the investment.    

Convertible Instruments


The Company accounts for hybrid contracts that feature conversion options in accordance with applicable generally accepted accounting principles (GAAP).  ASC  815 Derivatives and Hedging Activities, (ASC 815) requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. 

 

            Conversion options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host instrument.

 

            The Company accounts for convertible instruments, when the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, in accordance with ASC 470-20 Debt with Conversion and Other Options (ASC 470-20). Under ASC 470-20, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The Company accounts for convertible instruments (when the Company has determined that the embedded conversion options should be bifurcated from their host instruments) in accordance with ASC 815.  Under ASC 815, a portion of the proceeds received upon the issuance of the hybrid contract are allocated to the fair value of the derivative. The derivative is subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.

 

            The conversion features of the convertible debentures issued in January 2013 and November 2013 qualified as embedded derivative instruments and were bifurcated from the host convertible debentures.  Derivative liabilities are initially recorded at fair value and are then re-valued at each reporting date, with changes in fair value recognized in earnings during the reporting period.


Common Stock Purchase Warrants

           

The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provides a choice of net-cash settlement or settlement in the Companys own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company's own stock as defined in ASC 815-40 "Contracts in Entity's Own Equity". The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Companys control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).  The Company assesses classification of common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities or equity is required.

F-14




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 


Income Taxes

We recognize deferred tax assets and liabilities for the estimated future tax effects of events that have been recognized in our financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.  A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Stock-Based Compensation

We maintain stock equity incentive plans under which we may grant non-qualified stock options, incentive stock options, stock appreciation rights, stock awards, performance and performance-based awards, or stock units to employees, non-employee directors and consultants.

Stock Option Compensation Expense


We account for stock options granted to employees and directors using the accounting guidance in ASC 718 Stock Compensation (ASC 718).  In accordance with ASC 718, we estimate the fair value of service based options and performance based options on the date of grant, using the Black-Scholes pricing model.  For options vesting if the trading price of the Companys common stock achieves a defined target, we use a Monte Carlo simulation in estimating the fair value at grant date. We recognize compensation expense for stock option awards over the requisite or implied service period of the grant.  With respect to performance based awards, compensation expense is recognized when the performance target is deemed probable.  We recorded stock-based compensation expense, related to stock options granted to employees and directors, of approximately $2,192,000 and $2,128,000, during the years ended October 31, 2015 and 2014, respectively.


Included in stock-based compensation cost for employees and directors during the years ended October 31, 2015 and 2014 was approximately $2,092,781 and $1,426,000, respectively, related to the amortization of compensation cost for stock options granted in prior periods but not yet vested.  As of October 31, 2015, there was unrecognized compensation cost related to non-vested stock options granted to employees and directors, related to service based options of approximately $432,000 which will be recognized over a weighted-average period of 1.1 years.


We account for stock options granted to consultants using the accounting guidance included in ASC 505-50 Equity-Based Payments to Non-Employees (ASC 505-50).  In accordance with ASC 505-50, we estimate the fair value of service based stock options and performance based options at each reporting period, using the Black-Scholes pricing model.  For options vesting if the trading price of the Companys common stock achieves a defined target we estimate the fair value at each reporting period using a Monte Carlo simulation.  We recognize compensation expense for service based stock options and options subject to market conditions over the requisite or implied service period of the grant.  For performance based awards, compensation expense is recognized when the performance target is achieved.


F-15




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 

         

We recorded consulting expense, related to stock options granted to consultants, during the years ended October 31, 2015 and 2014 of approximately $484,000 and $1,022,000, respectively. Stock-based consulting expense for the years ended October 31, 2015 and 2014 includes approximately $484,000 and $964,000, respectively, related to the amortization of compensation cost for stock options granted in prior periods but vested in the current period. As of October 31, 2015, there was no unrecognized consulting expense related to non-vested stock options granted to consultants.  


Fair Value Determination  


We use the Black-Scholes pricing model in estimating the fair value of stock options which vest over a specific period of time or upon achieving performance targets.  To determine the weighted average fair value of stock options on the date of grant, employees and directors are included in a single group.  The fair value of stock options granted to consultants is determined on an individual basis.  The stock options we granted during the year ended October 31, 2015 consisted of awards with 10-year terms that vest over one year, options with 10-year terms that vest over 36 months. The stock options we granted during the year ended October 31, 2014 consisted of awards with 10-year terms that vest over one year, options with 10-year terms that vest over 36 months, options with 5-year terms which vest immediately and options with 10-year terms which vest upon achievement of performance milestones.  


The following weighted average assumptions were used in estimating the fair value of stock options granted during the years ended October 31, 2015 and 2014:


For the Year
Ended October 31,

2015

2014

Weighted average fair value at grant date

$3.09

$5.75

Valuation assumptions:

 

 

      Expected life ( years)

  5.75

5.80

      Expected volatility

117.8%

115.3%

      Risk-free interest rate

 2.01%

 1.82%

      Expected dividend yield

0

0


The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding.  We use the simplified method to determine expected term.  The simplified method was adopted since we do not believe that historical experience is representative of future performance because of the impact of the changes in our operations and the change in terms from historical options which vested immediately to terms including vesting periods of up to three years.  Under the Black-Scholes pricing model, we estimated the expected volatility of our shares of common stock based upon the historical volatility of our share price over a period of time equal to the expected term of the options.  We estimated the risk-free interest rate based on the implied yield available on the applicable grant date of a U.S. Treasury note with a term equal to the expected term of the underlying grants.  We made the dividend yield assumption based on our history of not paying dividends and our expectation not to pay dividends in the future.


 

F-16




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Under ASC 718, the amount of stock-based compensation expense recognized is based on the portion of the awards that are ultimately expected to vest.  Accordingly, if deemed necessary, we reduce the fair value of the stock option awards for expected forfeitures, which are forfeitures of the unvested portion of surrendered options.  Based on our historical experience and future expectations, we have not reduced the amount of stock-based compensation expenses for anticipated forfeitures.


We will reconsider use of the Black-Scholes pricing model if additional information becomes available in the future that indicates another model would be more appropriate.  If factors change and we employ different assumptions in the application of ASC 718 in future periods, the compensation expense that we record under ASC 718 may differ significantly from what we have recorded in the current period.


Net Loss Per Share of Common Stock

In accordance with ASC 260, Earnings Per Share, basic net loss per common share (Basic EPS) is computed by dividing net loss by the weighted average number of common shares outstanding.  Diluted net loss per common share (Diluted EPS) is computed by dividing net loss by the weighted average number of common shares and dilutive common share equivalents and convertible securities then outstanding.  Diluted EPS for all years presented is the same as Basic EPS, as the inclusion of the effect of common share equivalents then outstanding would be anti-dilutive.  For this reason, excluded from the calculation of Diluted EPS for the years ended October 31, 2015 and 2014, were options to purchase 2,672,471 and 3,002,550 shares, respectively, warrants to purchase 1,028,931 shares and 1,044,931 shares, respectively, preferred stock convertible into 739,958 shares.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Estimates and assumptions are used for, but not limited to, determining stock-based compensation, asset impairment evaluations, tax assets and liabilities, license fee revenue, the allowance for doubtful accounts, depreciation lives and other contingencies.  Actual results could differ from those estimates.

Effect of Recently Issued Pronouncements


In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-09 (ASU 2014-09), Revenue from Contracts with Customers.  This amendment updates addressing revenue from contracts with customers, which clarifies existing accounting literature relating to how and when a company recognizes revenue. Under the standard, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services.  This standard update is effective for interim and annual reporting periods beginning after December 15, 2016, and are to be applied retrospectively or the cumulative effect as of the date of adoption, with early application not permitted.  In July 2015, a one year deferral of the effective date of the new guidance was approved. We are currently evaluating the impact ASU 2014-09 will have on our consolidated financial statements and related disclosures.

 

F-17




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



In June 2014, the FASB issued Accounting Standards Update 2014-12 (ASU 2014-12), Compensation Stock Compensation.  This amendment requires that a performance target that affects vesting and could be achieved after the requisite service period shall be treated as a performance condition. Adoption of this standard is required for annual periods beginning after December 15, 2015. Early adoption is permitted. We are currently evaluating the impact ASU 2014-12 will have on our consolidated financial statements and related disclosures.

    

In August 2014, the FASB issued Accounting Standards Update 2014-15 (ASU 2014-15).  This amendment requires management to assess an entitys ability to continue as a going concern every reporting period including interim periods, and to provide related footnote disclosure in certain circumstances. Adoption of this standard is required for annual periods beginning after December 15, 2016 and are to be applied retrospectively or the cumulative effect as of the date of adoption. We do not expect this update to have a significant impact on our consolidated financial statements.


In April 2015, the FASB issued Accounting Standards Update 2015-03 (ASU 2015-03) to simplify the presentation of debt issuance costs. This amendment requires debt issuance costs be presented on the balance sheet as a direct reduction from the carrying amount of the debt liability, consistent with debt discounts or premiums. Adoption of this standard is required for interim and annual periods beginning after December 15, 2015 and is to be applied retrospectively. We are currently evaluating the impact ASU 2015-03 will have on our consolidated financial statements and related disclosures.


In November 2015, the FASB issued Accounting Standards Update 2015-17 (ASU 2015-17) to simplify the presentation of deferred taxes. This amendment requires that all deferred tax assets and liabilities, along with any related valuation allowances, be classified as noncurrent on the balance sheet.  Adoption of this standard is required for annual periods beginning after December 15, 2016. We are currently evaluating the impact ASU 2015-17 will have on our consolidated financial statements and related disclosures.


Concentration of Credit Risks

Financial instruments that potentially subject us to concentrations of credit risk are cash equivalents, short-term investments and accounts receivable.  Cash equivalents are primarily highly rated money market funds. Short-term investments are certificates of deposit within federally insured limits. Where applicable, management reviews our accounts receivable and other receivables for potential doubtful accounts and maintains an allowance for estimated uncollectible amounts. Our policy is to write-off uncollectable amounts at the time it is determined that collection will not occur.


Three licensees accounted for 53%, 37% and 10%, respectively, of revenues from patent licensing activities during fiscal year 2015. Four licensees accounted for 22%, 16%, 14% and 10%, respectively, of revenues from patent licensing activities during fiscal year 2014.


F-18




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.

INVESTMENTS


Short-term Investments

At October 31, 2015 and October 31, 2014, we had of certificates of deposit totaling $2,400,000 and $2,500,000, respectively.  Terms of the certificates of deposit generally range from greater than three months to nine months.


Investment in Videocon

Our investment in Videocon was classified as an "available-for-sale security" and reported at fair value, with unrealized gains and losses excluded from operations and reported as component of accumulated other comprehensive income (loss) in shareholders equity.  The original cost basis of $16,200,000 was determined using the specific identification method.  The fair value of the Videocon GDRs is based on the price on the Luxembourg Stock Exchange, which price is based on the underlying price of Videocons equity shares which are traded on stock exchanges in India with prices quoted in rupees.   


ASC 320 Investments-Debt and Equity Securities (ASC 320) and SEC guidance on other than temporary impairments of certain investments in equity securities requires an evaluation to determine if the decline in fair value of an investment is either temporary or other than temporary.  Unless evidence exists to support a realizable value equal to or greater than the carrying cost of the investment, an other than temporary impairment should be recorded.  At each reporting period we assessed our investment in Videocon to determine if a decline that is other than temporary has occurred.  In evaluating our investment in Videocon during fiscal year 2014, we determined that based on both the duration and the continuing magnitude of the market price decline compared to the carrying cost, a write-down of the investment of approximately $63,000 should be recorded and a new cost basis of approximately $4,135,000 should be established.  On August 29, 2014, we exchanged the Videocon GDRs for 800,000 shares of our common stock, see Note 1 Business and Funding Description of Business Unwinding of Business Relationship and Interest with Videocon.  On a cumulative basis, we have recorded other than temporary impairments in our investment in Videocon GDRs of approximately $12,065,000.   


The fair value of the Videocon GDRs on August 29, 2014, the date of disposition, was follows:


Investment in
Videocon

Fair Value as of October 31, 2013

 $

   4,197,341

   Other than temporary impairment

 

        (62,825)

Fair value of Videocon GDRs on date of disposition

 $

   4,134,516


4.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued liabilities consist of the following as of:

 

F-19




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



 

October 31,

 

2015

 

2014

Accounts payable

$

    374,703

$

   540,179

Payroll and related expenses

                 -

     372,753

Accrued litigation expense, consulting and other

    professional fees

      

                 -

    

     320,493

Accrued other

 

         6,062

 

       16,001

 

$

    380,765

$

1,249,426


5.           CONVERTIBLE DEBENTURES

Convertible Debenture due January 2015

 

In January 2013, the Company received aggregate gross proceeds of $1,765,000 from the issuance of 8% convertible debentures due January 25, 2015 (Convertible Debenture due January 2015), of which $250,000 was received from our current President, Chief Executive Officer and director, and two other directors of the Company. The debentures paid interest quarterly and were convertible into shares of our common stock at a conversion price of $3.75 per share on or before January 25, 2015. The embedded conversion feature had certain weighted average anti-dilution protection provisions which would be triggered if the Company issues its common stock, or certain common stock equivalents, (as defined) at a price below $3.75 per share.  The Company had the option to pay any interest on the debentures in common stock based on the average of the closing prices of  our common stock for the 10 trading days immediately preceding the interest payment date. The Company also had the option to pay any interest on the debentures with additional debentures.  The Company had the right to prepay the debentures at any time without penalty upon 30 days prior notice but only if the sales price of the common stock is at least $7.50 for 20 trading days in any 30-day trading period ending no more than 15 days before the Companys prepayment notice.  In conjunction with the issuance of the debentures, the Company issued warrants (the Convertible Debenture Warrant) to purchase 235,310 shares of its common stock.  Each warrant grants the holder the right to purchase one share of the Companys common stock at the purchase price of $7.50 per share on or before January 25, 2016. The Convertible Debenture Warrant may be exercised on a cashless basis only if there is not an effective registration statement covering such shares.

  

The Company determined, based upon authoritative guidance, that the conversion feature embedded within the Convertible Debenture due January 2015 should be valued separately and bifurcated from the host instrument and accounted for as a free-standing derivative liability and that the Convertible Debenture Warrant should also be valued and accounted for separately as an equity instrument. 


The Company determined the fair value of each of the three elements included within the Convertible Debenture due January 2015.  The debenture portion (without the conversion feature) bearing interest at 8% was determined to be a debt instrument with a fair value of $1,490,000.  The embedded conversion feature was determined to be a derivative liability with a fair value of $1,180,000.  The Convertible Debenture Warrant was determined to be an equity instrument with a fair value of $370,000.  The Company determined the fair value of each of these instruments based upon the assumptions and methodologies as discussed below.


 

F-20




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 

Since the Convertible Debenture Warrant was determined to be an equity instrument, the Company first computed the relative fair value of the Convertible Debenture due January 2015 (including the value of its conversion feature) with a fair value of $2,670,000 and the Convertible Debenture Warrant with a fair value of $370,000.   Accordingly, the relative fair value of the Convertible Debenture Warrant and the Convertible Debenture due January 2015 (including the value of its conversion feature) was determined to be $214,819 and $1,550,181, respectively.  Then, from the relative fair value of the Convertible Debenture due January 2015, the Company deducted in full the fair value of the embedded conversion feature of $1,180,000.   The discount of $1,394,819 applied to the face value of the Convertible Debenture due January 2015 consists of the sum of the relative fair value of the Convertible Debenture Warrant of $214,819 and the full value of the bifurcated conversion option derivative liability of $1,180,000.  The Convertible Debenture due January 2015 was recorded at a net value of $370,181, representing its face value of $1,765,000, less aggregate discounts for the derivative liability and warrant of $1,394,819, as summarized in the table below.

 

Face value of Convertible Debenture due January 2015

 

 

 

$

 

1,765,000

Fair value of embedded conversion feature

$

1,180,000


 

 

Relative fair value of Convertible Debenture Warrant

 

214,819


 

 

Discount

$

1,394,819


 

(1,394,819)

Proceeds attributable to the Convertible Debenture due January 2015

 

 


 

$

370,181

 

Accordingly, the Company accounted for the full amount of the discount as an offset to the Convertible Debenture due January 2015, amortizable under the effective interest method over the term of the debenture.  


The Company calculated the fair value of the embedded conversion feature of the Convertible Debenture due January 2015 using a Monte Carlo simulation, with the observable assumptions as provided in the table below. The significant unobservable inputs used in the fair value measurement of the reporting entitys embedded conversion feature are expected stock prices, levels of trading and liquidity of the Company stock, probability of default of the host instrument, and loss severity in the event of such default. Significant increases in the expected stock prices and expected liquidity would result in a significantly higher fair value measurement. Significant increases in either the probability or severity of default of the host instrument would result in a significantly lower fair value measurement. 

 

  

As of

January 25,


2013

Stock price on valuation date

$

5.25

Conversion price

$

3.75

Stock premium for liquidity

 

57%

Term (years)

 

2.00

Expected volatility

 

110%

Weighted average risk-free interest rate

 

0.3%

Trials

 

100,000

Aggregate fair value

$

1,180,000


 

F-21




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The Company calculated the fair value of the Convertible Debenture Warrant issued on January 25, 2013 using the Black-Scholes option pricing model with the following assumptions: 


 

As of

January 25,


2013

Stock price on valuation date

$

5.25

Exercise price

$

7.50

Stock premium for liquidity

 

38%

Term (years)

 

3.00

Warrant exercise trigger price

 

41%

Expected volatility

 

95%

Weighted average risk-free interest rate

 

0.4%

Number of warrants

 

 5,882,745

Aggregate fair value

$

 370,000

 

The Company determined the fair value of the Convertible Debenture due January 2015 by preparing an analysis of discounted cash flows, using a discount rate of 18.6%, which the Company deemed appropriate given the Companys current risk scenarios.


In connection with the Convertible Debenture due January 2015, the Company provided compensation to the placement agent consisting of a cash fee of $41,400 and a warrant for the purchase of 11,041 shares of the Companys common stock (Placement Agent Warrant).  The terms of the Placement Agent Warrant are identical to the terms of the Convertible Debenture Warrant, and using Black-Scholes, upon issuance, was determined to have a fair value of $17,360. Assumptions for the valuation of the Placement Agent Warrant were identical to those provided above for the Convertible Debenture Warrant.  In addition, issuance costs included legal fees of approximately $25,000.


The sum of the issuance costs was $83,760, and this cost was allocated as provided below:


Attributable to:

 

Accounting Treatment

 


Amount

The embedded conversion feature (derivative)

 

Expensed as incurred

 

$

55,999

The 8% Convertible Debenture Warrant

 

Charged to additional paid-in capital

 

 

10,194

 

 

 

 

 

 

The 8% Convertible Debenture

 

Recorded as deferred issuance costs and amortized under the interest method over the term of the 8% Convertible Debenture

 

 

17,567

Total

 

 

 

$

83,760

 

             In connection with the issuance of the Convertible Debenture due January 2015, on April 24, 2013, the Company prepared and filed a registration statement registering for resale the shares of its common stock which may be issued upon the conversion of the debenture consistent with the terms and conditions of the registration rights agreement the Company entered into with the holders of the registrable shares listed above. The registration statement was declared effective by the SEC on June 19, 2013.


 

F-22




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 


The Company has agreed to maintain the effectiveness of the registration statement through the earlier of three years from the date of the issuance of the Convertible Debenture due January 2015 or until Rule 144 of the Securities Act is available to the holders to allow them to sell all of their registrable securities thereunder.

 

The derivative liability related to the embedded conversion feature was revalued at each reporting period as well as on the date of all conversions, as discussed, below. 


As of October 31, 2013, the Company determined the fair value of the derivative liability to be $540,000, and accordingly, during the year ended October 31, 2013, the Company recorded a gain on the change in the fair value of the derivative liability of approximately $475,000.    As of October 31, 2014, the Company determined the fair value of the derivative liability to be $-0-, as the full value of the Convertible Debenture due January 2015 was converted and/or repaid in full during the year ended October 31, 2014 and accordingly, during the year ended October 31, 2014, the Company recorded a loss on the change in the fair value of the derivative of approximately $1,131,000.   

 

As of October 31, 2013, the Company calculated the fair value of the embedded conversion feature of the Convertible Debenture due January 2015 using a Monte Carlo simulation, with the observable assumptions as provided in the table below.  The significant unobservable inputs used in the fair value measurement of the reporting entitys embedded conversion feature are expected stock prices, levels of trading and liquidity of the Company stock, probability of default of the host instrument, and loss severity in the event of such default.  Significant increases in the expected stock prices and expected liquidity would result in a significantly higher fair value measurement.  Significant increases in either the probability or severity of default of the host instrument would result in a significantly lower fair value measurement. 

  

 


As of

October 31,


2013

Stock price on valuation date


$      4.875

Conversion price


$        3.75

Stock premium for liquidity


42%

Term (years)


1.25

Expected volatility


115%

Weighted average risk-free interest rate


0.3%

Trials


100,000

Aggregate fair value

 

$  540,000

 


 

 

The fair value of the derivative liability associated with the conversions and repayments of the Convertible Debenture due January 2015 was approximately $1,671,000 immediately prior to the conversions and repayments.


F-23




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


As of April 30, 2014, the Convertible Debenture due January 2015 was extinguished in full.  However, the Company needed to determine the fair value of the derivative liability for the embedded conversion feature immediately prior to the conversion, in order to determine the change in the fair value of the derivative for the period. The Company determined to measure the derivative immediately prior to the conversion at its intrinsic value, since this method most fairly measured the value of the derivative liability. The intrinsic value computation is provided below.  


  

As of

April 30,

2014

Stock price used for valuation

$

8.50

 

 

266.68 shares issued per $1,000 face value

Aggregate intrinsic value of the $1,150,000 of principal outstanding on April 30, 2014, immediately prior to conversion and repayment

$

1,456,797

 

 

 


The amortization of debt discount related to the Convertible Debenture due January 2015 was approximately $-0- and $233,000, for the years ended October 31, 2015 and 2014, respectively.

 

During the year ended October 31, 2013, holders of $325,000 and $5,878 of principal and interest, respectively, of the Convertible Debenture due January 2015, converted their holdings into an aggregate of 86,671 and 805 shares of Common Stock.  During the year ended October 31, 2014, holders of $1,240,000 and $9,000 of principal and interest, respectively, of the Convertible Debenture due January 2015, converted their holdings into an aggregate of 330,683 and 1,185 shares of common stock and holders of $200,000 of principal of the Convertible Debenture due January 2015 consented to prepayment (without conversion) of obligations to them under the instruments prepayment provisions. During the year ended October 31, 2014, in connection with these conversions and prepayments, the Company recorded losses on extinguishment of debt in the amount of $482,915.  These losses represent the excess of the fair value of Common Stock on the date of conversion over the net book value of the debt on the date of conversion.  Since the conversion feature on the Convertible Debenture due January 2015 was determined to be a derivative liability, the net book value includes both the value of the debt, net of discount, and the portion of the derivative liability related to its conversion feature.  


The loss on extinguishment of debt was calculated as follows:

 

Year Ended

October 31,

2014

Face value of debt converted

$

  1,440,000

Less: discount

 

    (658,232)

Plus: fair value of derivative liability

 

  1,670,704

Net book value of debt converted

$

  2,452,472

Fair value of common stock issued

 

  2,935,387

Loss on extinguishment of debt

$

  (482,915)

 

F-24




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 

 

Convertible Debenture due November 2016  

 

In November 2013, the Company received aggregate gross proceeds of $3,500,000 from the issuance of 6% convertible debentures due November 11, 2016 (Convertible Debenture due November 2016). The debentures paid interest annually and were convertible into shares of our common stock at a conversion price of $4.73 per share on or before November 11, 2016.  The embedded conversion feature had certain weighted average anti-dilution protection provisions which would be triggered if the Company issues its common stock, or certain common stock equivalents, (as defined) at a price below $3.55 per share.  The Company had the option to pay any interest on the debentures in common stock based on 90% of the volume weighted average closing sales price of our common stock for the 30 trading days immediately preceding the interest payment date.  In conjunction with the issuance of the debentures, the Company issued warrants (the Convertible Debenture Warrant) to purchase 369,979 shares of its common stock.  Each warrant granted the holder the right to purchase one share of the Companys common stock at an initial fixed purchase price of $9.46 per share (see discussion below of amendment to warrant exercise price) on or before November 11, 2016.  The Convertible Debenture Warrant may be exercised on a cashless basis only if there is not an effective registration statement covering such shares.

 

The Company determined, based upon authoritative guidance, that the conversion feature embedded within the Convertible Debenture due November 2016 should be valued separately and bifurcated from the host instrument and accounted for as a free-standing derivative liability and that the Convertible Debenture Warrant should also be valued and accounted for separately as an equity instrument. 

 

The Company determined the fair value of each of the three elements included within the Convertible Debenture due November 2016. The debenture portion (without the conversion feature) bearing interest at 6% was determined to be a debt instrument with a fair value of $2,710,000.  The embedded conversion feature was determined to be a derivative liability with a fair value of $1,570,000. The Convertible Debenture Warrant was determined to be an equity instrument with a fair value of $740,000.  The Company determined the fair value of each of these instruments based upon the assumptions and methodologies as discussed below.

 

Since the Convertible Debenture Warrant was determined to be an equity instrument, the Company first computed the relative fair value of the Convertible Debenture due November 2016 (including the value of its conversion feature) with a fair value of $4,280,000 and the Convertible Debenture Warrant with a fair value of $740,000.   Accordingly, the relative fair value of the Convertible Debenture Warrant and the Convertible Debenture due November 2016 (including the value of its conversion feature) was determined to be $515,936 and $2,984,064, respectively.  Then, from the relative fair value of the Convertible Debenture due November 2016, the Company deducted in full the fair value of the embedded conversion feature of $1,570,000.  The discount of $2,085,936 applied to the face value of the Convertible Debenture due November 2016 consists of the sum of the relative fair value of the Convertible Debenture Warrant of $515,936 and the full value of the bifurcated conversion option derivative liability of $1,570,000.  The Convertible Debenture due November 2016 was recorded at a net value of $1,414,064, representing its face value of $3,500,000, less aggregate discounts for the derivative liability and warrant of $2,085,936, as summarized in the table below. 

 

F-25




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 


 

Face value of Convertible Debenture due November 2016

 

 

 

$

3,500,000

Fair value of embedded conversion feature

$

1,570,000

 

 

 

Relative fair value of Convertible Debenture Warrant

 

515,936

 

 

 

Discount

$

2,085,936

 

 

(2,085,936)

Proceeds attributable to the Convertible Debenture due November 2016

 

 

$

1,414,064

 

Accordingly, the Company accounted for the full amount of the discount as an offset to the Convertible Debenture due November 2016, amortizable under the effective interest method over the term of the debenture.


The Company calculated the fair value of the embedded conversion feature of the Convertible Debenture due November 2016 using a Monte Carlo simulation, with the observable assumptions as provided in the table below. The significant unobservable inputs used in the fair value measurement of the reporting entitys embedded conversion feature are expected stock prices, levels of trading and liquidity of the Company stock, probability of default of the host instrument, and loss severity in the event of such default. Significant increases in the expected stock prices and expected liquidity would result in a significantly higher fair value measurement. Significant increases in either the probability or severity of default of the host instrument would result in a significantly lower fair value measurement. 









 

As of

November 11,

2013

Stock price on valuation date

$

5.00

Conversion price

$

4.725

Discount for lack of marketability

 

35.5%

Term (years)

 

3.00

Expected volatility

 

102.8%

Weighted average risk-free interest rate

 

0.62%

Trials

 

100,000

Aggregate fair value

$

1,570,000


 

F-26




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 The Company calculated the fair value of the Convertible Debenture Warrant issued on November 11, 2013 using a Black Scholes Model, with the observable assumptions as provided in the table below. The significant unobservable inputs used in the fair value measurement of the reporting entitys warrant value are expected stock prices, levels of trading and liquidity of the Company stock, probability of default of the host instrument, and loss severity in the event of such default. Significant increases in the expected stock prices and expected liquidity would result in a significantly higher fair value measurement. Significant increases in either the probability or severity of default of the host instrument would result in a significantly lower fair value measurement:

 

As of

November 11,

2013

Stock price on valuation date

$

5.00

Exercise price

$

9.45

Discount for lack of marketability

 

22%

Term (years)

 

3.00

Expected volatility

 

102.8%

Weighted average risk-free interest rate

 

0.6%

Number of warrants

 

369,979

Aggregate fair value

$

740,000

 

The Company determined the fair value of the Convertible Debenture due November 2016 by preparing an analysis of discounted cash flows, using a discount rate of 16.0%, which the Company deemed appropriate given the Companys current risk scenarios.

 

 In connection with the issuance of the Convertible Debenture due November 2016, the Company incurred legal costs which were allocated as provided below:


 Attributable to:

 

Accounting Treatment

 

 

Amount

The embedded conversion feature (derivative)

 

Expensed as incurred

 

$

8,593

The 8% Convertible Debenture Warrant

 

Charged to additional paid-in capital

 

 

2,824

 

 

 

 

 

 

The 8% Convertible Debenture

 

Recorded as deferred issuance costs and amortized under the interest method over the term of the 8% Convertible Debenture

 

 

7,739

Total

 

 

 

$

19,156

  

            In connection with the issuance of the Convertible Debenture due November 2016, on February 7, 2014, the Company prepared and filed a registration statement registering for resale the shares of its common stock which may be issued upon the conversion of the debenture and exercise of the warrant consistent with the terms and conditions of the debenture agreement the Company entered into with the holders of the registrable shares listed above.

 

            The Company has agreed to maintain the effectiveness of the registration statement through the earlier of three years from the date of the issuance of the Convertible Debenture due November 2016 or until Rule 144 of the Securities Act is available to the holders to allow them to sell all of their registrable securities thereunder. 


On September 9, 2014, holders of $3,500,000 and approximately $173,000 of principal and interest, respectively, of the Convertible Debenture due November 2016, converted their holdings into an aggregate of 739,958 shares of common stock the (Conversion Common Stock).   In addition, the Company exchanged and reissued the warrant for the purchase of 369,979 shares of common stock, and upon the reissuance, lowered the exercise price to $7.75 per share.   There was no change to the term of the warrant.


 

F-27




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 


Immediately after the conversion, the holders exchanged 639,158 shares of the Conversion Common Stock into 3,500 shares of Series A Convertible Preferred Stock. Shortly thereafter, the Company retired and cancelled the 639,158 shares of common stock received in the exchange.

 

In connection with this conversion, the Company recorded a loss on conversion/exchange of approximately $2,216,000, as summarized below. This loss represents the excess of the fair value of the common stock issued, net of the shares of common stock exchanged for the issuance of 3,500 shares of Series A Convertible Preferred Stock, plus the fair value of the Series A Convertible Preferred Stock, on the date of the conversion, over the net book value of the debt on the date of conversion. Since the conversion feature on the Convertible Debenture due November 2016 was determined to be a derivative liability, the net book value includes the value of the debt, net of debt discount and deferred issuance costs, plus accrued interest and the derivative liability related to the conversion feature (after being marked to market) on the conversion date, and the change in the fair value of the warrant on the date of the conversion. Because the conversion rate of the Series A Convertible Preferred Stock of $4.73 per share was less than the Companys closing stock price on the date of this transaction, the Company determined that the Series A Convertible Preferred Stock contained a beneficial conversion feature. The beneficial conversion feature was recorded in additional paid-in-capital as a result of the Companys accumulated deficit.


The loss on extinguishment of debt was determined as follows: 

 


Securities extinguished:


Face value of convertible debenture converted

$

3,500,000

Less: debt discount

 

(1,684,801)

Less: deferred issuance costs

 

(7,739)

Plus: accrued interest

 

173,833

Plus: fair value of derivative liability

 

1,032,241

Plus: fair value of warrant exchanged in connection with the conversion

 

805,000

Net book value of converted debenture, accrued interest, derivative   

   liability and warrant exchanged

 

3,818,534

Securities issued in conversion/exchange:

 

 

Fair value of 100,800 shares of common stock issued, net (739,958

   shares of Conversion Common Stock issued, less 639,158 shares

   exchanged for 3,500 shares of Series A Convertible Preferred Stock)

 

617,400

Fair value of 3,500 shares of Series A Convertible Preferred Stock (based

   on a stated value per share of $1,000 and a conversion rate of $4.73)


4,532,241

Fair value of warrant issued September 9, 2014

 

885,000

Subtotal of securities issued in conversion/exchange

 

6,034,641

(Loss) on conversion/exchange

$

(2,216,107)

 

On September 9, 2014, the Convertible Debenture due November 2016 was extinguished in full.  The Company needed to determine the fair value of the derivative liability for the embedded conversion feature immediately prior to the conversion, in order to determine the change in the fair value of the derivative for the period. The Company determined to measure the derivative immediately prior to the conversion at its intrinsic value, since this method most fairly measured the value of the derivative liability. The intrinsic value computation is provided below.


 

F-28




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


  

 


 

On September 9,

2014

Stock price used for valuation

$

6.125

 

 

211.4 shares issued per $1,000 of face value

Aggregate gross intrinsic value of the $3,500,000 of principal outstanding on September 8, 2014, immediately prior to conversion

 

4,532,241

Less the face value of the convertible debenture

 

(3,500,000)

Intrinsic value of the derivative conversion feature

 $

 1,032,241

 

The derivative liability related to the embedded conversion feature was revalued at each reporting period as well as on the date of all conversions. The value of the derivative liability associated with the conversion of the Convertible Debenture due November 2016 during the year ended October 31, 2014 was approximately $1,032,000. As of October 31, 2014, the Company determined the fair value of the derivative liability to be $-0-, as the full value of the Convertible Debenture due November 2016 was converted in full during the year ended October 31, 2014.  During the year ended October 31, 2014, the Company recorded gains on the change in fair value of the derivative liability of approximately $538,000.

 

The Company calculated the fair value of the embedded conversion feature of the Convertible Debenture due November 2016 using a Monte Carlo simulation. The significant unobservable inputs used in the fair value measurement of the reporting entitys embedded conversion feature are expected stock prices, levels of trading and liquidity of the Company stock, probability of default of the host instrument, and loss severity in the event of such default.  Significant increases in the expected stock prices and expected liquidity would result in a significantly higher fair value measurement. Significant increases in either the probability or severity of default of the host instrument would result in a significantly lower fair value measurement.

 

The amortization of debt discount related to the Convertible Debenture due November 2016 for the years ended October 31, 2015 and 2014 was approximately $-0- and $401,000, respectively.


6.

SHAREHOLDERS EQUITY


Sale of Common Stock


 

F-29




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


On July 15, 2014, the Company, raised $4,000,000 of gross proceeds via a registered direct offering of its common stock to certain investors (the Investors) (the Offering). The Company sold an aggregate of 640,000 shares of common stock and warrants to purchase an aggregate of 320,000 shares of common stock. The purchase price of one share of common stock and a warrant to purchase ½ of a share of common stock was $6.25.  The warrants are exercisable immediately as of the date of issuance at an exercise price of $10.00 per share and expire five years from the date of issuance. The exercise price of the warrants is subject to customary adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions.  Under certain circumstances, the Company has the right to call for cancellation of warrants for which a notice of exercise has not yet been delivered for consideration equal to $.025 per share.  The Offering was effected as a takedown off the Companys shelf registration statement on Form S-3, which became effective on April 25, 2014, pursuant to a prospectus supplement filed with the SEC.

 

Reverse Stock Split

 

On June 26, 2015, we effected a 1-for-25 reverse stock split (the Stock Split) of our issued common stock and preferred stock.  Each shareholders percentage ownership and proportional voting power remained unchanged as a result of the Stock Split.  All applicable share data, per share amounts and related information in the consolidated financial statements and notes thereto have been adjusted retroactively to give effect to the Stock Split.  As a result of the Stock Split, the number of shares of our common stock and preferred stock authorized was also decreased by the same proportion as the outstanding shares.


Common Stock Issuances

During the years ended October 31, 2015 and 2014, we issued 11,600 shares and 12,400 shares, respectively, of common stock to consultants for services rendered, pursuant to the 2010 Share Plan.  We recorded consulting expense for the years ended October 31, 2015 and 2014 of approximately $46,000 and $85,000, respectively, for shares of common stock issued to consultants.  

Stock Option Plans

As of October 31, 2015, we have two stock option plans: the 2003 Share Plan and the 2010 Share Plan which were adopted by our Board of Directors on April 21, 2003 and July 14, 2010, respectively.

The 2003 Share Plan provides for the grant of nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to key employees and consultants.  The maximum number of shares of common stock in the 2003 Share Plan was 2,800,000 shares. The 2003 Share Plan was administered by the Stock Option Committee through June 2004, from June 2004 through July 2010, by the Board of Directors, from July 2010 through August 2012, by the Stock Option Committee, from August 2012 through November 2012, by the Executive Committee of the Board of Directors and since November 2012, by the Board of Directors, which determined the option price, term and provisions of each option.  The exercise price with respect to all of the options granted under the 2003 Share Plan since its inception was equal to the fair market value of the underlying common stock at the grant date. In accordance with the provisions of the 2003 Share Plan, the plan terminated with respect to the grant of future options on April 21, 2013.

F-30




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Information regarding the 2003 Share Plan for the two years ended October 31, 2015 is as follows:




 

Shares

 

Weighted
Average Exercise
Price Per Share

 

Aggregate
Intrinsic Value

 

 

 

 

Options Outstanding at October 31, 2013

625,554

$

18.00

 

  Exercised

(17,400)

$

  3.63

 

  Forfeited

(114,163)

$

19.75

 

Options Outstanding  at October 31, 2014

493,991

$

18.00

 

  Exercised

 (4,000)

$

  2.58

 

  Forfeited

(123,771)

$

14.71

 

Options Outstanding and Exercisable at October 31, 2015

   366,200

$

17.86

$

61,665


The following table summarizes information about stock options outstanding and exercisable under the 2003 Share Plan as of October 31, 2015:


Range of
Exercise Prices

Number
Outstanding

Weighted Average
Remaining

Contractual Life

(in years)

Weighted Average
Exercise Price

$  1.79 - $  9.25

73,880

1.75

$  2.91

$14.75 - $17.25

59,600

1.33

$16.75

$18.75 - $23.00

192,720

1.14

$21.57

$29.25

40,000

1.80

$29.25


The 2010 Share Plan provides for the grant of nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to key employees and consultants.  The maximum number of shares of common stock in the 2010 Share Plan was initially 600,000 shares. On July 6, 2011, the 2010 Share Plan was amended by our Board of Directors to increase the maximum number of shares of common stock in the plan to 1,080,000 shares and on August 29, 2012, the maximum number of shares in the plan was further increased to 1,200,000 shares.  On November 8, 2013, the Board of Directors approved an amendment to provide that effective November 8, 2013, the maximum aggregate number of shares available for future issuance will be 800,000 shares and that on the first business day in 2014 and on the first business day of each calendar year thereafter the maximum aggregate number of shares available for future issuance shall be replenished such that 800,000 shares will be available. Accordingly, on November 8, 2013, January 2, 2014 and January 2, 2015, the number of shares in the 2010 Share Plan was increased to 1,956,999 shares, 2,225,399 shares and 2,569,399 shares, respectively.  In addition, on November 8, 2013, the 2010 Share Plan was amended to provide that on January 2nd of each year commencing on January 2, 2014, each non-employee director of the Company at that time shall automatically be granted a 10 year stock option to purchase 12,000 shares of common stock (16,000 for the Chairman) that will vest in four equal quarterly installments. The 2010 Share Plan was administered by the Stock Option Committee through August 2012, from August 2012 through November 2012, by the Executive Committee of the Board of Directors and since November 2012, by the Board of Directors, which determines the option price, term and provisions of each option. The exercise price with respect to all of the options granted under the 2010 Share Plan was equal to the fair market value of the underlying common stock at the grant date.  As of October 31, 2015, the 2010 Share Plan had 988,995 shares available for future grants.


F-31




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


  


Information regarding the 2010 Share Plan as of October 31, 2015 is as follows:



Shares

 

 Weighted Average Exercise Price Per Share

 

Aggregate Intrinsic Value





Options Outstanding at October 31, 2013

      119,360

           $6.13

 

  Granted

      612,400

           $5.75

 

  Exercised

         (3,200)

           $4.00

    

Options Outstanding at October 31,  2014

      728,560

           $5.75

 

Granted

        60,400

           $2.91

 

  Exercised

      (13,334)

           $2.58

 

  Forfeited

     (249,355)

           $6.24

 

Options Outstanding at October 31,  2015

      526,271

           $3.33

 $ 471,292

Options Exercisable at October 31, 2015

      406,149

           $3.40

 $ 342,572


The following table summarizes information about stock options outstanding under the 2010 Share Plan as of October 31, 2015:

Options Outstanding

 

Options Exercisable

Range of
Exercise
Prices

Number
Outstanding

Weighted Average
Remaining
Contractual Life

(in years)

Weighted Average
Exercise Price

Number
Exercisable

Weighted Average
Remaining
Contractual Life
(in years)

Weighted Average
Exercise Price

 

 

 

 

 

 

 

$2.58 - $9.25

526,271

6.98

$3.33

 

406,149

6.57

$3.40


In addition to options granted under the 2003 Share Plan and the 2010 Share Plan, in September 2012, the Board of Directors approved the grant of stock options to purchase 1,660,000 shares and, during the year ended October 31, 2013, the Board of Directors approved the grant of stock options to purchase 120,000 shares.


Of the stock options granted in September 2012, nonqualified options to purchase 1,600,000 shares were issued to our new executive team, consisting of 640,000 stock options issued to our new President and Chief Executive Officer, 320,000 stock options issued to our new Senior Vice President of Engineering and 640,000 stock options issued to a new strategic advisor to the Company who was also a Director.  These stock options had an exercise price of $5.44 (the average of the high and the low sales price of the common stock on the trading day immediately preceding the approval of such options by the Board of Directors) and have a term of ten years.  Half of these stock options vest in 36 equal monthly installments commencing on October 31, 2012, provided that if the grantees are terminated by the Company without cause, an additional 12 months of vesting will be accelerated and such accelerated options will become immediately exercisable.  The balance of the stock options will vest in three equal installments upon achievement of a cash milestone, which was satisfied in the fourth quarter of fiscal 2013, and two stock price targets, which were not achieved in fiscal 2013.  In November 2013, in light of the cost and expense of revaluing the unvested portion of the performance-based stock options on a quarterly basis for financial reporting purposes, the Board of Directors approved an amendment to the performance-based stock options awarded on September 19, 2012 to the President and Chief Executive Officer, Senior Vice President of Engineering and the strategic advisor. The amendment modifies the option awards vesting conditions to provide that the unvested portion of the stock options vest in 23 consecutive monthly installments commencing November 30, 2013.  The fair value of these options was recalculated to reflect the change to service based options as of November 8, 2013 and the unrecognized compensation amount was adjusted to reflect the increase in fair value.  As of October 31, 2015, the options to purchase 1,600,000 shares were exercisable and had an intrinsic value of $1,832,000, based on our closing share price on October 31, 2015 of $3.72.  These stock options otherwise have the same terms and conditions as options granted under the Companys 2010 Share Incentive Plan.


 

F-32




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


  


The remaining nonqualified stock options granted in September 2012 to purchase 60,000 shares consisted of grants of 30,000 stock options to our Chairman in compensation for his service as interim Chief Executive Officer of the Company and as compensation for his prior service as a director, and 30,000 stock options to a director in compensation for his service in recruiting the Companys new management team.  These stock options had an exercise price of $5.56 (the average of the high and low sales price on September 21, 2012).  The options vest in 3 equal annual installments commencing on September 21, 2012 and have a term of ten years.   As of October 31, 2015, these options were exercisable and had an intrinsic value of approximately $34,000, based on our closing share price on October 31, 2015 of $3.72.  These stock options otherwise have the same terms and conditions as options granted under the Companys 2010 Share Incentive Plan.  

During the year ended October 31, 2013, nonqualified stock options to purchase 120,000 shares were granted to our outside directors for service rendered to our Company.  Of these options,

(a)  In November 2012, nonqualified stock options to purchase 40,000 shares were issued to one of our directors as additional compensation for service in recruiting the Companys new management team.  These options have an exercise price of $5.28 (the average of the high and low sales price on date of grant) and vested 13,334 shares upon grant and 13,333 shares in two annual installments commencing November 30, 2013.  

(b) In February 2013, nonqualified stock options to purchase 40,000 shares were issued to the Chairman of the Board.  These stock options had an exercise price of $5.88 (the average of the high and low sales price on date of grant) and vest 13,334 shares upon grant and 13,333 shares in two annual installments commencing February 15, 2014.  

(c) In March 2013, nonqualified stock options to purchase an aggregate of 40,000 shares were granted to the Companys three outside directors.  Each of these stock options had an exercise price of $4.88 (the average of the high and low sales price on date of grant) and vest in four equal quarterly installments commencing March 31, 2013.

As of October 31, 2015, the options to purchase 120,000 shares were exercisable and had an intrinsic value of approximately $92,000, based on our closing share price on October 31, 2015 of $3.72.  These options otherwise have the same terms and conditions as options granted under the Companys 2010 Share Incentive Plan.  

F-33




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The following table summarizes information about the above outstanding and exercisable stock options that were not granted under the 2003 Share Plan or the 2010 Share Plan as of October 31, 2015:


Range of
Exercise Prices

 

Number
Outstanding

 

Weighted Average
Remaining
Contractual Life

(in years)

 

Weighted Average
Exercise
Price

$ 2.58 - $ 5.56

 

1,780,000

 

6.76

 

$  2.71

  

On January 28, 2015, the Board of Directors authorized management of the Company to re-price issued and outstanding stock options for all of the officers, directors and employees of the Company, at any time prior to February 16, 2015.  On February 5, 2015, management acted to re-price 2,184,125 issued and outstanding stock options (the Re-Priced Options) pursuant to the authority granted by the Board of Directors. The new exercise price of the Re-Priced Options is $2.575, the closing sales price of the Companys common stock on February 5, 2015.  All other terms of the previously granted Re-Priced Options remain the same.  The Company recorded additional stock-based compensation of approximately $297,000, as of February 5, 2015, related to this re-pricing.  This amount was determined to be the incremental value of the fair value of the Re-Priced Options compared to the fair value of the original option immediately before the re-pricing.


Preferred Stock


In May 1986, our shareholders authorized 200,000 shares of preferred stock with a par value of $100 per share.  The shares of preferred stock may be issued in series at the direction of the Board of Directors, and the relative rights, preferences and limitations of such shares will all be determined by the Board of Directors.  

Series A Convertible Preferred Stock

On September 9, 2014, the Company designated 140 shares of the preferred stock as Series A Convertible Preferred Stock, par value $100 per share, in accordance with the Certificate of Designation of Series A Convertible Preferred Stock filed with the Secretary of State of the State of Delaware on September 9, 2014 (the Series A Convertible Preferred Stock).  On September 9, 2014, 140 shares of Series A Convertible Preferred Stock were issued in connection with the conversion of the Convertible Debenture due November 2016, as discussed further, in Note 5, Convertible Debentures herein.


Ranking 


The Series A Convertible Preferred Stock ranks senior to the Companys common stock, to all series of any other classes of equity which may be issued and to any indebtedness, unless the Company has obtained the prior written consent of the Series A Convertible Preferred Stock holder.


F-34




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Optional Conversion

 

Holders of the Series A Convertible Preferred Stock may at any time convert their shares of Series A Convertible Preferred Stock into such number of shares of the Companys common stock in such an amount equal to (a) the stated value (initially $1,000) of the shares of Series A Convertible Preferred Stock being converted (the Stated Value), divided by the conversion price (initially $4.73) ( the Series A Conversion Price), multiplied by (b) the number of shares of Series A Preferred Stock being converted.  In the event the Series A Convertible Preferred Stock is converted in part, the Company shall deliver a new certificate of like tenor in the amount equal to the remaining balance of the Series A Convertible Preferred Stock after giving effect to such partial conversion.


The holder shall not have the right to convert any portion of the Series A Convertible Preferred Stock if after giving effect to such conversion, the holder, together with any affiliate thereof, would beneficially own in excess of 4.99% of the number of shares of common stock outstanding immediately after giving effect to such conversion.


The embedded conversion option has certain anti-dilution protection provisions which would be triggered if the Company issues its common stock, or certain common stock equivalents, (as defined) at a price below $3.55 per share.   

 

Mandatory Conversion


At any time after November 11, 2016, if and only if the average of the high and low trading prices of the Companys common stock for any 10 out of 20 consecutive trading days (the Measurement Period,) exceeds the then Series A Conversion Price, as adjusted, the Company may convert any then outstanding shares of Series A Convertible Preferred Stock into shares of common stock (a Mandatory Conversion), provided, however, that any such Mandatory Conversion shall not require a holder to convert a number of shares of Series A Convertible Preferred Stock into an amount of Common Stock that would exceed 50% of the daily average trading volume of the common stock during the Measurement Period. Following November 11, 2016 and subject to the price and volume limitations set forth above, the Company may require such number of successive Mandatory Conversions as are necessary to convert all then outstanding Series A Convertible Preferred Stock.


Redemption


At any time on or after November 11, 2016 (the Redemption Date), and upon at least 60 days prior written notice to the Company (a Redemption Notice), any holder of the Series A Convertible Preferred Stock shall have a one-time right to require the Company to redeem all or some of its shares of Series A Convertible Preferred Stock (a Redemption), for cash generated from a subsequent sale of the Companys equity securities.   The redemption price shall be equal to the Stated Value for each share of Series A Convertible Preferred Stock (the Redemption Purchase Price).  Upon receipt of a Redemption Notice, the Company shall complete a sale or sales of its equity securities for the purpose of accumulating net proceeds sufficient to pay the Redemption Purchase Price (it being understood by the holder of the Series A Convertible Preferred Stock that the Company may only redeem shares of Series A Convertible Preferred Stock with the proceeds from the sale of the Companys equity securities).


F-35




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Board and Observer Rights


Each holder of Series A Convertible Preferred Stock shall have the right, upon 10 days' prior written notice, to designate one representative, reasonably acceptable to the Company, who shall be entitled to attend and observe meetings of the Companys Board of Directors in a non-voting observer capacity (the Observer).


Accounting for the Series A Convertible Preferred Stock


The Company determined that the economic characteristics and risks of the conversion feature and the preferred stock instrument were clearly and closely related as equity instruments and accordingly, the conversion feature would not require separate accounting.   In addition, the redemption feature is contingent upon Series A Convertible Preferred Stock not being converted into common stock and upon the holders delivering a redemption notice to the Company.   Further, the redemption purchase price may only be paid from the proceeds of a subsequent sale of equity securities. Accordingly, the Series A Convertible Preferred Stock was accounted for as an equity instrument. Further, because the conversion rate of the Series A Convertible Preferred Stock of $4.73 per share was less than the Companys closing stock price on the date of this transaction, the Company determined that the Series A Convertible Preferred Stock contained a beneficial conversion feature. The beneficial conversion feature was recorded in additional paid-in-capital as a result of the Companys accumulated deficit.

 

7.

COMMITMENTS AND CONTINGENCIES

Patent Acquisition Obligations

As of October 31, 2015, we have incurred obligations due no later than November 2017 related to the acquisition of patents, which have a discounted present value of approximately $3,688,000, and which amount will be reduced by royalties paid during the period, if any.  The payment due in November 2017 is payable at the option of the Company in cash or common stock.  We recorded interest expense of approximately $452,000 and $386,000, respectively, for the  years ended October 31, 2015 and 2014, for the accretion of interest on patent acquisition obligations.

Leases


We lease approximately 3,000 square feet of office space in Los Angeles, California pursuant to a lease that expires March 30, 2016.  As of October 31, 2015, our non-cancelable operating lease commitments for the year ending October 31, 2016 was approximately $44,000.  Rent expense for the years ended October 31, 2015 and 2014, was approximately $100,000 and $109,000, respectively.  

Litigation Matters

On December 29, 2014, we settled our lawsuit against AUO which had been filed on January 28, 2013. For a more detailed description of the settlement with AUO see Note 1, Business and Funding - Description of Business - AUO Lawsuit and Settlement.

F-36




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Other than suits we bring to enforce our patent rights we are not a party to any material pending legal proceedings other than that which arise in the ordinary course of business.  We believe that any liability that may ultimately result from the resolution of these matters will not, individually or in the aggregate, have a material adverse effect on our financial position or results of operations.


8.

INCOME TAXES    


Income tax provision (benefit) consists of the following:

Year Ended October 31,

2015

 

2014

Federal:

 

 

Current

$

                 -

$

               -

Deferred

(487,000)

(1,606,000)

State:

 

 

Current

-

-

Deferred

(120,000)

 (1,000)

Adjustment to valuation allowance related

   to net deferred tax assets

 

607,000

 

 1,607,000

 

$

                    -

$

                    -


The tax effects of temporary differences that give rise to significant portions of the deferred tax asset, net, at October 31, 2015 and 2014, are as follows:

2015

 

2014

 

Long-term deferred tax assets:

 

 

 

   Federal and state NOL and tax credit carryforwards

$

    31,261,000

$

   31,864,000

 

   Deferred compensation

6,522,000

5,437,000

 

   Intangibles

 

483,000

 

              -

 

   Other

282,000

 

359,000

 

      Subtotal

38,548,000

37,660,000

 

   

 

Less: valuation allowance

(38,548,000)

(37,660,000)

Deferred tax asset, net

$

          -

$

             -


As of October 31, 2015, we had tax net operating loss and tax credit carryforwards of approximately $75,642,000 and $1,110,000, respectively, available within statutory limits (expiring at various dates between 2016 and 2035), to offset any future regular Federal corporate taxable income and taxes payable.  If the tax benefits relating to deductions of option holders income are ultimately realized, those benefits will be credited directly to additional paid-in capital.  Certain changes in stock ownership can result in a limitation on the amount of net operating loss and tax credit carryovers that can be utilized each year. As of October 31, 2015, management has not determined the extent of any such limitations, if any.

We had New York State tax net operating loss and tax credit carryforwards of approximately $72,505,000 and $11,000, respectively, and California tax net operating loss carryforward of approximately $2,803,000, as of October 31, 2015, available within statutory limits (expiring at various dates between 2016 and 2035), to offset future corporate taxable income and taxes payable, if any, under certain computations of such taxes.

 

F-37




ITUS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


We have provided a valuation allowance against our deferred tax asset due to our current and historical pre-tax losses and the uncertainty regarding their realizability.  The primary differences from the Federal statutory rate of 34% and the effective rate of 0% is attributable to certain permanent differences and a change in the valuation allowance.  The following is a reconciliation of income taxes at the Federal statutory tax rate to income tax expense (benefit):


 

Year Ended October 31,

 

2015

2014

Income tax benefit at U.S.

   Federal statutory income

   Tax rate



$     (469,000)



   (34.00%)



$    (3,266,000)



   (34.00%)

State income taxes

(117,000)

  (8.50%)

        (6,000)

(.06%)

Permanent differences

      1,000

.10%

1,529,000

15.92%

Expiring net operating

   losses, credits and other

  

       (22,000)


   (1.60%)

  

  115,000


1.19%

Foreign rate difference on

   impairment

-

0%

21,000

.22%

Change in valuation  

   allowance


       607,000


44.00%


 1,607,000


 16.73%

Income tax provision

$                 -

0%

$                 -

0%


During the two fiscal years ended October 31, 2015, we incurred no Federal and no State income taxes.  We have no unrecognized tax benefits as of October 31, 2015 and 2014 and we account for interest and penalties related to income tax matters in marketing, general and administrative expenses.  Tax years to which our net operating losses relate remain open to examination by Federal authorities and other jurisdictions to the extent which the net operating losses have yet to be utilized.

 

F-38


 

 

EX-21 2 exhibit21.htm EXHIBIT 21 Exhibit 21


Exhibit 21





SUBSIDIARIES OF ITUS CORPORATION

Name of Company and Name Doing Business

 

Jurisdiction of Organization

CopyTele International Ltd.

 

British Virgin Islands

CopyTele Marketing Inc.

 

British Virgin Islands

ITUS Patent Acquisition Corporation

 

State of Delaware

J-Channel Industries Corporation

 

State of Delaware

Loyalty Conversion Systems Corporation

 

State of Delaware

Secure Web Conference Corporation

 

State of Delaware

Encrypted Cellular Communications Corporation


State of Delaware

Auction Acceleration Corp.


State of Delaware

Cyber Instruments Technologies Corporation


State of Delaware

VPN Multicasting Technologies LLC


State of Texas





EX-23.1 3 exhibit23_1.htm EXHIBIT 23.1 Exhibit 23.1


Exhibit 23.1


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We consent to the incorporation by reference in each of the Registration Statements on Form S-3 (No. 333-206782) and Form S-8 (No. 333-202473) of ITUS Corporation (the Company) of our report dated December 22, 2015 relating to our audit of the Companys consolidated financial statements as of October 31, 2015 and 2014, and for each of the years then ended, included in the Companys Annual Report on Form 10-K for the year ended October 31, 2015.


/s/ Haskell & White LLP

HASKELL & WHITE LLP


Irvine, California

December 22, 2015





EX-31.1 4 exhibit31_1.htm EXHIBIT 31.1 Exhibit 31.1

Exhibit 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECURITIES EXCHANGE ACT RULES 13A-14(A) AND 15D-14(A)

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Robert A. Berman, Chairman of the Board and Chief Executive Officer of ITUS Corporation, certify that:

 

1.

I have reviewed this Annual Report on Form 10-K of ITUS Corporation;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

             


 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

             

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

             

(c)

Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

             

(d)

Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and

 

5.

The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):

             

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and

             

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.

Date: December 22, 2015

/s/  Robert A. Berman

 

Robert A. Berman

 

Chief Executive Officer and Chairman of the Board

EX-31.2 5 exhibit31_2.htm EXHIBIT 31.2 Exhibit 31.2

Exhibit 31.2

 

    CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECURITIES EXCHANGE ACT RULES 13A-14(A) AND 15D-14(A)

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Henry P. Herms, Vice President Finance and Chief Financial Officer of ITUS Corporation, certify that:

 

 

1.

I have reviewed this Annual Report on Form 10-K of ITUS Corporation;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

             

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

             

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

             

(c)

Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

             

(d)

Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and

 

5.

The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):

             

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and

             

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.

Date: December 22, 2015

/s/ Henry P. Herms

 

Henry P. Herms

 

Vice President Finance and Chief Financial Officer

EX-32.1 6 exhibit32_1.htm EXHIBIT 32.1 Exhibit 32.1


 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

Pursuant to Section 1350 of Title 18 of the United States Code, the undersigned, Robert A. Berman, the Chairman of the Board and Chief Executive Officer of ITUS Corporation, hereby certifies that:

 

1.

The Company's Form 10-K Annual Report for the fiscal year ended October 31, 2015 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: December 22, 2015

/s/ Robert A. Berman

 

Robert A. Berman

 

Chief Executive Officer and Chairman of the Board

EX-32.2 7 exhibit32_2.htm EXHIBIT 32.2 Exhibit 32.2

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


Pursuant to Section 1350 of Title 18 of the United States Code, the undersigned, Henry P. Herms, the Vice President - Finance and Chief Financial Officer of ITUS Corporation, hereby certifies that:

 

1.

The Company's Form 10-K Annual Report for the fiscal year ended October 31, 2015 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: December 22, 2015

/s/ Henry P. Herms

 

Henry P. Herms

 

Vice President Finance and Chief Financial Officer

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Roman">&#8220;</font>us,<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>our,<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> or <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ITUS<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> means ITUS Corporation and its wholly-owned subsidiaries. &nbsp;From inception through October 2012, our primary operations involved the development of patented technologies in the areas of thin-film displays and encryption. &nbsp;In October of 2012 under the leadership of a new management team, the Company undertook a transformation process to recapitalize the Company, unencumber the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s assets, seek reparations from a previous joint development partner, change the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s name and ticker symbol, relocate the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s headquarters and modernize its systems, and monetize patented technologies developed by the Company, or acquired from third parties. In July of 2015, the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s stock was accepted for listing and began trading on the NASDAQ Capital Market. </p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">In June of 2015, the Company announced the formation of a new subsidiary, Anixa Diagnostics Corporation, to develop non-invasive blood tests for the early detection of solid tumor based cancers. In July of 2015, Anixa entered into a collaborative research agreement &nbsp;with The Wistar Institute, the nation<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s first independent biomedical research institute and a leading National Cancer Institute designated cancer research center, for the purpose of validating Anixa<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s cancer detection methodologies and establishing protocols for identifying certain biomarkers in the blood stream identified by Anixa and associated with solid tumors. In October of 2015, Anixa and Wistar announced very favorable results from initial testing of a small group of breast cancer patients and healthy controls. One hundred percent (100%) of the blood samples tested from breast cancer patients showed the presence of the biomarkers identified by Anixa, and none of the healthy patient blood samples contained the biomarkers. A more extensive clinical study is currently being conducted. &nbsp;&nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Over the next several quarters, we expect Anixa to be the primary focus of the Company. As part of our legacy operations, the Company has outsourced a small development project in connection with one of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s thin-film display technologies, and through certain of its subsidiary companies, the Company remains engaged in limited patent licensing activities in the areas of encryption, and advanced materials. &nbsp;We do not expect these activities to be a significant part of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s ongoing operations.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Over the past several quarters, our revenue has been derived from technology licensing and the sale of patented technologies, including in connection with the settlement of litigation. In addition to Anixa, the Company expects to make investments in and form new companies to develop additional emerging technologies.</p><br/><p style="FONT-SIZE:12pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><u>AUO Lawsuit and Settlement</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">On December 29, 2014, the Company and AUO Optronics Corporation (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>AUO<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) entered into a Settlement Agreement (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Settlement Agreement<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) and a Patent Assignment Agreement (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Patent Assignment Agreement<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> and together with the Settlement Agreement, the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Agreements<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) pursuant to which the Company received an aggregate of $9,000,000 from AUO. &nbsp;The Agreements were entered into to resolve a lawsuit filed by the Company against AUO, relating to the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s patented ePaper&reg; Electrophoretic Display, and Nano Field Emission Display (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>nFED<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) technologies.</font></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)"><i>Background</i></font></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">In May 2011, the Company entered into an Exclusive License Agreement (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>EPD License Agreement<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) and a License Agreement (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Nano Display License Agreement<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) with AUO (together the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>AUO License Agreements<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>). &nbsp;Under the EPD License Agreement, the Company provided AUO with an exclusive, non-transferable, worldwide license to its ePaper&reg; Electrophoretic Display (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>EPD<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) patents and technology, in connection with AUO jointly developing EPD products with the Company. &nbsp;Under the Nano Display License Agreement, the Company provided AUO with a non-exclusive, non-transferable, worldwide license to its Nano Field Emission Display patents and technology, in connection with AUO jointly developing nFED products with the Company. </font></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">On January 28, 2013, the Company terminated the AUO License Agreements due to numerous alleged material and continual breaches of the agreements by AUO. &nbsp;On January 28, 2013, the Company also filed a lawsuit in the United States District Court for the Northern District of California against AUO and E Ink Corporation in connection with the AUO License Agreements, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, fraudulent inducement, unjust enrichment, unfair business practices, and other charges (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>AUO/E Ink Lawsuit<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>). &nbsp;In June 2013, the Company and AUO agreed to arbitrate the charges (the case against E Ink Corporation had been dismissed without prejudice) (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>AUO/E Ink Arbitration<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>).</font></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)"><i>The Agreements</i></font></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">Pursuant to the Settlement Agreement, AUO paid the Company $2,000,000 in U.S. currency, net of any Taiwanese withholding taxes. The Settlement Agreement further provides that: </font></p><br/><p style="margin-bottom: -2px; font-size: 11pt; width: 96px; float: left; margin-top: 0px; text-indent: 72px;"><font style="font-size: 10pt; font-family: symbol;" lang="EN-US">&#x25cf;</font></p><br/><p style="FONT-SIZE:11pt; PADDING-LEFT:96px; MARGIN:0px; TEXT-INDENT:-2px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">the Company will dismiss the AUO/E Ink Lawsuit and AUO/E Ink Arbitration, with prejudice;</font></p><br/><p style="margin-bottom: -2px; font-size: 11pt; width: 96px; float: left; margin-top: 0px; text-indent: 72px;"><font style="font-size: 10pt; font-family: symbol;" lang="EN-US">&#x25cf;</font></p><br/><p style="FONT-SIZE:11pt; PADDING-LEFT:96px; MARGIN:0px; TEXT-INDENT:-2px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">the AUO License Agreements are terminated; </font></p><br/><p style="margin-bottom: -2px; font-size: 11pt; width: 96px; float: left; margin-top: 0px; text-indent: 72px;"><font style="font-size: 10pt; font-family: symbol;" lang="EN-US">&#x25cf;</font></p><br/><p style="FONT-SIZE:11pt; PADDING-LEFT:96px; MARGIN:0px; TEXT-INDENT:-2px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">AUO gives up all rights to the nFED Technology;</font></p><br/><p style="margin-bottom: -2px; font-size: 11pt; width: 96px; float: left; margin-top: 0px; text-indent: 72px;"><font style="font-size: 10pt; font-family: symbol;" lang="EN-US">&#x25cf;</font></p><br/><p style="FONT-SIZE:11pt; PADDING-LEFT:96px; MARGIN:0px; TEXT-INDENT:-2px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">for a period of two years, the Company agrees not to initiate (whether on its own or through a third party) any patent infringement lawsuits against AUO or its affiliates alleging infringement by AUO<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s or AUO<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s affiliates products or services, for patents owned or controlled by the Company as of the date of the Settlement Agreement. &nbsp;Any potential damages for patent infringement will toll uninterrupted during this two year period. The prohibition does not apply to patents acquired by the Company after the date of the Settlement Agreement; and</font></p><br/><p style="margin-bottom: -2px; font-size: 11pt; width: 96px; float: left; margin-top: 0px; text-indent: 72px;"><font style="font-size: 10pt; font-family: symbol;" lang="EN-US">&#x25cf;</font></p><br/><p style="FONT-SIZE:11pt; PADDING-LEFT:96px; MARGIN:0px; TEXT-INDENT:-2px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">each of AUO and the Company mutually released each other from all claims that either may have against the other in connection with the AUO License Agreements, including any claims relating to the ePaper&reg; Electrophoretic Display and nFED patents and technologies.</font></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">&nbsp;Pursuant to the Patent Assignment Agreement, AUO paid the Company $7,000,000 in U.S. currency, net of any Taiwanese withholding taxes in exchange for the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s ePaper&reg; Electrophoretic Display patent portfolio for which AUO was previously the exclusive licensee, consisting of: </font></p><br/><p style="margin-bottom: -2px; font-size: 11pt; width: 96px; float: left; margin-top: 0px; text-indent: 72px;"><font style="font-size: 10pt; font-family: symbol;" lang="EN-US">&#x25cf;</font></p><br/><p style="FONT-SIZE:11pt; PADDING-LEFT:96px; MARGIN:0px; TEXT-INDENT:-2px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">10 active U.S. patents and 1 U.S. pending patent application; and</font></p><br/><p style="margin-bottom: -2px; font-size: 11pt; width: 96px; float: left; margin-top: 0px; text-indent: 72px;"><font style="font-size: 10pt; font-family: symbol;" lang="EN-US">&#x25cf;</font></p><br/><p style="FONT-SIZE:11pt; PADDING-LEFT:96px; MARGIN:0px; TEXT-INDENT:-2px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">103 expired and/or abandoned U.S. and foreign patents and/or patent applications. </font></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">In connection with the lawsuit and settlement, the Company incurred a total of approximately $3,604,000 of legal fees and litigation costs.</font></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><u>Unwinding of Business Relationship and Interests with Videocon</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">On August 29, 2014, the Company and CopyTele International Ltd., a wholly-owned subsidiary of the Company (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Subsidiary<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>), terminated their business relationship (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Business Relationship<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) with Videocon Industries Limited (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Videocon<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) and Mars Overseas Limited, an affiliate of Videocon (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Mars<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> and together with the Company, the Subsidiary and Videocon, the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Parties<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>). &nbsp;The Business Relationship began in November 2007 and related to a proposed joint development effort between the Company and Videocon to develop a certain Nano Field Emission Display technology (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Technology<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>). &nbsp;In connection with the proposed joint venture, (i) the Company granted a non-transferable, worldwide license to Videocon for the Technology (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>License<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>), (ii) the Subsidiary made a $5 million dollar loan to Mars (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Subsidiary Loan<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>), (iii) Mars made an identical $5 million dollar loan to the Subsidiary (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Mars Loan<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> and together with the Subsidiary Loan, the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Loans<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>), (iv) the Company sold to Mars 800,000 shares of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s common stock (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Shares<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) and (v) Global EPC Ventures Limited sold to the Company 1,495,845 global depository receipts of Videocon (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>GDRs<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>). The Shares and GDRs were subsequently used to secure the Loans.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Because Videocon was unable to continue with its joint development responsibilities, the Technology was not jointly developed by the Parties. Accordingly, the Company and Videocon agreed to terminate the Business Relationship. In order to terminate the Business Relationship, the Parties entered into several agreements whereby: (i) the License was terminated, (ii) both of the Loans were canceled and (iii) the Shares and GDRs were exchanged for each other (collectively, the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Termination Transactions<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>). The result of these Termination Transactions was to undo the initial transactions between the Parties that set forth the Business Relationship. Aside from this business relationship there is no other material relationship between the Parties. &nbsp;In accounting for the unwinding of this business relationship, the Company offset the two loans and then recorded its repurchased shares of common stock at the then current fair value of the GDRs and then retired and cancelled those shares.</p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px"><u>Funding</u> </p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">In November 2013, the Company completed a private placement with a single institutional investor, pursuant to which the Company issued a $3,500,000 principal amount 6% convertible debenture due November 11, 2016. &nbsp;On September 9, 2014, the Company and the holder of the Convertible Debenture agreed to a transaction resulting in the conversion of the principal and accrued interest of the Convertible Debenture into 739,958 shares of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s common stock, and the concurrent conversion of 639,159 of such shares of common stock into 3,500 shares of Series A Convertible Preferred Stock. &nbsp;For further details of this transaction see Note 5 <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Convertible Debentures<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> herein.<br /></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">In July 2014, the Company completed the sale of 640,000 shares of its common stock at the offering price of $6.25 per share. &nbsp;The net proceeds from this sale totaled approximately $3,673,000. &nbsp;See Note 6, <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Shareholders<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font> Equity <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8211;</font> Sale of Common Stock<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> for additional information regarding this transaction.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">In October 2015, the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Company entered into an At Market Issuance Sales Agreement (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Agreement<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) with National Securities Corporation (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>National<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) to create an at-the-market equity program under which it may sell up to $10,000,000 worth of its common stock (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Shares<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) from time to time through National, as sales agent. The Company has no obligation to sell any of the Shares, and may at any time suspend offers under the Agreement or terminate the Agreement. The Shares will be issued pursuant to the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s previously filed registration statement that was declared effective by the Securities and Exchange Commission (the "SEC") on September 18, 2015. As of October 31, 2015, no Shares have been sold under the Agreement.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">During the year ended October 31, 2015, cash provided by operating activities was approximately $1,363,000.&nbsp; Cash provided by investing activities was approximately $45,000, which resulted from the proceeds on maturity&nbsp;of certificates of deposit totaling $3,000,000 which was offset by the purchase of certificates of deposit totaling $2,900,000 and the purchase of property and equipment of approximately $55,000.&nbsp; Our cash used in financing activities was approximately $401,000, which resulted from approximately $445,000 for the repurchase of 92,232 shares of our common stock and the cancellation of warrants to purchase 16,000 shares of our common stock, offset by the proceeds from exercise of stock options of approximately $45,000. &nbsp;As a result, our cash, cash equivalents, and short-term investments at October 31, 2015 increased approximately $908,000 to approximately $6,769,000 from approximately $5,861,000 at the end of fiscal year 2014.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">Based on currently available information as of December 21, 2015, we believe that our existing cash, cash equivalents, short-term investments and expected cash flows will be sufficient to enable us to continue our business activities for at least 12 months.&nbsp; However, our projections of future cash needs and cash flows may differ from actual results. If current cash on hand, cash equivalents, short term investments and cash that may be generated from our business operations are insufficient to satisfy our liquidity requirements, we may seek to sell equity securities or obtain loans from various financial institutions where possible.&nbsp; The sale of additional equity securities or convertible debt could result in dilution to our stockholders. Additionally, the sale of equity securities or issuance of debt securities may be subject to certain security holder approvals or may result in the downward adjustment of the exercise or conversion price of our outstanding securities. We can give no assurance that we will generate sufficient cash flows in the future to satisfy our liquidity requirements or sustain future operations, or that other sources of funding, such as sales of equity or debt, would be available or would be approved by our security holders, if needed, on favorable terms or at all.&nbsp; If we cannot obtain such funding if needed or if we cannot sufficiently reduce operating expenses, we would need to curtail or cease some or all of our operations.&nbsp;</font></p><br/> 9000000 2000000 7000000 3604000 5000000 5000000 800000 1495845 3500000 0.06 739958 639159 3500 640000 6.25 3673000 10000000 3000000 445000 92232 908000 6769000 5861000 <p style="margin-bottom: 16px; font-size: 11pt; margin-top: 0px;"><br />2. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font style="text-decoration: underline;">SUMMARY&nbsp;OF&nbsp;SIGNIFICANT&nbsp;ACCOUNTING&nbsp;POLICIES</font></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; CLEAR:left; MARGIN-TOP:0px" align="justify"><u>Basis of Presentation</u></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">The consolidated financial statements include the accounts of ITUS Corporation and its wholly owned subsidiaries. &nbsp;All intercompany transactions have been eliminated.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify">&nbsp;<u>Revenue Recognition</u> </p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been substantially performed pursuant to the terms of the arrangement, (iii) amounts are fixed or determinable, and (iv) the collectability of amounts is reasonably assured.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><u>Patent Licensing</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">In certain instances, our past revenue arrangements have provided for the payment of contractually determined fees in settlement of litigation and in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company.&nbsp;&nbsp;These arrangements typically include some combination of the following:&nbsp;&nbsp;(i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patented technologies owned or controlled by the Company, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv) the dismissal of any pending litigation.&nbsp;&nbsp;In such instances, the intellectual property rights granted have been perpetual in nature, extending until the expiration of the related patents.&nbsp;&nbsp;Pursuant to the terms of these agreements, we had no further obligations. &nbsp;&nbsp;As such, the earnings process was complete and revenue has been recognized upon the execution of the agreement, when collectability was reasonably assured, and when all other revenue recognition criteria were met.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><u>Display Technology Development and License Fees</u></p><br/><p style="font-size: 11pt; margin: 0px; text-indent: 48px;" align="justify"><font>We assessed the revenue guidance of Accounting Standards Codification (<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201c;</font>ASC<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201d;</font>) 605-25 <font style="font-family: Arial Unicode MS,Times New Roman;">&#x201c;</font>Multiple-Element Arrangements<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201d;</font> (<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201c;</font>ASC 605-25<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201d;</font>) to determine whether&nbsp;multiple deliverables in our arrangements with AUO represent separate units of accounting.&nbsp; Under the AUO License Agreements, we&nbsp;received initial development and&nbsp;license fees of $3 million, of aggregate development and license fees of up to $10 million.&nbsp; The additional $7 million in development and license fees were to be payable upon completion of certain conditions for the respective technologies.&nbsp; We determined that the transfer of the licensed patents and technology and the effort involved in completion of the conditions for the respective technologies represent a single unit of accounting for each technology.&nbsp; Accordingly, using a proportional performance method, during the third quarter of fiscal year 2011 we began recognizing the $3 million initial development and license fees over the estimated periods that we expected to complete the conditions for the respective&nbsp;technologies. Each of the license agreements also provided for the basis for royalty payments on future production, if any, by AUO to the Company, which we have determined represent separate units of accounting.&nbsp;&nbsp;We did not recognize any portion of the $7 million of additional development and license fees or any royalty income under the AUO License Agreements. </font></p><br/><p style="font-size: 11pt; margin: 0px; text-indent: 48px;" align="justify"><font>As a result of the AUO/E Ink Lawsuit described above we did not record any display technology development and license fee revenue during the period from the fourth quarter of fiscal 2012 through the second quarter of fiscal year 2014 due to uncertainty as to our remaining performance obligations, if any. &nbsp;Based on our assessment performed for the third quarter of fiscal 2014, we determined that we have no further performance obligations under the AUO License Agreements and accordingly we recognized display technology development and license fee revenue of approximately $1,187,000, representing the balance of the initial $3 million payment received from AUO.</font></p><br/><p style="font-size: 11pt; margin: 0px; text-indent: 48px;" align="justify"><font>On December 29, 2014, we settled our lawsuit against AUO and received gross proceeds of $9 million which was recognized as revenue in the first quarter of fiscal 2015 (see Note 1 <font style="font-family: Arial Unicode MS,Times New Roman;">&#x201c;</font>Business and Funding <font style="font-family: Arial Unicode MS,Times New Roman;">&#x2013;</font> Description of Business - AUO Lawsuit and Settlement <font style="font-family: Arial Unicode MS,Times New Roman;">&#x201c;</font>).</font></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify"><u>Inventor Royalties and Contingent Legal Fees</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Inventor royalties and contingent legal fees are expensed in the consolidated statements of operations in the period that the related revenues are recognized.</p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify"><u>Anixa Development Expenses</u></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">Anixa development expenses are expensed in the consolidated statements of operations in the period incurred.</p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify"><u>Fair Value Measurements</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">ASC 820 <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Fair Value Measurements and Disclosures<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASC 820<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. &nbsp;In accordance with ASC 820, we have categorized our financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below. &nbsp;If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Financial assets and liabilities recorded in the accompanying consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:</p><br/><p style="FONT-SIZE:11pt; PADDING-LEFT:48px; MARGIN:0px" align="justify">Level 1 - Financial instruments whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market which we have the ability to access at the measurement date.</p><br/><p style="FONT-SIZE:11pt; PADDING-LEFT:48px; MARGIN:0px" align="justify">Level 2 - Financial instruments whose values are based on quoted market prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets. &nbsp;</p><br/><p style="FONT-SIZE:11pt; PADDING-LEFT:48px; MARGIN:0px" align="justify">Level 3 <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8211;</font> Financial instruments whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. &nbsp;These inputs reflect management<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s own assumptions about the assumptions a market participant would use in pricing the instrument. &nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of October 31, 2015:</p><br/><table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr style="font-size: 0px;"> <td valign="bottom" width="192">&nbsp;</td> <td valign="bottom" width="90">&nbsp;</td> <td valign="bottom" width="18">&nbsp;</td> <td valign="bottom" width="84">&nbsp;</td> <td valign="bottom" width="18">&nbsp;</td> <td valign="bottom" width="77">&nbsp;</td> <td valign="bottom" width="15">&nbsp;</td> <td valign="bottom" width="104">&nbsp;</td> </tr> <tr> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="192" height="22"><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="90" height="22"><p style="font-size: 11pt; margin: 0px;" align="center">Level 1</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18" height="22"><p style="margin: 0px;" align="center">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="84" height="22"><p style="font-size: 11pt; margin: 0px;" align="center">Level 2</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18" height="22"><p style="margin: 0px;" align="center">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="77" height="22"><p style="font-size: 11pt; margin: 0px;" align="center">Level 3</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="15" height="22"><p style="margin: 0px;" align="center">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="104" height="22"><p style="font-size: 11pt; margin: 0px;" align="center">Total</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="192"><p style="font-size: 11pt; margin: 0px;">Money market funds <font style="font-family: Arial Unicode MS,Times New Roman;">&#x2013;</font> Cash &nbsp;</p><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;and cash equivalents</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="90"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;467,967</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="84"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="77"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px; padding-right: 4px;" align="right">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="15"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="104"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;467,967</p></td> </tr> <tr> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="192" height="42"><p style="font-size: 11pt; margin: 0px;">Certificates of deposit -</p><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;Short term investments</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="90" height="42"><p style="margin: 0px;" align="right">-</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18" height="42"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="84" height="42"><p style="margin: 0px;" align="right"><font style="font-size: 11pt;">2,400,000</font></p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18" height="42"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="77" height="42"><p style="margin: 0px;" align="right">-</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="15" height="42"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="104" height="42"><p style="font-size: 11pt; margin: 0px;" align="right">2,400,000</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="192"><p style="margin: 0px;" align="justify">&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="justify">Total financial assets</p></td> <td style="border-bottom: #000000 3px double; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="90"><p style="margin: 0px;" align="right">&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;467,967</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18"><p style="margin: 0px;">&nbsp;</p></td> <td style="border-bottom: #000000 3px double; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="84"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">$ 2,400,000</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 3px double; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="77"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="15"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 3px double; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="104"><p style="margin: 0px;" align="right">&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,867,967</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of October 31, 2014:</p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="192" valign="bottom"> </td> <td width="90" valign="bottom"> </td> <td width="18" valign="bottom"> </td> <td width="84" valign="bottom"> </td> <td width="18" valign="bottom"> </td> <td width="77" valign="bottom"> </td> <td width="15" valign="bottom"> </td> <td width="104" valign="bottom"></td> </tr> <tr> <td width="192" height="22" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;</p></td> <td width="90" height="22" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Level 1</p></td> <td width="18" height="22" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="center"><br /></p></td> <td width="84" height="22" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Level 2</p></td> <td width="18" height="22" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="center"><br /></p></td> <td width="77" height="22" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Level 3</p></td> <td width="15" height="22" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="center"><br /></p></td> <td width="104" height="22" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Total</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="192" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">Money market funds <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8211;</font> Cash &nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;and cash equivalents</p></td> <td width="90" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;155,964</p></td> <td width="18" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="84" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- </p></td> <td width="18" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="77" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td width="15" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="104" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;155,964</p></td> </tr> <tr> <td width="192" height="42" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">Certificates of deposit -</p> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;Short term investments</p></td> <td width="90" height="42" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right">-</p></td> <td width="18" height="42" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="84" height="42" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><font style="FONT-SIZE:11pt">2,500,000</font></p></td> <td width="18" height="42" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="77" height="42" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right">-</p></td> <td width="15" height="42" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="104" height="42" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">2,500,000</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="192" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="justify"><br /></p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="justify">Total financial assets</p></td> <td width="90" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;155,964</p></td> <td width="18" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px"><br /></p></td> <td width="84" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">$&nbsp;&nbsp;&nbsp;&nbsp;2,500,000</p></td> <td width="18" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="77" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td width="15" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="104" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,655,964</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The following table presents the hierarchy for our financial liabilities measured at fair value on the transaction date and then adjusted for the subsequent accretion of interest, as of October 31, 2015:</p><br/><table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr style="font-size: 0px;"> <td width="228">&nbsp;</td> <td width="28">&nbsp;</td> <td width="25">&nbsp;</td> <td width="12">&nbsp;</td> <td width="25">&nbsp;</td> <td width="25">&nbsp;</td> <td width="12">&nbsp;</td> <td width="14">&nbsp;</td> <td width="86">&nbsp;</td> <td width="12">&nbsp;</td> <td width="14">&nbsp;</td> <td width="87">&nbsp;</td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="228"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="54"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Level 1</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="51"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Level 2</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="100"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Level 3</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="102"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Total</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="228"><p style="margin: 0px; line-height: 0.05pt;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="28"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="14"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="86"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="14"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="87"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="228"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;">Patent acquisition obligation</p></td> <td style="margin-top: 0px; padding: 0px;" width="28"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">-</p></td> <td style="margin-top: 0px; padding: 0px;" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">-</p></td> <td style="margin-top: 0px; padding: 0px;" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px; width: 14px;" valign="bottom"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;$</p></td> <td style="margin-top: 0px; padding: 0px;" width="86"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,688,187</p></td> <td style="margin-top: 0px; padding: 0px;" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px; width: 14px;" valign="bottom"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">$&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="87"><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,688,187</p></td> </tr> </table><br/><p style="font-size: 11pt; margin: 0px; text-indent: 48px;" align="justify">The following table presents the hierarchy for our financial liabilities measured at fair value on the transaction date and then adjusted for the subsequent accretion of interest, as of October 31, 2014:</p><br/><table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr style="font-size: 0px;"> <td width="228">&nbsp;</td> <td width="28">&nbsp;</td> <td width="25">&nbsp;</td> <td width="12">&nbsp;</td> <td width="25">&nbsp;</td> <td width="25">&nbsp;</td> <td width="12">&nbsp;</td> <td width="14">&nbsp;</td> <td width="86">&nbsp;</td> <td width="12">&nbsp;</td> <td width="14">&nbsp;</td> <td width="87">&nbsp;</td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="228"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="54"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Level 1</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="51"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Level 2</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="100"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Level 3</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="102"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Total</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="228"><p style="margin: 0px; line-height: 0.05pt;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="28"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="14"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="86"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="14"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="87"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="228"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;">Patent acquisition obligation</p></td> <td style="margin-top: 0px; padding: 0px;" width="28"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">-</p></td> <td style="margin-top: 0px; padding: 0px;" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">-</p></td> <td style="margin-top: 0px; padding: 0px;" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px; width: 14px;" valign="bottom"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">$&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="86"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,236,281</p></td> <td style="margin-top: 0px; padding: 0px;" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px; width: 14px;" valign="bottom"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">$&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="87"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,236,281</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The following table sets forth a summary of the changes in the fair value of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s Level 3 financial liabilities that are measured at fair value on a recurring basis:</p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="485" valign="bottom"> </td> <td colspan="2" style="BORDER-BOTTOM:#000000 1px solid" align="right" valign="bottom">&nbsp; <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="center">For the two <br />years ended <br />October 31, <br />2015</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="485" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify"><u>Patent acquisition obligation:</u></p></td> <td> </td> <td width="109" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right"> <p style="MARGIN-BOTTOM:0px; MARGIN-TOP:6px" align="right">&nbsp;</p></td> </tr> <tr> <td width="485" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify">Balance October 31, 2013</p></td> <td valign="bottom"><font style="FONT-SIZE:11pt">$</font></td> <td width="109" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="485" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify">Initial fair value</p></td> <td> </td> <td width="109" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,850,511</p></td> </tr> <tr> <td width="485" height="8" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify">Accretion of interest on patent obligation</p></td> <td style="BORDER-BOTTOM:#000000 1px solid" valign="bottom">&nbsp; </td> <td width="109" height="8" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;385,770</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="485" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify">Balance October 31, 2014</p></td> <td> </td> <td width="109" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,236,281</p></td> </tr> <tr> <td width="485" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify">Accretion of interest on patent obligation</p></td> <td style="BORDER-BOTTOM:#000000 1px solid" valign="bottom">&nbsp; </td> <td width="109" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;451,906</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="485" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify">Balance October 31, 2015</p></td> <td style="BORDER-BOTTOM:#000000 3px double"><font size="3">$</font></td> <td width="109" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,688,187</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Our non-financial assets that are measured on a non-recurring basis include our property and equipment which are measured using fair value techniques whenever events or changes in circumstances indicate a condition of impairment exists. &nbsp;The estimated fair value of prepaid expenses, accounts payable and accrued expenses approximates their individual carrying amounts due to the short term nature of these measurements. &nbsp;Cash and cash equivalents are stated at carrying value which approximates fair value.</p><br/><p style="FONT-SIZE:11pt; PADDING-BOTTOM:0px; MARGIN:0px; TEXT-INDENT:0px" align="justify"><u>Cash and Cash Equivalents</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Cash equivalents consists of highly liquid, short term investments with original maturities of three months or less when purchased.</p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify"><u>Short-term Investments</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">At October 31, 2015 and 2014, we had certificates of deposit with maturities greater than 90 days when acquired of $2,400,000 and $2,500,000, respectively, that were classified as short-term investments and reported at fair value. &nbsp;&nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify"><u>Patents</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Our only identifiable intangible assets are patents and patent rights. &nbsp;We capitalize patent and patent rights acquisition costs and amortize the cost over the estimated economic useful life. &nbsp;Patent acquisition costs capitalized during the years ended October 31, 2015 and 2014, was approximately $-0- and $3,036,000, respectively. &nbsp;We recorded patent amortization expense of approximately $325,000 and $314,000 during the years ended October 31, 2015 and 2014, respectively.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify"><u>Investment Securities</u></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">We classify our investment securities as available-for-sale. &nbsp;Available-for-sale securities are recorded at fair value. &nbsp;Unrealized gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a component of accumulated other comprehensive income (loss) until realized. &nbsp;Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis. &nbsp;Dividend and interest income are recognized when earned.<br /></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">We monitor the value of our investments for indicators of impairment, including changes in market conditions and the operating results of the underlying investment that may result in the inability to recover the carrying value of the investment. &nbsp;&nbsp;&nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify"><u>Convertible Instruments</u> </p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The Company accounts for hybrid contracts that feature conversion options in accordance with applicable generally accepted accounting principles (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>GAAP<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>).&nbsp; ASC &nbsp;815 <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Derivatives and Hedging Activities,<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASC 815<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b)&nbsp;the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c)&nbsp;a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.&nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Conversion options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host instrument.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company accounts for convertible instruments, when the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, in accordance with ASC 470-20 <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Debt with Conversion and Other Options<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASC 470-20<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>). Under ASC 470-20, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The Company accounts for convertible instruments (when the Company has determined that the embedded conversion options should be bifurcated from their host instruments) in accordance with ASC 815.&nbsp;&nbsp;Under ASC 815, a portion of the proceeds received upon the issuance of the hybrid contract are allocated to the fair value of the derivative. The derivative is subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The conversion features of the convertible debentures issued in January 2013 and November 2013 qualified as embedded derivative instruments and were bifurcated from the host convertible debentures.&nbsp; Derivative liabilities are initially recorded at fair value and are then re-valued at each reporting date, with changes in fair value recognized in earnings during the reporting period.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify"><u>Common Stock Purchase Warrants</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The Company classifies as equity any contracts that (i)&nbsp;require physical settlement or net-share settlement or (ii) provides a choice of net-cash settlement or settlement in the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s own shares (physical settlement or net-share settlement)&nbsp;providing that such contracts are indexed to the Company's own stock as defined in ASC 815-40 "Contracts in Entity's Own Equity". The Company classifies as assets or liabilities any contracts that (i)&nbsp;require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).&nbsp;&nbsp;The Company assesses classification of common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities or equity is required.<br /><br /></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify"><u>Income Taxes</u></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">We recognize deferred tax assets and liabilities for the estimated future tax effects of events that have been recognized in our financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. &nbsp;A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized.</p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px"><u>Stock-Based Compensation</u></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">We maintain stock equity incentive plans under which we may grant non-qualified stock options, incentive stock options, stock appreciation rights, stock awards, performance and performance-based awards, or stock units to employees, non-employee directors and consultants.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify"><u>Stock Option Compensation Expense</u> </p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">We account for stock options granted to employees and directors using the accounting guidance in ASC 718 <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Stock Compensation<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASC 718<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>). &nbsp;In accordance with ASC 718, we estimate the fair value of service based options and performance based options on the date of grant, using the Black-Scholes pricing model. &nbsp;For options vesting if the trading price of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s common stock achieves a defined target, we use a Monte Carlo simulation in estimating the fair value at grant date. We recognize compensation expense for stock option awards over the requisite or implied service period of the grant. &nbsp;With respect to performance based awards, compensation expense is recognized when the performance target is deemed probable. &nbsp;We recorded stock-based compensation expense, related to stock options granted to employees and directors, of approximately $2,192,000 and $2,128,000, during the years ended October 31, 2015 and 2014, respectively. </p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Included in stock-based compensation cost for employees and directors during the years ended October 31, 2015 and 2014 was approximately $2,092,781 and $1,426,000, respectively, related to the amortization of compensation cost for stock options granted in prior periods but not yet vested. &nbsp;As of October 31, 2015, there was unrecognized compensation cost related to non-vested stock options granted to employees and directors, related to service based options of approximately $432,000 which will be recognized over a weighted-average period of 1.1 years. </p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">We account for stock options granted to consultants using the accounting guidance included in ASC 505-50 <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Equity-Based Payments to Non-Employees<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASC 505-50<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>). &nbsp;In accordance with ASC 505-50, we estimate the fair value of service based stock options and performance based options at each reporting period, using the Black-Scholes pricing model. &nbsp;For options vesting if the trading price of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s common stock achieves a defined target we estimate the fair value at each reporting period using a Monte Carlo simulation. &nbsp;We recognize compensation expense for service based stock options and options subject to market conditions over the requisite or implied service period of the grant. &nbsp;For performance based awards, compensation expense is recognized when the performance target is achieved.<br /></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">We recorded consulting expense, related to stock options granted to consultants, during the years ended October 31, 2015 and 2014 of approximately $484,000 and $1,022,000, respectively. Stock-based consulting expense for the years ended October 31, 2015 and 2014 includes approximately $484,000 and $964,000, respectively, related to the amortization of compensation cost for stock options granted in prior periods but vested in the current period. As of October 31, 2015, there was no unrecognized consulting expense related to non-vested stock options granted to consultants. &nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify"><u>Fair Value Determination</u> &nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">We use the Black-Scholes pricing model in estimating the fair value of stock options which vest over a specific period of time or upon achieving performance targets. &nbsp;To determine the weighted average fair value of stock options on the date of grant, employees and directors are included in a single group. &nbsp;The fair value of stock options granted to consultants is determined on an individual basis. &nbsp;The stock options we granted during the year ended October 31, 2015 consisted of awards with 10-year terms that vest over one year, options with 10-year terms that vest over 36 months. The stock options we granted during the year ended October 31, 2014 consisted of awards with 10-year terms that vest over one year, options with 10-year terms that vest over 36 months, options with 5-year terms which vest immediately and options with 10-year terms which vest upon achievement of performance milestones. &nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The following weighted average assumptions were used in estimating the fair value of stock options granted during the years ended October 31, 2015 and 2014: </p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="280" valign="bottom"> </td> <td width="78" valign="bottom"> </td> <td width="78" valign="bottom"></td> </tr> <tr> <td valign="bottom"> </td> <td colspan="2" style="BORDER-BOTTOM:#000000 1px solid" valign="bottom"> <p align="center"><font style="FONT-SIZE:11pt">For the Year <br />Ended October 31,</font></p></td> </tr> <tr> <td valign="bottom"> </td> <td style="BORDER-BOTTOM:#000000 1px solid" valign="bottom"> <p align="center"><font style="FONT-SIZE:11pt">2015</font></p></td> <td style="BORDER-BOTTOM:#000000 1px solid" valign="bottom"> <p align="center"><font style="FONT-SIZE:11pt">2014</font></p></td> </tr> <tr style="background-color: #cceeff;"> <td width="280" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">Weighted average fair value at grant date</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$3.09</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$5.75</p></td> </tr> <tr> <td width="280" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">Valuation assumptions:</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px" align="center">&nbsp;</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px" align="center">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="280" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expected life ( years) </p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">&nbsp;&nbsp;5.75</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">5.80</p></td> </tr> <tr> <td width="280" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expected volatility</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">117.8%</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">115.3%</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="280" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Risk-free interest rate</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">&nbsp;2.01%</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">&nbsp;1.82%</p></td> </tr> <tr> <td width="280" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expected dividend yield</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">0</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">0</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding. &nbsp;We use the simplified method to determine expected term. &nbsp;The simplified method was adopted since we do not believe that historical experience is representative of future performance because of the impact of the changes in our operations and the change in terms from historical options which vested immediately to terms including vesting periods of up to three years. &nbsp;Under the Black-Scholes pricing model, we estimated the expected volatility of our shares of common stock based upon the historical volatility of our share price over a period of time equal to the expected term of the options. &nbsp;We estimated the risk-free interest rate based on the implied yield available on the applicable grant date of a U.S. Treasury note with a term equal to the expected term of the underlying grants. &nbsp;We made the dividend yield assumption based on our history of not paying dividends and our expectation not to pay dividends in the future.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Under ASC 718, the amount of stock-based compensation expense recognized is based on the portion of the awards that are ultimately expected to vest. &nbsp;Accordingly, if deemed necessary, we reduce the fair value of the stock option awards for expected forfeitures, which are forfeitures of the unvested portion of surrendered options. &nbsp;Based on our historical experience and future expectations, we have not reduced the amount of stock-based compensation expenses for anticipated forfeitures.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">We will reconsider use of the Black-Scholes pricing model if additional information becomes available in the future that indicates another model would be more appropriate. &nbsp;If factors change and we employ different assumptions in the application of ASC 718 in future periods, the compensation expense that we record under ASC 718 may differ significantly from what we have recorded in the current period.</p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify"><u>Net&nbsp;Loss&nbsp;Per&nbsp;Share of Common Stock</u> </p><br/><p style="margin-bottom: 16px; font-size: 11pt; margin-top: 0px; text-indent: 48px;" align="justify">In accordance with ASC 260, <font style="font-family: Arial Unicode MS,Times New Roman;">&#x201c;</font>Earnings Per Share<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201d;</font>, basic net loss per common share (<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201c;</font>Basic EPS<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201d;</font>) is computed by dividing net loss by the weighted average number of common shares outstanding. &nbsp;Diluted net loss per common share (<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201c;</font>Diluted EPS<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201d;</font>) is computed by dividing net loss by the weighted average number of common shares and dilutive common share equivalents and convertible securities then outstanding. &nbsp;Diluted EPS for all years presented is the same as Basic EPS, as the inclusion of the effect of common share equivalents then outstanding would be anti-dilutive. &nbsp;For this reason, excluded from the calculation of Diluted EPS for the years ended October 31, 2015 and 2014, were options to purchase 2,672,471 and 3,002,550 shares, respectively, warrants to purchase 1,028,931 shares and 1,044,931 shares, respectively, preferred stock convertible into 739,958 shares.</p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify"><u>Use of Estimates</u> </p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. &nbsp;Estimates and assumptions are used for, but not limited to, determining stock-based compensation, asset impairment evaluations, tax assets and liabilities, license fee revenue, the allowance for doubtful accounts, depreciation lives and other contingencies. &nbsp;Actual results could differ from those estimates.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px"><u>Effect of Recently Issued Pronouncements</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-09 (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASU 2014-09<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>), Revenue from Contracts with Customers. &nbsp;This amendment updates addressing revenue from contracts with customers, which clarifies existing accounting literature relating to how and when a company recognizes revenue. Under the standard, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. &nbsp;This standard update is effective for&nbsp;interim and annual&nbsp;reporting periods beginning after December 15,&nbsp;2016, and are to be applied retrospectively or the cumulative effect as of the date of adoption, with early application not permitted. &nbsp;In July 2015, a one year deferral of the effective date of the new guidance was approved. We are currently evaluating the impact ASU 2014-09 will have on our consolidated financial statements&nbsp;and related disclosures.<br /></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">In June 2014, the FASB issued Accounting Standards Update 2014-12 (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASU 2014-12<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>), Compensation <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8211;</font> Stock Compensation. &nbsp;This amendment requires that a performance target that affects vesting and could be achieved after the requisite service period shall be treated as a performance condition. Adoption of this standard is required for annual periods beginning after December 15, 2015. Early adoption is permitted. We are currently evaluating the impact ASU 2014-12 will have on our consolidated financial statements&nbsp;and related disclosures.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">In August 2014, the FASB issued Accounting Standards Update 2014-15 (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASU 2014-15<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>). &nbsp;This amendment requires management to assess an entity<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s ability to continue as a going concern every reporting period including interim periods, and to provide related footnote disclosure in certain circumstances. Adoption of this standard is required for annual periods beginning after December 15, 2016 and are to be applied retrospectively or the cumulative effect as of the date of adoption. We do not expect this update to have a significant impact on our consolidated financial statements.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">In April 2015, the FASB issued Accounting Standards Update 2015-03 (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASU 2015-03<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) to simplify the presentation of debt issuance costs. This amendment requires debt issuance costs be presented on the balance sheet as a direct reduction from the carrying amount of the debt liability, consistent with debt discounts or premiums. Adoption of this standard is required for interim and annual periods beginning after December 15, 2015 and is to be applied retrospectively. We are currently evaluating the impact ASU 2015-03 will have on our consolidated financial statements&nbsp;and related disclosures.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px">In November 2015, the FASB issued Accounting Standards Update 2015-17 (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASU 2015-17<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) to simplify the presentation of deferred taxes. This amendment requires that all deferred tax assets and liabilities, along with any related valuation allowances, be classified as noncurrent on the balance sheet. &nbsp;Adoption of this standard is required for annual periods beginning after December 15, 2016. We are currently evaluating the impact ASU 2015-17 will have on our consolidated financial statements&nbsp;and related disclosures.</p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify"><u>Concentration of Credit Risks</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Financial instruments that potentially subject us to concentrations of credit risk are cash equivalents, short-term investments and accounts receivable. &nbsp;Cash equivalents are primarily highly rated money market funds. Short-term investments are certificates of deposit within federally insured limits. Where applicable, management reviews our accounts receivable and other receivables for potential doubtful accounts and maintains an allowance for estimated uncollectible amounts. Our policy is to write-off uncollectable amounts at the time it is determined that collection will not occur. </p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Three licensees accounted for 53%, 37% and 10%, respectively, of revenues from patent licensing activities during fiscal year 2015. Four licensees accounted for 22%, 16%, 14% and 10%, respectively, of revenues from patent licensing activities during fiscal year 2014.<br /></p><br/> <p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; CLEAR:left; MARGIN-TOP:0px" align="justify"><u>Basis of Presentation</u></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">The consolidated financial statements include the accounts of ITUS Corporation and its wholly owned subsidiaries. &nbsp;All intercompany transactions have been eliminated.</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="justify"><u>Revenue Recognition</u> </p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been substantially performed pursuant to the terms of the arrangement, (iii) amounts are fixed or determinable, and (iv) the collectability of amounts is reasonably assured.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><u>Patent Licensing</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">In certain instances, our past revenue arrangements have provided for the payment of contractually determined fees in settlement of litigation and in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company.&nbsp;&nbsp;These arrangements typically include some combination of the following:&nbsp;&nbsp;(i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patented technologies owned or controlled by the Company, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv) the dismissal of any pending litigation.&nbsp;&nbsp;In such instances, the intellectual property rights granted have been perpetual in nature, extending until the expiration of the related patents.&nbsp;&nbsp;Pursuant to the terms of these agreements, we had no further obligations. &nbsp;&nbsp;As such, the earnings process was complete and revenue has been recognized upon the execution of the agreement, when collectability was reasonably assured, and when all other revenue recognition criteria were met.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><u>Display Technology Development and License Fees</u></p><br/><p style="font-size: 11pt; margin: 0px; text-indent: 48px;" align="justify"><font>We assessed the revenue guidance of Accounting Standards Codification (<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201c;</font>ASC<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201d;</font>) 605-25 <font style="font-family: Arial Unicode MS,Times New Roman;">&#x201c;</font>Multiple-Element Arrangements<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201d;</font> (<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201c;</font>ASC 605-25<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201d;</font>) to determine whether&nbsp;multiple deliverables in our arrangements with AUO represent separate units of accounting.&nbsp; Under the AUO License Agreements, we&nbsp;received initial development and&nbsp;license fees of $3 million, of aggregate development and license fees of up to $10 million.&nbsp; The additional $7 million in development and license fees were to be payable upon completion of certain conditions for the respective technologies.&nbsp; We determined that the transfer of the licensed patents and technology and the effort involved in completion of the conditions for the respective technologies represent a single unit of accounting for each technology.&nbsp; Accordingly, using a proportional performance method, during the third quarter of fiscal year 2011 we began recognizing the $3 million initial development and license fees over the estimated periods that we expected to complete the conditions for the respective&nbsp;technologies. Each of the license agreements also provided for the basis for royalty payments on future production, if any, by AUO to the Company, which we have determined represent separate units of accounting.&nbsp;&nbsp;We did not recognize any portion of the $7 million of additional development and license fees or any royalty income under the AUO License Agreements. </font></p><br/><p style="font-size: 11pt; margin: 0px; text-indent: 48px;" align="justify"><font>As a result of the AUO/E Ink Lawsuit described above we did not record any display technology development and license fee revenue during the period from the fourth quarter of fiscal 2012 through the second quarter of fiscal year 2014 due to uncertainty as to our remaining performance obligations, if any. &nbsp;Based on our assessment performed for the third quarter of fiscal 2014, we determined that we have no further performance obligations under the AUO License Agreements and accordingly we recognized display technology development and license fee revenue of approximately $1,187,000, representing the balance of the initial $3 million payment received from AUO.</font></p><br/><p style="font-size: 11pt; margin: 0px; text-indent: 48px;" align="justify"><font>On December 29, 2014, we settled our lawsuit against AUO and received gross proceeds of $9 million which was recognized as revenue in the first quarter of fiscal 2015 (see Note 1 <font style="font-family: Arial Unicode MS,Times New Roman;">&#x201c;</font>Business and Funding <font style="font-family: Arial Unicode MS,Times New Roman;">&#x2013;</font> Description of Business - AUO Lawsuit and Settlement <font style="font-family: Arial Unicode MS,Times New Roman;">&#x201c;</font>).</font></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify"><u>Inventor Royalties and Contingent Legal Fees</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Inventor royalties and contingent legal fees are expensed in the consolidated statements of operations in the period that the related revenues are recognized.</p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify"><u>Anixa Development Expenses</u></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">Anixa development expenses are expensed in the consolidated statements of operations in the period incurred.</p> 3000000 10000000 7000000 1187000 <p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify"><u>Fair Value Measurements</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">ASC 820 <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Fair Value Measurements and Disclosures<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASC 820<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. &nbsp;In accordance with ASC 820, we have categorized our financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below. &nbsp;If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Financial assets and liabilities recorded in the accompanying consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:</p><br/><p style="FONT-SIZE:11pt; PADDING-LEFT:48px; MARGIN:0px" align="justify">Level 1 - Financial instruments whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market which we have the ability to access at the measurement date.</p><br/><p style="FONT-SIZE:11pt; PADDING-LEFT:48px; MARGIN:0px" align="justify">Level 2 - Financial instruments whose values are based on quoted market prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets. &nbsp;</p><br/><p style="FONT-SIZE:11pt; PADDING-LEFT:48px; MARGIN:0px" align="justify">Level 3 <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8211;</font> Financial instruments whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. &nbsp;These inputs reflect management<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s own assumptions about the assumptions a market participant would use in pricing the instrument. &nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of October 31, 2015:</p><br/><table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr style="font-size: 0px;"> <td valign="bottom" width="192">&nbsp;</td> <td valign="bottom" width="90">&nbsp;</td> <td valign="bottom" width="18">&nbsp;</td> <td valign="bottom" width="84">&nbsp;</td> <td valign="bottom" width="18">&nbsp;</td> <td valign="bottom" width="77">&nbsp;</td> <td valign="bottom" width="15">&nbsp;</td> <td valign="bottom" width="104">&nbsp;</td> </tr> <tr> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="192" height="22"><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="90" height="22"><p style="font-size: 11pt; margin: 0px;" align="center">Level 1</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18" height="22"><p style="margin: 0px;" align="center">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="84" height="22"><p style="font-size: 11pt; margin: 0px;" align="center">Level 2</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18" height="22"><p style="margin: 0px;" align="center">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="77" height="22"><p style="font-size: 11pt; margin: 0px;" align="center">Level 3</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="15" height="22"><p style="margin: 0px;" align="center">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="104" height="22"><p style="font-size: 11pt; margin: 0px;" align="center">Total</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="192"><p style="font-size: 11pt; margin: 0px;">Money market funds <font style="font-family: Arial Unicode MS,Times New Roman;">&#x2013;</font> Cash &nbsp;</p><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;and cash equivalents</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="90"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;467,967</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="84"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="77"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px; padding-right: 4px;" align="right">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="15"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="104"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;467,967</p></td> </tr> <tr> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="192" height="42"><p style="font-size: 11pt; margin: 0px;">Certificates of deposit -</p><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;Short term investments</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="90" height="42"><p style="margin: 0px;" align="right">-</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18" height="42"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="84" height="42"><p style="margin: 0px;" align="right"><font style="font-size: 11pt;">2,400,000</font></p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18" height="42"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="77" height="42"><p style="margin: 0px;" align="right">-</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="15" height="42"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="104" height="42"><p style="font-size: 11pt; margin: 0px;" align="right">2,400,000</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="192"><p style="margin: 0px;" align="justify">&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="justify">Total financial assets</p></td> <td style="border-bottom: #000000 3px double; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="90"><p style="margin: 0px;" align="right">&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;467,967</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18"><p style="margin: 0px;">&nbsp;</p></td> <td style="border-bottom: #000000 3px double; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="84"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">$ 2,400,000</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 3px double; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="77"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="15"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 3px double; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="104"><p style="margin: 0px;" align="right">&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,867,967</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of October 31, 2014:</p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="192" valign="bottom"> </td> <td width="90" valign="bottom"> </td> <td width="18" valign="bottom"> </td> <td width="84" valign="bottom"> </td> <td width="18" valign="bottom"> </td> <td width="77" valign="bottom"> </td> <td width="15" valign="bottom"> </td> <td width="104" valign="bottom"></td> </tr> <tr> <td width="192" height="22" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;</p></td> <td width="90" height="22" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Level 1</p></td> <td width="18" height="22" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="center"><br /></p></td> <td width="84" height="22" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Level 2</p></td> <td width="18" height="22" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="center"><br /></p></td> <td width="77" height="22" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Level 3</p></td> <td width="15" height="22" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="center"><br /></p></td> <td width="104" height="22" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Total</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="192" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">Money market funds <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8211;</font> Cash &nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;and cash equivalents</p></td> <td width="90" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;155,964</p></td> <td width="18" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="84" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- </p></td> <td width="18" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="77" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td width="15" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="104" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;155,964</p></td> </tr> <tr> <td width="192" height="42" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">Certificates of deposit -</p> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;Short term investments</p></td> <td width="90" height="42" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right">-</p></td> <td width="18" height="42" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="84" height="42" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><font style="FONT-SIZE:11pt">2,500,000</font></p></td> <td width="18" height="42" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="77" height="42" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right">-</p></td> <td width="15" height="42" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="104" height="42" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">2,500,000</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="192" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="justify"><br /></p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="justify">Total financial assets</p></td> <td width="90" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;155,964</p></td> <td width="18" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px"><br /></p></td> <td width="84" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">$&nbsp;&nbsp;&nbsp;&nbsp;2,500,000</p></td> <td width="18" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="77" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td width="15" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="104" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,655,964</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The following table presents the hierarchy for our financial liabilities measured at fair value on the transaction date and then adjusted for the subsequent accretion of interest, as of October 31, 2015:</p><br/><table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr style="font-size: 0px;"> <td width="228">&nbsp;</td> <td width="28">&nbsp;</td> <td width="25">&nbsp;</td> <td width="12">&nbsp;</td> <td width="25">&nbsp;</td> <td width="25">&nbsp;</td> <td width="12">&nbsp;</td> <td width="14">&nbsp;</td> <td width="86">&nbsp;</td> <td width="12">&nbsp;</td> <td width="14">&nbsp;</td> <td width="87">&nbsp;</td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="228"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="54"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Level 1</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="51"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Level 2</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="100"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Level 3</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="102"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Total</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="228"><p style="margin: 0px; line-height: 0.05pt;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="28"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="14"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="86"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="14"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="87"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="228"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;">Patent acquisition obligation</p></td> <td style="margin-top: 0px; padding: 0px;" width="28"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">-</p></td> <td style="margin-top: 0px; padding: 0px;" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">-</p></td> <td style="margin-top: 0px; padding: 0px;" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px; width: 14px;" valign="bottom"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;$</p></td> <td style="margin-top: 0px; padding: 0px;" width="86"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,688,187</p></td> <td style="margin-top: 0px; padding: 0px;" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px; width: 14px;" valign="bottom"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">$&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="87"><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,688,187</p></td> </tr> </table><br/><p style="font-size: 11pt; margin: 0px; text-indent: 48px;" align="justify">The following table presents the hierarchy for our financial liabilities measured at fair value on the transaction date and then adjusted for the subsequent accretion of interest, as of October 31, 2014:</p><br/><table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr style="font-size: 0px;"> <td width="228">&nbsp;</td> <td width="28">&nbsp;</td> <td width="25">&nbsp;</td> <td width="12">&nbsp;</td> <td width="25">&nbsp;</td> <td width="25">&nbsp;</td> <td width="12">&nbsp;</td> <td width="14">&nbsp;</td> <td width="86">&nbsp;</td> <td width="12">&nbsp;</td> <td width="14">&nbsp;</td> <td width="87">&nbsp;</td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="228"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="54"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Level 1</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="51"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Level 2</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="100"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Level 3</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="102"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Total</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="228"><p style="margin: 0px; line-height: 0.05pt;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="28"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="14"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="86"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="14"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="87"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="228"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;">Patent acquisition obligation</p></td> <td style="margin-top: 0px; padding: 0px;" width="28"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">-</p></td> <td style="margin-top: 0px; padding: 0px;" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">-</p></td> <td style="margin-top: 0px; padding: 0px;" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px; width: 14px;" valign="bottom"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">$&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="86"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,236,281</p></td> <td style="margin-top: 0px; padding: 0px;" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px; width: 14px;" valign="bottom"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">$&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="87"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,236,281</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The following table sets forth a summary of the changes in the fair value of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s Level 3 financial liabilities that are measured at fair value on a recurring basis:</p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="485" valign="bottom"> </td> <td colspan="2" style="BORDER-BOTTOM:#000000 1px solid" align="right" valign="bottom">&nbsp; <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="center">For the two <br />years ended <br />October 31, <br />2015</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="485" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify"><u>Patent acquisition obligation:</u></p></td> <td> </td> <td width="109" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right"> <p style="MARGIN-BOTTOM:0px; MARGIN-TOP:6px" align="right">&nbsp;</p></td> </tr> <tr> <td width="485" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify">Balance October 31, 2013</p></td> <td valign="bottom"><font style="FONT-SIZE:11pt">$</font></td> <td width="109" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="485" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify">Initial fair value</p></td> <td> </td> <td width="109" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,850,511</p></td> </tr> <tr> <td width="485" height="8" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify">Accretion of interest on patent obligation</p></td> <td style="BORDER-BOTTOM:#000000 1px solid" valign="bottom">&nbsp; </td> <td width="109" height="8" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;385,770</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="485" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify">Balance October 31, 2014</p></td> <td> </td> <td width="109" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,236,281</p></td> </tr> <tr> <td width="485" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify">Accretion of interest on patent obligation</p></td> <td style="BORDER-BOTTOM:#000000 1px solid" valign="bottom">&nbsp; </td> <td width="109" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;451,906</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="485" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify">Balance October 31, 2015</p></td> <td style="BORDER-BOTTOM:#000000 3px double"><font size="3">$</font></td> <td width="109" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,688,187</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Our non-financial assets that are measured on a non-recurring basis include our property and equipment which are measured using fair value techniques whenever events or changes in circumstances indicate a condition of impairment exists. &nbsp;The estimated fair value of prepaid expenses, accounts payable and accrued expenses approximates their individual carrying amounts due to the short term nature of these measurements. &nbsp;Cash and cash equivalents are stated at carrying value which approximates fair value.</p> <p style="FONT-SIZE:11pt; PADDING-BOTTOM:0px; MARGIN:0px; TEXT-INDENT:0px" align="justify"><u>Cash and Cash Equivalents</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Cash equivalents consists of highly liquid, short term investments with original maturities of three months or less when purchased.</p> <p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify"><u>Short-term Investments</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">At October 31, 2015 and 2014, we had certificates of deposit with maturities greater than 90 days when acquired of $2,400,000 and $2,500,000, respectively, that were classified as short-term investments and reported at fair value.</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="justify"><u>Patents</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Our only identifiable intangible assets are patents and patent rights. &nbsp;We capitalize patent and patent rights acquisition costs and amortize the cost over the estimated economic useful life. &nbsp;Patent acquisition costs capitalized during the years ended October 31, 2015 and 2014, was approximately $-0- and $3,036,000, respectively. &nbsp;We recorded patent amortization expense of approximately $325,000 and $314,000 during the years ended October 31, 2015 and 2014, respectively.</p> 0 0 3036000 325000 314000 <p style="FONT-SIZE:11pt; MARGIN:0px" align="justify"><u>Investment Securities</u></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">We classify our investment securities as available-for-sale. &nbsp;Available-for-sale securities are recorded at fair value. &nbsp;Unrealized gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a component of accumulated other comprehensive income (loss) until realized. &nbsp;Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis. &nbsp;Dividend and interest income are recognized when earned.<br /></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">We monitor the value of our investments for indicators of impairment, including changes in market conditions and the operating results of the underlying investment that may result in the inability to recover the carrying value of the investment.</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="justify"><u>Convertible Instruments</u> </p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The Company accounts for hybrid contracts that feature conversion options in accordance with applicable generally accepted accounting principles (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>GAAP<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>).&nbsp; ASC &nbsp;815 <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Derivatives and Hedging Activities,<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASC 815<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b)&nbsp;the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c)&nbsp;a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.&nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Conversion options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host instrument.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company accounts for convertible instruments, when the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, in accordance with ASC 470-20 <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Debt with Conversion and Other Options<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASC 470-20<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>). Under ASC 470-20, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The Company accounts for convertible instruments (when the Company has determined that the embedded conversion options should be bifurcated from their host instruments) in accordance with ASC 815.&nbsp;&nbsp;Under ASC 815, a portion of the proceeds received upon the issuance of the hybrid contract are allocated to the fair value of the derivative. The derivative is subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The conversion features of the convertible debentures issued in January 2013 and November 2013 qualified as embedded derivative instruments and were bifurcated from the host convertible debentures.&nbsp; Derivative liabilities are initially recorded at fair value and are then re-valued at each reporting date, with changes in fair value recognized in earnings during the reporting period.</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="justify"><u>Common Stock Purchase Warrants</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The Company classifies as equity any contracts that (i)&nbsp;require physical settlement or net-share settlement or (ii) provides a choice of net-cash settlement or settlement in the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s own shares (physical settlement or net-share settlement)&nbsp;providing that such contracts are indexed to the Company's own stock as defined in ASC 815-40 "Contracts in Entity's Own Equity". The Company classifies as assets or liabilities any contracts that (i)&nbsp;require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).&nbsp;&nbsp;The Company assesses classification of common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities or equity is required.</p> <p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify"><u>Income Taxes</u></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">We recognize deferred tax assets and liabilities for the estimated future tax effects of events that have been recognized in our financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. &nbsp;A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized.</p> <p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px"><u>Stock-Based Compensation</u></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">We maintain stock equity incentive plans under which we may grant non-qualified stock options, incentive stock options, stock appreciation rights, stock awards, performance and performance-based awards, or stock units to employees, non-employee directors and consultants.</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="justify"><u>Stock Option Compensation Expense</u> </p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">We account for stock options granted to employees and directors using the accounting guidance in ASC 718 <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Stock Compensation<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASC 718<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>). &nbsp;In accordance with ASC 718, we estimate the fair value of service based options and performance based options on the date of grant, using the Black-Scholes pricing model. &nbsp;For options vesting if the trading price of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s common stock achieves a defined target, we use a Monte Carlo simulation in estimating the fair value at grant date. We recognize compensation expense for stock option awards over the requisite or implied service period of the grant. &nbsp;With respect to performance based awards, compensation expense is recognized when the performance target is deemed probable. &nbsp;We recorded stock-based compensation expense, related to stock options granted to employees and directors, of approximately $2,192,000 and $2,128,000, during the years ended October 31, 2015 and 2014, respectively. </p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Included in stock-based compensation cost for employees and directors during the years ended October 31, 2015 and 2014 was approximately $2,092,781 and $1,426,000, respectively, related to the amortization of compensation cost for stock options granted in prior periods but not yet vested. &nbsp;As of October 31, 2015, there was unrecognized compensation cost related to non-vested stock options granted to employees and directors, related to service based options of approximately $432,000 which will be recognized over a weighted-average period of 1.1 years. </p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">We account for stock options granted to consultants using the accounting guidance included in ASC 505-50 <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Equity-Based Payments to Non-Employees<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASC 505-50<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>). &nbsp;In accordance with ASC 505-50, we estimate the fair value of service based stock options and performance based options at each reporting period, using the Black-Scholes pricing model. &nbsp;For options vesting if the trading price of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s common stock achieves a defined target we estimate the fair value at each reporting period using a Monte Carlo simulation. &nbsp;We recognize compensation expense for service based stock options and options subject to market conditions over the requisite or implied service period of the grant. &nbsp;For performance based awards, compensation expense is recognized when the performance target is achieved.<br /></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">We recorded consulting expense, related to stock options granted to consultants, during the years ended October 31, 2015 and 2014 of approximately $484,000 and $1,022,000, respectively. Stock-based consulting expense for the years ended October 31, 2015 and 2014 includes approximately $484,000 and $964,000, respectively, related to the amortization of compensation cost for stock options granted in prior periods but vested in the current period. As of October 31, 2015, there was no unrecognized consulting expense related to non-vested stock options granted to consultants.</p> 2192000 2128000 2092781 1426000 432000 P1Y36D 484000 1022000 484000 964000 <p style="FONT-SIZE:11pt; MARGIN:0px" align="justify"><u>Fair Value Determination</u> &nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">We use the Black-Scholes pricing model in estimating the fair value of stock options which vest over a specific period of time or upon achieving performance targets. &nbsp;To determine the weighted average fair value of stock options on the date of grant, employees and directors are included in a single group. &nbsp;The fair value of stock options granted to consultants is determined on an individual basis. &nbsp;The stock options we granted during the year ended October 31, 2015 consisted of awards with 10-year terms that vest over one year, options with 10-year terms that vest over 36 months. The stock options we granted during the year ended October 31, 2014 consisted of awards with 10-year terms that vest over one year, options with 10-year terms that vest over 36 months, options with 5-year terms which vest immediately and options with 10-year terms which vest upon achievement of performance milestones. &nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The following weighted average assumptions were used in estimating the fair value of stock options granted during the years ended October 31, 2015 and 2014: </p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="280" valign="bottom"> </td> <td width="78" valign="bottom"> </td> <td width="78" valign="bottom"></td> </tr> <tr> <td valign="bottom"> </td> <td colspan="2" style="BORDER-BOTTOM:#000000 1px solid" valign="bottom"> <p align="center"><font style="FONT-SIZE:11pt">For the Year <br />Ended October 31,</font></p></td> </tr> <tr> <td valign="bottom"> </td> <td style="BORDER-BOTTOM:#000000 1px solid" valign="bottom"> <p align="center"><font style="FONT-SIZE:11pt">2015</font></p></td> <td style="BORDER-BOTTOM:#000000 1px solid" valign="bottom"> <p align="center"><font style="FONT-SIZE:11pt">2014</font></p></td> </tr> <tr style="background-color: #cceeff;"> <td width="280" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">Weighted average fair value at grant date</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$3.09</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$5.75</p></td> </tr> <tr> <td width="280" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">Valuation assumptions:</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px" align="center">&nbsp;</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px" align="center">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="280" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expected life ( years) </p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">&nbsp;&nbsp;5.75</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">5.80</p></td> </tr> <tr> <td width="280" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expected volatility</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">117.8%</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">115.3%</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="280" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Risk-free interest rate</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">&nbsp;2.01%</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">&nbsp;1.82%</p></td> </tr> <tr> <td width="280" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expected dividend yield</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">0</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">0</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding. &nbsp;We use the simplified method to determine expected term. &nbsp;The simplified method was adopted since we do not believe that historical experience is representative of future performance because of the impact of the changes in our operations and the change in terms from historical options which vested immediately to terms including vesting periods of up to three years. &nbsp;Under the Black-Scholes pricing model, we estimated the expected volatility of our shares of common stock based upon the historical volatility of our share price over a period of time equal to the expected term of the options. &nbsp;We estimated the risk-free interest rate based on the implied yield available on the applicable grant date of a U.S. Treasury note with a term equal to the expected term of the underlying grants. &nbsp;We made the dividend yield assumption based on our history of not paying dividends and our expectation not to pay dividends in the future.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Under ASC 718, the amount of stock-based compensation expense recognized is based on the portion of the awards that are ultimately expected to vest. &nbsp;Accordingly, if deemed necessary, we reduce the fair value of the stock option awards for expected forfeitures, which are forfeitures of the unvested portion of surrendered options. &nbsp;Based on our historical experience and future expectations, we have not reduced the amount of stock-based compensation expenses for anticipated forfeitures.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">We will reconsider use of the Black-Scholes pricing model if additional information becomes available in the future that indicates another model would be more appropriate. &nbsp;If factors change and we employ different assumptions in the application of ASC 718 in future periods, the compensation expense that we record under ASC 718 may differ significantly from what we have recorded in the current period.</p> The stock options we granted during the year ended October 31, 2015 consisted of awards with 10-year terms that vest over one year, options with 10-year terms that vest over 36 months. The stock options we granted during the year ended October 31, 2014 consisted of awards with 10-year terms that vest over one year, options with 10-year terms that vest over 36 months, options with 5-year terms which vest immediately and options with 10-year terms which vest upon achievement of performance milestones. <p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify"><u>Net&nbsp;Loss&nbsp;Per&nbsp;Share of Common Stock</u> </p><br/><p style="margin-bottom: 16px; font-size: 11pt; margin-top: 0px; text-indent: 48px;" align="justify">In accordance with ASC 260, <font style="font-family: Arial Unicode MS,Times New Roman;">&#x201c;</font>Earnings Per Share<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201d;</font>, basic net loss per common share (<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201c;</font>Basic EPS<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201d;</font>) is computed by dividing net loss by the weighted average number of common shares outstanding. &nbsp;Diluted net loss per common share (<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201c;</font>Diluted EPS<font style="font-family: Arial Unicode MS,Times New Roman;">&#x201d;</font>) is computed by dividing net loss by the weighted average number of common shares and dilutive common share equivalents and convertible securities then outstanding. &nbsp;Diluted EPS for all years presented is the same as Basic EPS, as the inclusion of the effect of common share equivalents then outstanding would be anti-dilutive. &nbsp;For this reason, excluded from the calculation of Diluted EPS for the years ended October 31, 2015 and 2014, were options to purchase 2,672,471 and 3,002,550 shares, respectively, warrants to purchase 1,028,931 shares and 1,044,931 shares, respectively, preferred stock convertible into 739,958 shares.</p> 2672471 3002550 1028931 1044931 739958 <p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify"><u>Use of Estimates</u> </p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. &nbsp;Estimates and assumptions are used for, but not limited to, determining stock-based compensation, asset impairment evaluations, tax assets and liabilities, license fee revenue, the allowance for doubtful accounts, depreciation lives and other contingencies. &nbsp;Actual results could differ from those estimates.</p> <p style="FONT-SIZE:11pt; MARGIN:0px"><u>Effect of Recently Issued Pronouncements</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-09 (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASU 2014-09<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>), Revenue from Contracts with Customers. &nbsp;This amendment updates addressing revenue from contracts with customers, which clarifies existing accounting literature relating to how and when a company recognizes revenue. Under the standard, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. &nbsp;This standard update is effective for&nbsp;interim and annual&nbsp;reporting periods beginning after December 15,&nbsp;2016, and are to be applied retrospectively or the cumulative effect as of the date of adoption, with early application not permitted. &nbsp;In July 2015, a one year deferral of the effective date of the new guidance was approved. We are currently evaluating the impact ASU 2014-09 will have on our consolidated financial statements&nbsp;and related disclosures.<br /></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">In June 2014, the FASB issued Accounting Standards Update 2014-12 (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASU 2014-12<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>), Compensation <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8211;</font> Stock Compensation. &nbsp;This amendment requires that a performance target that affects vesting and could be achieved after the requisite service period shall be treated as a performance condition. Adoption of this standard is required for annual periods beginning after December 15, 2015. Early adoption is permitted. We are currently evaluating the impact ASU 2014-12 will have on our consolidated financial statements&nbsp;and related disclosures.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">In August 2014, the FASB issued Accounting Standards Update 2014-15 (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASU 2014-15<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>). &nbsp;This amendment requires management to assess an entity<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s ability to continue as a going concern every reporting period including interim periods, and to provide related footnote disclosure in certain circumstances. Adoption of this standard is required for annual periods beginning after December 15, 2016 and are to be applied retrospectively or the cumulative effect as of the date of adoption. We do not expect this update to have a significant impact on our consolidated financial statements.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">In April 2015, the FASB issued Accounting Standards Update 2015-03 (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASU 2015-03<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) to simplify the presentation of debt issuance costs. This amendment requires debt issuance costs be presented on the balance sheet as a direct reduction from the carrying amount of the debt liability, consistent with debt discounts or premiums. Adoption of this standard is required for interim and annual periods beginning after December 15, 2015 and is to be applied retrospectively. We are currently evaluating the impact ASU 2015-03 will have on our consolidated financial statements&nbsp;and related disclosures.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px">In November 2015, the FASB issued Accounting Standards Update 2015-17 (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASU 2015-17<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) to simplify the presentation of deferred taxes. This amendment requires that all deferred tax assets and liabilities, along with any related valuation allowances, be classified as noncurrent on the balance sheet. &nbsp;Adoption of this standard is required for annual periods beginning after December 15, 2016. We are currently evaluating the impact ASU 2015-17 will have on our consolidated financial statements&nbsp;and related disclosures.</p> <p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify"><u>Concentration of Credit Risks</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Financial instruments that potentially subject us to concentrations of credit risk are cash equivalents, short-term investments and accounts receivable. &nbsp;Cash equivalents are primarily highly rated money market funds. Short-term investments are certificates of deposit within federally insured limits. Where applicable, management reviews our accounts receivable and other receivables for potential doubtful accounts and maintains an allowance for estimated uncollectible amounts. Our policy is to write-off uncollectable amounts at the time it is determined that collection will not occur. </p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Three licensees accounted for 53%, 37% and 10%, respectively, of revenues from patent licensing activities during fiscal year 2015. Four licensees accounted for 22%, 16%, 14% and 10%, respectively, of revenues from patent licensing activities during fiscal year 2014.</p> 0.53 0.37 0.10 0.22 0.16 0.14 0.10 <table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr style="font-size: 0px;"> <td valign="bottom" width="192">&nbsp;</td> <td valign="bottom" width="90">&nbsp;</td> <td valign="bottom" width="18">&nbsp;</td> <td valign="bottom" width="84">&nbsp;</td> <td valign="bottom" width="18">&nbsp;</td> <td valign="bottom" width="77">&nbsp;</td> <td valign="bottom" width="15">&nbsp;</td> <td valign="bottom" width="104">&nbsp;</td> </tr> <tr> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="192" height="22"><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="90" height="22"><p style="font-size: 11pt; margin: 0px;" align="center">Level 1</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18" height="22"><p style="margin: 0px;" align="center">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="84" height="22"><p style="font-size: 11pt; margin: 0px;" align="center">Level 2</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18" height="22"><p style="margin: 0px;" align="center">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="77" height="22"><p style="font-size: 11pt; margin: 0px;" align="center">Level 3</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="15" height="22"><p style="margin: 0px;" align="center">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="104" height="22"><p style="font-size: 11pt; margin: 0px;" align="center">Total</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="192"><p style="font-size: 11pt; margin: 0px;">Money market funds <font style="font-family: Arial Unicode MS,Times New Roman;">&#x2013;</font> Cash &nbsp;</p><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;and cash equivalents</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="90"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;467,967</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="84"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="77"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px; padding-right: 4px;" align="right">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="15"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="104"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;467,967</p></td> </tr> <tr> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="192" height="42"><p style="font-size: 11pt; margin: 0px;">Certificates of deposit -</p><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;Short term investments</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="90" height="42"><p style="margin: 0px;" align="right">-</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18" height="42"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="84" height="42"><p style="margin: 0px;" align="right"><font style="font-size: 11pt;">2,400,000</font></p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18" height="42"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="77" height="42"><p style="margin: 0px;" align="right">-</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="15" height="42"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="104" height="42"><p style="font-size: 11pt; margin: 0px;" align="right">2,400,000</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="192"><p style="margin: 0px;" align="justify">&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="justify">Total financial assets</p></td> <td style="border-bottom: #000000 3px double; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="90"><p style="margin: 0px;" align="right">&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;467,967</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18"><p style="margin: 0px;">&nbsp;</p></td> <td style="border-bottom: #000000 3px double; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="84"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">$ 2,400,000</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="18"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 3px double; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="77"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td style="padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="15"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 3px double; padding-bottom: 0px; padding-top: 0px; padding-left: 4px; margin-top: 0px; padding-right: 4px;" valign="bottom" width="104"><p style="margin: 0px;" align="right">&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,867,967</p></td> </tr> </table><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="192" valign="bottom"> </td> <td width="90" valign="bottom"> </td> <td width="18" valign="bottom"> </td> <td width="84" valign="bottom"> </td> <td width="18" valign="bottom"> </td> <td width="77" valign="bottom"> </td> <td width="15" valign="bottom"> </td> <td width="104" valign="bottom"></td> </tr> <tr> <td width="192" height="22" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;</p></td> <td width="90" height="22" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Level 1</p></td> <td width="18" height="22" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="center"><br /></p></td> <td width="84" height="22" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Level 2</p></td> <td width="18" height="22" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="center"><br /></p></td> <td width="77" height="22" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Level 3</p></td> <td width="15" height="22" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="center"><br /></p></td> <td width="104" height="22" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Total</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="192" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">Money market funds <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8211;</font> Cash &nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;and cash equivalents</p></td> <td width="90" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;155,964</p></td> <td width="18" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="84" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- </p></td> <td width="18" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="77" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td width="15" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="104" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;155,964</p></td> </tr> <tr> <td width="192" height="42" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">Certificates of deposit -</p> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;Short term investments</p></td> <td width="90" height="42" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right">-</p></td> <td width="18" height="42" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="84" height="42" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><font style="FONT-SIZE:11pt">2,500,000</font></p></td> <td width="18" height="42" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="77" height="42" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right">-</p></td> <td width="15" height="42" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="104" height="42" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">2,500,000</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="192" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="justify"><br /></p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="justify">Total financial assets</p></td> <td width="90" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;155,964</p></td> <td width="18" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px"><br /></p></td> <td width="84" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">$&nbsp;&nbsp;&nbsp;&nbsp;2,500,000</p></td> <td width="18" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="77" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td width="15" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="104" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:4px; MARGIN-TOP:0px; PADDING-RIGHT:4px" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,655,964</p></td> </tr> </table><table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr style="font-size: 0px;"> <td width="228">&nbsp;</td> <td width="28">&nbsp;</td> <td width="25">&nbsp;</td> <td width="12">&nbsp;</td> <td width="25">&nbsp;</td> <td width="25">&nbsp;</td> <td width="12">&nbsp;</td> <td width="14">&nbsp;</td> <td width="86">&nbsp;</td> <td width="12">&nbsp;</td> <td width="14">&nbsp;</td> <td width="87">&nbsp;</td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="228"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="54"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Level 1</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="51"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Level 2</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="100"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Level 3</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="102"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Total</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="228"><p style="margin: 0px; line-height: 0.05pt;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="28"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="14"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="86"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="14"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="87"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="228"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;">Patent acquisition obligation</p></td> <td style="margin-top: 0px; padding: 0px;" width="28"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">-</p></td> <td style="margin-top: 0px; padding: 0px;" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">-</p></td> <td style="margin-top: 0px; padding: 0px;" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px; width: 14px;" valign="bottom"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;$</p></td> <td style="margin-top: 0px; padding: 0px;" width="86"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,688,187</p></td> <td style="margin-top: 0px; padding: 0px;" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px; width: 14px;" valign="bottom"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">$&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="87"><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,688,187</p></td> </tr> </table><table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr style="font-size: 0px;"> <td width="228">&nbsp;</td> <td width="28">&nbsp;</td> <td width="25">&nbsp;</td> <td width="12">&nbsp;</td> <td width="25">&nbsp;</td> <td width="25">&nbsp;</td> <td width="12">&nbsp;</td> <td width="14">&nbsp;</td> <td width="86">&nbsp;</td> <td width="12">&nbsp;</td> <td width="14">&nbsp;</td> <td width="87">&nbsp;</td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="228"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="54"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Level 1</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="51"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Level 2</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="100"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Level 3</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="102"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="center">Total</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="228"><p style="margin: 0px; line-height: 0.05pt;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="28"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="14"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="86"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="14"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="87"><p style="margin: 0px; line-height: 0.05pt;" align="right">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="228"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;">Patent acquisition obligation</p></td> <td style="margin-top: 0px; padding: 0px;" width="28"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">-</p></td> <td style="margin-top: 0px; padding: 0px;" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">-</p></td> <td style="margin-top: 0px; padding: 0px;" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px; width: 14px;" valign="bottom"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">$&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="86"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,236,281</p></td> <td style="margin-top: 0px; padding: 0px;" width="12"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px; width: 14px;" valign="bottom"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;" align="right">$&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="87"><p style="font-size: 11pt; padding-left: 2px; margin: 0px;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,236,281</p></td> </tr> </table> 467967 467967 2400000 2400000 467967 2400000 2867967 155964 155964 2500000 2500000 155964 2500000 2655964 3688187 3688187 3236281 3236281 <table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="485" valign="bottom"> </td> <td colspan="2" style="BORDER-BOTTOM:#000000 1px solid" align="right" valign="bottom">&nbsp; <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="center">For the two <br />years ended <br />October 31, <br />2015</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="485" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify"><u>Patent acquisition obligation:</u></p></td> <td> </td> <td width="109" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right"> <p style="MARGIN-BOTTOM:0px; MARGIN-TOP:6px" align="right">&nbsp;</p></td> </tr> <tr> <td width="485" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify">Balance October 31, 2013</p></td> <td valign="bottom"><font style="FONT-SIZE:11pt">$</font></td> <td width="109" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="485" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify">Initial fair value</p></td> <td> </td> <td width="109" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,850,511</p></td> </tr> <tr> <td width="485" height="8" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify">Accretion of interest on patent obligation</p></td> <td style="BORDER-BOTTOM:#000000 1px solid" valign="bottom">&nbsp; </td> <td width="109" height="8" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;385,770</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="485" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify">Balance October 31, 2014</p></td> <td> </td> <td width="109" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,236,281</p></td> </tr> <tr> <td width="485" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify">Accretion of interest on patent obligation</p></td> <td style="BORDER-BOTTOM:#000000 1px solid" valign="bottom">&nbsp; </td> <td width="109" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right" valign="bottom"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;451,906</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="485" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="justify">Balance October 31, 2015</p></td> <td style="BORDER-BOTTOM:#000000 3px double"><font size="3">$</font></td> <td width="109" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="right"> <p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:6px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,688,187</p></td> </tr> </table> 2850511 385770 3236281 451906 3688187 <table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="280" valign="bottom"> </td> <td width="78" valign="bottom"> </td> <td width="78" valign="bottom"></td> </tr> <tr> <td valign="bottom"> </td> <td colspan="2" style="BORDER-BOTTOM:#000000 1px solid" valign="bottom"> <p align="center"><font style="FONT-SIZE:11pt">For the Year <br />Ended October 31,</font></p></td> </tr> <tr> <td valign="bottom"> </td> <td style="BORDER-BOTTOM:#000000 1px solid" valign="bottom"> <p align="center"><font style="FONT-SIZE:11pt">2015</font></p></td> <td style="BORDER-BOTTOM:#000000 1px solid" valign="bottom"> <p align="center"><font style="FONT-SIZE:11pt">2014</font></p></td> </tr> <tr style="background-color: #cceeff;"> <td width="280" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">Weighted average fair value at grant date</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$3.09</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$5.75</p></td> </tr> <tr> <td width="280" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">Valuation assumptions:</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px" align="center">&nbsp;</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px" align="center">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="280" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expected life ( years) </p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">&nbsp;&nbsp;5.75</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">5.80</p></td> </tr> <tr> <td width="280" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expected volatility</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">117.8%</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">115.3%</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="280" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Risk-free interest rate</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">&nbsp;2.01%</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">&nbsp;1.82%</p></td> </tr> <tr> <td width="280" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expected dividend yield</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">0</p></td> <td width="78" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">0</p></td> </tr> </table> 3.09 5.75 P5Y9M P5Y292D 1.178 1.153 0.0201 0.0182 0.00 0.00 <p style="margin-bottom: 16px; font-size: 11pt; margin-top: 0px;"><br />3. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font style="text-decoration: underline;">INVESTMENTS</font></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify"><u>Short-term Investments </u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">At October 31, 2015 and October 31, 2014, we had of certificates of deposit totaling $2,400,000 and $2,500,000, respectively. &nbsp;Terms of the certificates of deposit generally range from greater than three months to nine months.</p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify"><u>Investment in Videocon </u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Our investment in Videocon was classified as an "available-for-sale security" and reported at fair value, with unrealized gains and losses excluded from operations and reported as component of accumulated other comprehensive income (loss) in shareholders<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font> equity. &nbsp;The original cost basis of $16,200,000 was determined using the specific identification method. &nbsp;The fair value of the Videocon GDRs is based on the price on the Luxembourg Stock Exchange, which price is based on the underlying price of Videocon<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s equity shares which are traded on stock exchanges in India with prices quoted in rupees. &nbsp;&nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">ASC 320 <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Investments-Debt and Equity Securities<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>ASC 320<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) and SEC guidance on other than temporary impairments of certain investments in equity securities requires an evaluation to determine if the decline in fair value of an investment is either temporary or other than temporary. &nbsp;Unless evidence exists to support a realizable value equal to or greater than the carrying cost of the investment, an other than temporary impairment should be recorded. &nbsp;At each reporting period we assessed our investment in Videocon to determine if a decline that is other than temporary has occurred. &nbsp;In evaluating our investment in Videocon during fiscal year 2014, we determined that based on both the duration and the continuing magnitude of the market price decline compared to the carrying cost, a write-down of the investment of approximately $63,000 should be recorded and a new cost basis of approximately $4,135,000 should be established. &nbsp;On August 29, 2014, we exchanged the Videocon GDRs for 800,000 shares of our common stock, see Note 1 <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Business and Funding <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8211;</font> Description of Business <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8211;</font> Unwinding of Business Relationship and Interest with Videocon<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>. &nbsp;On a cumulative basis, we have recorded other than temporary impairments in our investment in Videocon GDRs of approximately $12,065,000. &nbsp;&nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The fair value of the Videocon GDRs on August 29, 2014, the date of disposition, was follows:</p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="356" valign="bottom"> </td> <td width="15" valign="bottom"> </td> <td width="96" valign="bottom"></td> </tr> <tr> <td valign="bottom"> </td> <td colspan="2" style="BORDER-BOTTOM:#000000 1px solid" valign="bottom"> <p align="center"><font style="FONT-SIZE:11pt">Investment in <br />Videocon</font></p></td> </tr> <tr style="background-color: #cceeff;"> <td width="356" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="justify">Fair Value as of October 31, 2013</p></td> <td width="15" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN:0px" align="justify">&nbsp;<font style="FONT-SIZE:11pt">$</font></p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">&nbsp; &nbsp;4,197,341</p></td> </tr> <tr> <td width="356" height="17" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="justify">&nbsp;&nbsp;&nbsp;Other than temporary impairment</p></td> <td width="15" height="17" style="BORDER-BOTTOM:#000000 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px" align="justify">&nbsp;</p></td> <td width="96" height="17" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(62,825)</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="356" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px" align="justify"><font style="FONT-SIZE:11pt">Fair value of Videocon GDRs on date of disposition</font></p></td> <td width="15" style="BORDER-BOTTOM:#000000 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"><font style="FONT-SIZE:11pt">&nbsp;</font>$</td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">&nbsp;&nbsp;&nbsp;4,134,516</p></td> </tr> </table><br/> 2400000 2500000 16200000 63000 4135000 800000 12065000 <table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="356" valign="bottom"> </td> <td width="15" valign="bottom"> </td> <td width="96" valign="bottom"></td> </tr> <tr> <td valign="bottom"> </td> <td colspan="2" style="BORDER-BOTTOM:#000000 1px solid" valign="bottom"> <p align="center"><font style="FONT-SIZE:11pt">Investment in <br />Videocon</font></p></td> </tr> <tr style="background-color: #cceeff;"> <td width="356" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="justify">Fair Value as of October 31, 2013</p></td> <td width="15" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN:0px" align="justify">&nbsp;<font style="FONT-SIZE:11pt">$</font></p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">&nbsp; &nbsp;4,197,341</p></td> </tr> <tr> <td width="356" height="17" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="justify">&nbsp;&nbsp;&nbsp;Other than temporary impairment</p></td> <td width="15" height="17" style="BORDER-BOTTOM:#000000 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px" align="justify">&nbsp;</p></td> <td width="96" height="17" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(62,825)</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="356" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px" align="justify"><font style="FONT-SIZE:11pt">Fair value of Videocon GDRs on date of disposition</font></p></td> <td width="15" style="BORDER-BOTTOM:#000000 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"><font style="FONT-SIZE:11pt">&nbsp;</font>$</td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">&nbsp;&nbsp;&nbsp;4,134,516</p></td> </tr> </table> 4197341 62825 4134516 <p style="margin-bottom: 16px; font-size: 11pt; margin-top: 0px;"><br />4. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font style="text-decoration: underline;">ACCOUNTS PAYABLE AND ACCRUED EXPENSES</font></p><br/><p style="FONT-SIZE:11pt; CLEAR:left; MARGIN:0px; TEXT-INDENT:48px" align="justify">Accounts payable and accrued liabilities consist of the following as of:</p><br/><table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr style="font-size: 0px;"> <td valign="bottom" width="307">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td align="right" valign="bottom" width="94">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td align="right" valign="bottom" width="94">&nbsp;</td> </tr> <tr> <td valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="5" align="right" valign="bottom"><p align="center"><font style="font-size: 11pt;">October 31,</font></p></td> </tr> <tr> <td valign="bottom"><p align="center">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="right" valign="bottom"><p align="center"><font style="font-size: 11pt;">2015</font></p></td> <td valign="bottom"><p align="center">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="right" valign="bottom"><p align="center"><font style="font-size: 11pt;">2014</font></p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="307"><p style="font-size: 11pt; margin: 0px;">Accounts payable</p></td> <td><font style="font-size: 11pt;">$</font></td> <td style="margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;374,703</p></td> <td>&nbsp;</td> <td><font style="font-size: 11pt;">$</font></td> <td style="margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;540,179</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="307" height="16"><p style="font-size: 11pt; margin: 0px;">Payroll and related expenses</p></td> <td valign="bottom">&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94" height="16"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td valign="bottom">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94" height="16"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;372,753</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="307"><p style="font-size: 11pt; margin: 0px;">Accrued litigation expense, consulting and other</p><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;&nbsp;professional fees</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;320,493</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="307" height="15"><p style="font-size: 11pt; margin: 0px;">Accrued other</p></td> <td style="border-bottom: #000000 1px solid;" valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94" height="15"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6,062</p></td> <td valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94" height="15"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,001</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="307"><p style="margin: 0px;">&nbsp;<font style="color: #000000; font-family: 'times new roman'; font-size: 14.6667px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; display: none !important; float: none; background-color: #cceeff;">Total</font></p></td> <td style="border-bottom: #000000 3px double;"><font style="font-size: 11pt;">$</font></td> <td style="border-bottom: #000000 3px double; margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;380,765</p></td> <td>&nbsp;</td> <td style="border-bottom: #000000 3px double;"><font style="font-size: 11pt;">$</font></td> <td style="border-bottom: #000000 3px double; margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94"><p style="font-size: 11pt; margin: 0px;" align="right">1,249,426</p></td> </tr> </table><br/> <table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr style="font-size: 0px;"> <td valign="bottom" width="307">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td align="right" valign="bottom" width="94">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td align="right" valign="bottom" width="94">&nbsp;</td> </tr> <tr> <td valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="5" align="right" valign="bottom"><p align="center"><font style="font-size: 11pt;">October 31,</font></p></td> </tr> <tr> <td valign="bottom"><p align="center">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="right" valign="bottom"><p align="center"><font style="font-size: 11pt;">2015</font></p></td> <td valign="bottom"><p align="center">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="right" valign="bottom"><p align="center"><font style="font-size: 11pt;">2014</font></p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="307"><p style="font-size: 11pt; margin: 0px;">Accounts payable</p></td> <td><font style="font-size: 11pt;">$</font></td> <td style="margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;374,703</p></td> <td>&nbsp;</td> <td><font style="font-size: 11pt;">$</font></td> <td style="margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;540,179</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="307" height="16"><p style="font-size: 11pt; margin: 0px;">Payroll and related expenses</p></td> <td valign="bottom">&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94" height="16"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td valign="bottom">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94" height="16"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;372,753</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="307"><p style="font-size: 11pt; margin: 0px;">Accrued litigation expense, consulting and other</p><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;&nbsp;professional fees</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;</p><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;320,493</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="307" height="15"><p style="font-size: 11pt; margin: 0px;">Accrued other</p></td> <td style="border-bottom: #000000 1px solid;" valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94" height="15"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6,062</p></td> <td valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94" height="15"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,001</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="307"><p style="margin: 0px;">&nbsp;<font style="color: #000000; font-family: 'times new roman'; font-size: 14.6667px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; display: none !important; float: none; background-color: #cceeff;">Total</font></p></td> <td style="border-bottom: #000000 3px double;"><font style="font-size: 11pt;">$</font></td> <td style="border-bottom: #000000 3px double; margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;380,765</p></td> <td>&nbsp;</td> <td style="border-bottom: #000000 3px double;"><font style="font-size: 11pt;">$</font></td> <td style="border-bottom: #000000 3px double; margin-top: 0px; padding: 0px;" align="right" valign="bottom" width="94"><p style="font-size: 11pt; margin: 0px;" align="right">1,249,426</p></td> </tr> </table> 374703 540179 372753 320493 6062 16001 <p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px"><br />5. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>CONVERTIBLE DEBENTURES</u></p><br/><p style="MARGIN-BOTTOM:0px; FONT-SIZE:11pt; MARGIN-TOP:16px"><u>Convertible Debenture due January 2015</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">In January 2013, the Company received aggregate gross proceeds of $1,765,000 from the issuance of 8% convertible debentures due January 25, 2015 (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Convertible Debenture due January 2015<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>), of which $250,000 was received from our current President, Chief Executive Officer and director, and two other directors of the Company.&nbsp;The debentures&nbsp;paid interest quarterly and&nbsp;were convertible into shares of our common stock at a conversion price of $3.75 per share on or before January 25, 2015.&nbsp;The embedded conversion feature&nbsp;had certain weighted average anti-dilution protection provisions which would be triggered if the Company issues its common stock, or certain common stock equivalents, (as defined) at a price below $3.75 per share.&nbsp; The Company had the option to pay any interest on the debentures in common stock based on the average of the closing prices of&nbsp; our common stock for the 10 trading days immediately preceding the interest payment date.&nbsp;The Company also had the option to pay any interest on the debentures with additional debentures.&nbsp; The Company&nbsp;had the right to&nbsp;prepay the debentures at any time without penalty upon 30 days prior notice but only if the sales price of the common stock is at least $7.50 for 20 trading days in any 30-day trading period ending no more than 15 days before the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s prepayment notice.&nbsp; In conjunction with the issuance of the debentures, the Company issued warrants (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Convertible Debenture Warrant<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) to purchase 235,310 shares of its common stock.&nbsp; Each warrant grants the holder the right to purchase one share of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s common stock at the purchase price of $7.50 per share on or before January 25, 2016.&nbsp;The Convertible Debenture Warrant may be exercised on a cashless basis only if there is not an effective registration statement covering such shares.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The Company determined, based upon authoritative guidance, that the conversion feature embedded within the Convertible Debenture due January 2015 should be valued separately and bifurcated from the host instrument and accounted for as a free-standing derivative liability and that the Convertible Debenture Warrant should also be valued and accounted for separately as an equity instrument.&nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The Company determined the fair value of each of the three elements included within the Convertible Debenture due January 2015.&nbsp; The debenture portion (without the conversion feature) bearing interest at 8% was determined to be a debt instrument with a fair value of $1,490,000.&nbsp; The embedded conversion feature was determined to be a derivative liability with a fair value of $1,180,000.&nbsp; The Convertible Debenture Warrant was determined to be an equity instrument with a fair value of $370,000.&nbsp; The Company determined the fair value of each of these instruments based upon the assumptions and methodologies as discussed below.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Since the Convertible Debenture Warrant was determined to be an equity instrument, the Company first computed the relative fair value of the Convertible Debenture due January 2015 (including the value of its conversion feature) with a fair value of $2,670,000 and the Convertible Debenture Warrant with a fair value of $370,000.&nbsp;&nbsp; Accordingly, the relative fair value of the Convertible Debenture Warrant and the Convertible Debenture due January 2015 (including the value of its conversion feature) was determined to be $214,819 and $1,550,181, respectively.&nbsp; Then, from the relative fair value of the Convertible Debenture due January 2015, the Company deducted in full the fair value of the embedded conversion feature of $1,180,000.&nbsp;&nbsp; The discount of $1,394,819 applied to the face value of the Convertible Debenture due January 2015 consists of the sum of the relative fair value of the Convertible Debenture Warrant of $214,819 and the full value of the bifurcated conversion option derivative liability of $1,180,000.&nbsp; The Convertible Debenture due January 2015 was recorded at a net value of $370,181, representing its face value of $1,765,000, less aggregate discounts for the derivative liability and warrant of $1,394,819, as summarized in the table below.</p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="256" valign="bottom"> </td> <td width="8" valign="bottom"> </td> <td width="87" valign="bottom"> </td> <td width="6" valign="bottom"> </td> <td width="6"> </td> <td width="96" valign="bottom"></td> </tr> <tr> <td width="256" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px"><font style="FONT-SIZE:11pt">Face value of Convertible Debenture due January 2015</font></p></td> <td width="8" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="87" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="6" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right">&nbsp;</p></td> <td width="6" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">$</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">&nbsp;</p> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">1,765,000</p></td> </tr> <tr> <td width="256" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:15px; MARGIN:0px">Fair value of embedded conversion feature</p></td> <td width="8" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">$</p></td> <td width="87" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">1,180,000</p></td> <td width="6" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p></td> <td width="6" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> </tr> <tr> <td width="256" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:15px; MARGIN:0px">Relative fair value of Convertible Debenture Warrant</p></td> <td width="8" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="87" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">214,819</p></td> <td width="6" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p></td> <td width="6" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> </tr> <tr> <td width="256" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:15px; MARGIN:0px">Discount</p></td> <td width="8" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">$</p></td> <td width="87" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">1,394,819</p></td> <td width="6" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p></td> <td width="6" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">(1,394,819)</p></td> </tr> <tr> <td width="256" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Proceeds attributable to the Convertible Debenture due January 2015</p></td> <td width="8" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="87" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="6" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt"><br />&nbsp;</p></td> <td width="6" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">370,181</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Accordingly, the Company accounted for the full amount of the discount as an offset to the Convertible Debenture due January 2015, amortizable under the effective interest method over the term of the debenture. &nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The Company calculated the fair value of the embedded conversion feature of the Convertible Debenture due January 2015 using a Monte Carlo simulation, with the observable assumptions as provided in the table below.&nbsp;The significant unobservable inputs used in the fair value measurement of the reporting entity<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s embedded conversion feature are expected stock prices, levels of trading and liquidity of the Company stock, probability of default of the host instrument, and loss severity in the event of such default. Significant increases in the expected stock prices and expected liquidity would result in a significantly higher fair value measurement.&nbsp;Significant increases in either the probability or severity of default of the host instrument would result in a significantly lower fair value measurement.&nbsp;</p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="363"> </td> <td width="13"> </td> <td width="83"></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;&nbsp;</p></td> <td width="97" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">As of</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">January 25,</p> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">2013</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Stock price on valuation date</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">5.25</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Conversion price</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">3.75</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Stock premium for liquidity</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">57%</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Term (years)</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">2.00</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Expected volatility</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">110%</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Weighted average risk-free interest rate</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">0.3%</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Trials</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">100,000</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Aggregate fair value</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">1,180,000</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The Company calculated the fair value of the Convertible Debenture Warrant issued on January 25, 2013 using the Black-Scholes option pricing model with the following assumptions:&nbsp;</p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="363"> </td> <td width="13"> </td> <td width="76"></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="90" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">As of</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">January 25,</p> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="center"><br /></p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">2013</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Stock price on valuation date</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="76" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">5.25</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Exercise price</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="76" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">7.50</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Stock premium for liquidity</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="76" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">38%</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Term (years)</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="76" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">3.00</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Warrant exercise trigger price</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="76" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">41%</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Expected volatility</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="76" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">95%</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Weighted average risk-free interest rate</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="76" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">0.4%</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Number of warrants</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="76" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;5,882,745</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Aggregate fair value</p></td> <td width="13" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="76" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;370,000</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The Company determined the fair value of the Convertible Debenture due January 2015 by preparing an analysis of discounted cash flows, using a discount rate of 18.6%, which the Company deemed appropriate given the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s current risk scenarios.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">In connection with the Convertible Debenture due January 2015, the Company provided compensation to the placement agent consisting of a cash fee of $41,400 and a warrant for the purchase of 11,041 shares of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s common stock (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Placement Agent Warrant<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>).&nbsp; The terms of the Placement Agent Warrant are identical to the terms of the Convertible Debenture Warrant, and using Black-Scholes, upon issuance, was determined to have a fair value of $17,360.&nbsp;Assumptions for the valuation of the Placement Agent Warrant were identical to those provided above for the Convertible Debenture Warrant.&nbsp; In addition, issuance costs included legal fees of approximately $25,000.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The sum of the issuance costs was $83,760, and this cost was allocated as provided below:</p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="169"> </td> <td width="14"> </td> <td width="177"> </td> <td width="12"> </td> <td width="19"> </td> <td width="67"></td> </tr> <tr> <td width="169" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">Attributable to:</p></td> <td width="14" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">&nbsp;</p></td> <td width="177" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">Accounting Treatment</p></td> <td width="12" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">&nbsp;</p></td> <td width="87" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="center"><br /></p> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">Amount</p></td> </tr> <tr> <td width="169" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">The embedded conversion feature (derivative)</p></td> <td width="14" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:1px">&nbsp;</p></td> <td width="177" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Expensed as incurred</p></td> <td width="12" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="19" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">55,999</p></td> </tr> <tr> <td width="169" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">The 8% Convertible Debenture Warrant</p></td> <td width="14" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="177" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Charged to additional paid-in capital</p></td> <td width="12" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="19" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">10,194</p></td> </tr> <tr> <td width="169" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="14" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="177" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="12" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="19" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> </tr> <tr> <td width="169" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="top"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">The 8% Convertible Debenture</p></td> <td width="14" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="177" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="top"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Recorded as deferred issuance costs and amortized under the interest method over the term of the 8% Convertible Debenture</p></td> <td width="12" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:1px">&nbsp;</p></td> <td width="19" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:1px">&nbsp;</p></td> <td width="67" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">17,567</p></td> </tr> <tr> <td width="169" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:15px; MARGIN:0px">Total</p></td> <td width="14" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="177" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="12" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="19" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="67" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">83,760</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In connection with the issuance of the Convertible Debenture due January 2015, on April 24, 2013, the Company prepared and filed a registration statement registering for resale the shares of its common stock which may be issued upon the conversion of the debenture consistent with the terms and conditions of the registration rights agreement the Company entered into with the holders of the registrable shares listed above. The registration statement was declared effective by the SEC on June 19, 2013.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The Company has agreed to maintain the effectiveness of the registration statement through the earlier of three years from the date of the issuance of the Convertible Debenture due January 2015 or until Rule 144 of the Securities Act is available to the holders to allow them to sell all of their registrable securities thereunder.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">The derivative liability related to the embedded conversion feature was revalued at each reporting period as well as on the date of all conversions, as discussed, below.&nbsp; </font></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">As of October 31, 2013, the Company determined the fair value of the derivative liability to be $540,000, and accordingly, during the year ended October 31, 2013, the Company recorded a gain on the change in the fair value of the derivative liability of approximately $475,000. &nbsp;&nbsp;&nbsp;As of October 31, 2014, the Company determined the fair value of the derivative liability to be $-0-, as the full value of the Convertible Debenture due January 2015 was converted and/or repaid in full during the year ended October 31, 2014 and accordingly, during the year ended October 31, 2014, the Company recorded a loss on the change in the fair value of the derivative of approximately $1,131,000. &nbsp;&nbsp;</font></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">As of October 31, 2013, the Company calculated the fair value of the embedded conversion feature of the Convertible Debenture due January 2015 using a Monte Carlo simulation, with the observable assumptions as provided in the table below. &nbsp;The significant unobservable inputs used in the fair value measurement of the reporting entity<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s embedded conversion feature are expected stock prices, levels of trading and liquidity of the Company stock, probability of default of the host instrument, and loss severity in the event of such default. &nbsp;Significant increases in the expected stock prices and expected liquidity would result in a significantly higher fair value measurement.&nbsp; Significant increases in either the probability or severity of default of the host instrument would result in a significantly lower fair value measurement.&nbsp;</p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="380"> </td> <td width="13"> </td> <td width="67"></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="80" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="center"><br /></p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">As of</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">October 31,</p> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="center"><br /></p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">2013</p></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Stock price on valuation date</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.875</p></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Conversion price</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.75</p></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Stock premium for liquidity</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">42%</p></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Term (years)</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">1.25</p></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Expected volatility</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">115%</p></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Weighted average risk-free interest rate</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">0.3%</p></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Trials</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">100,000</p></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Aggregate fair value</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px" align="right">&nbsp;</p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px">$ &nbsp;540,000</p></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(255,255,255)"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:1px">&nbsp;</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(255,255,255)"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt"><br /></p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(255,255,255)"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:1px">&nbsp;</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">The fair value of the derivative liability associated with the conversions and repayments of the Convertible Debenture due January 2015 was approximately $1,671,000 immediately prior to the conversions and repayments.</font><br /></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">As of April 30, 2014, the Convertible Debenture due January 2015 was extinguished in full.&nbsp;&nbsp;However, the Company needed to determine the fair value of the derivative liability for the embedded conversion feature immediately prior to the conversion, in order to determine the change in the fair value of the derivative for the period.&nbsp;The Company determined to measure the derivative immediately prior to the conversion at its intrinsic value, since this method most fairly measured the value of the derivative liability.&nbsp;The intrinsic value computation is provided below.&nbsp;&nbsp;</p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="426"> </td> <td width="6"> </td> <td width="83"></td> </tr> <tr> <td width="426" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;&nbsp;</p></td> <td width="90" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">As of</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">April 30,</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">2014</p></td> </tr> <tr> <td width="426" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Stock price used for valuation</p></td> <td width="6" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">8.50</p></td> </tr> <tr> <td width="426" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="6" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="left">266.68 shares issued per $1,000 face value</p></td> </tr> <tr> <td width="426" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Aggregate intrinsic value of the $1,150,000 of principal outstanding on April 30, 2014, immediately prior to conversion and repayment</p></td> <td width="6" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="83" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">1,456,797</p></td> </tr> <tr> <td width="426" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="6" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">The amortization of debt discount related to the Convertible Debenture due January 2015 was approximately $-0- and $233,000, for the years ended October 31, 2015 and 2014, respectively.</font></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">During the year ended October 31, 2013, holders of $325,000 and $5,878 of principal and interest, respectively, of the Convertible Debenture due January 2015, converted their holdings into an aggregate of 86,671 and 805 shares of Common Stock.&nbsp; During the year ended October 31, 2014, holders of $1,240,000 and $9,000 of principal and interest, respectively, of the Convertible Debenture due January 2015, converted their holdings into an aggregate of 330,683 and 1,185 shares of common stock and holders of $200,000 of principal of the Convertible Debenture due January 2015 consented to prepayment (without conversion) of obligations to them under the instrument<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s prepayment provisions. During the year ended October 31, 2014, in connection with these conversions and prepayments, the Company recorded losses on extinguishment of debt in the amount of $482,915.&nbsp; These losses represent the excess of the fair value of Common Stock on the date of conversion over the net book value of the debt on the date of conversion.&nbsp; Since the conversion feature on the Convertible Debenture due January 2015 was determined to be a derivative liability, the net book value includes both the value of the debt, net of discount, and the portion of the derivative liability related to its conversion feature. &nbsp;</font></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">The loss on extinguishment of debt was calculated as follows:</font></p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="372"> </td> <td width="9"> </td> <td width="79"></td> </tr> <tr> <td width="372" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="88" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">Year Ended</p> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">October 31,</p> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">2014</p></td> </tr> <tr> <td width="372" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Face value of debt converted</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="79" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="center">&nbsp;&nbsp;1,440,000</p></td> </tr> <tr> <td width="372" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Less: discount</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="79" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">&nbsp;&nbsp;&nbsp;&nbsp;(658,232)</p></td> </tr> <tr> <td width="372" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Plus: fair value of derivative liability</p></td> <td width="9" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="79" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="center">&nbsp;&nbsp;1,670,704</p></td> </tr> <tr> <td width="372" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Net book value of debt converted</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="79" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="center">&nbsp;&nbsp;2,452,472</p></td> </tr> <tr> <td width="372" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Fair value of common stock issued</p></td> <td width="9" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="79" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="center">&nbsp;&nbsp;2,935,387</p></td> </tr> <tr> <td width="372" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Loss on extinguishment of debt</p></td> <td width="9" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="79" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;&nbsp;(482,915)</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><u>Convertible Debenture due November 2016</u> &nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">In November 2013, the Company received aggregate gross proceeds of $3,500,000 from the issuance of 6% convertible debentures due November 11, 2016 (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Convertible Debenture due November 2016<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>).&nbsp;The debentures paid interest annually and were convertible into shares of our common stock at a conversion price of $4.73 per share on or before November 11, 2016.&nbsp; The embedded conversion feature had certain weighted average anti-dilution protection provisions which would be triggered if the Company issues its common stock, or certain common stock equivalents, (as defined) at a price below $3.55 per share.&nbsp; The Company had the option to pay any interest on the debentures in common stock based on 90% of the volume weighted average closing sales price of our common stock for the 30 trading days immediately preceding the interest payment date. &nbsp;In conjunction with the issuance of the debentures, the Company issued warrants (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Convertible Debenture Warrant<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) to purchase 369,979 shares of its common stock.&nbsp; Each warrant granted the holder the right to purchase one share of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s common stock at an initial fixed purchase price of $9.46 per share (see discussion below of amendment to warrant exercise price) on or before November 11, 2016.&nbsp; The Convertible Debenture Warrant may be exercised on a cashless basis only if there is not an effective registration statement covering such shares.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The Company determined, based upon authoritative guidance, that the conversion feature embedded within the Convertible Debenture due November 2016 should be valued separately and bifurcated from the host instrument and accounted for as a free-standing derivative liability and that the Convertible Debenture Warrant should also be valued and accounted for separately as an equity instrument.&nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The Company determined the fair value of each of the three elements included within the Convertible Debenture due November 2016.&nbsp;The debenture portion (without the conversion feature) bearing interest at 6% was determined to be a debt instrument with a fair value of $2,710,000.&nbsp; The embedded conversion feature was determined to be a derivative liability with a fair value of $1,570,000.&nbsp;The Convertible Debenture Warrant was determined to be an equity instrument with a fair value of $740,000.&nbsp; The Company determined the fair value of each of these instruments based upon the assumptions and methodologies as discussed below.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Since the Convertible Debenture Warrant was determined to be an equity instrument, the Company first computed the relative fair value of the Convertible Debenture due November 2016 (including the value of its conversion feature) with a fair value of $4,280,000 and the Convertible Debenture Warrant with a fair value of $740,000.&nbsp;&nbsp; Accordingly, the relative fair value of the Convertible Debenture Warrant and the Convertible Debenture due November 2016 (including the value of its conversion feature) was determined to be $515,936 and $2,984,064, respectively.&nbsp; Then, from the relative fair value of the Convertible Debenture due November 2016, the Company deducted in full the fair value of the embedded conversion feature of $1,570,000.&nbsp;&nbsp;The discount of $2,085,936 applied to the face value of the Convertible Debenture due November 2016 consists of the sum of the relative fair value of the Convertible Debenture Warrant of $515,936 and the full value of the bifurcated conversion option derivative liability of $1,570,000.&nbsp; The Convertible Debenture due November 2016 was recorded at a net value of $1,414,064, representing its face value of $3,500,000, less aggregate discounts for the derivative liability and warrant of $2,085,936, as summarized in the table below.&nbsp;</p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="351"> </td> <td width="11"> </td> <td width="83"> </td> <td width="8"> </td> <td width="11"> </td> <td width="101"></td> </tr> <tr> <td width="351" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Face value of Convertible Debenture due November 2016</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="101" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:6px" align="right">3,500,000</p></td> </tr> <tr> <td width="351" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:13px; MARGIN:0px; PADDING-RIGHT:2px">Fair value of embedded conversion feature</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">1,570,000</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="101" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> </tr> <tr> <td width="351" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:13px; MARGIN:0px; PADDING-RIGHT:2px">Relative fair value of Convertible Debenture Warrant</p></td> <td width="11" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="83" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">515,936</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="101" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> </tr> <tr> <td width="351" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:13px; MARGIN:0px; PADDING-RIGHT:2px">Discount</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">2,085,936</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="11" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="101" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">(2,085,936)</p></td> </tr> <tr> <td width="351" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Proceeds attributable to the Convertible Debenture due November 2016</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="92" colspan="2" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="11" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="101" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:6px" align="right">1,414,064</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Accordingly, the Company accounted for the full amount of the discount as an offset to the Convertible Debenture due November 2016, amortizable under the effective interest method over the term of the debenture.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The Company calculated the fair value of the embedded conversion feature of the Convertible Debenture due November 2016 using a Monte Carlo simulation, with the observable assumptions as provided in the table below.&nbsp;The significant unobservable inputs used in the fair value measurement of the reporting entity<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s embedded conversion feature are expected stock prices, levels of trading and liquidity of the Company stock, probability of default of the host instrument, and loss severity in the event of such default. Significant increases in the expected stock prices and expected liquidity would result in a significantly higher fair value measurement.&nbsp;Significant increases in either the probability or severity of default of the host instrument would result in a significantly lower fair value measurement.&nbsp;</p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="286"> </td> <td width="11"> </td> <td width="86"></td> </tr> <tr> <td width="384" colspan="3" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt"><br /></p> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt"><br /></p> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt"><br /></p> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt"><br /></p> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt"><br /></p> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt"><br /></p> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt"><br /></p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="97" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">As of</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">November 11,</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">2013</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Stock price on valuation date</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">5.00</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Conversion price</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">4.725</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Discount for lack of marketability</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">35.5%</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Term (years)</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">3.00</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Expected volatility</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">102.8%</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Weighted average risk-free interest rate</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">0.62%</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Trials</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">100,000</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Aggregate fair value</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">1,570,000</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">&nbsp;The Company calculated the fair value of the Convertible Debenture Warrant issued on November 11, 2013 using a Black Scholes Model, with the observable assumptions as provided in the table below. The significant unobservable inputs used in the fair value measurement of the reporting entity<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s warrant value are expected stock prices, levels of trading and liquidity of the Company stock, probability of default of the host instrument, and loss severity in the event of such default. Significant increases in the expected stock prices and expected liquidity would result in a significantly higher fair value measurement.&nbsp;Significant increases in either the probability or severity of default of the host instrument would result in a significantly lower fair value measurement:<br /></p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="286"> </td> <td width="11"> </td> <td width="86"></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="97" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">As of</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">November 11,</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">2013</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Stock price on valuation date</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">5.00</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Exercise price</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">9.45</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Discount for lack of marketability</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">22%</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Term (years)</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">3.00</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Expected volatility</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">102.8%</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Weighted average risk-free interest rate</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">0.6%</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Number of warrants</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">369,979</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Aggregate fair value</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">740,000</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The Company determined the fair value of the Convertible Debenture due November 2016 by preparing an analysis of discounted cash flows, using a discount rate of 16.0%, which the Company deemed appropriate given the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s current risk scenarios. </p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:60px">&nbsp;In connection with the issuance of the Convertible Debenture due November 2016, the Company incurred legal costs which were allocated as provided below:</p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="164"> </td> <td width="9"> </td> <td width="131"> </td> <td width="9"> </td> <td width="11"> </td> <td width="57"></td> </tr> <tr> <td width="164" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">&nbsp;Attributable to:</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">&nbsp;</p></td> <td width="131" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">Accounting Treatment</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">&nbsp;</p></td> <td width="69" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">Amount</p></td> </tr> <tr> <td width="164" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">The embedded conversion feature (derivative)</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="131" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Expensed as incurred</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="57" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">8,593</p></td> </tr> <tr> <td width="164" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">The 8% Convertible Debenture Warrant</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="131" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Charged to additional paid-in capital</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="57" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">2,824</p></td> </tr> <tr> <td width="164" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="131" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="57" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> </tr> <tr> <td width="164" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="top"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">The 8% Convertible Debenture</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="131" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="top"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Recorded as deferred issuance costs and amortized under the interest method over the term of the 8% Convertible Debenture</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="11" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="57" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">7,739</p></td> </tr> <tr> <td width="164" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:13px; MARGIN:0px; PADDING-RIGHT:2px">Total</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="131" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="11" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="57" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">19,156</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the issuance of the Convertible Debenture due November 2016, on February 7, 2014, the Company prepared and filed a registration statement registering for resale the shares of its common stock which may be issued upon the conversion of the debenture and exercise of the warrant consistent with the terms and conditions of the debenture agreement the Company entered into with the holders of the registrable shares listed above.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has agreed to maintain the effectiveness of the registration statement through the earlier of three years from the date of the issuance of the Convertible Debenture due November 2016 or until Rule 144 of the Securities Act is available to the holders to allow them to sell all of their registrable securities thereunder.&nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">On September 9, 2014, holders of $3,500,000 and approximately $173,000 of principal and interest, respectively, of the Convertible Debenture due November 2016, converted their holdings into an aggregate of 739,958 shares of common stock the (<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Conversion Common Stock<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>).&nbsp;&nbsp; In addition, the Company exchanged and reissued the warrant for the purchase of 369,979 shares of common stock, and upon the reissuance, lowered the exercise price to $7.75 per share.&nbsp;&nbsp; There was no change to the term of the warrant.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Immediately after the conversion, the holders exchanged 639,158 shares of the Conversion Common Stock into 3,500 shares of Series A Convertible Preferred Stock.&nbsp;Shortly thereafter, the Company retired and cancelled the 639,158 shares of common stock received in the exchange.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:42px" align="justify">In connection with this conversion, the Company recorded a loss on conversion/exchange of approximately $2,216,000, as summarized below. This loss represents the excess of the fair value of the common stock issued, net of the shares of common stock exchanged for the issuance of 3,500 shares of Series A Convertible Preferred Stock, plus the fair value of the Series A Convertible Preferred Stock, on the date of the conversion, over the net book value of the debt on the date of conversion. Since the conversion feature on the Convertible Debenture due November 2016 was determined to be a derivative liability, the net book value includes the value of the debt, net of debt discount and deferred issuance costs, plus accrued interest and the derivative liability related to the conversion feature (after being marked to market) on the conversion date, and the change in the fair value of the warrant on the date of the conversion.<font style="FONT-SIZE:12pt"> Because the conversion rate of the Series A Convertible Preferred Stock of $</font><font style="FONT-SIZE:12pt">4.73</font><font style="FONT-SIZE:12pt"> per share was less than the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s closing stock price on the date of this transaction, the Company determined that the Series A Convertible Preferred Stock contained a </font><font style="FONT-SIZE:12pt">beneficial</font><font style="FONT-SIZE:12pt"> conversion feature. The </font><font style="FONT-SIZE:12pt">beneficial</font><font style="FONT-SIZE:12pt"> conversion feature was recorded in additional paid-in-capital as a result of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s accumulated deficit</font><font style="FONT-SIZE:12pt">. </font></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The loss on extinguishment of debt was determined as follows:&nbsp;</p><br/><table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr style="font-size: 0px;"> <td width="444">&nbsp;</td> <td width="11">&nbsp;</td> <td width="105">&nbsp;</td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="116"><p style="margin: 0px;" align="center">&nbsp;</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;"><font style="text-decoration: underline;">Securities extinguished:</font></p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" valign="top" width="116"><p style="margin: 0px;">&nbsp;</p></td> </tr> <tr> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">Face value of convertible debenture converted</p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">$</p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">3,500,000</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; padding-left: 13px; margin: 0px; padding-right: 2px;">Less: debt discount</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 0px;" align="right">(1,684,801)</p></td> </tr> <tr> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; padding-left: 13px; margin: 0px; padding-right: 2px;">Less: deferred issuance costs</p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="11"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 0px;" align="right">(7,739)</p></td> </tr> <tr> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="444" height="4"><p style="font-size: 11pt; padding-left: 13px; margin: 0px; padding-right: 2px;">Plus: accrued interest</p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="11" height="4"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="105" height="4"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">173,833</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; padding-left: 13px; margin: 0px; padding-right: 2px;">Plus: fair value of derivative liability</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">1,032,241</p></td> </tr> <tr> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; padding-left: 13px; margin: 0px; padding-right: 2px;">Plus: fair value of warrant exchanged in connection with the conversion</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">805,000</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; padding-left: 13px; margin: 0px; padding-right: 2px;">Net book value of converted debenture, accrued interest, derivative &nbsp;&nbsp;</p><p style="font-size: 11pt; padding-left: 13px; margin: 0px; padding-right: 2px;">&nbsp;&nbsp;&nbsp;liability and warrant exchanged</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">3,818,534</p></td> </tr> <tr> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;"><font style="text-decoration: underline;">Securities issued in conversion/exchange:</font></p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">&nbsp;</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">Fair value of 100,800 shares of common stock issued, net (739,958</p><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;&nbsp;&nbsp;shares of Conversion Common Stock issued, less 639,158 shares</p><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;&nbsp;&nbsp;exchanged for 3,500 shares of Series A Convertible Preferred Stock)</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">617,400</p></td> </tr> <tr> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">Fair value of 3,500 shares of Series A Convertible Preferred Stock (based</p><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;&nbsp;&nbsp;on a stated value per share of $1,000 and a conversion rate of $4.73)</p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="11"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">4,532,241</p></td> </tr> <tr> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">Fair value of warrant issued September 9, 2014</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">885,000</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; padding-left: 24px; margin: 0px; padding-right: 2px;">Subtotal of securities issued in conversion/exchange</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">6,034,641</p></td> </tr> <tr> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">(Loss) on conversion/exchange</p></td> <td style="border-bottom: #000000 3px double; margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">$</p></td> <td style="border-bottom: #000000 3px double; margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 0px;" align="right">(2,216,107)</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">On September 9, 2014, the Convertible Debenture due November 2016 was extinguished in full.&nbsp;&nbsp;The Company needed to determine the fair value of the derivative liability for the embedded conversion feature immediately prior to the conversion, in order to determine the change in the fair value of the derivative for the period.&nbsp;The Company determined to measure the derivative immediately prior to the conversion at its intrinsic value, since this method most fairly measured the value of the derivative liability.&nbsp;The intrinsic value computation is provided below.</p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="265"> </td> <td width="17"> </td> <td width="101"></td> </tr> <tr> <td width="265" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="119" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">On September 9,</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">2014</p></td> </tr> <tr> <td width="265" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Stock price used for valuation</p></td> <td width="17" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="101" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">6.125</p></td> </tr> <tr> <td width="265" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="17" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="101" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">211.4 shares issued per $1,000 of face value</p></td> </tr> <tr> <td width="265" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:12px; MARGIN:0px; PADDING-RIGHT:2px; TEXT-INDENT:-12px">Aggregate gross intrinsic value of the $3,500,000 of principal outstanding on September 8, 2014, immediately prior to conversion</p></td> <td width="17" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="101" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">4,532,241</p></td> </tr> <tr> <td width="265" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:12px; MARGIN:0px; PADDING-RIGHT:2px">Less the face value of the convertible debenture</p></td> <td width="17" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="101" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">(3,500,000)</p></td> </tr> <tr> <td width="265" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Intrinsic value of the derivative conversion feature</p></td> <td width="17" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;$</p></td> <td width="101" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">&nbsp;1,032,241</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The derivative liability related to the embedded conversion feature was revalued at each reporting period as well as on the date of all conversions.&nbsp;The value of the derivative liability associated with the conversion of the Convertible Debenture due November 2016 during the year ended October 31, 2014 was approximately $1,032,000. As of October 31, 2014, the Company determined the fair value of the derivative liability to be $-0-, as the full value of the Convertible Debenture due November 2016 was converted in full during the year ended October 31, 2014. &nbsp;During the year ended October 31, 2014, the Company recorded gains on the change in fair value of the derivative liability of approximately $538,000.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The Company calculated the fair value of the embedded conversion feature of the Convertible Debenture due November 2016 using a Monte Carlo simulation. The significant unobservable inputs used in the fair value measurement of the reporting entity<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s embedded conversion feature are expected stock prices, levels of trading and liquidity of the Company stock, probability of default of the host instrument, and loss severity in the event of such default. &nbsp;Significant increases in the expected stock prices and expected liquidity would result in a significantly higher fair value measurement.&nbsp;Significant increases in either the probability or severity of default of the host instrument would result in a significantly lower fair value measurement.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The amortization of debt discount related to the Convertible Debenture due November 2016 for the years ended October 31, 2015 and 2014 was approximately $-0- and $401,000, respectively.</p><br/> 1765000 0.08 250000 3.75 3.75 10 P30D 7.50 20 30 15 235310 1 7.50 0.08 1490000 1180000 370000 2670000 370000 214819 1550181 -1394819 214819 1180000 370181 1765000 1394819 0.186 41400 11041 17360 25000 83760 540000 475000 0 1131000 1671000 0 233000 325000 5878 86671 805 1240000 9000 330683 1185 200000 482915 3500000 0.06 4.73 3.55 P30D 369979 1 9.46 0.06 2710000 1570000 740000 4280000 740000 515936 2984064 1570000 -2085936 1414064 -2085936 0.160 3500000 173000 739958 369979 7.75 639158 3500 639158 2216000 4.73 1032000 0 538000 0 401000 <table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="256" valign="bottom"> </td> <td width="8" valign="bottom"> </td> <td width="87" valign="bottom"> </td> <td width="6" valign="bottom"> </td> <td width="6"> </td> <td width="96" valign="bottom"></td> </tr> <tr> <td width="256" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px"><font style="FONT-SIZE:11pt">Face value of Convertible Debenture due January 2015</font></p></td> <td width="8" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="87" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="6" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right">&nbsp;</p></td> <td width="6" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">$</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">&nbsp;</p> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">1,765,000</p></td> </tr> <tr> <td width="256" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:15px; MARGIN:0px">Fair value of embedded conversion feature</p></td> <td width="8" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">$</p></td> <td width="87" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">1,180,000</p></td> <td width="6" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p></td> <td width="6" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> </tr> <tr> <td width="256" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:15px; MARGIN:0px">Relative fair value of Convertible Debenture Warrant</p></td> <td width="8" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="87" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">214,819</p></td> <td width="6" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p></td> <td width="6" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> </tr> <tr> <td width="256" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:15px; MARGIN:0px">Discount</p></td> <td width="8" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">$</p></td> <td width="87" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">1,394,819</p></td> <td width="6" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p></td> <td width="6" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">(1,394,819)</p></td> </tr> <tr> <td width="256" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Proceeds attributable to the Convertible Debenture due January 2015</p></td> <td width="8" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="87" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="6" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt"><br />&nbsp;</p></td> <td width="6" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">370,181</p></td> </tr> </table> 214819 370181 <table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="363"> </td> <td width="13"> </td> <td width="83"></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;&nbsp;</p></td> <td width="97" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">As of</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">January 25,</p> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">2013</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Stock price on valuation date</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">5.25</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Conversion price</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">3.75</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Stock premium for liquidity</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">57%</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Term (years)</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">2.00</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Expected volatility</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">110%</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Weighted average risk-free interest rate</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">0.3%</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Trials</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">100,000</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Aggregate fair value</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">1,180,000</p></td> </tr> </table><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="380"> </td> <td width="13"> </td> <td width="67"></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="80" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="center"><br /></p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">As of</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">October 31,</p> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="center"><br /></p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">2013</p></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Stock price on valuation date</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="MARGIN:0px" align="right"><br /></p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.875</p></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Conversion price</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.75</p></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Stock premium for liquidity</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">42%</p></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Term (years)</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">1.25</p></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Expected volatility</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">115%</p></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Weighted average risk-free interest rate</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">0.3%</p></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Trials</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="right"><br /></p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">100,000</p></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Aggregate fair value</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px" align="right">&nbsp;</p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px">$ &nbsp;540,000</p></td> </tr> <tr> <td width="380" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(255,255,255)"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:1px">&nbsp;</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(255,255,255)"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt"><br /></p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(255,255,255)"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:1px">&nbsp;</p></td> </tr> </table> 5.25 3.75 0.57 P2Y 1.10 0.003 100000 1180000 4.875 3.75 0.42 P1Y3M 1.15 0.003 100000 540000 <table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="363"> </td> <td width="13"> </td> <td width="76"></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="90" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">As of</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">January 25,</p> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="center"><br /></p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">2013</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Stock price on valuation date</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="76" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">5.25</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Exercise price</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="76" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">7.50</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Stock premium for liquidity</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="76" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">38%</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Term (years)</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="76" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">3.00</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Warrant exercise trigger price</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="76" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">41%</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Expected volatility</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="76" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">95%</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Weighted average risk-free interest rate</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="76" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">0.4%</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Number of warrants</p></td> <td width="13" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="76" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;5,882,745</p></td> </tr> <tr> <td width="363" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Aggregate fair value</p></td> <td width="13" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="76" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;370,000</p></td> </tr> </table> 5.25 7.50 0.38 P3Y 0.41 0.95 0.004 5882745 370000 <table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="169"> </td> <td width="14"> </td> <td width="177"> </td> <td width="12"> </td> <td width="19"> </td> <td width="67"></td> </tr> <tr> <td width="169" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">Attributable to:</p></td> <td width="14" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">&nbsp;</p></td> <td width="177" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">Accounting Treatment</p></td> <td width="12" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">&nbsp;</p></td> <td width="87" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt" align="center"><br /></p> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">Amount</p></td> </tr> <tr> <td width="169" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">The embedded conversion feature (derivative)</p></td> <td width="14" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:1px">&nbsp;</p></td> <td width="177" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Expensed as incurred</p></td> <td width="12" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="19" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">55,999</p></td> </tr> <tr> <td width="169" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">The 8% Convertible Debenture Warrant</p></td> <td width="14" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="177" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Charged to additional paid-in capital</p></td> <td width="12" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="19" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">10,194</p></td> </tr> <tr> <td width="169" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="14" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="177" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="12" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="19" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="67" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> </tr> <tr> <td width="169" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="top"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">The 8% Convertible Debenture</p></td> <td width="14" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="177" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="top"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Recorded as deferred issuance costs and amortized under the interest method over the term of the 8% Convertible Debenture</p></td> <td width="12" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:1px">&nbsp;</p></td> <td width="19" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:1px">&nbsp;</p></td> <td width="67" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">17,567</p></td> </tr> <tr> <td width="169" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:15px; MARGIN:0px">Total</p></td> <td width="14" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="177" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="12" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="19" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="67" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">83,760</p></td> </tr> </table> 55999 10194 17567 83760 <table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="426"> </td> <td width="6"> </td> <td width="83"></td> </tr> <tr> <td width="426" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;&nbsp;</p></td> <td width="90" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">As of</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">April 30,</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">2014</p></td> </tr> <tr> <td width="426" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Stock price used for valuation</p></td> <td width="6" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">8.50</p></td> </tr> <tr> <td width="426" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="6" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="left">266.68 shares issued per $1,000 face value</p></td> </tr> <tr> <td width="426" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Aggregate intrinsic value of the $1,150,000 of principal outstanding on April 30, 2014, immediately prior to conversion and repayment</p></td> <td width="6" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="83" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">1,456,797</p></td> </tr> <tr> <td width="426" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="6" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> </tr> </table> 8.50 266.68 shares issued per $1,000 face value 1456797 266.68 1150000 <table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="372"> </td> <td width="9"> </td> <td width="79"></td> </tr> <tr> <td width="372" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="right">&nbsp;</p></td> <td width="88" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">Year Ended</p> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">October 31,</p> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">2014</p></td> </tr> <tr> <td width="372" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Face value of debt converted</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="79" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="center">&nbsp;&nbsp;1,440,000</p></td> </tr> <tr> <td width="372" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Less: discount</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="79" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px" align="center">&nbsp;&nbsp;&nbsp;&nbsp;(658,232)</p></td> </tr> <tr> <td width="372" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Plus: fair value of derivative liability</p></td> <td width="9" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="79" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="center">&nbsp;&nbsp;1,670,704</p></td> </tr> <tr> <td width="372" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Net book value of debt converted</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="79" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="center">&nbsp;&nbsp;2,452,472</p></td> </tr> <tr> <td width="372" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Fair value of common stock issued</p></td> <td width="9" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">&nbsp;</p></td> <td width="79" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="center">&nbsp;&nbsp;2,935,387</p></td> </tr> <tr> <td width="372" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">Loss on extinguishment of debt</p></td> <td width="9" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px">$</p></td> <td width="79" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:2px; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;&nbsp;(482,915)</p></td> </tr> </table> 1440000 -658232 1670704 2452472 2935387 -482915 <table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="351"> </td> <td width="11"> </td> <td width="83"> </td> <td width="8"> </td> <td width="11"> </td> <td width="101"></td> </tr> <tr> <td width="351" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Face value of Convertible Debenture due November 2016</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="101" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:6px" align="right">3,500,000</p></td> </tr> <tr> <td width="351" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:13px; MARGIN:0px; PADDING-RIGHT:2px">Fair value of embedded conversion feature</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">1,570,000</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="101" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> </tr> <tr> <td width="351" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:13px; MARGIN:0px; PADDING-RIGHT:2px">Relative fair value of Convertible Debenture Warrant</p></td> <td width="11" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="83" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">515,936</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="101" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> </tr> <tr> <td width="351" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:13px; MARGIN:0px; PADDING-RIGHT:2px">Discount</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="83" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">2,085,936</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="11" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="101" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">(2,085,936)</p></td> </tr> <tr> <td width="351" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Proceeds attributable to the Convertible Debenture due November 2016</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="92" colspan="2" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="11" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="101" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:6px" align="right">1,414,064</p></td> </tr> </table> 3500000 1570000 515936 2085936 1414064 <table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="286"> </td> <td width="11"> </td> <td width="86"></td> </tr> <tr> <td width="384" colspan="3" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt"><br /></p> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt"><br /></p> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt"><br /></p> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt"><br /></p> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt"><br /></p> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt"><br /></p> <p style="MARGIN:0px; LINE-HEIGHT:0.05pt"><br /></p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="97" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">As of</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">November 11,</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">2013</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Stock price on valuation date</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">5.00</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Conversion price</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">4.725</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Discount for lack of marketability</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">35.5%</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Term (years)</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">3.00</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Expected volatility</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">102.8%</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Weighted average risk-free interest rate</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">0.62%</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Trials</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">100,000</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Aggregate fair value</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">1,570,000</p></td> </tr> </table> 5.00 4.725 0.355 P3Y 1.028 0.0062 100000 1570000 <table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="286"> </td> <td width="11"> </td> <td width="86"></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="97" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">As of</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">November 11,</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">2013</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Stock price on valuation date</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">5.00</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Exercise price</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">9.45</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Discount for lack of marketability</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">22%</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Term (years)</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">3.00</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Expected volatility</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">102.8%</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Weighted average risk-free interest rate</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">0.6%</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Number of warrants</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">369,979</p></td> </tr> <tr> <td width="286" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Aggregate fair value</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">740,000</p></td> </tr> </table> 5.00 9.45 0.22 P3Y 1.028 0.006 369979 740000 <table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="164"> </td> <td width="9"> </td> <td width="131"> </td> <td width="9"> </td> <td width="11"> </td> <td width="57"></td> </tr> <tr> <td width="164" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">&nbsp;Attributable to:</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">&nbsp;</p></td> <td width="131" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">Accounting Treatment</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">&nbsp;</p></td> <td width="69" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">&nbsp;</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">Amount</p></td> </tr> <tr> <td width="164" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">The embedded conversion feature (derivative)</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="131" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Expensed as incurred</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="57" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">8,593</p></td> </tr> <tr> <td width="164" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">The 8% Convertible Debenture Warrant</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="131" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Charged to additional paid-in capital</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="57" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">2,824</p></td> </tr> <tr> <td width="164" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="131" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="11" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="57" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> </tr> <tr> <td width="164" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="top"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">The 8% Convertible Debenture</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="131" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="top"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Recorded as deferred issuance costs and amortized under the interest method over the term of the 8% Convertible Debenture</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="11" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="57" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">7,739</p></td> </tr> <tr> <td width="164" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:13px; MARGIN:0px; PADDING-RIGHT:2px">Total</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="131" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="9" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="11" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="57" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">19,156</p></td> </tr> </table> 8593 2824 7739 19156 <table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr style="font-size: 0px;"> <td width="444">&nbsp;</td> <td width="11">&nbsp;</td> <td width="105">&nbsp;</td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="116"><p style="margin: 0px;" align="center">&nbsp;</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;"><font style="text-decoration: underline;">Securities extinguished:</font></p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" valign="top" width="116"><p style="margin: 0px;">&nbsp;</p></td> </tr> <tr> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">Face value of convertible debenture converted</p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">$</p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">3,500,000</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; padding-left: 13px; margin: 0px; padding-right: 2px;">Less: debt discount</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 0px;" align="right">(1,684,801)</p></td> </tr> <tr> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; padding-left: 13px; margin: 0px; padding-right: 2px;">Less: deferred issuance costs</p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="11"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 0px;" align="right">(7,739)</p></td> </tr> <tr> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="444" height="4"><p style="font-size: 11pt; padding-left: 13px; margin: 0px; padding-right: 2px;">Plus: accrued interest</p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="11" height="4"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="105" height="4"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">173,833</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; padding-left: 13px; margin: 0px; padding-right: 2px;">Plus: fair value of derivative liability</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">1,032,241</p></td> </tr> <tr> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; padding-left: 13px; margin: 0px; padding-right: 2px;">Plus: fair value of warrant exchanged in connection with the conversion</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">805,000</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; padding-left: 13px; margin: 0px; padding-right: 2px;">Net book value of converted debenture, accrued interest, derivative &nbsp;&nbsp;</p><p style="font-size: 11pt; padding-left: 13px; margin: 0px; padding-right: 2px;">&nbsp;&nbsp;&nbsp;liability and warrant exchanged</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">3,818,534</p></td> </tr> <tr> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;"><font style="text-decoration: underline;">Securities issued in conversion/exchange:</font></p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">&nbsp;</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">Fair value of 100,800 shares of common stock issued, net (739,958</p><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;&nbsp;&nbsp;shares of Conversion Common Stock issued, less 639,158 shares</p><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;&nbsp;&nbsp;exchanged for 3,500 shares of Series A Convertible Preferred Stock)</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">617,400</p></td> </tr> <tr> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">Fair value of 3,500 shares of Series A Convertible Preferred Stock (based</p><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;&nbsp;&nbsp;on a stated value per share of $1,000 and a conversion rate of $4.73)</p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="11"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">4,532,241</p></td> </tr> <tr> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">Fair value of warrant issued September 9, 2014</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">885,000</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; padding-left: 24px; margin: 0px; padding-right: 2px;">Subtotal of securities issued in conversion/exchange</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 6px;" align="right">6,034,641</p></td> </tr> <tr> <td style="margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="444"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">(Loss) on conversion/exchange</p></td> <td style="border-bottom: #000000 3px double; margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="11"><p style="font-size: 11pt; margin: 0px; padding-right: 2px;">$</p></td> <td style="border-bottom: #000000 3px double; margin-top: 0px; background-color: #cceeff; padding: 0px;" valign="bottom" width="105"><p style="font-size: 11pt; margin: 0px; padding-right: 0px;" align="right">(2,216,107)</p></td> </tr> </table> 3500000 -1684801 -7739 173833 1032241 805000 3818534 617400 4532241 885000 6034641 -2216107 100800 739,958 639158 3500 1000 4.73 <table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="265"> </td> <td width="17"> </td> <td width="101"></td> </tr> <tr> <td width="265" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="119" colspan="2" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">On September 9,</p> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="center">2014</p></td> </tr> <tr> <td width="265" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Stock price used for valuation</p></td> <td width="17" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">$</p></td> <td width="101" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">6.125</p></td> </tr> <tr> <td width="265" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="17" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">&nbsp;</p></td> <td width="101" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="center">211.4 shares issued per $1,000 of face value</p></td> </tr> <tr> <td width="265" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:12px; MARGIN:0px; PADDING-RIGHT:2px; TEXT-INDENT:-12px">Aggregate gross intrinsic value of the $3,500,000 of principal outstanding on September 8, 2014, immediately prior to conversion</p></td> <td width="17" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="101" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">4,532,241</p></td> </tr> <tr> <td width="265" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; PADDING-LEFT:12px; MARGIN:0px; PADDING-RIGHT:2px">Less the face value of the convertible debenture</p></td> <td width="17" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;</p></td> <td width="101" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px" align="right">(3,500,000)</p></td> </tr> <tr> <td width="265" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">Intrinsic value of the derivative conversion feature</p></td> <td width="17" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:2px">&nbsp;$</p></td> <td width="101" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px; BACKGROUND-COLOR:rgb(204,238,255)" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:4px" align="right">&nbsp;1,032,241</p></td> </tr> </table> 6.125 211.4 shares issued per $1,000 of face value 4532241 3500000 1032241 211.4 3500000 <p style="margin-bottom: 16px; font-size: 11pt; margin-top: 0px;"><br />6. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font style="text-decoration: underline;">SHAREHOLDERS<font style="font-family: Arial Unicode MS,Times New Roman;">&#x2019;</font> EQUITY</font></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify"><u>Sale of Common Stock</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">On July 15, 2014, the Company, raised $4,000,000 of gross proceeds via a registered direct offering of its common stock to certain investors (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Investors<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Offering<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>). The Company sold an aggregate of </font><font style="BACKGROUND-COLOR:rgb(255,255,255)">640,</font><font style="BACKGROUND-COLOR:rgb(255,255,255)">000 shares of common stock and warrants to purchase an aggregate of </font><font style="BACKGROUND-COLOR:rgb(255,255,255)">320,</font><font style="BACKGROUND-COLOR:rgb(255,255,255)">000 shares of common stock. The purchase price of one share of common stock and a warrant to purchase &frac12; of a share of common stock was $</font><font style="BACKGROUND-COLOR:rgb(255,255,255)">6</font><font style="BACKGROUND-COLOR:rgb(255,255,255)">.25. &nbsp;The warrants are exercisable immediately as of the date of issuance at an exercise price of $</font><font style="BACKGROUND-COLOR:rgb(255,255,255)">10.00 </font><font style="BACKGROUND-COLOR:rgb(255,255,255)">per share and expire five years from the date of issuance. The exercise price of the warrants is subject to customary adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions. &nbsp;Under certain circumstances, the Company has the right to call for cancellation of warrants for which a notice of exercise has not yet been delivered for consideration equal to $.0</font><font style="BACKGROUND-COLOR:rgb(255,255,255)">25</font><font style="BACKGROUND-COLOR:rgb(255,255,255)"> per share. &nbsp;The Offering was effected as a takedown off the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s shelf registration statement on Form S-3, which became effective on April 25, 2014, pursuant to a prospectus supplement filed with the SEC.</font></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)"><u>Reverse Stock Split</u></font></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><font style="BACKGROUND-COLOR:rgb(255,255,255)">On June 26, 2015, we effected a 1-for-25 reverse stock split (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Stock Split<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) of our issued common stock and preferred stock. &nbsp;Each shareholders<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font> percentage ownership and proportional voting power remained unchanged as a result of the Stock Split. &nbsp;All applicable share data, per share amounts and related information in the consolidated financial statements and notes thereto have been adjusted retroactively to give effect to the Stock Split. &nbsp;As a result of the Stock Split, the number of shares of our common stock and preferred stock authorized was also decreased by the same proportion as the outstanding shares.</font></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify"><u>Common Stock Issuances</u></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">During the years ended October 31, 2015 and 2014, we issued 11,600 shares and 12,400 shares, respectively, of common stock to consultants for services rendered, pursuant to the 2010 Share Plan. &nbsp;We recorded consulting expense for the years ended October 31, 2015 and 2014 of approximately $46,000 and $85,000, respectively, for shares of common stock issued to consultants. &nbsp;</p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:-6px"><u>Stock&nbsp;Option&nbsp;Plans</u></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">As of October 31, 2015, we have two stock option plans: the 2003 Share Plan and the 2010 Share Plan which were adopted by our Board of Directors on April 21, 2003 and July 14, 2010, respectively.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; PADDING-RIGHT:0px; TEXT-INDENT:48px" align="justify">The 2003 Share Plan provides for the grant of nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to key employees and consultants. &nbsp;The maximum number of shares of common stock in the 2003 Share Plan was 2,800,000 shares. The 2003 Share Plan was administered by the Stock Option Committee through June 2004, from June 2004 through July 2010, by the Board of Directors, from July 2010 through August 2012, by the Stock Option Committee, from August 2012 through November 2012, by the Executive Committee of the Board of Directors and since November 2012, by the Board of Directors, which determined the option price, term and provisions of each option. &nbsp;The exercise price with respect to all of the options granted under the 2003 Share Plan since its inception was equal to the fair market value of the underlying common stock at the grant date. In accordance with the provisions of the 2003 Share Plan, the plan terminated with respect to the grant of future options on April 21, 2013.<br /><br /></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px">Information regarding the 2003 Share Plan for the two years ended October 31, 2015 is as follows:</p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="269" valign="bottom"> </td> <td width="96" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td width="120" align="center" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td width="112" valign="bottom"></td> </tr> <tr> <td width="269" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px"><br /></p> <p style="MARGIN:0px"><br />&nbsp;</p></td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p align="center"><font style="FONT-SIZE:11pt">Shares</font></p></td> <td valign="bottom">&nbsp;</td> <td colspan="2" style="BORDER-BOTTOM:#000000 1px solid" align="center" valign="bottom"> <p align="center"><font style="FONT-SIZE:11pt">Weighted <br />Average Exercise <br />Price Per Share</font></p></td> <td valign="bottom">&nbsp;</td> <td colspan="2" style="BORDER-BOTTOM:#000000 1px solid" valign="bottom"> <p align="center"><font style="FONT-SIZE:11pt">Aggregate <br />Intrinsic Value</font></p></td> </tr> <tr> <td width="269" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px">&nbsp;</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px">&nbsp;</p></td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td width="120" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center" valign="bottom"> <p style="MARGIN:0px" align="center">&nbsp;</p></td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td width="112" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="269" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">Options Outstanding at October 31, 2013</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">625,554</p></td> <td> </td> <td><font style="FONT-SIZE:11pt">$</font></td> <td width="120" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">18.00</p></td> <td> </td> <td> </td> <td width="112" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr> <td width="269" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;Exercised</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">(17,400)</p></td> <td valign="bottom"> </td> <td valign="bottom"><font size="3" style="FONT-SIZE:11pt">$</font></td> <td width="120" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">&nbsp;&nbsp;3.63</p></td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td width="112" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px" align="right">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="269" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;Forfeited</p></td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">(114,163)</p></td> <td> </td> <td><font size="3" style="FONT-SIZE:11pt">$</font></td> <td width="120" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">19.75</p></td> <td> </td> <td> </td> <td width="112" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr> <td width="269" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">Options Outstanding &nbsp;at October 31, 2014</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">493,991</p></td> <td valign="bottom"> </td> <td valign="bottom"><font size="3" style="FONT-SIZE:11pt">$</font></td> <td width="120" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">18.00</p></td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td width="112" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="269" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;Exercised</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;(4,000)</p></td> <td> </td> <td><font size="3" style="FONT-SIZE:11pt">$</font></td> <td width="120" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">&nbsp;&nbsp;2.58</p></td> <td> </td> <td> </td> <td width="112" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr> <td width="269" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;Forfeited</p></td> <td width="96" style="BORDER-BOTTOM:#000000 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">(123,771)</p></td> <td valign="bottom"> </td> <td valign="bottom"><font size="3" style="FONT-SIZE:11pt">$</font></td> <td width="120" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">14.71</p></td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td width="112" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="269" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">Options Outstanding and Exercisable at October 31, 2015</p></td> <td width="96" style="BORDER-BOTTOM:#000000 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right"><font style="FONT-SIZE:11pt">&nbsp;&nbsp;&nbsp;366,200</font></p></td> <td> </td> <td><font size="3" style="FONT-SIZE:11pt">$</font></td> <td width="120" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">17.86</p></td> <td> </td> <td><font size="3" style="FONT-SIZE:11pt">$</font></td> <td width="112" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">61,665</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The following table summarizes information about stock options outstanding and exercisable under the 2003 Share Plan as of October 31, 2015:</p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="138" valign="bottom"> </td> <td width="96" valign="bottom"> </td> <td width="143" valign="bottom"> </td> <td width="90" align="center" valign="bottom"></td> </tr> <tr> <td width="138" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Range of<br />Exercise Prices</p></td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Number<br />Outstanding</p></td> <td width="143" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Weighted Average<br />Remaining</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Contractual Life </p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">(in years)</p></td> <td width="90" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Weighted Average<br />Exercise Price</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="138" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$ &nbsp;1.79 - $ &nbsp;9.25</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">73,880</p></td> <td width="143" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">1.75</p></td> <td width="90" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$ &nbsp;2.91</p></td> </tr> <tr> <td width="138" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$14.75 - $17.25</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">59,600</p></td> <td width="143" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">1.33</p></td> <td width="90" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$16.75</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="138" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$18.75 - $23.00</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">192,720</p></td> <td width="143" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">1.14</p></td> <td width="90" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$21.57</p></td> </tr> <tr> <td width="138" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$29.25</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">40,000</p></td> <td width="143" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">1.80</p></td> <td width="90" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$29.25</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The 2010 Share Plan provides for the grant of nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to key employees and consultants. &nbsp;The maximum number of shares of common stock in the 2010 Share Plan was initially 600,000 shares. On July 6, 2011, the 2010 Share Plan was amended by our Board of Directors to increase the maximum number of shares of common stock in the plan to 1,080,000 shares and on August 29, 2012, the maximum number of shares in the plan was further increased to 1,200,000 shares. &nbsp;On November 8, 2013, the Board of Directors approved an amendment to provide that effective November 8, 2013, the maximum aggregate number of shares available for future issuance will be 800,000 shares and that on the first business day in 2014 and on the first business day of each calendar year thereafter the maximum aggregate number of shares available for future issuance shall be replenished such that 800,000 shares will be available. Accordingly, on November 8, 2013, January 2, 2014 and January 2, 2015, the number of shares in the 2010 Share Plan was increased to 1,956,999 shares, 2,225,399 shares and 2,569,399 shares, respectively. &nbsp;In addition, on November 8, 2013, the 2010 Share Plan was amended to provide that on January 2nd of each year commencing on January 2, 2014, each non-employee director of the Company at that time shall automatically be granted a 10 year stock option to purchase 12,000 shares of common stock (16,000 for the Chairman) that will vest in four equal quarterly installments. The 2010 Share Plan was administered by the Stock Option Committee through August 2012, from August 2012 through November 2012, by the Executive Committee of the Board of Directors and since November 2012, by the Board of Directors, which determines the option price, term and provisions of each option. The exercise price with respect to all of the options granted under the 2010 Share Plan was equal to the fair market value of the underlying common stock at the grant date. &nbsp;As of October 31, 2015, the 2010 Share Plan had 988,995 shares available for future grants.<br /></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Information regarding the 2010 Share Plan as of October 31, 2015 is as follows: </p><br/><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="278" valign="bottom"> </td> <td width="96" valign="bottom"> </td> <td valign="bottom"> </td> <td width="132" valign="bottom"> </td> <td valign="bottom"> </td> <td width="86" valign="bottom"></td> </tr> <tr> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px"><br /></p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:1px; MARGIN:0px" align="center">Shares</p></td> <td valign="bottom">&nbsp;</td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:1px; MARGIN:0px" align="center">&nbsp;Weighted Average Exercise Price Per Share</p></td> <td valign="bottom">&nbsp;</td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:1px; MARGIN:0px" align="center">Aggregate Intrinsic Value</p></td> </tr> <tr> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px"><br /></p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px"><br /></p></td> <td valign="bottom"> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px"><br /></p></td> <td valign="bottom"> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px"><br /></p></td> </tr> <tr style="background-color: #cceeff;"> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">Options Outstanding at October 31, 2013</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;119,360</p></td> <td> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$6.13</p></td> <td> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;Granted</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;612,400</p></td> <td valign="bottom"> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$5.75</p></td> <td valign="bottom"> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px" align="center">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;Exercised</p></td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3,200)</p></td> <td> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$4.00</p></td> <td> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;</p></td> </tr> <tr> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">Options Outstanding at October 31, &nbsp;2014</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;728,560</p></td> <td valign="bottom"> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$5.75</p></td> <td valign="bottom"> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; PADDING-LEFT:7px; MARGIN:0px">Granted</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;60,400</p></td> <td> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$2.91</p></td> <td> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;Exercised</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(13,334)</p></td> <td valign="bottom"> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$2.58</p></td> <td valign="bottom"> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;Forfeited</p></td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(249,355)</p></td> <td> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$6.24</p></td> <td> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">Options Outstanding at October 31, &nbsp;2015</p></td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;526,271</p></td> <td valign="bottom"> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$3.33</p></td> <td valign="bottom"> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;$ 471,292</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">Options Exercisable at October 31, 2015</p></td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;406,149</p></td> <td> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$3.40</p></td> <td> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;$ 342,572</p></td> </tr> </table><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">The following table summarizes information about stock options outstanding under the 2010 Share Plan as of October 31, 2015:</p><br/><table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr style="font-size: 0px;"> <td valign="bottom" width="96">&nbsp;</td> <td valign="bottom" width="90">&nbsp;</td> <td valign="bottom" width="60">&nbsp;</td> <td valign="bottom" width="24">&nbsp;</td> <td valign="bottom" width="72">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td valign="bottom" width="90">&nbsp;</td> <td valign="bottom" width="65">&nbsp;</td> <td valign="bottom" width="18">&nbsp;</td> <td valign="bottom" width="77">&nbsp;</td> </tr> <tr> <td valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="4" valign="bottom"><p align="center"><font style="font-size: 11pt;">Options Outstanding</font></p></td> <td valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="4" valign="bottom"><p align="center"><font style="font-size: 11pt;">Options Exercisable</font></p></td> </tr> <tr> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="96"><p style="font-size: 11pt; margin: 0px;" align="center">Range of<br />Exercise<br />Prices</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="90"><p style="font-size: 11pt; margin: 0px;" align="center">Number<br />Outstanding</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="84"><p style="font-size: 11pt; margin: 0px;" align="center">Weighted Average<br />Remaining<br />Contractual Life</p><p style="font-size: 11pt; margin: 0px;" align="center">(in years)</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="72"><p style="font-size: 11pt; margin: 0px;" align="center">Weighted Average<br />Exercise Price</p></td> <td valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="90"><p style="font-size: 11pt; margin: 0px;" align="center">Number<br />Exercisable</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="84"><p style="font-size: 11pt; margin: 0px;" align="center">Weighted Average<br />Remaining<br />Contractual Life<br />(in years)</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="77"><p style="font-size: 11pt; margin: 0px;" align="center">Weighted Average<br />Exercise Price</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="96"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="90"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="84"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="72"><p style="margin: 0px;">&nbsp;</p></td> <td valign="bottom">&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="90"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="84"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="77"><p style="margin: 0px;" align="center">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="96"><p style="font-size: 11pt; margin: 0px;" align="center">$2.58 - $9.25</p></td> <td style="margin-top: 0px; padding: 0px;" width="90"><p style="font-size: 11pt; margin: 0px;" align="center">526,271</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" width="84"><p style="font-size: 11pt; margin: 0px;" align="center">6.98</p></td> <td style="margin-top: 0px; padding: 0px;" width="72"><p style="font-size: 11pt; margin: 0px;" align="center">$3.33</p></td> <td><p align="center">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="90"><p style="font-size: 11pt; margin: 0px;" align="center">406,149</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" width="84"><p style="font-size: 11pt; margin: 0px;" align="center">6.57</p></td> <td style="margin-top: 0px; padding: 0px;" width="77"><p style="font-size: 11pt; margin: 0px;" align="center">$3.40</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" width="96"><p style="font-size: 11pt; margin: 0px;" align="center">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="90"><p style="font-size: 11pt; margin: 0px;" align="center">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" width="84"><p style="font-size: 11pt; margin: 0px;" align="center">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="72"><p style="font-size: 11pt; margin: 0px;" align="center">&nbsp;</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" width="90"><p style="font-size: 11pt; margin: 0px;" align="center">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" width="84"><p style="font-size: 11pt; margin: 0px;" align="center">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="77"><p style="display: none; font-size: 11pt; margin: 0px;" align="center">.</p></td> </tr> </table><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">In addition to options granted under the 2003 Share Plan and the 2010 Share Plan, in September 2012, the Board of Directors approved the grant of stock options to purchase 1,660,000 shares and, during the year ended October 31, 2013, the Board of Directors approved the grant of stock options to purchase 120,000 shares.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Of the stock options granted in September 2012, nonqualified options to purchase 1,600,000 shares were issued to our new executive team, consisting of 640,000 stock options issued to our new President and Chief Executive Officer, 320,000 stock options issued to our new Senior Vice President of Engineering and 640,000 stock options issued to a new strategic advisor to the Company who was also a Director. &nbsp;These stock options had an exercise price of $5.44 (the average of the high and the low sales price of the common stock on the trading day immediately preceding the approval of such options by the Board of Directors) and have a term of ten years. &nbsp;Half of these stock options vest in 36 equal monthly installments commencing on October 31, 2012, provided that if the grantees are terminated by the Company without cause, an additional 12 months of vesting will be accelerated and such accelerated options will become immediately exercisable. &nbsp;The balance of the stock options will vest in three equal installments upon achievement of a cash milestone, which was satisfied in the fourth quarter of fiscal 2013, and two stock price targets, which were not achieved in fiscal 2013. &nbsp;In November 2013, in light of the cost and expense of revaluing the unvested portion of the performance-based stock options on a quarterly basis for financial reporting purposes, the Board of Directors approved an amendment to the performance-based stock options awarded on September 19, 2012 to the President and Chief Executive Officer, Senior Vice President of Engineering and the strategic advisor. The amendment modifies the option award<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s vesting conditions to provide that the unvested portion of the stock options vest in 23 consecutive monthly installments commencing November 30, 2013. &nbsp;The fair value of these options was recalculated to reflect the change to service based options as of November 8, 2013 and the unrecognized compensation amount was adjusted to reflect the increase in fair value. &nbsp;As of October 31, 2015, the options to purchase 1,600,000 shares were exercisable and had an intrinsic value of $1,832,000, based on our closing share price on October 31, 2015 of $3.72. &nbsp;These stock options otherwise have the same terms and conditions as options granted under the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s 2010 Share Incentive Plan.</p><br/><p style="MARGIN-BOTTOM:14px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">The remaining nonqualified stock options granted in September 2012 to purchase 60,000 shares consisted of grants of 30,000 stock options to our Chairman in compensation for his service as interim Chief Executive Officer of the Company and as compensation for his prior service as a director, and 30,000 stock options to a director in compensation for his service in recruiting the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s new management team. &nbsp;These stock options had an exercise price of $5.56 (the average of the high and low sales price on September 21, 2012). &nbsp;The options vest in 3 equal annual installments commencing on September 21, 2012 and have a term of ten years. &nbsp;&nbsp;As of October 31, 2015, these options were exercisable and had an intrinsic value of approximately $34,000<font style="FONT-SIZE:12pt">, based on our closing share price on October 31, 2015 of $3.72</font>. &nbsp;These stock options otherwise have the same terms and conditions as options granted under the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s 2010 Share Incentive Plan. &nbsp;</p><br/><p style="MARGIN-BOTTOM:14px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">During the year ended October 31, 2013, nonqualified stock options to purchase 120,000 shares were granted to our outside directors for service rendered to our Company. &nbsp;Of these options, </p><br/><p style="MARGIN-BOTTOM:14px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">(a) &nbsp;In November 2012, nonqualified stock options to purchase 40,000 shares were issued to one of our directors as additional compensation for service in recruiting the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s new management team. &nbsp;These options have an exercise price of $5.28 (the average of the high and low sales price on date of grant) and vested 13,334 shares upon grant and 13,333 shares in two annual installments commencing November 30, 2013. &nbsp;</p><br/><p style="MARGIN-BOTTOM:14px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">(b) In February 2013, nonqualified stock options to purchase 40,000 shares were issued to the Chairman of the Board. &nbsp;These stock options had an exercise price of $5.88 (the average of the high and low sales price on date of grant) and vest 13,334 shares upon grant and 13,333 shares in two annual installments commencing February 15, 2014. &nbsp;</p><br/><p style="MARGIN-BOTTOM:14px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">(c) In March 2013, nonqualified stock options to purchase an aggregate of 40,000 shares were granted to the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s three outside directors. &nbsp;Each of these stock options had an exercise price of $4.88 (the average of the high and low sales price on date of grant) and vest in four equal quarterly installments commencing March 31, 2013.</p><br/><p style="MARGIN-BOTTOM:14px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">As of October 31, 2015, the options to purchase 120,000 shares were exercisable and had an intrinsic value of approximately $92,000<font style="FONT-SIZE:12pt">, based on our closing share price on October 31, 2015 of $3.72</font>. &nbsp;These options otherwise have the same terms and conditions as options granted under the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s 2010 Share Incentive Plan.&nbsp;&nbsp;<br /></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The following table summarizes information about the above outstanding and exercisable stock options that were not granted under the 2003 Share Plan or the 2010 Share Plan as of October 31, 2015:</p><br/><table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr style="font-size: 0px;"> <td width="138">&nbsp;</td> <td>&nbsp;</td> <td width="96">&nbsp;</td> <td>&nbsp;</td> <td width="143">&nbsp;</td> <td>&nbsp;</td> <td width="90">&nbsp;</td> </tr> <tr> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="138"><p style="font-size: 11pt; margin: 0px;" align="center">Range of<br />Exercise Prices</p></td> <td>&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="96"><p style="font-size: 11pt; margin: 0px;" align="center">Number<br />Outstanding</p></td> <td>&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="143"><p style="font-size: 11pt; margin: 0px;" align="center">Weighted Average<br />Remaining<br />Contractual Life</p><p style="font-size: 11pt; margin: 0px;" align="center">(in years)</p></td> <td>&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="90"><p style="font-size: 11pt; margin: 0px;" align="center">Weighted Average<br />Exercise <br />Price</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="top" width="138"><p style="font-size: 11pt; margin: 0px;" align="center">$ 2.58 - $ 5.56</p></td> <td><p align="center">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="top" width="96"><p style="font-size: 11pt; margin: 0px;" align="center">1,780,000</p></td> <td><p align="center">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="top" width="143"><p style="font-size: 11pt; margin: 0px;" align="center">6.76</p></td> <td><p align="center">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="top" width="90"><p style="font-size: 11pt; margin: 0px;" align="center">$ &nbsp;2.71</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="top" width="138"><p style="font-size: 11pt; margin: 0px;" align="center">&nbsp;</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" valign="top" width="96"><p style="font-size: 11pt; margin: 0px;" align="center">&nbsp;</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" valign="top" width="143"><p style="font-size: 11pt; margin: 0px;" align="center">&nbsp;</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" valign="top" width="90"><p style="display: none; font-size: 11pt; margin: 0px;" align="center">.</p></td> </tr> </table><br/><p style="FONT-SIZE:12pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">On January 28, 2015, the Board of Directors authorized management of the Company to re-price issued and outstanding stock options for all of the officers, directors and employees of the Company, at any time prior to February 16, 2015. &nbsp;On February 5, 2015, management acted to re-price 2,184,125 issued and outstanding stock options (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Re-Priced Options<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) pursuant to the authority granted by the Board of Directors. The new exercise price of the Re-Priced Options is $2.575, the closing sales price of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s common stock on February 5, 2015. &nbsp;All other terms of the previously granted Re-Priced Options remain the same. &nbsp;The Company recorded additional stock-based compensation of approximately $297,000, as of February 5, 2015, related to this re-pricing. &nbsp;This amount was determined to be the incremental value of the fair value of the Re-Priced Options compared to the fair value of the original option immediately before the re-pricing.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px" align="justify"><u>Preferred Stock</u></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">In May 1986, our shareholders authorized 200,000 shares of preferred stock with a par value of $100 per share. &nbsp;The shares of preferred stock may be issued in series at the direction of the Board of Directors, and the relative rights, preferences and limitations of such shares will all be determined by the Board of Directors. &nbsp;</p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify"><u>Series A Convertible Preferred&nbsp;Stock</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">On September 9, 2014, the Company designated 140 shares of the preferred stock as Series A Convertible Preferred Stock, par value $100 per share, in accordance with the Certificate of Designation of Series A Convertible Preferred Stock filed with the Secretary of State of the State of Delaware on September 9, 2014 (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Series A Convertible Preferred Stock<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>). &nbsp;On September 9, 2014, 140 shares of Series A Convertible Preferred Stock were issued in connection with the conversion of the Convertible Debenture due November 2016, as discussed further, in Note 5, <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Convertible Debentures<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font> herein.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><i>Ranking&nbsp;</i></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The Series A Convertible Preferred Stock ranks senior to the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s common stock, to all series of any other classes of equity which may be issued and to any indebtedness, unless the Company has obtained the prior written consent of the Series A Convertible Preferred Stock holder.<br /></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><i>Optional Conversion</i></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Holders of the Series A Convertible Preferred Stock may at any time convert their shares of Series A Convertible Preferred Stock into such number of shares of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s common stock in such an amount equal to (a) the stated value (initially $1,000) of the shares of Series A Convertible Preferred Stock being converted (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Stated Value<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>), divided by the conversion price (initially $4.73) ( the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Series A Conversion Price<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>), multiplied by (b) the number of shares of Series A Preferred Stock being converted. &nbsp;In the event the Series A Convertible Preferred Stock is converted in part, the Company shall deliver a new certificate of like tenor in the amount equal to the remaining balance of the Series A Convertible Preferred Stock after giving effect to such partial conversion.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The holder shall not have the right to convert any portion of the Series A Convertible Preferred Stock if after giving effect to such conversion, the holder, together with any affiliate thereof, would beneficially own in excess of 4.99% of the number of shares of common stock outstanding immediately after giving effect to such conversion.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The embedded conversion option has certain anti-dilution protection provisions which would be triggered if the Company issues its common stock, or certain common stock equivalents, (as defined) at a price below $3.55 per share. &nbsp;&nbsp;</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><i>Mandatory Conversion</i></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">At any time after November 11, 2016, if and only if the average of the high and low trading prices of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s common stock for any 10 out of 20 consecutive trading days (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Measurement Period,<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>) exceeds the then Series A Conversion Price, as adjusted, the Company may convert any then outstanding shares of Series A Convertible Preferred Stock into shares of common stock (a <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Mandatory Conversion<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>), provided, however, that any such Mandatory Conversion shall not require a holder to convert a number of shares of Series A Convertible Preferred Stock into an amount of Common Stock that would exceed 50% of the daily average trading volume of the common stock during the Measurement Period. Following November 11, 2016 and subject to the price and volume limitations set forth above, the Company may require such number of successive Mandatory Conversions as are necessary to convert all then outstanding Series A Convertible Preferred Stock. </p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><i>Redemption</i></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">At any time on or after November 11, 2016 (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Redemption Date<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>), and upon at least 60 days prior written notice to the Company (a <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Redemption Notice<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>), any holder of the Series A Convertible Preferred Stock shall have a one-time right to require the Company to redeem all or some of its shares of Series A Convertible Preferred Stock (a <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Redemption<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>), for cash generated from a subsequent sale of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s equity securities. &nbsp;&nbsp;The redemption price shall be equal to the Stated Value for each share of Series A Convertible Preferred Stock (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Redemption Purchase Price<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>). &nbsp;Upon receipt of a Redemption Notice, the Company shall complete a sale or sales of its equity securities for the purpose of accumulating net proceeds sufficient to pay the Redemption Purchase Price (it being understood by the holder of the Series A Convertible Preferred Stock that the Company may only redeem shares of Series A Convertible Preferred Stock with the proceeds from the sale of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s equity securities).<br /></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><i>Board and Observer Rights</i></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Each holder of Series A Convertible Preferred Stock shall have the right, upon 10 days' prior written notice, to designate one representative, reasonably acceptable to the Company, who shall be entitled to attend and observe meetings of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s Board of Directors in a non-voting observer capacity (the <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Observer<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>).</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify"><i>Accounting for the Series A Convertible Preferred Stock</i></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">The Company determined that the economic characteristics and risks of the conversion feature and the preferred stock instrument were clearly and closely related as equity instruments and accordingly, the conversion feature would not require separate accounting. &nbsp;&nbsp;In addition, the redemption feature is contingent upon Series A Convertible Preferred Stock not being converted into common stock and upon the holders delivering a redemption notice to the Company. &nbsp;&nbsp;Further, the redemption purchase price may only be paid from the proceeds of a subsequent sale of equity securities. Accordingly, the Series A Convertible Preferred Stock was accounted for as an equity instrument. Further, b<font style="FONT-SIZE:12pt">ecause the conversion rate of the Series A Convertible Preferred Stock of $</font><font style="FONT-SIZE:12pt">4.73</font><font style="FONT-SIZE:12pt"> per share was less than the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s closing stock price on the date of this transaction, the Company determined that the Series A Convertible Preferred Stock contained a </font><font style="FONT-SIZE:12pt">beneficial</font><font style="FONT-SIZE:12pt"> conversion feature. The </font><font style="FONT-SIZE:12pt">beneficial </font><font style="FONT-SIZE:12pt">conversion feature was recorded in additional paid-in-capital as a result of the Company<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8217;</font>s accumulated deficit</font><font style="FONT-SIZE:12pt">.</font></p><br/> 4000000 640000 320000 6.25 10.00 P5Y 0.025 11600 12400 46000 85000 2800000 600000 1080000 1200000 800000 1956999 2225399 2569399 P10Y 12000 16000 988995 1660000 120000 1600000 640000 320000 640000 5.44 P10Y 1600000 1832000 3.72 60000 30000 30000 5.56 P10Y 34000 3.72 120000 40000 5.28 13334 13333 40000 5.88 13334 13333 40000 4.88 120000 92000 3.72 2184125 2.575 297000 200000 100 140 100 140 1000 4.73 0.0499 3.55 the average of the high and low trading prices of the Company&#8217;s common stock for any 10 out of 20 consecutive trading days 0.50 P60D P10D <table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="269" valign="bottom"> </td> <td width="96" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td width="120" align="center" valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td width="112" valign="bottom"></td> </tr> <tr> <td width="269" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px"><br /></p> <p style="MARGIN:0px"><br />&nbsp;</p></td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p align="center"><font style="FONT-SIZE:11pt">Shares</font></p></td> <td valign="bottom">&nbsp;</td> <td colspan="2" style="BORDER-BOTTOM:#000000 1px solid" align="center" valign="bottom"> <p align="center"><font style="FONT-SIZE:11pt">Weighted <br />Average Exercise <br />Price Per Share</font></p></td> <td valign="bottom">&nbsp;</td> <td colspan="2" style="BORDER-BOTTOM:#000000 1px solid" valign="bottom"> <p align="center"><font style="FONT-SIZE:11pt">Aggregate <br />Intrinsic Value</font></p></td> </tr> <tr> <td width="269" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px">&nbsp;</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px">&nbsp;</p></td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td width="120" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center" valign="bottom"> <p style="MARGIN:0px" align="center">&nbsp;</p></td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td width="112" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="269" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">Options Outstanding at October 31, 2013</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">625,554</p></td> <td> </td> <td><font style="FONT-SIZE:11pt">$</font></td> <td width="120" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">18.00</p></td> <td> </td> <td> </td> <td width="112" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr> <td width="269" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;Exercised</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">(17,400)</p></td> <td valign="bottom"> </td> <td valign="bottom"><font size="3" style="FONT-SIZE:11pt">$</font></td> <td width="120" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">&nbsp;&nbsp;3.63</p></td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td width="112" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px" align="right">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="269" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;Forfeited</p></td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">(114,163)</p></td> <td> </td> <td><font size="3" style="FONT-SIZE:11pt">$</font></td> <td width="120" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">19.75</p></td> <td> </td> <td> </td> <td width="112" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr> <td width="269" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">Options Outstanding &nbsp;at October 31, 2014</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">493,991</p></td> <td valign="bottom"> </td> <td valign="bottom"><font size="3" style="FONT-SIZE:11pt">$</font></td> <td width="120" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">18.00</p></td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td width="112" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="269" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;Exercised</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;(4,000)</p></td> <td> </td> <td><font size="3" style="FONT-SIZE:11pt">$</font></td> <td width="120" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">&nbsp;&nbsp;2.58</p></td> <td> </td> <td> </td> <td width="112" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr> <td width="269" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;Forfeited</p></td> <td width="96" style="BORDER-BOTTOM:#000000 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">(123,771)</p></td> <td valign="bottom"> </td> <td valign="bottom"><font size="3" style="FONT-SIZE:11pt">$</font></td> <td width="120" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">14.71</p></td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td width="112" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="269" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">Options Outstanding and Exercisable at October 31, 2015</p></td> <td width="96" style="BORDER-BOTTOM:#000000 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right"><font style="FONT-SIZE:11pt">&nbsp;&nbsp;&nbsp;366,200</font></p></td> <td> </td> <td><font size="3" style="FONT-SIZE:11pt">$</font></td> <td width="120" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">17.86</p></td> <td> </td> <td><font size="3" style="FONT-SIZE:11pt">$</font></td> <td width="112" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">61,665</p></td> </tr> </table><table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="278" valign="bottom"> </td> <td width="96" valign="bottom"> </td> <td valign="bottom"> </td> <td width="132" valign="bottom"> </td> <td valign="bottom"> </td> <td width="86" valign="bottom"></td> </tr> <tr> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px"><br /></p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:1px; MARGIN:0px" align="center">Shares</p></td> <td valign="bottom">&nbsp;</td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:1px; MARGIN:0px" align="center">&nbsp;Weighted Average Exercise Price Per Share</p></td> <td valign="bottom">&nbsp;</td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:1px; MARGIN:0px" align="center">Aggregate Intrinsic Value</p></td> </tr> <tr> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px"><br /></p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px"><br /></p></td> <td valign="bottom"> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px"><br /></p></td> <td valign="bottom"> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px"><br /></p></td> </tr> <tr style="background-color: #cceeff;"> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">Options Outstanding at October 31, 2013</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;119,360</p></td> <td> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$6.13</p></td> <td> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;Granted</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;612,400</p></td> <td valign="bottom"> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$5.75</p></td> <td valign="bottom"> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px" align="center">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;Exercised</p></td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3,200)</p></td> <td> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$4.00</p></td> <td> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;</p></td> </tr> <tr> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">Options Outstanding at October 31, &nbsp;2014</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;728,560</p></td> <td valign="bottom"> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$5.75</p></td> <td valign="bottom"> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; PADDING-LEFT:7px; MARGIN:0px">Granted</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;60,400</p></td> <td> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$2.91</p></td> <td> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;Exercised</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(13,334)</p></td> <td valign="bottom"> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$2.58</p></td> <td valign="bottom"> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;Forfeited</p></td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(249,355)</p></td> <td> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$6.24</p></td> <td> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="MARGIN:0px">&nbsp;</p></td> </tr> <tr> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">Options Outstanding at October 31, &nbsp;2015</p></td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;526,271</p></td> <td valign="bottom"> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$3.33</p></td> <td valign="bottom"> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;$ 471,292</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="278" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">Options Exercisable at October 31, 2015</p></td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 3px double; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px 0.04in 0px 0px; PADDING-RIGHT:0px" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;406,149</p></td> <td> </td> <td width="132" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$3.40</p></td> <td> </td> <td width="86" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="right">&nbsp;$ 342,572</p></td> </tr> </table> 625554 18.00 17400 3.63 114163 19.75 493991 18.00 4000 2.58 123771 14.71 366200 17.86 61665 119360 6.13 612400 5.75 3200 4.00 728560 5.75 60400 2.91 13334 2.58 249355 6.24 526271 3.33 471292 406149 3.40 342572 <table style="FONT-SIZE:10pt; MARGIN-TOP:0px" cellpadding="0" cellspacing="0" align="center"> <tr style="FONT-SIZE:0px"> <td width="138" valign="bottom"> </td> <td width="96" valign="bottom"> </td> <td width="143" valign="bottom"> </td> <td width="90" align="center" valign="bottom"></td> </tr> <tr> <td width="138" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Range of<br />Exercise Prices</p></td> <td width="96" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Number<br />Outstanding</p></td> <td width="143" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Weighted Average<br />Remaining</p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Contractual Life </p> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">(in years)</p></td> <td width="90" style="BORDER-BOTTOM:rgb(0,0,0) 1px solid; PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">Weighted Average<br />Exercise Price</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="138" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$ &nbsp;1.79 - $ &nbsp;9.25</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">73,880</p></td> <td width="143" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">1.75</p></td> <td width="90" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$ &nbsp;2.91</p></td> </tr> <tr> <td width="138" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$14.75 - $17.25</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">59,600</p></td> <td width="143" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">1.33</p></td> <td width="90" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$16.75</p></td> </tr> <tr style="background-color: #cceeff;"> <td width="138" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$18.75 - $23.00</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">192,720</p></td> <td width="143" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">1.14</p></td> <td width="90" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$21.57</p></td> </tr> <tr> <td width="138" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$29.25</p></td> <td width="96" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">40,000</p></td> <td width="143" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">1.80</p></td> <td width="90" style="PADDING-BOTTOM:0px; PADDING-TOP:0px; PADDING-LEFT:0px; MARGIN-TOP:0px; PADDING-RIGHT:0px" align="center" valign="bottom"> <p style="FONT-SIZE:11pt; MARGIN:0px" align="center">$29.25</p></td> </tr> </table> 73880 P1Y9M 2.91 59600 P1Y120D 16.75 192720 P1Y51D 21.57 40000 P1Y292D 29.25 <table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr style="font-size: 0px;"> <td valign="bottom" width="96">&nbsp;</td> <td valign="bottom" width="90">&nbsp;</td> <td valign="bottom" width="60">&nbsp;</td> <td valign="bottom" width="24">&nbsp;</td> <td valign="bottom" width="72">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td valign="bottom" width="90">&nbsp;</td> <td valign="bottom" width="65">&nbsp;</td> <td valign="bottom" width="18">&nbsp;</td> <td valign="bottom" width="77">&nbsp;</td> </tr> <tr> <td valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="4" valign="bottom"><p align="center"><font style="font-size: 11pt;">Options Outstanding</font></p></td> <td valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="4" valign="bottom"><p align="center"><font style="font-size: 11pt;">Options Exercisable</font></p></td> </tr> <tr> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="96"><p style="font-size: 11pt; margin: 0px;" align="center">Range of<br />Exercise<br />Prices</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="90"><p style="font-size: 11pt; margin: 0px;" align="center">Number<br />Outstanding</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="84"><p style="font-size: 11pt; margin: 0px;" align="center">Weighted Average<br />Remaining<br />Contractual Life</p><p style="font-size: 11pt; margin: 0px;" align="center">(in years)</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="72"><p style="font-size: 11pt; margin: 0px;" align="center">Weighted Average<br />Exercise Price</p></td> <td valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="90"><p style="font-size: 11pt; margin: 0px;" align="center">Number<br />Exercisable</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="84"><p style="font-size: 11pt; margin: 0px;" align="center">Weighted Average<br />Remaining<br />Contractual Life<br />(in years)</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="77"><p style="font-size: 11pt; margin: 0px;" align="center">Weighted Average<br />Exercise Price</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="96"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="90"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="84"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="72"><p style="margin: 0px;">&nbsp;</p></td> <td valign="bottom">&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="90"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="84"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="77"><p style="margin: 0px;" align="center">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="96"><p style="font-size: 11pt; margin: 0px;" align="center">$2.58 - $9.25</p></td> <td style="margin-top: 0px; padding: 0px;" width="90"><p style="font-size: 11pt; margin: 0px;" align="center">526,271</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" width="84"><p style="font-size: 11pt; margin: 0px;" align="center">6.98</p></td> <td style="margin-top: 0px; padding: 0px;" width="72"><p style="font-size: 11pt; margin: 0px;" align="center">$3.33</p></td> <td><p align="center">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="90"><p style="font-size: 11pt; margin: 0px;" align="center">406,149</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" width="84"><p style="font-size: 11pt; margin: 0px;" align="center">6.57</p></td> <td style="margin-top: 0px; padding: 0px;" width="77"><p style="font-size: 11pt; margin: 0px;" align="center">$3.40</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" width="96"><p style="font-size: 11pt; margin: 0px;" align="center">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="90"><p style="font-size: 11pt; margin: 0px;" align="center">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" width="84"><p style="font-size: 11pt; margin: 0px;" align="center">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="72"><p style="font-size: 11pt; margin: 0px;" align="center">&nbsp;</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" width="90"><p style="font-size: 11pt; margin: 0px;" align="center">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" width="84"><p style="font-size: 11pt; margin: 0px;" align="center">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="77"><p style="display: none; font-size: 11pt; margin: 0px;" align="center">.</p></td> </tr> </table> 526271 P6Y357D 3.33 406149 P6Y208D 3.40 <table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr style="font-size: 0px;"> <td width="138">&nbsp;</td> <td>&nbsp;</td> <td width="96">&nbsp;</td> <td>&nbsp;</td> <td width="143">&nbsp;</td> <td>&nbsp;</td> <td width="90">&nbsp;</td> </tr> <tr> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="138"><p style="font-size: 11pt; margin: 0px;" align="center">Range of<br />Exercise Prices</p></td> <td>&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="96"><p style="font-size: 11pt; margin: 0px;" align="center">Number<br />Outstanding</p></td> <td>&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="143"><p style="font-size: 11pt; margin: 0px;" align="center">Weighted Average<br />Remaining<br />Contractual Life</p><p style="font-size: 11pt; margin: 0px;" align="center">(in years)</p></td> <td>&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="90"><p style="font-size: 11pt; margin: 0px;" align="center">Weighted Average<br />Exercise <br />Price</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="top" width="138"><p style="font-size: 11pt; margin: 0px;" align="center">$ 2.58 - $ 5.56</p></td> <td><p align="center">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="top" width="96"><p style="font-size: 11pt; margin: 0px;" align="center">1,780,000</p></td> <td><p align="center">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="top" width="143"><p style="font-size: 11pt; margin: 0px;" align="center">6.76</p></td> <td><p align="center">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" valign="top" width="90"><p style="font-size: 11pt; margin: 0px;" align="center">$ &nbsp;2.71</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="top" width="138"><p style="font-size: 11pt; margin: 0px;" align="center">&nbsp;</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" valign="top" width="96"><p style="font-size: 11pt; margin: 0px;" align="center">&nbsp;</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" valign="top" width="143"><p style="font-size: 11pt; margin: 0px;" align="center">&nbsp;</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" valign="top" width="90"><p style="display: none; font-size: 11pt; margin: 0px;" align="center">.</p></td> </tr> </table> 1780000 P6Y277D 2.71 <p style="margin-bottom: 16px; font-size: 11pt; margin-top: 0px;"><br />7. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font style="text-decoration: underline;">COMMITMENTS AND CONTINGENCIES</font></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; CLEAR:left; MARGIN-TOP:0px" align="justify"><u>Patent Acquisition Obligations</u></p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">As of October 31, 2015, we have incurred obligations due no later than November 2017 related to the acquisition of patents, which have a discounted present value of approximately $3,688,000, and which amount will be reduced by royalties paid during the period, if any. &nbsp;The payment due in November 2017 is payable at the option of the Company in cash or common stock. &nbsp;We recorded interest expense of approximately $452,000 and $386,000, respectively, for the &nbsp;years ended October 31, 2015 and 2014, for the accretion of interest on patent acquisition obligations. </p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify"><u>Leases</u> </p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">We lease approximately 3,000 square feet of office space in Los Angeles, California pursuant to a lease that expires March 30, 2016. &nbsp;As of October 31, 2015, our non-cancelable operating lease commitments for the year ending October 31, 2016 was approximately $44,000. &nbsp;Rent expense for the years ended October 31, 2015 and 2014, was approximately $100,000 and $109,000, respectively. &nbsp;</p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify"><u>Litigation Matters</u></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">On December 29, 2014, we settled our lawsuit against AUO which had been filed on January 28, 2013. For a more detailed description of the settlement with AUO see Note 1, <font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8220;</font>Business and Funding - Description of Business - AUO Lawsuit and Settlement<font style="FONT-FAMILY:Arial Unicode MS,Times New Roman">&#8221;</font>.<br /><br /></p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">Other than suits we bring to enforce our patent rights we are not a party to any material pending legal proceedings other than that which arise in the ordinary course of business. &nbsp;We believe that any liability that may ultimately result from the resolution of these matters will not, individually or in the aggregate, have a material adverse effect on our financial position or results of operations.</p><br/> 3688000 452000 386000 3000 44000 100000 109000 <p style="margin-bottom: 16px; font-size: 11pt; margin-top: 0px;"><br />8. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font style="text-decoration: underline;">INCOME TAXES</font> &nbsp;&nbsp;&nbsp;</p><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px" align="justify">Income tax provision (benefit) consists of the following:</p><br/><table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr style="font-size: 0px;"> <td valign="bottom" width="270">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td valign="bottom" width="102">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td valign="bottom" width="108">&nbsp;</td> </tr> <tr> <td valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="5" valign="bottom"><p align="center"><font style="font-size: 11pt;">Year Ended October 31,</font></p></td> </tr> <tr> <td valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="2" valign="bottom"><p align="center"><font style="font-size: 11pt;">2015</font></p></td> <td valign="bottom"><font style="font-size: 11pt;">&nbsp;</font></td> <td style="border-bottom: #000000 1px solid;" colspan="2" valign="bottom"><p align="center"><font style="font-size: 11pt;">2014</font></p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="270"><p style="font-size: 11pt; margin: 0px;">Federal:</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" width="102"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" width="108"><p style="margin: 0px;">&nbsp;</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="270"><p style="font-size: 11pt; margin: 0px; text-indent: 12px;">Current</p></td> <td valign="bottom"><font style="font-size: 11pt;">$</font></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="102"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td valign="bottom">&nbsp;</td> <td valign="bottom"><font style="font-size: medium;">$</font></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="108"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="270"><p style="font-size: 11pt; margin: 0px; text-indent: 12px;">Deferred</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" width="102"><p style="font-size: 11pt; margin: 0px;" align="right">(487,000)</p></td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" width="108"><p style="font-size: 11pt; margin: 0px;" align="right">(1,606,000)</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="270"><p style="font-size: 11pt; margin: 0px;">State:</p></td> <td valign="bottom">&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="102"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td valign="bottom">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="108"><p style="margin: 0px;" align="right">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="270"><p style="font-size: 11pt; margin: 0px; text-indent: 12px;">Current</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" width="102"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">-</p></td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" width="108"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">-</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="270"><p style="font-size: 11pt; margin: 0px; text-indent: 12px;">Deferred</p></td> <td valign="bottom">&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="102"><p style="font-size: 11pt; margin: 0px;" align="right">(120,000)</p></td> <td valign="bottom">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="108"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;(1,000)</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="270"><p style="font-size: 11pt; padding-left: 24px; margin: 0px; text-indent: -24px;">Adjustment to valuation allowance related</p><p style="font-size: 11pt; padding-left: 24px; margin: 0px; text-indent: -24px;">&nbsp;&nbsp;&nbsp;to net deferred tax assets</p></td> <td style="border-bottom: #000000 1px solid;">&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" width="102"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">607,000</p></td> <td>&nbsp;</td> <td style="border-bottom: #000000 1px solid;">&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" width="108"><p style="margin-bottom: -2px; font-size: 11pt; width: 20px; float: left; margin-top: 0px; text-indent: 4px;">&nbsp;</p><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;1,607,000</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="270"><font style="color: #000000; font-family: times new roman,times; font-size: medium; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; display: none ! important; float: none; background-color: #ffffff;">Income tax provision (benefit)</font></td> <td style="border-bottom: #000000 3px double;" valign="bottom"><font style="font-size: medium;">$</font></td> <td style="border-bottom: #000000 3px double; margin-top: 0px; padding: 0px;" valign="bottom" width="102"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 3px double;" valign="bottom"><font style="font-size: medium;">$</font></td> <td style="border-bottom: #000000 3px double; margin-top: 0px; padding: 0px;" valign="bottom" width="108"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> </tr> </table><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">The tax effects of temporary differences that give rise to significant portions of the deferred tax asset, net, at October 31, 2015 and 2014, are as follows:</p><br/><table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr> <td>&nbsp;</td> <td>&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="2"><p align="center"><font style="font-size: 11pt;">2015</font></p></td> <td><p align="center">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid;" colspan="2"><p align="center"><font style="font-size: 11pt;">2014</font></p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;"><p style="font-size: 11pt; margin: 0px;">Long-term deferred tax assets:</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;"><p style="margin: 0px;">&nbsp;</p></td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;"><p style="margin: 0px;">&nbsp;</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="340"><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;Federal and state NOL and tax credit carryforwards</p></td> <td><font style="font-size: 11pt;">$</font></td> <td style="margin-top: 0px; padding: 0px;" width="114"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;31,261,000</p></td> <td>&nbsp;</td> <td><font style="font-size: medium;">$</font></td> <td style="margin-top: 0px; padding: 0px;" width="102"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;&nbsp;&nbsp;31,864,000</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;"><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;Deferred compensation</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">6,522,000</p></td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">5,437,000</p></td> </tr> <tr> <td style="border-bottom: 0px; margin-top: 0px; padding: 0px;" width="25"><p style="margin: 0px;">&nbsp;</p></td> <td style="border-bottom: 0px; margin-top: 0px; padding: 0px;" width="340"><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;Intangibles</p></td> <td style="border-bottom: 0px;">&nbsp;</td> <td style="border-bottom: 0px; margin-top: 0px; padding: 0px;" width="114"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px; text-indent: 35px;" align="right">483,000</p></td> <td style="border-bottom: 0px;">&nbsp;</td> <td style="border-bottom: 0px;">&nbsp;</td> <td style="border-bottom: 0px; margin-top: 0px; padding: 0px;" width="102"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;"><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;Other</p></td> <td style="border-bottom: #000000 1px solid;">&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px; text-indent: 35px;" align="right">282,000</p></td> <td>&nbsp;</td> <td style="border-bottom: #000000 1px solid;">&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">359,000</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="340"><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subtotal</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" width="114"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">38,548,000</p></td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" width="102"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">37,660,000</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="border-bottom: 0px; margin-top: 0px; padding: 0px;"><p style="margin: 0px;">&nbsp;</p></td> <td style="border-bottom: 0px; margin-top: 0px; padding: 0px;">&nbsp;</td> <td style="border-bottom: 0px;">&nbsp;</td> <td style="border-bottom: 0px; margin-top: 0px; padding: 0px;">&nbsp;</td> <td style="border-bottom: 0px;">&nbsp;</td> <td style="border-bottom: 0px;">&nbsp;</td> <td style="border-bottom: 0px; margin-top: 0px; padding: 0px;">&nbsp;</td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="340"><p style="font-size: 11pt; margin: 0px;">Less: valuation allowance</p></td> <td style="border-bottom: #000000 1px solid;">&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" width="114"><p style="font-size: 11pt; margin: 0px; text-indent: 7px;" align="right">(38,548,000)</p></td> <td>&nbsp;</td> <td style="border-bottom: #000000 1px solid;">&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" width="102"><p style="font-size: 11pt; margin: 0px; text-indent: 7px;" align="right">(37,660,000)</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="border-bottom: 0px;">&nbsp;</td> <td style="border-bottom: 0px;"><p style="font-size: 11pt; margin: 0px; text-indent: 16px;">Deferred tax asset, net</p></td> <td style="border-bottom: #000000 3px double;"><font style="font-size: medium;">$</font></td> <td style="border-bottom: #000000 3px double;"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td style="border-bottom: 0px;">&nbsp;</td> <td style="border-bottom: #000000 3px double;"><font style="font-size: medium;">$</font></td> <td style="border-bottom: #000000 3px double;"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> </tr> </table><br/><p style="margin-bottom: 16px; font-size: 11pt; margin-top: 0px; text-indent: 48px;" align="justify">As of October 31, 2015, we had tax net operating loss and tax credit carryforwards of approximately $75,642,000 and $1,110,000, respectively, available within statutory limits (expiring at various dates between 2016 and 2035), to offset any future regular Federal corporate taxable income and taxes payable. &nbsp;If the tax benefits relating to deductions of option holders<font style="font-family: Arial Unicode MS,Times New Roman;">&#x2019;</font> income are ultimately realized, those benefits will be credited directly to additional paid-in capital. &nbsp;Certain changes in stock ownership can result in a limitation on the amount of net operating loss and tax credit carryovers that can be utilized each year. As of October 31, 2015, management has not determined the extent of any such limitations, if any.</p><br/><p style="margin-bottom: 16px; font-size: 11pt; margin-top: 0px; text-indent: 48px;" align="justify">We had New York State tax net operating loss and tax credit carryforwards of approximately $72,505,000 and $11,000, respectively, and California tax net operating loss carryforward of approximately $2,803,000, as of October 31, 2015, available within statutory limits (expiring at various dates between 2016 and 2035), to offset future corporate taxable income and taxes payable, if any, under certain computations of such taxes.</p><br/><p style="FONT-SIZE:11pt; MARGIN:0px; TEXT-INDENT:48px" align="justify">We have provided a valuation allowance against our deferred tax asset due to our current and historical pre-tax losses and the uncertainty regarding their realizability. &nbsp;The primary differences from the Federal statutory rate of 34% and the effective rate of 0% is attributable to certain permanent differences and a change in the valuation allowance. &nbsp;The following is a reconciliation of income taxes at the Federal statutory tax rate to income tax expense (benefit):</p><br/><table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="168"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="4" valign="bottom" width="288"><p style="border-bottom: #000000 1px solid; padding-bottom: 1px; margin: 0px;" align="center">Year Ended October 31,</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="168"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="144"><p style="border-bottom: #000000 1px solid; padding-bottom: 1px; margin: 0px;" align="center">2015</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="144"><p style="border-bottom: #000000 1px solid; padding-bottom: 1px; margin: 0px;" align="center">2014</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="168"><p style="margin: 0px;">Income tax benefit at U.S.</p><p style="margin: 0px;">&nbsp;&nbsp;&nbsp;Federal statutory income</p><p style="margin: 0px;">&nbsp;&nbsp;&nbsp;Tax rate</p></td> <td style="margin-top: 0px; padding: 0px;" width="84"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(469,000)</p></td> <td style="margin-top: 0px; padding: 0px;" width="60"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;">&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;(34.00%)</p></td> <td style="margin-top: 0px; padding: 0px;" width="84"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">$&nbsp;&nbsp;&nbsp;&nbsp;(3,266,000)</p></td> <td style="margin-top: 0px; padding: 0px;" width="60"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;">&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;(34.00%)</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="168"><p style="margin: 0px;">State income taxes</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="84"><p style="margin: 0px;" align="right">(117,000)</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="60"><p style="margin: 0px;" align="right">&nbsp;&nbsp;(8.50%)</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="84"><p style="margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(6,000)</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="60"><p style="margin: 0px;" align="right">(.06%)</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="168"><p style="margin: 0px;">Permanent differences</p></td> <td style="margin-top: 0px; padding: 0px;" width="84"><p style="margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,000</p></td> <td style="margin-top: 0px; padding: 0px;" width="60"><p style="margin: 0px;" align="right">.10%</p></td> <td style="margin-top: 0px; padding: 0px;" width="84"><p style="margin: 0px;" align="right">1,529,000</p></td> <td style="margin-top: 0px; padding: 0px;" width="60"><p style="margin: 0px;" align="right">15.92%</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="168"><p style="margin: 0px;">Expiring net operating</p><p style="margin: 0px;">&nbsp;&nbsp;&nbsp;losses, credits and other</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="84"><p style="margin: 0px;" align="right">&nbsp;&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(22,000)</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="60"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;(1.60%)</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="84"><p style="margin: 0px;" align="right">&nbsp;&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;&nbsp;115,000</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="60"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">1.19%</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="168"><p style="padding-left: 24px; margin: 0px; text-indent: -24px;">Foreign rate difference on</p><p style="padding-left: 24px; margin: 0px; text-indent: -24px;">&nbsp;&nbsp;&nbsp;impairment</p></td> <td style="margin-top: 0px; padding: 0px;" width="84"><p style="margin: 0px;" align="right">-</p></td> <td style="margin-top: 0px; padding: 0px;" width="60"><p style="margin: 0px;" align="right">0%</p></td> <td style="margin-top: 0px; padding: 0px;" width="84"><p style="margin: 0px;" align="right">21,000</p></td> <td style="margin-top: 0px; padding: 0px;" width="60"><p style="margin: 0px;" align="right">.22%</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="168"><p style="margin: 0px;">Change in valuation &nbsp;</p><p style="margin: 0px;">&nbsp;&nbsp;&nbsp;allowance</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="84"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;607,000</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="60"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">44.00%</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="84"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;1,607,000</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="60"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;16.73%</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="168"><p style="margin: 0px;">Income tax provision</p></td> <td style="border-bottom: #000000 3px double; margin-top: 0px; padding: 0px;" width="84"><p style="margin: 0px;" align="right">$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td style="margin-top: 0px; padding: 0px;" width="60"><p style="margin: 0px;" align="right">0%</p></td> <td style="border-bottom: #000000 3px double; margin-top: 0px; padding: 0px;" width="84"><p style="margin: 0px;" align="right">$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td style="margin-top: 0px; padding: 0px;" width="60"><p style="margin: 0px;" align="right">0%</p></td> </tr> </table><br/><p style="MARGIN-BOTTOM:16px; FONT-SIZE:11pt; MARGIN-TOP:0px; TEXT-INDENT:48px" align="justify">During the two fiscal years ended October 31, 2015, we incurred no Federal and no State income taxes. &nbsp;We have no unrecognized tax benefits as of October 31, 2015 and 2014 and we account for interest and penalties related to income tax matters in marketing, general and administrative expenses. &nbsp;Tax years to which our net operating losses relate remain open to examination by Federal authorities and other jurisdictions to the extent which the net operating losses have yet to be utilized.<br /></p><br/> 75642000 1110000 expiring at various dates between 2016 and 2035 72505000 11000 2803000 0.00 <table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr style="font-size: 0px;"> <td valign="bottom" width="270">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td valign="bottom" width="102">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td valign="bottom" width="108">&nbsp;</td> </tr> <tr> <td valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="5" valign="bottom"><p align="center"><font style="font-size: 11pt;">Year Ended October 31,</font></p></td> </tr> <tr> <td valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="2" valign="bottom"><p align="center"><font style="font-size: 11pt;">2015</font></p></td> <td valign="bottom"><font style="font-size: 11pt;">&nbsp;</font></td> <td style="border-bottom: #000000 1px solid;" colspan="2" valign="bottom"><p align="center"><font style="font-size: 11pt;">2014</font></p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="270"><p style="font-size: 11pt; margin: 0px;">Federal:</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" width="102"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" width="108"><p style="margin: 0px;">&nbsp;</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="270"><p style="font-size: 11pt; margin: 0px; text-indent: 12px;">Current</p></td> <td valign="bottom"><font style="font-size: 11pt;">$</font></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="102"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td valign="bottom">&nbsp;</td> <td valign="bottom"><font style="font-size: medium;">$</font></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="108"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="270"><p style="font-size: 11pt; margin: 0px; text-indent: 12px;">Deferred</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" width="102"><p style="font-size: 11pt; margin: 0px;" align="right">(487,000)</p></td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" width="108"><p style="font-size: 11pt; margin: 0px;" align="right">(1,606,000)</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="270"><p style="font-size: 11pt; margin: 0px;">State:</p></td> <td valign="bottom">&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="102"><p style="margin: 0px;" align="right">&nbsp;</p></td> <td valign="bottom">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="108"><p style="margin: 0px;" align="right">&nbsp;</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="270"><p style="font-size: 11pt; margin: 0px; text-indent: 12px;">Current</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" width="102"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">-</p></td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" width="108"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">-</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="270"><p style="font-size: 11pt; margin: 0px; text-indent: 12px;">Deferred</p></td> <td valign="bottom">&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="102"><p style="font-size: 11pt; margin: 0px;" align="right">(120,000)</p></td> <td valign="bottom">&nbsp;</td> <td valign="bottom">&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="108"><p style="font-size: 11pt; margin: 0px;" align="right">&nbsp;(1,000)</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="270"><p style="font-size: 11pt; padding-left: 24px; margin: 0px; text-indent: -24px;">Adjustment to valuation allowance related</p><p style="font-size: 11pt; padding-left: 24px; margin: 0px; text-indent: -24px;">&nbsp;&nbsp;&nbsp;to net deferred tax assets</p></td> <td style="border-bottom: #000000 1px solid;">&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" width="102"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">607,000</p></td> <td>&nbsp;</td> <td style="border-bottom: #000000 1px solid;">&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" width="108"><p style="margin-bottom: -2px; font-size: 11pt; width: 20px; float: left; margin-top: 0px; text-indent: 4px;">&nbsp;</p><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;1,607,000</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="270"><font style="color: #000000; font-family: times new roman,times; font-size: medium; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; display: none ! important; float: none; background-color: #ffffff;">Income tax provision (benefit)</font></td> <td style="border-bottom: #000000 3px double;" valign="bottom"><font style="font-size: medium;">$</font></td> <td style="border-bottom: #000000 3px double; margin-top: 0px; padding: 0px;" valign="bottom" width="102"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td valign="bottom">&nbsp;</td> <td style="border-bottom: #000000 3px double;" valign="bottom"><font style="font-size: medium;">$</font></td> <td style="border-bottom: #000000 3px double; margin-top: 0px; padding: 0px;" valign="bottom" width="108"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> </tr> </table> -487000 -1606000 -120000 -1000 607000 1607000 <table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr> <td>&nbsp;</td> <td>&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="2"><p align="center"><font style="font-size: 11pt;">2015</font></p></td> <td><p align="center">&nbsp;</p></td> <td style="border-bottom: #000000 1px solid;" colspan="2"><p align="center"><font style="font-size: 11pt;">2014</font></p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;"><p style="font-size: 11pt; margin: 0px;">Long-term deferred tax assets:</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;"><p style="margin: 0px;">&nbsp;</p></td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;"><p style="margin: 0px;">&nbsp;</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="340"><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;Federal and state NOL and tax credit carryforwards</p></td> <td><font style="font-size: 11pt;">$</font></td> <td style="margin-top: 0px; padding: 0px;" width="114"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;31,261,000</p></td> <td>&nbsp;</td> <td><font style="font-size: medium;">$</font></td> <td style="margin-top: 0px; padding: 0px;" width="102"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;&nbsp;&nbsp;31,864,000</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;"><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;Deferred compensation</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">6,522,000</p></td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">5,437,000</p></td> </tr> <tr> <td style="border-bottom: 0px; margin-top: 0px; padding: 0px;" width="25"><p style="margin: 0px;">&nbsp;</p></td> <td style="border-bottom: 0px; margin-top: 0px; padding: 0px;" width="340"><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;Intangibles</p></td> <td style="border-bottom: 0px;">&nbsp;</td> <td style="border-bottom: 0px; margin-top: 0px; padding: 0px;" width="114"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px; text-indent: 35px;" align="right">483,000</p></td> <td style="border-bottom: 0px;">&nbsp;</td> <td style="border-bottom: 0px;">&nbsp;</td> <td style="border-bottom: 0px; margin-top: 0px; padding: 0px;" width="102"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;"><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;Other</p></td> <td style="border-bottom: #000000 1px solid;">&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px; text-indent: 35px;" align="right">282,000</p></td> <td>&nbsp;</td> <td style="border-bottom: #000000 1px solid;">&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">359,000</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="340"><p style="font-size: 11pt; margin: 0px;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subtotal</p></td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" width="114"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">38,548,000</p></td> <td>&nbsp;</td> <td>&nbsp;</td> <td style="margin-top: 0px; padding: 0px;" width="102"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">37,660,000</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="border-bottom: 0px; margin-top: 0px; padding: 0px;"><p style="margin: 0px;">&nbsp;</p></td> <td style="border-bottom: 0px; margin-top: 0px; padding: 0px;">&nbsp;</td> <td style="border-bottom: 0px;">&nbsp;</td> <td style="border-bottom: 0px; margin-top: 0px; padding: 0px;">&nbsp;</td> <td style="border-bottom: 0px;">&nbsp;</td> <td style="border-bottom: 0px;">&nbsp;</td> <td style="border-bottom: 0px; margin-top: 0px; padding: 0px;">&nbsp;</td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" width="25"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" width="340"><p style="font-size: 11pt; margin: 0px;">Less: valuation allowance</p></td> <td style="border-bottom: #000000 1px solid;">&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" width="114"><p style="font-size: 11pt; margin: 0px; text-indent: 7px;" align="right">(38,548,000)</p></td> <td>&nbsp;</td> <td style="border-bottom: #000000 1px solid;">&nbsp;</td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" width="102"><p style="font-size: 11pt; margin: 0px; text-indent: 7px;" align="right">(37,660,000)</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="border-bottom: 0px;">&nbsp;</td> <td style="border-bottom: 0px;"><p style="font-size: 11pt; margin: 0px; text-indent: 16px;">Deferred tax asset, net</p></td> <td style="border-bottom: #000000 3px double;"><font style="font-size: medium;">$</font></td> <td style="border-bottom: #000000 3px double;"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td style="border-bottom: 0px;">&nbsp;</td> <td style="border-bottom: #000000 3px double;"><font style="font-size: medium;">$</font></td> <td style="border-bottom: #000000 3px double;"><p style="font-size: 11pt; margin: 0px 0.04in 0px 0px; padding-right: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> </tr> </table> 31261000 31864000 6522000 5437000 483000 282000 359000 38548000 37660000 38548000 37660000 <table style="font-size: 10pt; margin-top: 0px;" cellspacing="0" cellpadding="0" align="center"> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="168"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="4" valign="bottom" width="288"><p style="border-bottom: #000000 1px solid; padding-bottom: 1px; margin: 0px;" align="center">Year Ended October 31,</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="168"><p style="margin: 0px;">&nbsp;</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="144"><p style="border-bottom: #000000 1px solid; padding-bottom: 1px; margin: 0px;" align="center">2015</p></td> <td style="margin-top: 0px; padding: 0px;" colspan="2" valign="bottom" width="144"><p style="border-bottom: #000000 1px solid; padding-bottom: 1px; margin: 0px;" align="center">2014</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="168"><p style="margin: 0px;">Income tax benefit at U.S.</p><p style="margin: 0px;">&nbsp;&nbsp;&nbsp;Federal statutory income</p><p style="margin: 0px;">&nbsp;&nbsp;&nbsp;Tax rate</p></td> <td style="margin-top: 0px; padding: 0px;" width="84"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(469,000)</p></td> <td style="margin-top: 0px; padding: 0px;" width="60"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;">&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;(34.00%)</p></td> <td style="margin-top: 0px; padding: 0px;" width="84"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">$&nbsp;&nbsp;&nbsp;&nbsp;(3,266,000)</p></td> <td style="margin-top: 0px; padding: 0px;" width="60"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;">&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;(34.00%)</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="168"><p style="margin: 0px;">State income taxes</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="84"><p style="margin: 0px;" align="right">(117,000)</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="60"><p style="margin: 0px;" align="right">&nbsp;&nbsp;(8.50%)</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="84"><p style="margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(6,000)</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="60"><p style="margin: 0px;" align="right">(.06%)</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="168"><p style="margin: 0px;">Permanent differences</p></td> <td style="margin-top: 0px; padding: 0px;" width="84"><p style="margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,000</p></td> <td style="margin-top: 0px; padding: 0px;" width="60"><p style="margin: 0px;" align="right">.10%</p></td> <td style="margin-top: 0px; padding: 0px;" width="84"><p style="margin: 0px;" align="right">1,529,000</p></td> <td style="margin-top: 0px; padding: 0px;" width="60"><p style="margin: 0px;" align="right">15.92%</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="168"><p style="margin: 0px;">Expiring net operating</p><p style="margin: 0px;">&nbsp;&nbsp;&nbsp;losses, credits and other</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="84"><p style="margin: 0px;" align="right">&nbsp;&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(22,000)</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="60"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;(1.60%)</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="84"><p style="margin: 0px;" align="right">&nbsp;&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;&nbsp;115,000</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="60"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">1.19%</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="168"><p style="padding-left: 24px; margin: 0px; text-indent: -24px;">Foreign rate difference on</p><p style="padding-left: 24px; margin: 0px; text-indent: -24px;">&nbsp;&nbsp;&nbsp;impairment</p></td> <td style="margin-top: 0px; padding: 0px;" width="84"><p style="margin: 0px;" align="right">-</p></td> <td style="margin-top: 0px; padding: 0px;" width="60"><p style="margin: 0px;" align="right">0%</p></td> <td style="margin-top: 0px; padding: 0px;" width="84"><p style="margin: 0px;" align="right">21,000</p></td> <td style="margin-top: 0px; padding: 0px;" width="60"><p style="margin: 0px;" align="right">.22%</p></td> </tr> <tr> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="168"><p style="margin: 0px;">Change in valuation &nbsp;</p><p style="margin: 0px;">&nbsp;&nbsp;&nbsp;allowance</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="84"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;607,000</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="60"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">44.00%</p></td> <td style="border-bottom: #000000 1px solid; margin-top: 0px; padding: 0px;" valign="bottom" width="84"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;1,607,000</p></td> <td style="margin-top: 0px; padding: 0px;" valign="bottom" width="60"><p style="margin: 0px;" align="right">&nbsp;</p><p style="margin: 0px;" align="right">&nbsp;16.73%</p></td> </tr> <tr style="background-color: #cceeff;"> <td style="margin-top: 0px; padding: 0px;" width="168"><p style="margin: 0px;">Income tax provision</p></td> <td style="border-bottom: #000000 3px double; margin-top: 0px; padding: 0px;" width="84"><p style="margin: 0px;" align="right">$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td style="margin-top: 0px; padding: 0px;" width="60"><p style="margin: 0px;" align="right">0%</p></td> <td style="border-bottom: #000000 3px double; margin-top: 0px; padding: 0px;" width="84"><p style="margin: 0px;" align="right">$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</p></td> <td style="margin-top: 0px; padding: 0px;" width="60"><p style="margin: 0px;" align="right">0%</p></td> </tr> </table> -469000 -0.3400 -3266000 -0.3400 -117000 -0.0850 -6000 -0.0006 1000 0.0010 1529000 0.1592 -22000 -0.0160 115000 0.0119 0.00 21000 0.0022 607000 0.4400 1607000 0.1673 0.00 EX-101.SCH 9 itus-20151031.xsd XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT 001 - Statement - CONSOLIDATED BALANCE SHEETS link:presentationLink link:definitionLink link:calculationLink 002 - Statement - 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Document And Entity Information - USD ($)
12 Months Ended
Oct. 31, 2015
Dec. 17, 2015
Apr. 30, 2015
Document and Entity Information [Abstract]      
Entity Registrant Name ITUS CORPORATION    
Document Type 10-K    
Current Fiscal Year End Date --10-31    
Entity Common Stock, Shares Outstanding   8,724,878  
Entity Public Float     $ 23,589,150
Amendment Flag false    
Entity Central Index Key 0000715446    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Smaller Reporting Company    
Entity Well-known Seasoned Issuer No    
Document Period End Date Oct. 31, 2015    
Document Fiscal Year Focus 2015    
Document Fiscal Period Focus FY    
XML 15 R2.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONSOLIDATED BALANCE SHEETS - USD ($)
Oct. 31, 2015
Oct. 31, 2014
Current assets:    
Cash and cash equivalents $ 4,369,219 $ 3,361,246
Short–term investments in certificates of deposit 2,400,000 2,500,000
Accounts receivable   400,000
Prepaid expenses and other current assets 126,528 60,577
Total current assets 6,895,747 6,321,823
Patents, net of accumulated amortization of $639,744 and $314,453, respectively 2,396,367 2,721,658
Property and equipment, net of accumulated depreciation of $13,617 and $48,842, respectively 43,456 11,875
Total assets 9,335,570 9,055,356
Current liabilities:    
Accounts payable and accrued expenses 380,765 1,249,426
Royalties and contingent legal fees payable 213,017 560,076
Total current liabilities 593,782 1,809,502
Patent acquisition obligation (Note 7) 3,688,187 3,236,281
Total liabilities $ 4,281,969 $ 5,045,783
Commitments and contingencies (Notes 7 and 8)
Shareholders’ equity:    
Preferred stock, par value $100 per share; 19,860 shares authorized; no shares issued or outstanding, Series A convertible preferred stock, par value $100 per share; 140 shares issued and outstanding, respectively $ 14,000 $ 14,000
Common stock, par value $.01 per share; 24,000,000 shares authorized; 8,724,878 and 8,788,176 shares issued and outstanding, respectively 87,249 87,882
Additional paid-in capital 151,101,117 148,677,413
Accumulated deficit (146,148,765) (144,769,722)
Total shareholders’ equity 5,053,601 4,009,573
Total liabilities and shareholders’ equity $ 9,335,570 $ 9,055,356
Preferred Stock [Member]    
Shareholders’ equity:    
Preferred stock, par value $100 per share; 19,860 shares authorized; no shares issued or outstanding, Series A convertible preferred stock, par value $100 per share; 140 shares issued and outstanding, respectively
Total shareholders’ equity $ 14,000 $ 14,000
Series A Preferred Stock [Member]    
Shareholders’ equity:    
Preferred stock, par value $100 per share; 19,860 shares authorized; no shares issued or outstanding, Series A convertible preferred stock, par value $100 per share; 140 shares issued and outstanding, respectively $ 14,000 $ 14,000
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CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($)
Oct. 31, 2015
Oct. 31, 2014
Patents, accumulated amortization (in Dollars) $ 639,744 $ 314,453
Property and equipment, accumulated depreciation (in Dollars) $ 13,617 $ 48,842
Common stock par value (in Dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized 24,000,000 24,000,000
Common stock, shares issued 8,724,878 8,788,176
Common stock, shares outstanding 8,724,878 8,788,176
Preferred Stock [Member]    
Preferred stock par value (in Dollars per share) $ 100 $ 100
Preferred stock, shares authorized 19,860 19,860
Preferred stock, shares issued
Preferred stock, shares outstanding
Series A Preferred Stock [Member]    
Preferred stock par value (in Dollars per share) $ 100 $ 100
Preferred stock, shares issued 140 140
Preferred stock, shares outstanding 140 140
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CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
Revenue:    
Revenue from licensing activities $ 255,000 $ 2,480,000
Amortization of display technology development and license fees received from AU Optronics Corporation in fiscal year 2011   1,187,320
Settlement with AU Optronics Corporation 9,000,000  
Total revenue 9,255,000 3,667,320
Operating costs and expenses:    
Inventor royalties and contingent legal fees 147,670 1,412,661
Litigation and licensing expenses 3,500,852 575,413
Amortization of patents 325,291 314,453
Marketing, general and administrative expenses (including non-cash stock option compensation expense of $2,676,309 and $3,149,799, respectively) 6,225,946 6,408,861
Total operating costs and expenses 10,199,759 8,711,388
Loss from operations $ (944,759) (5,044,068)
Impairment in value of Videocon Industries Limited global depository receipts (62,825)
Change in value of derivative liability (Note 5) (592,945)
Loss on extinguishment of debt (Note 5) (2,699,022)
Interest expense (Notes 5 and 7) $ (451,906) (1,263,617)
Dividend income 47,568
Interest income $ 17,622 8,595
Loss before income taxes $ (1,379,043) $ (9,606,314)
Provision for income taxes (Note 8)
Net loss $ (1,379,043) $ (9,606,314)
Net loss per share:    
Basic and diluted (in Dollars per share) $ (0.16) $ (1.10)
Weighted average common shares outstanding:    
Basic and diluted (in Shares) 8,760,126 8,710,867
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CONSOLIDATED STATEMENTS OF OPERATIONS (Parentheticals) - USD ($)
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
Non-cash Stock Option Compensation Expenses $ 2,676,309 $ 3,149,799
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CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS` EQUITY - USD ($)
Investment In Videocon [Member]
Common Stock [Member]
Investment In Videocon [Member]
Additional Paid-in Capital [Member]
Common Stock And Preferred Stock [Member]
Preferred Stock [Member]
Common Stock And Preferred Stock [Member]
Common Stock [Member]
Common Stock And Preferred Stock [Member]
Additional Paid-in Capital [Member]
Common Stock And Preferred Stock [Member]
Preferred Stock [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Loan Receivable From Former Affiliate [Member]
Retained Earnings [Member]
Total
BALANCE at Oct. 31, 2013               $ 83,716 $ 136,759,099 $ (5,000,000) $ (135,163,408) $ (3,320,593)
BALANCE (in Shares) at Oct. 31, 2013               8,371,558        
Stock option compensation to employees and consultants                 3,149,799     3,149,799
Common stock issued upon exercise of stock options               $ 206 75,669     75,875
Common stock issued upon exercise of stock options (in Shares)               20,600        
Common stock issued to consultants               $ 124 84,574     84,698
Common stock issued to consultants (in Shares)               12,400        
Common stock issued upon conversion of convertible debentures     $ 14,000 $ 1,008 $ 5,214,633 $ 5,229,641   $ 3,307 2,732,042     2,735,349
Common stock issued upon conversion of convertible debentures (in Shares)     140 100,800       330,683        
Common stock issued in lieu of interest on convertible debentures               $ 105 61,673     61,778
Common stock issued in lieu of interest on convertible debentures (in Shares)               10,537        
Sale of common stock, net of expense               $ 6,400 3,666,735     3,673,135
Sale of common stock, net of expense (in Shares)               640,000        
Acquisition of common stock in exchange for investment in Videocon Industries Limited global depository receipts                 (4,134,516)     (4,134,516)
Retire common stock repurchased $ (8,000) $ 8,000                    
Retire common stock repurchased (in Shares) (800,000)                      
Warrants issued in connection with issuance of convertible debentures                 513,112     513,112
Common stock issued upon exercise of warrants               $ 536 299,473     300,009
Common stock issued upon exercise of warrants (in Shares)               53,598        
Common stock issued to acquire patent license               $ 480 247,120     247,600
Common stock issued to acquire patent license (in Shares)               48,000        
Satisfaction of loan receivable from former affiliate                   $ 5,000,000   5,000,000
Net Loss                     (9,606,314) (9,606,314)
BALANCE at Oct. 31, 2014             $ 14,000 $ 87,882 148,677,413   (144,769,722) 4,009,573
BALANCE (in Shares) at Oct. 31, 2014             140 8,788,176        
Stock option compensation to employees and consultants                 2,676,309     2,676,309
Common stock issued upon exercise of stock options               $ 173 44,462     44,635
Common stock issued upon exercise of stock options (in Shares)               17,334        
Common stock issued to consultants               $ 116 45,984     46,100
Common stock issued to consultants (in Shares)               11,600        
Repurchase 92,232 shares of common stock and cancellation of warrants to purchase 16,000 shares of common stock                 (343,973)     (343,973)
Acquisition of common stock in exchange for investment in Videocon Industries Limited global depository receipts                       445,000
Retire common stock repurchased               $ (922) 922      
Retire common stock repurchased (in Shares)               (92,232)        
Net Loss                     (1,379,043) (1,379,043)
BALANCE at Oct. 31, 2015             $ 14,000 $ 87,249 $ 151,101,117   $ (146,148,765) $ 5,053,601
BALANCE (in Shares) at Oct. 31, 2015             140 8,724,878        
XML 20 R7.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS` EQUITY (Parentheticals) - shares
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
Treasury Stock, Shares, Acquired 92,232
Class of Warrant or Right, Number of Securities Called by Warrants or Rights 16,000
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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
Reconciliation of net loss to net cash provided by (used in) operating activities:    
Net loss $ (1,379,043) $ (9,606,314)
Stock option compensation to employees and consultants 2,676,309 3,149,799
Common stock issued to consultants 46,100 84,698
Amortization of patents 325,291 314,453
Accretion of interest on patent acquisition obligations to interest expense 451,906 385,770
Loss on acquisition of common stock and warrants to purchase common stock $ 101,280  
Change in value of derivative liability 592,945
Loss on extinguishment of debt 2,699,022
Accrued interest reversed on conversion of convertible debenture   173,833
Amortization of convertible debenture discount charge to interest expense   634,267
Impairment in value of investment in Videocon Industries Limited GDR’s 62,825
Common stock issued to pay interest on convertible debentures   61,778
Common stock issued to acquire patent license   16,400
Other $ 23,195 38,225
Change in operating assets and liabilities:    
Accounts receivable 400,000 (225,000)
Prepaid expenses and other current assets (65,951) 100,069
Accounts payable and accrued expenses (868,661) (27,044)
Royalties and contingent legal fees payable (347,059) 352,333
Deferred revenue   (1,187,320)
Net cash provided by (used in) operating activities 1,363,367 (2,379,261)
Cash flows from investing activities:    
Disbursements to acquire short-term investments in certificates of deposit (2,900,000) (5,200,000)
Proceeds from maturities of short-term investments in certificates of deposit 3,000,000 2,700,000
Purchase of property and equipment (54,776) (6,684)
Net cash provided by (used in) investing activities 45,224 (2,506,684)
Cash flows from financing activities:    
Proceeds from issuance of convertible debentures   3,500,000
Proceeds from sale of common stock, net of expense   3,673,135
Proceeds from exercise of warrants to purchase common stock   300,009
Proceeds from exercise of employee stock options 44,635 75,875
Payments to acquire 92,232 shares of common stock and cancellation of warrants to purchase 16,000 shares of common stock (445,253)  
Payments to redeem convertible securities   (200,000)
Net cash (used in) provided by financing activities (400,618) 7,349,019
Net increase in cash and cash equivalents 1,007,973 2,463,074
Cash and cash equivalents at beginning of year 3,361,246 898,172
Cash and cash equivalents at end of year $ 4,369,219 3,361,246
Supplemental disclosure of non-cash investing and financing activities:    
Non-cash patent acquisition   3,036,011
Common stock issued to acquire patent license   185,600
Common stock issued upon conversion of debentures   2,735,349
Fair value of debenture embedded conversion feature, at issuance   1,570,000
Relative fair value of convertible debenture warrant, at issuance   513,112
Non-cash acquisition of 20,000,000 shares of common stock   4,134,516
Common stock and preferred stock issued upon conversion of convertible debentures due November 2016   5,229,641
Cancellation of loan receivable from former affiliate   (5,000,000)
Cancellation of loan payable to former affiliate   $ 5,000,000
XML 22 R9.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parentheticals) - shares
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
Number of Common Stock Acquired 92,232
Number Of Warrants Cancelled 16,000
Non-cash acquisition of common shares 20,000,000
XML 23 R10.htm IDEA: XBRL DOCUMENT v3.3.1.900
BUSINESS AND FUNDING
12 Months Ended
Oct. 31, 2015
Accounting Policies [Abstract]  
Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block]


1.           BUSINESS AND FUNDING


Description of Business


As used herein, we, us, our, the Company or ITUS means ITUS Corporation and its wholly-owned subsidiaries.  From inception through October 2012, our primary operations involved the development of patented technologies in the areas of thin-film displays and encryption.  In October of 2012 under the leadership of a new management team, the Company undertook a transformation process to recapitalize the Company, unencumber the Companys assets, seek reparations from a previous joint development partner, change the Companys name and ticker symbol, relocate the Companys headquarters and modernize its systems, and monetize patented technologies developed by the Company, or acquired from third parties. In July of 2015, the Companys stock was accepted for listing and began trading on the NASDAQ Capital Market.


In June of 2015, the Company announced the formation of a new subsidiary, Anixa Diagnostics Corporation, to develop non-invasive blood tests for the early detection of solid tumor based cancers. In July of 2015, Anixa entered into a collaborative research agreement  with The Wistar Institute, the nations first independent biomedical research institute and a leading National Cancer Institute designated cancer research center, for the purpose of validating Anixas cancer detection methodologies and establishing protocols for identifying certain biomarkers in the blood stream identified by Anixa and associated with solid tumors. In October of 2015, Anixa and Wistar announced very favorable results from initial testing of a small group of breast cancer patients and healthy controls. One hundred percent (100%) of the blood samples tested from breast cancer patients showed the presence of the biomarkers identified by Anixa, and none of the healthy patient blood samples contained the biomarkers. A more extensive clinical study is currently being conducted.   


Over the next several quarters, we expect Anixa to be the primary focus of the Company. As part of our legacy operations, the Company has outsourced a small development project in connection with one of the Companys thin-film display technologies, and through certain of its subsidiary companies, the Company remains engaged in limited patent licensing activities in the areas of encryption, and advanced materials.  We do not expect these activities to be a significant part of the Companys ongoing operations.


Over the past several quarters, our revenue has been derived from technology licensing and the sale of patented technologies, including in connection with the settlement of litigation. In addition to Anixa, the Company expects to make investments in and form new companies to develop additional emerging technologies.


AUO Lawsuit and Settlement


On December 29, 2014, the Company and AUO Optronics Corporation (AUO) entered into a Settlement Agreement (the Settlement Agreement) and a Patent Assignment Agreement (the Patent Assignment Agreement and together with the Settlement Agreement, the Agreements) pursuant to which the Company received an aggregate of $9,000,000 from AUO.  The Agreements were entered into to resolve a lawsuit filed by the Company against AUO, relating to the Companys patented ePaper® Electrophoretic Display, and Nano Field Emission Display (nFED) technologies.


Background


In May 2011, the Company entered into an Exclusive License Agreement (the EPD License Agreement) and a License Agreement (the Nano Display License Agreement) with AUO (together the AUO License Agreements).  Under the EPD License Agreement, the Company provided AUO with an exclusive, non-transferable, worldwide license to its ePaper® Electrophoretic Display (EPD) patents and technology, in connection with AUO jointly developing EPD products with the Company.  Under the Nano Display License Agreement, the Company provided AUO with a non-exclusive, non-transferable, worldwide license to its Nano Field Emission Display patents and technology, in connection with AUO jointly developing nFED products with the Company.


On January 28, 2013, the Company terminated the AUO License Agreements due to numerous alleged material and continual breaches of the agreements by AUO.  On January 28, 2013, the Company also filed a lawsuit in the United States District Court for the Northern District of California against AUO and E Ink Corporation in connection with the AUO License Agreements, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, fraudulent inducement, unjust enrichment, unfair business practices, and other charges (the AUO/E Ink Lawsuit).  In June 2013, the Company and AUO agreed to arbitrate the charges (the case against E Ink Corporation had been dismissed without prejudice) (the AUO/E Ink Arbitration).


The Agreements


Pursuant to the Settlement Agreement, AUO paid the Company $2,000,000 in U.S. currency, net of any Taiwanese withholding taxes. The Settlement Agreement further provides that:



the Company will dismiss the AUO/E Ink Lawsuit and AUO/E Ink Arbitration, with prejudice;



the AUO License Agreements are terminated;



AUO gives up all rights to the nFED Technology;



for a period of two years, the Company agrees not to initiate (whether on its own or through a third party) any patent infringement lawsuits against AUO or its affiliates alleging infringement by AUOs or AUOs affiliates products or services, for patents owned or controlled by the Company as of the date of the Settlement Agreement.  Any potential damages for patent infringement will toll uninterrupted during this two year period. The prohibition does not apply to patents acquired by the Company after the date of the Settlement Agreement; and



each of AUO and the Company mutually released each other from all claims that either may have against the other in connection with the AUO License Agreements, including any claims relating to the ePaper® Electrophoretic Display and nFED patents and technologies.


 Pursuant to the Patent Assignment Agreement, AUO paid the Company $7,000,000 in U.S. currency, net of any Taiwanese withholding taxes in exchange for the Companys ePaper® Electrophoretic Display patent portfolio for which AUO was previously the exclusive licensee, consisting of:



10 active U.S. patents and 1 U.S. pending patent application; and



103 expired and/or abandoned U.S. and foreign patents and/or patent applications.


In connection with the lawsuit and settlement, the Company incurred a total of approximately $3,604,000 of legal fees and litigation costs.


Unwinding of Business Relationship and Interests with Videocon


On August 29, 2014, the Company and CopyTele International Ltd., a wholly-owned subsidiary of the Company (the Subsidiary), terminated their business relationship (the Business Relationship) with Videocon Industries Limited (Videocon) and Mars Overseas Limited, an affiliate of Videocon (Mars and together with the Company, the Subsidiary and Videocon, the Parties).  The Business Relationship began in November 2007 and related to a proposed joint development effort between the Company and Videocon to develop a certain Nano Field Emission Display technology (the Technology).  In connection with the proposed joint venture, (i) the Company granted a non-transferable, worldwide license to Videocon for the Technology (the License), (ii) the Subsidiary made a $5 million dollar loan to Mars (the Subsidiary Loan), (iii) Mars made an identical $5 million dollar loan to the Subsidiary (the Mars Loan and together with the Subsidiary Loan, the Loans), (iv) the Company sold to Mars 800,000 shares of the Companys common stock (the Shares) and (v) Global EPC Ventures Limited sold to the Company 1,495,845 global depository receipts of Videocon (the GDRs). The Shares and GDRs were subsequently used to secure the Loans.


Because Videocon was unable to continue with its joint development responsibilities, the Technology was not jointly developed by the Parties. Accordingly, the Company and Videocon agreed to terminate the Business Relationship. In order to terminate the Business Relationship, the Parties entered into several agreements whereby: (i) the License was terminated, (ii) both of the Loans were canceled and (iii) the Shares and GDRs were exchanged for each other (collectively, the Termination Transactions). The result of these Termination Transactions was to undo the initial transactions between the Parties that set forth the Business Relationship. Aside from this business relationship there is no other material relationship between the Parties.  In accounting for the unwinding of this business relationship, the Company offset the two loans and then recorded its repurchased shares of common stock at the then current fair value of the GDRs and then retired and cancelled those shares.


Funding


In November 2013, the Company completed a private placement with a single institutional investor, pursuant to which the Company issued a $3,500,000 principal amount 6% convertible debenture due November 11, 2016.  On September 9, 2014, the Company and the holder of the Convertible Debenture agreed to a transaction resulting in the conversion of the principal and accrued interest of the Convertible Debenture into 739,958 shares of the Companys common stock, and the concurrent conversion of 639,159 of such shares of common stock into 3,500 shares of Series A Convertible Preferred Stock.  For further details of this transaction see Note 5 Convertible Debentures herein.


In July 2014, the Company completed the sale of 640,000 shares of its common stock at the offering price of $6.25 per share.  The net proceeds from this sale totaled approximately $3,673,000.  See Note 6, Shareholders Equity Sale of Common Stock for additional information regarding this transaction.


In October 2015, the Company entered into an At Market Issuance Sales Agreement (the Agreement) with National Securities Corporation (National) to create an at-the-market equity program under which it may sell up to $10,000,000 worth of its common stock (the Shares) from time to time through National, as sales agent. The Company has no obligation to sell any of the Shares, and may at any time suspend offers under the Agreement or terminate the Agreement. The Shares will be issued pursuant to the Companys previously filed registration statement that was declared effective by the Securities and Exchange Commission (the "SEC") on September 18, 2015. As of October 31, 2015, no Shares have been sold under the Agreement.


During the year ended October 31, 2015, cash provided by operating activities was approximately $1,363,000.  Cash provided by investing activities was approximately $45,000, which resulted from the proceeds on maturity of certificates of deposit totaling $3,000,000 which was offset by the purchase of certificates of deposit totaling $2,900,000 and the purchase of property and equipment of approximately $55,000.  Our cash used in financing activities was approximately $401,000, which resulted from approximately $445,000 for the repurchase of 92,232 shares of our common stock and the cancellation of warrants to purchase 16,000 shares of our common stock, offset by the proceeds from exercise of stock options of approximately $45,000.  As a result, our cash, cash equivalents, and short-term investments at October 31, 2015 increased approximately $908,000 to approximately $6,769,000 from approximately $5,861,000 at the end of fiscal year 2014.


Based on currently available information as of December 21, 2015, we believe that our existing cash, cash equivalents, short-term investments and expected cash flows will be sufficient to enable us to continue our business activities for at least 12 months.  However, our projections of future cash needs and cash flows may differ from actual results. If current cash on hand, cash equivalents, short term investments and cash that may be generated from our business operations are insufficient to satisfy our liquidity requirements, we may seek to sell equity securities or obtain loans from various financial institutions where possible.  The sale of additional equity securities or convertible debt could result in dilution to our stockholders. Additionally, the sale of equity securities or issuance of debt securities may be subject to certain security holder approvals or may result in the downward adjustment of the exercise or conversion price of our outstanding securities. We can give no assurance that we will generate sufficient cash flows in the future to satisfy our liquidity requirements or sustain future operations, or that other sources of funding, such as sales of equity or debt, would be available or would be approved by our security holders, if needed, on favorable terms or at all.  If we cannot obtain such funding if needed or if we cannot sufficiently reduce operating expenses, we would need to curtail or cease some or all of our operations. 


XML 24 R11.htm IDEA: XBRL DOCUMENT v3.3.1.900
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Oct. 31, 2015
Accounting Policies [Abstract]  
Significant Accounting Policies [Text Block]


2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Basis of Presentation


The consolidated financial statements include the accounts of ITUS Corporation and its wholly owned subsidiaries.  All intercompany transactions have been eliminated.


 Revenue Recognition


Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been substantially performed pursuant to the terms of the arrangement, (iii) amounts are fixed or determinable, and (iv) the collectability of amounts is reasonably assured.


Patent Licensing


In certain instances, our past revenue arrangements have provided for the payment of contractually determined fees in settlement of litigation and in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company.  These arrangements typically include some combination of the following:  (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patented technologies owned or controlled by the Company, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv) the dismissal of any pending litigation.  In such instances, the intellectual property rights granted have been perpetual in nature, extending until the expiration of the related patents.  Pursuant to the terms of these agreements, we had no further obligations.   As such, the earnings process was complete and revenue has been recognized upon the execution of the agreement, when collectability was reasonably assured, and when all other revenue recognition criteria were met.


Display Technology Development and License Fees


We assessed the revenue guidance of Accounting Standards Codification (ASC) 605-25 Multiple-Element Arrangements (ASC 605-25) to determine whether multiple deliverables in our arrangements with AUO represent separate units of accounting.  Under the AUO License Agreements, we received initial development and license fees of $3 million, of aggregate development and license fees of up to $10 million.  The additional $7 million in development and license fees were to be payable upon completion of certain conditions for the respective technologies.  We determined that the transfer of the licensed patents and technology and the effort involved in completion of the conditions for the respective technologies represent a single unit of accounting for each technology.  Accordingly, using a proportional performance method, during the third quarter of fiscal year 2011 we began recognizing the $3 million initial development and license fees over the estimated periods that we expected to complete the conditions for the respective technologies. Each of the license agreements also provided for the basis for royalty payments on future production, if any, by AUO to the Company, which we have determined represent separate units of accounting.  We did not recognize any portion of the $7 million of additional development and license fees or any royalty income under the AUO License Agreements.


As a result of the AUO/E Ink Lawsuit described above we did not record any display technology development and license fee revenue during the period from the fourth quarter of fiscal 2012 through the second quarter of fiscal year 2014 due to uncertainty as to our remaining performance obligations, if any.  Based on our assessment performed for the third quarter of fiscal 2014, we determined that we have no further performance obligations under the AUO License Agreements and accordingly we recognized display technology development and license fee revenue of approximately $1,187,000, representing the balance of the initial $3 million payment received from AUO.


On December 29, 2014, we settled our lawsuit against AUO and received gross proceeds of $9 million which was recognized as revenue in the first quarter of fiscal 2015 (see Note 1 Business and Funding Description of Business - AUO Lawsuit and Settlement ).


Inventor Royalties and Contingent Legal Fees


Inventor royalties and contingent legal fees are expensed in the consolidated statements of operations in the period that the related revenues are recognized.


Anixa Development Expenses


Anixa development expenses are expensed in the consolidated statements of operations in the period incurred.


Fair Value Measurements


ASC 820 Fair Value Measurements and Disclosures (ASC 820) defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements.  In accordance with ASC 820, we have categorized our financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below.  If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.


Financial assets and liabilities recorded in the accompanying consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:


Level 1 - Financial instruments whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market which we have the ability to access at the measurement date.


Level 2 - Financial instruments whose values are based on quoted market prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets.  


Level 3 Financial instruments whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.  These inputs reflect managements own assumptions about the assumptions a market participant would use in pricing the instrument.  


The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of October 31, 2015:


               

  

Level 1

 

Level 2

 

Level 3

 

Total

Money market funds Cash  

   and cash equivalents

        

  $       467,967

 

        

 $                -

 

        

 $              -

 

        

  $          467,967

Certificates of deposit -

   Short term investments

-

 

2,400,000

 

-

 

2,400,000

 

Total financial assets

 

  $       467,967

 

   

      

$ 2,400,000

 

   

 $               -

 

 

  $        2,867,967


The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of October 31, 2014:


  

Level 1


Level 2


Level 3


Total

Money market funds Cash  

   and cash equivalents

        

  $       155,964


        

 $                -


        

 $              -


        

  $          155,964

Certificates of deposit -

   Short term investments

-


2,500,000


-


2,500,000


Total financial assets


  $       155,964


   

$    2,500,000


   

 $               -



  $        2,655,964


The following table presents the hierarchy for our financial liabilities measured at fair value on the transaction date and then adjusted for the subsequent accretion of interest, as of October 31, 2015:


                       

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

Patent acquisition obligation

 

-

 

 

-

 

 $

               3,688,187

 

                3,688,187


The following table presents the hierarchy for our financial liabilities measured at fair value on the transaction date and then adjusted for the subsequent accretion of interest, as of October 31, 2014:


                       

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

Patent acquisition obligation

 

-

 

 

-

 

                3,236,281

 

                3,236,281


The following table sets forth a summary of the changes in the fair value of the Companys Level 3 financial liabilities that are measured at fair value on a recurring basis:


 

For the two
years ended
October 31,
2015

Patent acquisition obligation:

 

Balance October 31, 2013

$

                    -

Initial fair value

        2,850,511

Accretion of interest on patent obligation

 

           385,770

Balance October 31, 2014

        3,236,281

Accretion of interest on patent obligation

 

           451,906

Balance October 31, 2015

$

      3,688,187


Our non-financial assets that are measured on a non-recurring basis include our property and equipment which are measured using fair value techniques whenever events or changes in circumstances indicate a condition of impairment exists.  The estimated fair value of prepaid expenses, accounts payable and accrued expenses approximates their individual carrying amounts due to the short term nature of these measurements.  Cash and cash equivalents are stated at carrying value which approximates fair value.


Cash and Cash Equivalents


Cash equivalents consists of highly liquid, short term investments with original maturities of three months or less when purchased.


Short-term Investments


At October 31, 2015 and 2014, we had certificates of deposit with maturities greater than 90 days when acquired of $2,400,000 and $2,500,000, respectively, that were classified as short-term investments and reported at fair value.   


Patents


Our only identifiable intangible assets are patents and patent rights.  We capitalize patent and patent rights acquisition costs and amortize the cost over the estimated economic useful life.  Patent acquisition costs capitalized during the years ended October 31, 2015 and 2014, was approximately $-0- and $3,036,000, respectively.  We recorded patent amortization expense of approximately $325,000 and $314,000 during the years ended October 31, 2015 and 2014, respectively.


Investment Securities


We classify our investment securities as available-for-sale.  Available-for-sale securities are recorded at fair value.  Unrealized gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a component of accumulated other comprehensive income (loss) until realized.  Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis.  Dividend and interest income are recognized when earned.


We monitor the value of our investments for indicators of impairment, including changes in market conditions and the operating results of the underlying investment that may result in the inability to recover the carrying value of the investment.    


Convertible Instruments


The Company accounts for hybrid contracts that feature conversion options in accordance with applicable generally accepted accounting principles (GAAP).  ASC  815 Derivatives and Hedging Activities, (ASC 815) requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. 


            Conversion options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host instrument.


            The Company accounts for convertible instruments, when the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, in accordance with ASC 470-20 Debt with Conversion and Other Options (ASC 470-20). Under ASC 470-20, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The Company accounts for convertible instruments (when the Company has determined that the embedded conversion options should be bifurcated from their host instruments) in accordance with ASC 815.  Under ASC 815, a portion of the proceeds received upon the issuance of the hybrid contract are allocated to the fair value of the derivative. The derivative is subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.


            The conversion features of the convertible debentures issued in January 2013 and November 2013 qualified as embedded derivative instruments and were bifurcated from the host convertible debentures.  Derivative liabilities are initially recorded at fair value and are then re-valued at each reporting date, with changes in fair value recognized in earnings during the reporting period.


Common Stock Purchase Warrants


The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provides a choice of net-cash settlement or settlement in the Companys own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company's own stock as defined in ASC 815-40 "Contracts in Entity's Own Equity". The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Companys control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).  The Company assesses classification of common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities or equity is required.


Income Taxes


We recognize deferred tax assets and liabilities for the estimated future tax effects of events that have been recognized in our financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.  A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized.


Stock-Based Compensation


We maintain stock equity incentive plans under which we may grant non-qualified stock options, incentive stock options, stock appreciation rights, stock awards, performance and performance-based awards, or stock units to employees, non-employee directors and consultants.


Stock Option Compensation Expense


We account for stock options granted to employees and directors using the accounting guidance in ASC 718 Stock Compensation (ASC 718).  In accordance with ASC 718, we estimate the fair value of service based options and performance based options on the date of grant, using the Black-Scholes pricing model.  For options vesting if the trading price of the Companys common stock achieves a defined target, we use a Monte Carlo simulation in estimating the fair value at grant date. We recognize compensation expense for stock option awards over the requisite or implied service period of the grant.  With respect to performance based awards, compensation expense is recognized when the performance target is deemed probable.  We recorded stock-based compensation expense, related to stock options granted to employees and directors, of approximately $2,192,000 and $2,128,000, during the years ended October 31, 2015 and 2014, respectively.


Included in stock-based compensation cost for employees and directors during the years ended October 31, 2015 and 2014 was approximately $2,092,781 and $1,426,000, respectively, related to the amortization of compensation cost for stock options granted in prior periods but not yet vested.  As of October 31, 2015, there was unrecognized compensation cost related to non-vested stock options granted to employees and directors, related to service based options of approximately $432,000 which will be recognized over a weighted-average period of 1.1 years.


We account for stock options granted to consultants using the accounting guidance included in ASC 505-50 Equity-Based Payments to Non-Employees (ASC 505-50).  In accordance with ASC 505-50, we estimate the fair value of service based stock options and performance based options at each reporting period, using the Black-Scholes pricing model.  For options vesting if the trading price of the Companys common stock achieves a defined target we estimate the fair value at each reporting period using a Monte Carlo simulation.  We recognize compensation expense for service based stock options and options subject to market conditions over the requisite or implied service period of the grant.  For performance based awards, compensation expense is recognized when the performance target is achieved.


We recorded consulting expense, related to stock options granted to consultants, during the years ended October 31, 2015 and 2014 of approximately $484,000 and $1,022,000, respectively. Stock-based consulting expense for the years ended October 31, 2015 and 2014 includes approximately $484,000 and $964,000, respectively, related to the amortization of compensation cost for stock options granted in prior periods but vested in the current period. As of October 31, 2015, there was no unrecognized consulting expense related to non-vested stock options granted to consultants.  


Fair Value Determination  


We use the Black-Scholes pricing model in estimating the fair value of stock options which vest over a specific period of time or upon achieving performance targets.  To determine the weighted average fair value of stock options on the date of grant, employees and directors are included in a single group.  The fair value of stock options granted to consultants is determined on an individual basis.  The stock options we granted during the year ended October 31, 2015 consisted of awards with 10-year terms that vest over one year, options with 10-year terms that vest over 36 months. The stock options we granted during the year ended October 31, 2014 consisted of awards with 10-year terms that vest over one year, options with 10-year terms that vest over 36 months, options with 5-year terms which vest immediately and options with 10-year terms which vest upon achievement of performance milestones.  


The following weighted average assumptions were used in estimating the fair value of stock options granted during the years ended October 31, 2015 and 2014:


For the Year
Ended October 31,

2015

2014

Weighted average fair value at grant date

$3.09

$5.75

Valuation assumptions:

 

 

      Expected life ( years)

  5.75

5.80

      Expected volatility

117.8%

115.3%

      Risk-free interest rate

 2.01%

 1.82%

      Expected dividend yield

0

0


The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding.  We use the simplified method to determine expected term.  The simplified method was adopted since we do not believe that historical experience is representative of future performance because of the impact of the changes in our operations and the change in terms from historical options which vested immediately to terms including vesting periods of up to three years.  Under the Black-Scholes pricing model, we estimated the expected volatility of our shares of common stock based upon the historical volatility of our share price over a period of time equal to the expected term of the options.  We estimated the risk-free interest rate based on the implied yield available on the applicable grant date of a U.S. Treasury note with a term equal to the expected term of the underlying grants.  We made the dividend yield assumption based on our history of not paying dividends and our expectation not to pay dividends in the future.


Under ASC 718, the amount of stock-based compensation expense recognized is based on the portion of the awards that are ultimately expected to vest.  Accordingly, if deemed necessary, we reduce the fair value of the stock option awards for expected forfeitures, which are forfeitures of the unvested portion of surrendered options.  Based on our historical experience and future expectations, we have not reduced the amount of stock-based compensation expenses for anticipated forfeitures.


We will reconsider use of the Black-Scholes pricing model if additional information becomes available in the future that indicates another model would be more appropriate.  If factors change and we employ different assumptions in the application of ASC 718 in future periods, the compensation expense that we record under ASC 718 may differ significantly from what we have recorded in the current period.


Net Loss Per Share of Common Stock


In accordance with ASC 260, Earnings Per Share, basic net loss per common share (Basic EPS) is computed by dividing net loss by the weighted average number of common shares outstanding.  Diluted net loss per common share (Diluted EPS) is computed by dividing net loss by the weighted average number of common shares and dilutive common share equivalents and convertible securities then outstanding.  Diluted EPS for all years presented is the same as Basic EPS, as the inclusion of the effect of common share equivalents then outstanding would be anti-dilutive.  For this reason, excluded from the calculation of Diluted EPS for the years ended October 31, 2015 and 2014, were options to purchase 2,672,471 and 3,002,550 shares, respectively, warrants to purchase 1,028,931 shares and 1,044,931 shares, respectively, preferred stock convertible into 739,958 shares.


Use of Estimates


The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Estimates and assumptions are used for, but not limited to, determining stock-based compensation, asset impairment evaluations, tax assets and liabilities, license fee revenue, the allowance for doubtful accounts, depreciation lives and other contingencies.  Actual results could differ from those estimates.


Effect of Recently Issued Pronouncements


In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-09 (ASU 2014-09), Revenue from Contracts with Customers.  This amendment updates addressing revenue from contracts with customers, which clarifies existing accounting literature relating to how and when a company recognizes revenue. Under the standard, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services.  This standard update is effective for interim and annual reporting periods beginning after December 15, 2016, and are to be applied retrospectively or the cumulative effect as of the date of adoption, with early application not permitted.  In July 2015, a one year deferral of the effective date of the new guidance was approved. We are currently evaluating the impact ASU 2014-09 will have on our consolidated financial statements and related disclosures.


In June 2014, the FASB issued Accounting Standards Update 2014-12 (ASU 2014-12), Compensation Stock Compensation.  This amendment requires that a performance target that affects vesting and could be achieved after the requisite service period shall be treated as a performance condition. Adoption of this standard is required for annual periods beginning after December 15, 2015. Early adoption is permitted. We are currently evaluating the impact ASU 2014-12 will have on our consolidated financial statements and related disclosures.


In August 2014, the FASB issued Accounting Standards Update 2014-15 (ASU 2014-15).  This amendment requires management to assess an entitys ability to continue as a going concern every reporting period including interim periods, and to provide related footnote disclosure in certain circumstances. Adoption of this standard is required for annual periods beginning after December 15, 2016 and are to be applied retrospectively or the cumulative effect as of the date of adoption. We do not expect this update to have a significant impact on our consolidated financial statements.


In April 2015, the FASB issued Accounting Standards Update 2015-03 (ASU 2015-03) to simplify the presentation of debt issuance costs. This amendment requires debt issuance costs be presented on the balance sheet as a direct reduction from the carrying amount of the debt liability, consistent with debt discounts or premiums. Adoption of this standard is required for interim and annual periods beginning after December 15, 2015 and is to be applied retrospectively. We are currently evaluating the impact ASU 2015-03 will have on our consolidated financial statements and related disclosures.


In November 2015, the FASB issued Accounting Standards Update 2015-17 (ASU 2015-17) to simplify the presentation of deferred taxes. This amendment requires that all deferred tax assets and liabilities, along with any related valuation allowances, be classified as noncurrent on the balance sheet.  Adoption of this standard is required for annual periods beginning after December 15, 2016. We are currently evaluating the impact ASU 2015-17 will have on our consolidated financial statements and related disclosures.


Concentration of Credit Risks


Financial instruments that potentially subject us to concentrations of credit risk are cash equivalents, short-term investments and accounts receivable.  Cash equivalents are primarily highly rated money market funds. Short-term investments are certificates of deposit within federally insured limits. Where applicable, management reviews our accounts receivable and other receivables for potential doubtful accounts and maintains an allowance for estimated uncollectible amounts. Our policy is to write-off uncollectable amounts at the time it is determined that collection will not occur.


Three licensees accounted for 53%, 37% and 10%, respectively, of revenues from patent licensing activities during fiscal year 2015. Four licensees accounted for 22%, 16%, 14% and 10%, respectively, of revenues from patent licensing activities during fiscal year 2014.


XML 25 R12.htm IDEA: XBRL DOCUMENT v3.3.1.900
INVESTMENTS
12 Months Ended
Oct. 31, 2015
Investments Schedule [Abstract]  
Investment [Text Block]


3.           INVESTMENTS


Short-term Investments


At October 31, 2015 and October 31, 2014, we had of certificates of deposit totaling $2,400,000 and $2,500,000, respectively.  Terms of the certificates of deposit generally range from greater than three months to nine months.


Investment in Videocon


Our investment in Videocon was classified as an "available-for-sale security" and reported at fair value, with unrealized gains and losses excluded from operations and reported as component of accumulated other comprehensive income (loss) in shareholders equity.  The original cost basis of $16,200,000 was determined using the specific identification method.  The fair value of the Videocon GDRs is based on the price on the Luxembourg Stock Exchange, which price is based on the underlying price of Videocons equity shares which are traded on stock exchanges in India with prices quoted in rupees.   


ASC 320 Investments-Debt and Equity Securities (ASC 320) and SEC guidance on other than temporary impairments of certain investments in equity securities requires an evaluation to determine if the decline in fair value of an investment is either temporary or other than temporary.  Unless evidence exists to support a realizable value equal to or greater than the carrying cost of the investment, an other than temporary impairment should be recorded.  At each reporting period we assessed our investment in Videocon to determine if a decline that is other than temporary has occurred.  In evaluating our investment in Videocon during fiscal year 2014, we determined that based on both the duration and the continuing magnitude of the market price decline compared to the carrying cost, a write-down of the investment of approximately $63,000 should be recorded and a new cost basis of approximately $4,135,000 should be established.  On August 29, 2014, we exchanged the Videocon GDRs for 800,000 shares of our common stock, see Note 1 Business and Funding Description of Business Unwinding of Business Relationship and Interest with Videocon.  On a cumulative basis, we have recorded other than temporary impairments in our investment in Videocon GDRs of approximately $12,065,000.   


The fair value of the Videocon GDRs on August 29, 2014, the date of disposition, was follows:


Investment in
Videocon

Fair Value as of October 31, 2013

 $

   4,197,341

   Other than temporary impairment

 

        (62,825)

Fair value of Videocon GDRs on date of disposition

 $

   4,134,516


XML 26 R13.htm IDEA: XBRL DOCUMENT v3.3.1.900
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
12 Months Ended
Oct. 31, 2015
Payables and Accruals [Abstract]  
Accounts Payable and Accrued Liabilities Disclosure [Text Block]


4.           ACCOUNTS PAYABLE AND ACCRUED EXPENSES


Accounts payable and accrued liabilities consist of the following as of:


           
 

October 31,

 

2015

 

2014

Accounts payable

$

    374,703

  $

   540,179

Payroll and related expenses

 

                 -

   

     372,753

Accrued litigation expense, consulting and other

    professional fees

 

      

                 -

   

    

     320,493

Accrued other

 

         6,062

   

       16,001

 Total

$

    380,765

  $

1,249,426


XML 27 R14.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONVERTIBLE DEBENTURES
12 Months Ended
Oct. 31, 2015
Debt Disclosure [Abstract]  
Debt Disclosure [Text Block]


5.           CONVERTIBLE DEBENTURES


Convertible Debenture due January 2015


In January 2013, the Company received aggregate gross proceeds of $1,765,000 from the issuance of 8% convertible debentures due January 25, 2015 (Convertible Debenture due January 2015), of which $250,000 was received from our current President, Chief Executive Officer and director, and two other directors of the Company. The debentures paid interest quarterly and were convertible into shares of our common stock at a conversion price of $3.75 per share on or before January 25, 2015. The embedded conversion feature had certain weighted average anti-dilution protection provisions which would be triggered if the Company issues its common stock, or certain common stock equivalents, (as defined) at a price below $3.75 per share.  The Company had the option to pay any interest on the debentures in common stock based on the average of the closing prices of  our common stock for the 10 trading days immediately preceding the interest payment date. The Company also had the option to pay any interest on the debentures with additional debentures.  The Company had the right to prepay the debentures at any time without penalty upon 30 days prior notice but only if the sales price of the common stock is at least $7.50 for 20 trading days in any 30-day trading period ending no more than 15 days before the Companys prepayment notice.  In conjunction with the issuance of the debentures, the Company issued warrants (the Convertible Debenture Warrant) to purchase 235,310 shares of its common stock.  Each warrant grants the holder the right to purchase one share of the Companys common stock at the purchase price of $7.50 per share on or before January 25, 2016. The Convertible Debenture Warrant may be exercised on a cashless basis only if there is not an effective registration statement covering such shares.


The Company determined, based upon authoritative guidance, that the conversion feature embedded within the Convertible Debenture due January 2015 should be valued separately and bifurcated from the host instrument and accounted for as a free-standing derivative liability and that the Convertible Debenture Warrant should also be valued and accounted for separately as an equity instrument. 


The Company determined the fair value of each of the three elements included within the Convertible Debenture due January 2015.  The debenture portion (without the conversion feature) bearing interest at 8% was determined to be a debt instrument with a fair value of $1,490,000.  The embedded conversion feature was determined to be a derivative liability with a fair value of $1,180,000.  The Convertible Debenture Warrant was determined to be an equity instrument with a fair value of $370,000.  The Company determined the fair value of each of these instruments based upon the assumptions and methodologies as discussed below.


Since the Convertible Debenture Warrant was determined to be an equity instrument, the Company first computed the relative fair value of the Convertible Debenture due January 2015 (including the value of its conversion feature) with a fair value of $2,670,000 and the Convertible Debenture Warrant with a fair value of $370,000.   Accordingly, the relative fair value of the Convertible Debenture Warrant and the Convertible Debenture due January 2015 (including the value of its conversion feature) was determined to be $214,819 and $1,550,181, respectively.  Then, from the relative fair value of the Convertible Debenture due January 2015, the Company deducted in full the fair value of the embedded conversion feature of $1,180,000.   The discount of $1,394,819 applied to the face value of the Convertible Debenture due January 2015 consists of the sum of the relative fair value of the Convertible Debenture Warrant of $214,819 and the full value of the bifurcated conversion option derivative liability of $1,180,000.  The Convertible Debenture due January 2015 was recorded at a net value of $370,181, representing its face value of $1,765,000, less aggregate discounts for the derivative liability and warrant of $1,394,819, as summarized in the table below.


Face value of Convertible Debenture due January 2015

 

 

 

$

 

1,765,000

Fair value of embedded conversion feature

$

1,180,000


 

 

Relative fair value of Convertible Debenture Warrant

 

214,819


 

 

Discount

$

1,394,819


 

(1,394,819)

Proceeds attributable to the Convertible Debenture due January 2015

 

 


 

$

370,181


Accordingly, the Company accounted for the full amount of the discount as an offset to the Convertible Debenture due January 2015, amortizable under the effective interest method over the term of the debenture.  


The Company calculated the fair value of the embedded conversion feature of the Convertible Debenture due January 2015 using a Monte Carlo simulation, with the observable assumptions as provided in the table below. The significant unobservable inputs used in the fair value measurement of the reporting entitys embedded conversion feature are expected stock prices, levels of trading and liquidity of the Company stock, probability of default of the host instrument, and loss severity in the event of such default. Significant increases in the expected stock prices and expected liquidity would result in a significantly higher fair value measurement. Significant increases in either the probability or severity of default of the host instrument would result in a significantly lower fair value measurement. 


  

As of

January 25,


2013

Stock price on valuation date

$

5.25

Conversion price

$

3.75

Stock premium for liquidity

 

57%

Term (years)

 

2.00

Expected volatility

 

110%

Weighted average risk-free interest rate

 

0.3%

Trials

 

100,000

Aggregate fair value

$

1,180,000


The Company calculated the fair value of the Convertible Debenture Warrant issued on January 25, 2013 using the Black-Scholes option pricing model with the following assumptions: 


 

As of

January 25,


2013

Stock price on valuation date

$

5.25

Exercise price

$

7.50

Stock premium for liquidity

 

38%

Term (years)

 

3.00

Warrant exercise trigger price

 

41%

Expected volatility

 

95%

Weighted average risk-free interest rate

 

0.4%

Number of warrants

 

 5,882,745

Aggregate fair value

$

 370,000


The Company determined the fair value of the Convertible Debenture due January 2015 by preparing an analysis of discounted cash flows, using a discount rate of 18.6%, which the Company deemed appropriate given the Companys current risk scenarios.


In connection with the Convertible Debenture due January 2015, the Company provided compensation to the placement agent consisting of a cash fee of $41,400 and a warrant for the purchase of 11,041 shares of the Companys common stock (Placement Agent Warrant).  The terms of the Placement Agent Warrant are identical to the terms of the Convertible Debenture Warrant, and using Black-Scholes, upon issuance, was determined to have a fair value of $17,360. Assumptions for the valuation of the Placement Agent Warrant were identical to those provided above for the Convertible Debenture Warrant.  In addition, issuance costs included legal fees of approximately $25,000.


The sum of the issuance costs was $83,760, and this cost was allocated as provided below:


Attributable to:

 

Accounting Treatment

 


Amount

The embedded conversion feature (derivative)

 

Expensed as incurred

 

$

55,999

The 8% Convertible Debenture Warrant

 

Charged to additional paid-in capital

 

 

10,194

 

 

 

 

 

 

The 8% Convertible Debenture

 

Recorded as deferred issuance costs and amortized under the interest method over the term of the 8% Convertible Debenture

 

 

17,567

Total

 

 

 

$

83,760


             In connection with the issuance of the Convertible Debenture due January 2015, on April 24, 2013, the Company prepared and filed a registration statement registering for resale the shares of its common stock which may be issued upon the conversion of the debenture consistent with the terms and conditions of the registration rights agreement the Company entered into with the holders of the registrable shares listed above. The registration statement was declared effective by the SEC on June 19, 2013.


The Company has agreed to maintain the effectiveness of the registration statement through the earlier of three years from the date of the issuance of the Convertible Debenture due January 2015 or until Rule 144 of the Securities Act is available to the holders to allow them to sell all of their registrable securities thereunder.


The derivative liability related to the embedded conversion feature was revalued at each reporting period as well as on the date of all conversions, as discussed, below. 


As of October 31, 2013, the Company determined the fair value of the derivative liability to be $540,000, and accordingly, during the year ended October 31, 2013, the Company recorded a gain on the change in the fair value of the derivative liability of approximately $475,000.    As of October 31, 2014, the Company determined the fair value of the derivative liability to be $-0-, as the full value of the Convertible Debenture due January 2015 was converted and/or repaid in full during the year ended October 31, 2014 and accordingly, during the year ended October 31, 2014, the Company recorded a loss on the change in the fair value of the derivative of approximately $1,131,000.   


As of October 31, 2013, the Company calculated the fair value of the embedded conversion feature of the Convertible Debenture due January 2015 using a Monte Carlo simulation, with the observable assumptions as provided in the table below.  The significant unobservable inputs used in the fair value measurement of the reporting entitys embedded conversion feature are expected stock prices, levels of trading and liquidity of the Company stock, probability of default of the host instrument, and loss severity in the event of such default.  Significant increases in the expected stock prices and expected liquidity would result in a significantly higher fair value measurement.  Significant increases in either the probability or severity of default of the host instrument would result in a significantly lower fair value measurement. 


 


As of

October 31,


2013

Stock price on valuation date


$      4.875

Conversion price


$        3.75

Stock premium for liquidity


42%

Term (years)


1.25

Expected volatility


115%

Weighted average risk-free interest rate


0.3%

Trials


100,000

Aggregate fair value

 

$  540,000

 


 


The fair value of the derivative liability associated with the conversions and repayments of the Convertible Debenture due January 2015 was approximately $1,671,000 immediately prior to the conversions and repayments.


As of April 30, 2014, the Convertible Debenture due January 2015 was extinguished in full.  However, the Company needed to determine the fair value of the derivative liability for the embedded conversion feature immediately prior to the conversion, in order to determine the change in the fair value of the derivative for the period. The Company determined to measure the derivative immediately prior to the conversion at its intrinsic value, since this method most fairly measured the value of the derivative liability. The intrinsic value computation is provided below.  


  

As of

April 30,

2014

Stock price used for valuation

$

8.50

 

 

266.68 shares issued per $1,000 face value

Aggregate intrinsic value of the $1,150,000 of principal outstanding on April 30, 2014, immediately prior to conversion and repayment

$

1,456,797

 

 

 


The amortization of debt discount related to the Convertible Debenture due January 2015 was approximately $-0- and $233,000, for the years ended October 31, 2015 and 2014, respectively.


During the year ended October 31, 2013, holders of $325,000 and $5,878 of principal and interest, respectively, of the Convertible Debenture due January 2015, converted their holdings into an aggregate of 86,671 and 805 shares of Common Stock.  During the year ended October 31, 2014, holders of $1,240,000 and $9,000 of principal and interest, respectively, of the Convertible Debenture due January 2015, converted their holdings into an aggregate of 330,683 and 1,185 shares of common stock and holders of $200,000 of principal of the Convertible Debenture due January 2015 consented to prepayment (without conversion) of obligations to them under the instruments prepayment provisions. During the year ended October 31, 2014, in connection with these conversions and prepayments, the Company recorded losses on extinguishment of debt in the amount of $482,915.  These losses represent the excess of the fair value of Common Stock on the date of conversion over the net book value of the debt on the date of conversion.  Since the conversion feature on the Convertible Debenture due January 2015 was determined to be a derivative liability, the net book value includes both the value of the debt, net of discount, and the portion of the derivative liability related to its conversion feature.  


The loss on extinguishment of debt was calculated as follows:


 

Year Ended

October 31,

2014

Face value of debt converted

$

  1,440,000

Less: discount

 

    (658,232)

Plus: fair value of derivative liability

 

  1,670,704

Net book value of debt converted

$

  2,452,472

Fair value of common stock issued

 

  2,935,387

Loss on extinguishment of debt

$

  (482,915)


Convertible Debenture due November 2016  


In November 2013, the Company received aggregate gross proceeds of $3,500,000 from the issuance of 6% convertible debentures due November 11, 2016 (Convertible Debenture due November 2016). The debentures paid interest annually and were convertible into shares of our common stock at a conversion price of $4.73 per share on or before November 11, 2016.  The embedded conversion feature had certain weighted average anti-dilution protection provisions which would be triggered if the Company issues its common stock, or certain common stock equivalents, (as defined) at a price below $3.55 per share.  The Company had the option to pay any interest on the debentures in common stock based on 90% of the volume weighted average closing sales price of our common stock for the 30 trading days immediately preceding the interest payment date.  In conjunction with the issuance of the debentures, the Company issued warrants (the Convertible Debenture Warrant) to purchase 369,979 shares of its common stock.  Each warrant granted the holder the right to purchase one share of the Companys common stock at an initial fixed purchase price of $9.46 per share (see discussion below of amendment to warrant exercise price) on or before November 11, 2016.  The Convertible Debenture Warrant may be exercised on a cashless basis only if there is not an effective registration statement covering such shares.


The Company determined, based upon authoritative guidance, that the conversion feature embedded within the Convertible Debenture due November 2016 should be valued separately and bifurcated from the host instrument and accounted for as a free-standing derivative liability and that the Convertible Debenture Warrant should also be valued and accounted for separately as an equity instrument. 


The Company determined the fair value of each of the three elements included within the Convertible Debenture due November 2016. The debenture portion (without the conversion feature) bearing interest at 6% was determined to be a debt instrument with a fair value of $2,710,000.  The embedded conversion feature was determined to be a derivative liability with a fair value of $1,570,000. The Convertible Debenture Warrant was determined to be an equity instrument with a fair value of $740,000.  The Company determined the fair value of each of these instruments based upon the assumptions and methodologies as discussed below.


Since the Convertible Debenture Warrant was determined to be an equity instrument, the Company first computed the relative fair value of the Convertible Debenture due November 2016 (including the value of its conversion feature) with a fair value of $4,280,000 and the Convertible Debenture Warrant with a fair value of $740,000.   Accordingly, the relative fair value of the Convertible Debenture Warrant and the Convertible Debenture due November 2016 (including the value of its conversion feature) was determined to be $515,936 and $2,984,064, respectively.  Then, from the relative fair value of the Convertible Debenture due November 2016, the Company deducted in full the fair value of the embedded conversion feature of $1,570,000.  The discount of $2,085,936 applied to the face value of the Convertible Debenture due November 2016 consists of the sum of the relative fair value of the Convertible Debenture Warrant of $515,936 and the full value of the bifurcated conversion option derivative liability of $1,570,000.  The Convertible Debenture due November 2016 was recorded at a net value of $1,414,064, representing its face value of $3,500,000, less aggregate discounts for the derivative liability and warrant of $2,085,936, as summarized in the table below. 


Face value of Convertible Debenture due November 2016

 

 

 

$

3,500,000

Fair value of embedded conversion feature

$

1,570,000

 

 

 

Relative fair value of Convertible Debenture Warrant

 

515,936

 

 

 

Discount

$

2,085,936

 

 

(2,085,936)

Proceeds attributable to the Convertible Debenture due November 2016

 

 

$

1,414,064


Accordingly, the Company accounted for the full amount of the discount as an offset to the Convertible Debenture due November 2016, amortizable under the effective interest method over the term of the debenture.


The Company calculated the fair value of the embedded conversion feature of the Convertible Debenture due November 2016 using a Monte Carlo simulation, with the observable assumptions as provided in the table below. The significant unobservable inputs used in the fair value measurement of the reporting entitys embedded conversion feature are expected stock prices, levels of trading and liquidity of the Company stock, probability of default of the host instrument, and loss severity in the event of such default. Significant increases in the expected stock prices and expected liquidity would result in a significantly higher fair value measurement. Significant increases in either the probability or severity of default of the host instrument would result in a significantly lower fair value measurement. 









 

As of

November 11,

2013

Stock price on valuation date

$

5.00

Conversion price

$

4.725

Discount for lack of marketability

 

35.5%

Term (years)

 

3.00

Expected volatility

 

102.8%

Weighted average risk-free interest rate

 

0.62%

Trials

 

100,000

Aggregate fair value

$

1,570,000


 The Company calculated the fair value of the Convertible Debenture Warrant issued on November 11, 2013 using a Black Scholes Model, with the observable assumptions as provided in the table below. The significant unobservable inputs used in the fair value measurement of the reporting entitys warrant value are expected stock prices, levels of trading and liquidity of the Company stock, probability of default of the host instrument, and loss severity in the event of such default. Significant increases in the expected stock prices and expected liquidity would result in a significantly higher fair value measurement. Significant increases in either the probability or severity of default of the host instrument would result in a significantly lower fair value measurement:


 

As of

November 11,

2013

Stock price on valuation date

$

5.00

Exercise price

$

9.45

Discount for lack of marketability

 

22%

Term (years)

 

3.00

Expected volatility

 

102.8%

Weighted average risk-free interest rate

 

0.6%

Number of warrants

 

369,979

Aggregate fair value

$

740,000


The Company determined the fair value of the Convertible Debenture due November 2016 by preparing an analysis of discounted cash flows, using a discount rate of 16.0%, which the Company deemed appropriate given the Companys current risk scenarios.


 In connection with the issuance of the Convertible Debenture due November 2016, the Company incurred legal costs which were allocated as provided below:


 Attributable to:

 

Accounting Treatment

 

 

Amount

The embedded conversion feature (derivative)

 

Expensed as incurred

 

$

8,593

The 8% Convertible Debenture Warrant

 

Charged to additional paid-in capital

 

 

2,824

 

 

 

 

 

 

The 8% Convertible Debenture

 

Recorded as deferred issuance costs and amortized under the interest method over the term of the 8% Convertible Debenture

 

 

7,739

Total

 

 

 

$

19,156


            In connection with the issuance of the Convertible Debenture due November 2016, on February 7, 2014, the Company prepared and filed a registration statement registering for resale the shares of its common stock which may be issued upon the conversion of the debenture and exercise of the warrant consistent with the terms and conditions of the debenture agreement the Company entered into with the holders of the registrable shares listed above.


            The Company has agreed to maintain the effectiveness of the registration statement through the earlier of three years from the date of the issuance of the Convertible Debenture due November 2016 or until Rule 144 of the Securities Act is available to the holders to allow them to sell all of their registrable securities thereunder. 


On September 9, 2014, holders of $3,500,000 and approximately $173,000 of principal and interest, respectively, of the Convertible Debenture due November 2016, converted their holdings into an aggregate of 739,958 shares of common stock the (Conversion Common Stock).   In addition, the Company exchanged and reissued the warrant for the purchase of 369,979 shares of common stock, and upon the reissuance, lowered the exercise price to $7.75 per share.   There was no change to the term of the warrant.


Immediately after the conversion, the holders exchanged 639,158 shares of the Conversion Common Stock into 3,500 shares of Series A Convertible Preferred Stock. Shortly thereafter, the Company retired and cancelled the 639,158 shares of common stock received in the exchange.


In connection with this conversion, the Company recorded a loss on conversion/exchange of approximately $2,216,000, as summarized below. This loss represents the excess of the fair value of the common stock issued, net of the shares of common stock exchanged for the issuance of 3,500 shares of Series A Convertible Preferred Stock, plus the fair value of the Series A Convertible Preferred Stock, on the date of the conversion, over the net book value of the debt on the date of conversion. Since the conversion feature on the Convertible Debenture due November 2016 was determined to be a derivative liability, the net book value includes the value of the debt, net of debt discount and deferred issuance costs, plus accrued interest and the derivative liability related to the conversion feature (after being marked to market) on the conversion date, and the change in the fair value of the warrant on the date of the conversion. Because the conversion rate of the Series A Convertible Preferred Stock of $4.73 per share was less than the Companys closing stock price on the date of this transaction, the Company determined that the Series A Convertible Preferred Stock contained a beneficial conversion feature. The beneficial conversion feature was recorded in additional paid-in-capital as a result of the Companys accumulated deficit.


The loss on extinguishment of debt was determined as follows: 


     

 

 

Securities extinguished:

 

Face value of convertible debenture converted

$

3,500,000

Less: debt discount

 

(1,684,801)

Less: deferred issuance costs

 

(7,739)

Plus: accrued interest

 

173,833

Plus: fair value of derivative liability

 

1,032,241

Plus: fair value of warrant exchanged in connection with the conversion

 

805,000

Net book value of converted debenture, accrued interest, derivative   

   liability and warrant exchanged

 

3,818,534

Securities issued in conversion/exchange:

 

 

Fair value of 100,800 shares of common stock issued, net (739,958

   shares of Conversion Common Stock issued, less 639,158 shares

   exchanged for 3,500 shares of Series A Convertible Preferred Stock)

 

617,400

Fair value of 3,500 shares of Series A Convertible Preferred Stock (based

   on a stated value per share of $1,000 and a conversion rate of $4.73)

 

4,532,241

Fair value of warrant issued September 9, 2014

 

885,000

Subtotal of securities issued in conversion/exchange

 

6,034,641

(Loss) on conversion/exchange

$

(2,216,107)


On September 9, 2014, the Convertible Debenture due November 2016 was extinguished in full.  The Company needed to determine the fair value of the derivative liability for the embedded conversion feature immediately prior to the conversion, in order to determine the change in the fair value of the derivative for the period. The Company determined to measure the derivative immediately prior to the conversion at its intrinsic value, since this method most fairly measured the value of the derivative liability. The intrinsic value computation is provided below.


 

On September 9,

2014

Stock price used for valuation

$

6.125

 

 

211.4 shares issued per $1,000 of face value

Aggregate gross intrinsic value of the $3,500,000 of principal outstanding on September 8, 2014, immediately prior to conversion

 

4,532,241

Less the face value of the convertible debenture

 

(3,500,000)

Intrinsic value of the derivative conversion feature

 $

 1,032,241


The derivative liability related to the embedded conversion feature was revalued at each reporting period as well as on the date of all conversions. The value of the derivative liability associated with the conversion of the Convertible Debenture due November 2016 during the year ended October 31, 2014 was approximately $1,032,000. As of October 31, 2014, the Company determined the fair value of the derivative liability to be $-0-, as the full value of the Convertible Debenture due November 2016 was converted in full during the year ended October 31, 2014.  During the year ended October 31, 2014, the Company recorded gains on the change in fair value of the derivative liability of approximately $538,000.


The Company calculated the fair value of the embedded conversion feature of the Convertible Debenture due November 2016 using a Monte Carlo simulation. The significant unobservable inputs used in the fair value measurement of the reporting entitys embedded conversion feature are expected stock prices, levels of trading and liquidity of the Company stock, probability of default of the host instrument, and loss severity in the event of such default.  Significant increases in the expected stock prices and expected liquidity would result in a significantly higher fair value measurement. Significant increases in either the probability or severity of default of the host instrument would result in a significantly lower fair value measurement.


The amortization of debt discount related to the Convertible Debenture due November 2016 for the years ended October 31, 2015 and 2014 was approximately $-0- and $401,000, respectively.


XML 28 R15.htm IDEA: XBRL DOCUMENT v3.3.1.900
SHAREHOLDERS' EQUITY
12 Months Ended
Oct. 31, 2015
Stockholders' Equity Note [Abstract]  
Stockholders' Equity Note Disclosure [Text Block]


6.           SHAREHOLDERS EQUITY


Sale of Common Stock


On July 15, 2014, the Company, raised $4,000,000 of gross proceeds via a registered direct offering of its common stock to certain investors (the Investors) (the Offering). The Company sold an aggregate of 640,000 shares of common stock and warrants to purchase an aggregate of 320,000 shares of common stock. The purchase price of one share of common stock and a warrant to purchase ½ of a share of common stock was $6.25.  The warrants are exercisable immediately as of the date of issuance at an exercise price of $10.00 per share and expire five years from the date of issuance. The exercise price of the warrants is subject to customary adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions.  Under certain circumstances, the Company has the right to call for cancellation of warrants for which a notice of exercise has not yet been delivered for consideration equal to $.025 per share.  The Offering was effected as a takedown off the Companys shelf registration statement on Form S-3, which became effective on April 25, 2014, pursuant to a prospectus supplement filed with the SEC.


Reverse Stock Split


On June 26, 2015, we effected a 1-for-25 reverse stock split (the Stock Split) of our issued common stock and preferred stock.  Each shareholders percentage ownership and proportional voting power remained unchanged as a result of the Stock Split.  All applicable share data, per share amounts and related information in the consolidated financial statements and notes thereto have been adjusted retroactively to give effect to the Stock Split.  As a result of the Stock Split, the number of shares of our common stock and preferred stock authorized was also decreased by the same proportion as the outstanding shares.


Common Stock Issuances


During the years ended October 31, 2015 and 2014, we issued 11,600 shares and 12,400 shares, respectively, of common stock to consultants for services rendered, pursuant to the 2010 Share Plan.  We recorded consulting expense for the years ended October 31, 2015 and 2014 of approximately $46,000 and $85,000, respectively, for shares of common stock issued to consultants.  


Stock Option Plans


As of October 31, 2015, we have two stock option plans: the 2003 Share Plan and the 2010 Share Plan which were adopted by our Board of Directors on April 21, 2003 and July 14, 2010, respectively.


The 2003 Share Plan provides for the grant of nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to key employees and consultants.  The maximum number of shares of common stock in the 2003 Share Plan was 2,800,000 shares. The 2003 Share Plan was administered by the Stock Option Committee through June 2004, from June 2004 through July 2010, by the Board of Directors, from July 2010 through August 2012, by the Stock Option Committee, from August 2012 through November 2012, by the Executive Committee of the Board of Directors and since November 2012, by the Board of Directors, which determined the option price, term and provisions of each option.  The exercise price with respect to all of the options granted under the 2003 Share Plan since its inception was equal to the fair market value of the underlying common stock at the grant date. In accordance with the provisions of the 2003 Share Plan, the plan terminated with respect to the grant of future options on April 21, 2013.


Information regarding the 2003 Share Plan for the two years ended October 31, 2015 is as follows:




 

Shares

 

Weighted
Average Exercise
Price Per Share

 

Aggregate
Intrinsic Value

 

 

 

 

Options Outstanding at October 31, 2013

625,554

$

18.00

 

  Exercised

(17,400)

$

  3.63

 

  Forfeited

(114,163)

$

19.75

 

Options Outstanding  at October 31, 2014

493,991

$

18.00

 

  Exercised

 (4,000)

$

  2.58

 

  Forfeited

(123,771)

$

14.71

 

Options Outstanding and Exercisable at October 31, 2015

   366,200

$

17.86

$

61,665


The following table summarizes information about stock options outstanding and exercisable under the 2003 Share Plan as of October 31, 2015:


Range of
Exercise Prices

Number
Outstanding

Weighted Average
Remaining

Contractual Life

(in years)

Weighted Average
Exercise Price

$  1.79 - $  9.25

73,880

1.75

$  2.91

$14.75 - $17.25

59,600

1.33

$16.75

$18.75 - $23.00

192,720

1.14

$21.57

$29.25

40,000

1.80

$29.25


The 2010 Share Plan provides for the grant of nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to key employees and consultants.  The maximum number of shares of common stock in the 2010 Share Plan was initially 600,000 shares. On July 6, 2011, the 2010 Share Plan was amended by our Board of Directors to increase the maximum number of shares of common stock in the plan to 1,080,000 shares and on August 29, 2012, the maximum number of shares in the plan was further increased to 1,200,000 shares.  On November 8, 2013, the Board of Directors approved an amendment to provide that effective November 8, 2013, the maximum aggregate number of shares available for future issuance will be 800,000 shares and that on the first business day in 2014 and on the first business day of each calendar year thereafter the maximum aggregate number of shares available for future issuance shall be replenished such that 800,000 shares will be available. Accordingly, on November 8, 2013, January 2, 2014 and January 2, 2015, the number of shares in the 2010 Share Plan was increased to 1,956,999 shares, 2,225,399 shares and 2,569,399 shares, respectively.  In addition, on November 8, 2013, the 2010 Share Plan was amended to provide that on January 2nd of each year commencing on January 2, 2014, each non-employee director of the Company at that time shall automatically be granted a 10 year stock option to purchase 12,000 shares of common stock (16,000 for the Chairman) that will vest in four equal quarterly installments. The 2010 Share Plan was administered by the Stock Option Committee through August 2012, from August 2012 through November 2012, by the Executive Committee of the Board of Directors and since November 2012, by the Board of Directors, which determines the option price, term and provisions of each option. The exercise price with respect to all of the options granted under the 2010 Share Plan was equal to the fair market value of the underlying common stock at the grant date.  As of October 31, 2015, the 2010 Share Plan had 988,995 shares available for future grants.


Information regarding the 2010 Share Plan as of October 31, 2015 is as follows:



Shares

 

 Weighted Average Exercise Price Per Share

 

Aggregate Intrinsic Value





Options Outstanding at October 31, 2013

      119,360

           $6.13

 

  Granted

      612,400

           $5.75

 

  Exercised

         (3,200)

           $4.00

    

Options Outstanding at October 31,  2014

      728,560

           $5.75

 

Granted

        60,400

           $2.91

 

  Exercised

      (13,334)

           $2.58

 

  Forfeited

     (249,355)

           $6.24

 

Options Outstanding at October 31,  2015

      526,271

           $3.33

 $ 471,292

Options Exercisable at October 31, 2015

      406,149

           $3.40

 $ 342,572


The following table summarizes information about stock options outstanding under the 2010 Share Plan as of October 31, 2015:


                   
 

Options Outstanding

 

Options Exercisable

Range of
Exercise
Prices

Number
Outstanding

Weighted Average
Remaining
Contractual Life

(in years)

Weighted Average
Exercise Price

 

Number
Exercisable

Weighted Average
Remaining
Contractual Life
(in years)

Weighted Average
Exercise Price

 

 

 

 

 

 

 

 

$2.58 - $9.25

526,271

6.98

$3.33

 

406,149

6.57

$3.40

 

 

 

 

 

 

 

.


In addition to options granted under the 2003 Share Plan and the 2010 Share Plan, in September 2012, the Board of Directors approved the grant of stock options to purchase 1,660,000 shares and, during the year ended October 31, 2013, the Board of Directors approved the grant of stock options to purchase 120,000 shares.


Of the stock options granted in September 2012, nonqualified options to purchase 1,600,000 shares were issued to our new executive team, consisting of 640,000 stock options issued to our new President and Chief Executive Officer, 320,000 stock options issued to our new Senior Vice President of Engineering and 640,000 stock options issued to a new strategic advisor to the Company who was also a Director.  These stock options had an exercise price of $5.44 (the average of the high and the low sales price of the common stock on the trading day immediately preceding the approval of such options by the Board of Directors) and have a term of ten years.  Half of these stock options vest in 36 equal monthly installments commencing on October 31, 2012, provided that if the grantees are terminated by the Company without cause, an additional 12 months of vesting will be accelerated and such accelerated options will become immediately exercisable.  The balance of the stock options will vest in three equal installments upon achievement of a cash milestone, which was satisfied in the fourth quarter of fiscal 2013, and two stock price targets, which were not achieved in fiscal 2013.  In November 2013, in light of the cost and expense of revaluing the unvested portion of the performance-based stock options on a quarterly basis for financial reporting purposes, the Board of Directors approved an amendment to the performance-based stock options awarded on September 19, 2012 to the President and Chief Executive Officer, Senior Vice President of Engineering and the strategic advisor. The amendment modifies the option awards vesting conditions to provide that the unvested portion of the stock options vest in 23 consecutive monthly installments commencing November 30, 2013.  The fair value of these options was recalculated to reflect the change to service based options as of November 8, 2013 and the unrecognized compensation amount was adjusted to reflect the increase in fair value.  As of October 31, 2015, the options to purchase 1,600,000 shares were exercisable and had an intrinsic value of $1,832,000, based on our closing share price on October 31, 2015 of $3.72.  These stock options otherwise have the same terms and conditions as options granted under the Companys 2010 Share Incentive Plan.


The remaining nonqualified stock options granted in September 2012 to purchase 60,000 shares consisted of grants of 30,000 stock options to our Chairman in compensation for his service as interim Chief Executive Officer of the Company and as compensation for his prior service as a director, and 30,000 stock options to a director in compensation for his service in recruiting the Companys new management team.  These stock options had an exercise price of $5.56 (the average of the high and low sales price on September 21, 2012).  The options vest in 3 equal annual installments commencing on September 21, 2012 and have a term of ten years.   As of October 31, 2015, these options were exercisable and had an intrinsic value of approximately $34,000, based on our closing share price on October 31, 2015 of $3.72.  These stock options otherwise have the same terms and conditions as options granted under the Companys 2010 Share Incentive Plan.  


During the year ended October 31, 2013, nonqualified stock options to purchase 120,000 shares were granted to our outside directors for service rendered to our Company.  Of these options,


(a)  In November 2012, nonqualified stock options to purchase 40,000 shares were issued to one of our directors as additional compensation for service in recruiting the Companys new management team.  These options have an exercise price of $5.28 (the average of the high and low sales price on date of grant) and vested 13,334 shares upon grant and 13,333 shares in two annual installments commencing November 30, 2013.  


(b) In February 2013, nonqualified stock options to purchase 40,000 shares were issued to the Chairman of the Board.  These stock options had an exercise price of $5.88 (the average of the high and low sales price on date of grant) and vest 13,334 shares upon grant and 13,333 shares in two annual installments commencing February 15, 2014.  


(c) In March 2013, nonqualified stock options to purchase an aggregate of 40,000 shares were granted to the Companys three outside directors.  Each of these stock options had an exercise price of $4.88 (the average of the high and low sales price on date of grant) and vest in four equal quarterly installments commencing March 31, 2013.


As of October 31, 2015, the options to purchase 120,000 shares were exercisable and had an intrinsic value of approximately $92,000, based on our closing share price on October 31, 2015 of $3.72.  These options otherwise have the same terms and conditions as options granted under the Companys 2010 Share Incentive Plan.  


The following table summarizes information about the above outstanding and exercisable stock options that were not granted under the 2003 Share Plan or the 2010 Share Plan as of October 31, 2015:


             

Range of
Exercise Prices

 

Number
Outstanding

 

Weighted Average
Remaining
Contractual Life

(in years)

 

Weighted Average
Exercise
Price

$ 2.58 - $ 5.56

 

1,780,000

 

6.76

 

$  2.71

 

 

 

 

 

 

.


On January 28, 2015, the Board of Directors authorized management of the Company to re-price issued and outstanding stock options for all of the officers, directors and employees of the Company, at any time prior to February 16, 2015.  On February 5, 2015, management acted to re-price 2,184,125 issued and outstanding stock options (the Re-Priced Options) pursuant to the authority granted by the Board of Directors. The new exercise price of the Re-Priced Options is $2.575, the closing sales price of the Companys common stock on February 5, 2015.  All other terms of the previously granted Re-Priced Options remain the same.  The Company recorded additional stock-based compensation of approximately $297,000, as of February 5, 2015, related to this re-pricing.  This amount was determined to be the incremental value of the fair value of the Re-Priced Options compared to the fair value of the original option immediately before the re-pricing.


Preferred Stock


In May 1986, our shareholders authorized 200,000 shares of preferred stock with a par value of $100 per share.  The shares of preferred stock may be issued in series at the direction of the Board of Directors, and the relative rights, preferences and limitations of such shares will all be determined by the Board of Directors.  


Series A Convertible Preferred Stock


On September 9, 2014, the Company designated 140 shares of the preferred stock as Series A Convertible Preferred Stock, par value $100 per share, in accordance with the Certificate of Designation of Series A Convertible Preferred Stock filed with the Secretary of State of the State of Delaware on September 9, 2014 (the Series A Convertible Preferred Stock).  On September 9, 2014, 140 shares of Series A Convertible Preferred Stock were issued in connection with the conversion of the Convertible Debenture due November 2016, as discussed further, in Note 5, Convertible Debentures herein.


Ranking 


The Series A Convertible Preferred Stock ranks senior to the Companys common stock, to all series of any other classes of equity which may be issued and to any indebtedness, unless the Company has obtained the prior written consent of the Series A Convertible Preferred Stock holder.


Optional Conversion


Holders of the Series A Convertible Preferred Stock may at any time convert their shares of Series A Convertible Preferred Stock into such number of shares of the Companys common stock in such an amount equal to (a) the stated value (initially $1,000) of the shares of Series A Convertible Preferred Stock being converted (the Stated Value), divided by the conversion price (initially $4.73) ( the Series A Conversion Price), multiplied by (b) the number of shares of Series A Preferred Stock being converted.  In the event the Series A Convertible Preferred Stock is converted in part, the Company shall deliver a new certificate of like tenor in the amount equal to the remaining balance of the Series A Convertible Preferred Stock after giving effect to such partial conversion.


The holder shall not have the right to convert any portion of the Series A Convertible Preferred Stock if after giving effect to such conversion, the holder, together with any affiliate thereof, would beneficially own in excess of 4.99% of the number of shares of common stock outstanding immediately after giving effect to such conversion.


The embedded conversion option has certain anti-dilution protection provisions which would be triggered if the Company issues its common stock, or certain common stock equivalents, (as defined) at a price below $3.55 per share.   


Mandatory Conversion


At any time after November 11, 2016, if and only if the average of the high and low trading prices of the Companys common stock for any 10 out of 20 consecutive trading days (the Measurement Period,) exceeds the then Series A Conversion Price, as adjusted, the Company may convert any then outstanding shares of Series A Convertible Preferred Stock into shares of common stock (a Mandatory Conversion), provided, however, that any such Mandatory Conversion shall not require a holder to convert a number of shares of Series A Convertible Preferred Stock into an amount of Common Stock that would exceed 50% of the daily average trading volume of the common stock during the Measurement Period. Following November 11, 2016 and subject to the price and volume limitations set forth above, the Company may require such number of successive Mandatory Conversions as are necessary to convert all then outstanding Series A Convertible Preferred Stock.


Redemption


At any time on or after November 11, 2016 (the Redemption Date), and upon at least 60 days prior written notice to the Company (a Redemption Notice), any holder of the Series A Convertible Preferred Stock shall have a one-time right to require the Company to redeem all or some of its shares of Series A Convertible Preferred Stock (a Redemption), for cash generated from a subsequent sale of the Companys equity securities.   The redemption price shall be equal to the Stated Value for each share of Series A Convertible Preferred Stock (the Redemption Purchase Price).  Upon receipt of a Redemption Notice, the Company shall complete a sale or sales of its equity securities for the purpose of accumulating net proceeds sufficient to pay the Redemption Purchase Price (it being understood by the holder of the Series A Convertible Preferred Stock that the Company may only redeem shares of Series A Convertible Preferred Stock with the proceeds from the sale of the Companys equity securities).


Board and Observer Rights


Each holder of Series A Convertible Preferred Stock shall have the right, upon 10 days' prior written notice, to designate one representative, reasonably acceptable to the Company, who shall be entitled to attend and observe meetings of the Companys Board of Directors in a non-voting observer capacity (the Observer).


Accounting for the Series A Convertible Preferred Stock


The Company determined that the economic characteristics and risks of the conversion feature and the preferred stock instrument were clearly and closely related as equity instruments and accordingly, the conversion feature would not require separate accounting.   In addition, the redemption feature is contingent upon Series A Convertible Preferred Stock not being converted into common stock and upon the holders delivering a redemption notice to the Company.   Further, the redemption purchase price may only be paid from the proceeds of a subsequent sale of equity securities. Accordingly, the Series A Convertible Preferred Stock was accounted for as an equity instrument. Further, because the conversion rate of the Series A Convertible Preferred Stock of $4.73 per share was less than the Companys closing stock price on the date of this transaction, the Company determined that the Series A Convertible Preferred Stock contained a beneficial conversion feature. The beneficial conversion feature was recorded in additional paid-in-capital as a result of the Companys accumulated deficit.


XML 29 R16.htm IDEA: XBRL DOCUMENT v3.3.1.900
COMMITMENTS AND CONTINGENCIES
12 Months Ended
Oct. 31, 2015
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Disclosure [Text Block]


7.           COMMITMENTS AND CONTINGENCIES


Patent Acquisition Obligations


As of October 31, 2015, we have incurred obligations due no later than November 2017 related to the acquisition of patents, which have a discounted present value of approximately $3,688,000, and which amount will be reduced by royalties paid during the period, if any.  The payment due in November 2017 is payable at the option of the Company in cash or common stock.  We recorded interest expense of approximately $452,000 and $386,000, respectively, for the  years ended October 31, 2015 and 2014, for the accretion of interest on patent acquisition obligations.


Leases


We lease approximately 3,000 square feet of office space in Los Angeles, California pursuant to a lease that expires March 30, 2016.  As of October 31, 2015, our non-cancelable operating lease commitments for the year ending October 31, 2016 was approximately $44,000.  Rent expense for the years ended October 31, 2015 and 2014, was approximately $100,000 and $109,000, respectively.  


Litigation Matters


On December 29, 2014, we settled our lawsuit against AUO which had been filed on January 28, 2013. For a more detailed description of the settlement with AUO see Note 1, Business and Funding - Description of Business - AUO Lawsuit and Settlement.


Other than suits we bring to enforce our patent rights we are not a party to any material pending legal proceedings other than that which arise in the ordinary course of business.  We believe that any liability that may ultimately result from the resolution of these matters will not, individually or in the aggregate, have a material adverse effect on our financial position or results of operations.


XML 30 R17.htm IDEA: XBRL DOCUMENT v3.3.1.900
INCOME TAXES
12 Months Ended
Oct. 31, 2015
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]


8.           INCOME TAXES    


Income tax provision (benefit) consists of the following:


           
 

Year Ended October 31,

 

2015

 

2014

Federal:

 

 

   

 

Current

$

                 -

  $

               -

Deferred

 

(487,000)

   

(1,606,000)

State:

 

 

   

 

Current

 

-

   

-

Deferred

 

(120,000)

   

 (1,000)

Adjustment to valuation allowance related

   to net deferred tax assets

 

607,000

   

 

 1,607,000

Income tax provision (benefit) $

                    -

  $

                    -


The tax effects of temporary differences that give rise to significant portions of the deferred tax asset, net, at October 31, 2015 and 2014, are as follows:


   

2015

 

2014

 

Long-term deferred tax assets:

 

 

   

 

 

   Federal and state NOL and tax credit carryforwards

$

    31,261,000

  $

   31,864,000

 

   Deferred compensation

 

6,522,000

   

5,437,000

 

   Intangibles

 

483,000

   

              -

 

   Other

 

282,000

   

359,000

 

      Subtotal

 

38,548,000

   

37,660,000

 

           

 

Less: valuation allowance

 

(38,548,000)

   

(37,660,000)

 

Deferred tax asset, net

$

          -

  $

             -


As of October 31, 2015, we had tax net operating loss and tax credit carryforwards of approximately $75,642,000 and $1,110,000, respectively, available within statutory limits (expiring at various dates between 2016 and 2035), to offset any future regular Federal corporate taxable income and taxes payable.  If the tax benefits relating to deductions of option holders income are ultimately realized, those benefits will be credited directly to additional paid-in capital.  Certain changes in stock ownership can result in a limitation on the amount of net operating loss and tax credit carryovers that can be utilized each year. As of October 31, 2015, management has not determined the extent of any such limitations, if any.


We had New York State tax net operating loss and tax credit carryforwards of approximately $72,505,000 and $11,000, respectively, and California tax net operating loss carryforward of approximately $2,803,000, as of October 31, 2015, available within statutory limits (expiring at various dates between 2016 and 2035), to offset future corporate taxable income and taxes payable, if any, under certain computations of such taxes.


We have provided a valuation allowance against our deferred tax asset due to our current and historical pre-tax losses and the uncertainty regarding their realizability.  The primary differences from the Federal statutory rate of 34% and the effective rate of 0% is attributable to certain permanent differences and a change in the valuation allowance.  The following is a reconciliation of income taxes at the Federal statutory tax rate to income tax expense (benefit):


 

Year Ended October 31,

 

2015

2014

Income tax benefit at U.S.

   Federal statutory income

   Tax rate

 

 

$     (469,000)

 

 

   (34.00%)

 

 

$    (3,266,000)

 

 

   (34.00%)

State income taxes

(117,000)

  (8.50%)

        (6,000)

(.06%)

Permanent differences

      1,000

.10%

1,529,000

15.92%

Expiring net operating

   losses, credits and other

  

       (22,000)

 

   (1.60%)

  

  115,000

 

1.19%

Foreign rate difference on

   impairment

-

0%

21,000

.22%

Change in valuation  

   allowance

 

       607,000

 

44.00%

 

 1,607,000

 

 16.73%

Income tax provision

$                 -

0%

$                 -

0%


During the two fiscal years ended October 31, 2015, we incurred no Federal and no State income taxes.  We have no unrecognized tax benefits as of October 31, 2015 and 2014 and we account for interest and penalties related to income tax matters in marketing, general and administrative expenses.  Tax years to which our net operating losses relate remain open to examination by Federal authorities and other jurisdictions to the extent which the net operating losses have yet to be utilized.


XML 31 R18.htm IDEA: XBRL DOCUMENT v3.3.1.900
Accounting Policies, by Policy (Policies)
12 Months Ended
Oct. 31, 2015
Accounting Policies, by Policy (Policies) [Line Items]  
Basis of Presentation and Significant Accounting Policies [Text Block]

Basis of Presentation


The consolidated financial statements include the accounts of ITUS Corporation and its wholly owned subsidiaries.  All intercompany transactions have been eliminated.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition


Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been substantially performed pursuant to the terms of the arrangement, (iii) amounts are fixed or determinable, and (iv) the collectability of amounts is reasonably assured.


Patent Licensing


In certain instances, our past revenue arrangements have provided for the payment of contractually determined fees in settlement of litigation and in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company.  These arrangements typically include some combination of the following:  (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patented technologies owned or controlled by the Company, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv) the dismissal of any pending litigation.  In such instances, the intellectual property rights granted have been perpetual in nature, extending until the expiration of the related patents.  Pursuant to the terms of these agreements, we had no further obligations.   As such, the earnings process was complete and revenue has been recognized upon the execution of the agreement, when collectability was reasonably assured, and when all other revenue recognition criteria were met.


Display Technology Development and License Fees


We assessed the revenue guidance of Accounting Standards Codification (ASC) 605-25 Multiple-Element Arrangements (ASC 605-25) to determine whether multiple deliverables in our arrangements with AUO represent separate units of accounting.  Under the AUO License Agreements, we received initial development and license fees of $3 million, of aggregate development and license fees of up to $10 million.  The additional $7 million in development and license fees were to be payable upon completion of certain conditions for the respective technologies.  We determined that the transfer of the licensed patents and technology and the effort involved in completion of the conditions for the respective technologies represent a single unit of accounting for each technology.  Accordingly, using a proportional performance method, during the third quarter of fiscal year 2011 we began recognizing the $3 million initial development and license fees over the estimated periods that we expected to complete the conditions for the respective technologies. Each of the license agreements also provided for the basis for royalty payments on future production, if any, by AUO to the Company, which we have determined represent separate units of accounting.  We did not recognize any portion of the $7 million of additional development and license fees or any royalty income under the AUO License Agreements.


As a result of the AUO/E Ink Lawsuit described above we did not record any display technology development and license fee revenue during the period from the fourth quarter of fiscal 2012 through the second quarter of fiscal year 2014 due to uncertainty as to our remaining performance obligations, if any.  Based on our assessment performed for the third quarter of fiscal 2014, we determined that we have no further performance obligations under the AUO License Agreements and accordingly we recognized display technology development and license fee revenue of approximately $1,187,000, representing the balance of the initial $3 million payment received from AUO.


On December 29, 2014, we settled our lawsuit against AUO and received gross proceeds of $9 million which was recognized as revenue in the first quarter of fiscal 2015 (see Note 1 Business and Funding Description of Business - AUO Lawsuit and Settlement ).


Inventor Royalties and Contingent Legal Fees


Inventor royalties and contingent legal fees are expensed in the consolidated statements of operations in the period that the related revenues are recognized.


Anixa Development Expenses


Anixa development expenses are expensed in the consolidated statements of operations in the period incurred.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value Measurements


ASC 820 Fair Value Measurements and Disclosures (ASC 820) defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements.  In accordance with ASC 820, we have categorized our financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below.  If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.


Financial assets and liabilities recorded in the accompanying consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:


Level 1 - Financial instruments whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market which we have the ability to access at the measurement date.


Level 2 - Financial instruments whose values are based on quoted market prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets.  


Level 3 Financial instruments whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.  These inputs reflect managements own assumptions about the assumptions a market participant would use in pricing the instrument.  


The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of October 31, 2015:


               

  

Level 1

 

Level 2

 

Level 3

 

Total

Money market funds Cash  

   and cash equivalents

        

  $       467,967

 

        

 $                -

 

        

 $              -

 

        

  $          467,967

Certificates of deposit -

   Short term investments

-

 

2,400,000

 

-

 

2,400,000

 

Total financial assets

 

  $       467,967

 

   

      

$ 2,400,000

 

   

 $               -

 

 

  $        2,867,967


The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of October 31, 2014:


  

Level 1


Level 2


Level 3


Total

Money market funds Cash  

   and cash equivalents

        

  $       155,964


        

 $                -


        

 $              -


        

  $          155,964

Certificates of deposit -

   Short term investments

-


2,500,000


-


2,500,000


Total financial assets


  $       155,964


   

$    2,500,000


   

 $               -



  $        2,655,964


The following table presents the hierarchy for our financial liabilities measured at fair value on the transaction date and then adjusted for the subsequent accretion of interest, as of October 31, 2015:


                       

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

Patent acquisition obligation

 

-

 

 

-

 

 $

               3,688,187

 

                3,688,187


The following table presents the hierarchy for our financial liabilities measured at fair value on the transaction date and then adjusted for the subsequent accretion of interest, as of October 31, 2014:


                       

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

Patent acquisition obligation

 

-

 

 

-

 

                3,236,281

 

                3,236,281


The following table sets forth a summary of the changes in the fair value of the Companys Level 3 financial liabilities that are measured at fair value on a recurring basis:


 

For the two
years ended
October 31,
2015

Patent acquisition obligation:

 

Balance October 31, 2013

$

                    -

Initial fair value

        2,850,511

Accretion of interest on patent obligation

 

           385,770

Balance October 31, 2014

        3,236,281

Accretion of interest on patent obligation

 

           451,906

Balance October 31, 2015

$

      3,688,187


Our non-financial assets that are measured on a non-recurring basis include our property and equipment which are measured using fair value techniques whenever events or changes in circumstances indicate a condition of impairment exists.  The estimated fair value of prepaid expenses, accounts payable and accrued expenses approximates their individual carrying amounts due to the short term nature of these measurements.  Cash and cash equivalents are stated at carrying value which approximates fair value.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents


Cash equivalents consists of highly liquid, short term investments with original maturities of three months or less when purchased.

Investment, Policy [Policy Text Block]

Short-term Investments


At October 31, 2015 and 2014, we had certificates of deposit with maturities greater than 90 days when acquired of $2,400,000 and $2,500,000, respectively, that were classified as short-term investments and reported at fair value.

Marketable Securities, Policy [Policy Text Block]

Investment Securities


We classify our investment securities as available-for-sale.  Available-for-sale securities are recorded at fair value.  Unrealized gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a component of accumulated other comprehensive income (loss) until realized.  Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis.  Dividend and interest income are recognized when earned.


We monitor the value of our investments for indicators of impairment, including changes in market conditions and the operating results of the underlying investment that may result in the inability to recover the carrying value of the investment.

Convertible Instruments Policy [Policy Text Block]

Convertible Instruments


The Company accounts for hybrid contracts that feature conversion options in accordance with applicable generally accepted accounting principles (GAAP).  ASC  815 Derivatives and Hedging Activities, (ASC 815) requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. 


            Conversion options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host instrument.


            The Company accounts for convertible instruments, when the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, in accordance with ASC 470-20 Debt with Conversion and Other Options (ASC 470-20). Under ASC 470-20, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The Company accounts for convertible instruments (when the Company has determined that the embedded conversion options should be bifurcated from their host instruments) in accordance with ASC 815.  Under ASC 815, a portion of the proceeds received upon the issuance of the hybrid contract are allocated to the fair value of the derivative. The derivative is subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.


            The conversion features of the convertible debentures issued in January 2013 and November 2013 qualified as embedded derivative instruments and were bifurcated from the host convertible debentures.  Derivative liabilities are initially recorded at fair value and are then re-valued at each reporting date, with changes in fair value recognized in earnings during the reporting period.

Stockholders' Equity, Policy [Policy Text Block]

Common Stock Purchase Warrants


The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provides a choice of net-cash settlement or settlement in the Companys own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company's own stock as defined in ASC 815-40 "Contracts in Entity's Own Equity". The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Companys control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).  The Company assesses classification of common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities or equity is required.

Income Tax, Policy [Policy Text Block]

Income Taxes


We recognize deferred tax assets and liabilities for the estimated future tax effects of events that have been recognized in our financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.  A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation


We maintain stock equity incentive plans under which we may grant non-qualified stock options, incentive stock options, stock appreciation rights, stock awards, performance and performance-based awards, or stock units to employees, non-employee directors and consultants.

Compensation Related Costs, Policy [Policy Text Block]

Stock Option Compensation Expense


We account for stock options granted to employees and directors using the accounting guidance in ASC 718 Stock Compensation (ASC 718).  In accordance with ASC 718, we estimate the fair value of service based options and performance based options on the date of grant, using the Black-Scholes pricing model.  For options vesting if the trading price of the Companys common stock achieves a defined target, we use a Monte Carlo simulation in estimating the fair value at grant date. We recognize compensation expense for stock option awards over the requisite or implied service period of the grant.  With respect to performance based awards, compensation expense is recognized when the performance target is deemed probable.  We recorded stock-based compensation expense, related to stock options granted to employees and directors, of approximately $2,192,000 and $2,128,000, during the years ended October 31, 2015 and 2014, respectively.


Included in stock-based compensation cost for employees and directors during the years ended October 31, 2015 and 2014 was approximately $2,092,781 and $1,426,000, respectively, related to the amortization of compensation cost for stock options granted in prior periods but not yet vested.  As of October 31, 2015, there was unrecognized compensation cost related to non-vested stock options granted to employees and directors, related to service based options of approximately $432,000 which will be recognized over a weighted-average period of 1.1 years.


We account for stock options granted to consultants using the accounting guidance included in ASC 505-50 Equity-Based Payments to Non-Employees (ASC 505-50).  In accordance with ASC 505-50, we estimate the fair value of service based stock options and performance based options at each reporting period, using the Black-Scholes pricing model.  For options vesting if the trading price of the Companys common stock achieves a defined target we estimate the fair value at each reporting period using a Monte Carlo simulation.  We recognize compensation expense for service based stock options and options subject to market conditions over the requisite or implied service period of the grant.  For performance based awards, compensation expense is recognized when the performance target is achieved.


We recorded consulting expense, related to stock options granted to consultants, during the years ended October 31, 2015 and 2014 of approximately $484,000 and $1,022,000, respectively. Stock-based consulting expense for the years ended October 31, 2015 and 2014 includes approximately $484,000 and $964,000, respectively, related to the amortization of compensation cost for stock options granted in prior periods but vested in the current period. As of October 31, 2015, there was no unrecognized consulting expense related to non-vested stock options granted to consultants.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value Determination  


We use the Black-Scholes pricing model in estimating the fair value of stock options which vest over a specific period of time or upon achieving performance targets.  To determine the weighted average fair value of stock options on the date of grant, employees and directors are included in a single group.  The fair value of stock options granted to consultants is determined on an individual basis.  The stock options we granted during the year ended October 31, 2015 consisted of awards with 10-year terms that vest over one year, options with 10-year terms that vest over 36 months. The stock options we granted during the year ended October 31, 2014 consisted of awards with 10-year terms that vest over one year, options with 10-year terms that vest over 36 months, options with 5-year terms which vest immediately and options with 10-year terms which vest upon achievement of performance milestones.  


The following weighted average assumptions were used in estimating the fair value of stock options granted during the years ended October 31, 2015 and 2014:


For the Year
Ended October 31,

2015

2014

Weighted average fair value at grant date

$3.09

$5.75

Valuation assumptions:

 

 

      Expected life ( years)

  5.75

5.80

      Expected volatility

117.8%

115.3%

      Risk-free interest rate

 2.01%

 1.82%

      Expected dividend yield

0

0


The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding.  We use the simplified method to determine expected term.  The simplified method was adopted since we do not believe that historical experience is representative of future performance because of the impact of the changes in our operations and the change in terms from historical options which vested immediately to terms including vesting periods of up to three years.  Under the Black-Scholes pricing model, we estimated the expected volatility of our shares of common stock based upon the historical volatility of our share price over a period of time equal to the expected term of the options.  We estimated the risk-free interest rate based on the implied yield available on the applicable grant date of a U.S. Treasury note with a term equal to the expected term of the underlying grants.  We made the dividend yield assumption based on our history of not paying dividends and our expectation not to pay dividends in the future.


Under ASC 718, the amount of stock-based compensation expense recognized is based on the portion of the awards that are ultimately expected to vest.  Accordingly, if deemed necessary, we reduce the fair value of the stock option awards for expected forfeitures, which are forfeitures of the unvested portion of surrendered options.  Based on our historical experience and future expectations, we have not reduced the amount of stock-based compensation expenses for anticipated forfeitures.


We will reconsider use of the Black-Scholes pricing model if additional information becomes available in the future that indicates another model would be more appropriate.  If factors change and we employ different assumptions in the application of ASC 718 in future periods, the compensation expense that we record under ASC 718 may differ significantly from what we have recorded in the current period.

Earnings Per Share, Policy [Policy Text Block]

Net Loss Per Share of Common Stock


In accordance with ASC 260, Earnings Per Share, basic net loss per common share (Basic EPS) is computed by dividing net loss by the weighted average number of common shares outstanding.  Diluted net loss per common share (Diluted EPS) is computed by dividing net loss by the weighted average number of common shares and dilutive common share equivalents and convertible securities then outstanding.  Diluted EPS for all years presented is the same as Basic EPS, as the inclusion of the effect of common share equivalents then outstanding would be anti-dilutive.  For this reason, excluded from the calculation of Diluted EPS for the years ended October 31, 2015 and 2014, were options to purchase 2,672,471 and 3,002,550 shares, respectively, warrants to purchase 1,028,931 shares and 1,044,931 shares, respectively, preferred stock convertible into 739,958 shares.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates


The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Estimates and assumptions are used for, but not limited to, determining stock-based compensation, asset impairment evaluations, tax assets and liabilities, license fee revenue, the allowance for doubtful accounts, depreciation lives and other contingencies.  Actual results could differ from those estimates.

New Accounting Pronouncements, Policy [Policy Text Block]

Effect of Recently Issued Pronouncements


In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-09 (ASU 2014-09), Revenue from Contracts with Customers.  This amendment updates addressing revenue from contracts with customers, which clarifies existing accounting literature relating to how and when a company recognizes revenue. Under the standard, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services.  This standard update is effective for interim and annual reporting periods beginning after December 15, 2016, and are to be applied retrospectively or the cumulative effect as of the date of adoption, with early application not permitted.  In July 2015, a one year deferral of the effective date of the new guidance was approved. We are currently evaluating the impact ASU 2014-09 will have on our consolidated financial statements and related disclosures.


In June 2014, the FASB issued Accounting Standards Update 2014-12 (ASU 2014-12), Compensation Stock Compensation.  This amendment requires that a performance target that affects vesting and could be achieved after the requisite service period shall be treated as a performance condition. Adoption of this standard is required for annual periods beginning after December 15, 2015. Early adoption is permitted. We are currently evaluating the impact ASU 2014-12 will have on our consolidated financial statements and related disclosures.


In August 2014, the FASB issued Accounting Standards Update 2014-15 (ASU 2014-15).  This amendment requires management to assess an entitys ability to continue as a going concern every reporting period including interim periods, and to provide related footnote disclosure in certain circumstances. Adoption of this standard is required for annual periods beginning after December 15, 2016 and are to be applied retrospectively or the cumulative effect as of the date of adoption. We do not expect this update to have a significant impact on our consolidated financial statements.


In April 2015, the FASB issued Accounting Standards Update 2015-03 (ASU 2015-03) to simplify the presentation of debt issuance costs. This amendment requires debt issuance costs be presented on the balance sheet as a direct reduction from the carrying amount of the debt liability, consistent with debt discounts or premiums. Adoption of this standard is required for interim and annual periods beginning after December 15, 2015 and is to be applied retrospectively. We are currently evaluating the impact ASU 2015-03 will have on our consolidated financial statements and related disclosures.


In November 2015, the FASB issued Accounting Standards Update 2015-17 (ASU 2015-17) to simplify the presentation of deferred taxes. This amendment requires that all deferred tax assets and liabilities, along with any related valuation allowances, be classified as noncurrent on the balance sheet.  Adoption of this standard is required for annual periods beginning after December 15, 2016. We are currently evaluating the impact ASU 2015-17 will have on our consolidated financial statements and related disclosures.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentration of Credit Risks


Financial instruments that potentially subject us to concentrations of credit risk are cash equivalents, short-term investments and accounts receivable.  Cash equivalents are primarily highly rated money market funds. Short-term investments are certificates of deposit within federally insured limits. Where applicable, management reviews our accounts receivable and other receivables for potential doubtful accounts and maintains an allowance for estimated uncollectible amounts. Our policy is to write-off uncollectable amounts at the time it is determined that collection will not occur.


Three licensees accounted for 53%, 37% and 10%, respectively, of revenues from patent licensing activities during fiscal year 2015. Four licensees accounted for 22%, 16%, 14% and 10%, respectively, of revenues from patent licensing activities during fiscal year 2014.

Patents [Member]  
Accounting Policies, by Policy (Policies) [Line Items]  
Intangible Assets, Finite-Lived, Policy [Policy Text Block]

Patents


Our only identifiable intangible assets are patents and patent rights.  We capitalize patent and patent rights acquisition costs and amortize the cost over the estimated economic useful life.  Patent acquisition costs capitalized during the years ended October 31, 2015 and 2014, was approximately $-0- and $3,036,000, respectively.  We recorded patent amortization expense of approximately $325,000 and $314,000 during the years ended October 31, 2015 and 2014, respectively.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
12 Months Ended
Oct. 31, 2015
Accounting Policies [Abstract]  
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]
               

  

Level 1

 

Level 2

 

Level 3

 

Total

Money market funds Cash  

   and cash equivalents

        

  $       467,967

 

        

 $                -

 

        

 $              -

 

        

  $          467,967

Certificates of deposit -

   Short term investments

-

 

2,400,000

 

-

 

2,400,000

 

Total financial assets

 

  $       467,967

 

   

      

$ 2,400,000

 

   

 $               -

 

 

  $        2,867,967

  

Level 1


Level 2


Level 3


Total

Money market funds Cash  

   and cash equivalents

        

  $       155,964


        

 $                -


        

 $              -


        

  $          155,964

Certificates of deposit -

   Short term investments

-


2,500,000


-


2,500,000


Total financial assets


  $       155,964


   

$    2,500,000


   

 $               -



  $        2,655,964

                       

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

Patent acquisition obligation

 

-

 

 

-

 

 $

               3,688,187

 

                3,688,187

                       

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

Patent acquisition obligation

 

-

 

 

-

 

                3,236,281

 

                3,236,281

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]
 

For the two
years ended
October 31,
2015

Patent acquisition obligation:

 

Balance October 31, 2013

$

                    -

Initial fair value

        2,850,511

Accretion of interest on patent obligation

 

           385,770

Balance October 31, 2014

        3,236,281

Accretion of interest on patent obligation

 

           451,906

Balance October 31, 2015

$

      3,688,187

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

For the Year
Ended October 31,

2015

2014

Weighted average fair value at grant date

$3.09

$5.75

Valuation assumptions:

 

 

      Expected life ( years)

  5.75

5.80

      Expected volatility

117.8%

115.3%

      Risk-free interest rate

 2.01%

 1.82%

      Expected dividend yield

0

0

XML 33 R20.htm IDEA: XBRL DOCUMENT v3.3.1.900
INVESTMENTS (Tables)
12 Months Ended
Oct. 31, 2015
Investments Schedule [Abstract]  
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Table Text Block]

Investment in
Videocon

Fair Value as of October 31, 2013

 $

   4,197,341

   Other than temporary impairment

 

        (62,825)

Fair value of Videocon GDRs on date of disposition

 $

   4,134,516

XML 34 R21.htm IDEA: XBRL DOCUMENT v3.3.1.900
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables)
12 Months Ended
Oct. 31, 2015
Payables and Accruals [Abstract]  
Schedule of Accounts Payable and Accrued Liabilities [Table Text Block]
           
 

October 31,

 

2015

 

2014

Accounts payable

$

    374,703

  $

   540,179

Payroll and related expenses

 

                 -

   

     372,753

Accrued litigation expense, consulting and other

    professional fees

 

      

                 -

   

    

     320,493

Accrued other

 

         6,062

   

       16,001

 Total

$

    380,765

  $

1,249,426

XML 35 R22.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONVERTIBLE DEBENTURES (Tables)
12 Months Ended
Oct. 31, 2015
Convertible Debenture Due November 2016 [Member]  
CONVERTIBLE DEBENTURES (Tables) [Line Items]  
Schedule of Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Grant Date Intrinsic Value [Table Text Block]

 

On September 9,

2014

Stock price used for valuation

$

6.125

 

 

211.4 shares issued per $1,000 of face value

Aggregate gross intrinsic value of the $3,500,000 of principal outstanding on September 8, 2014, immediately prior to conversion

 

4,532,241

Less the face value of the convertible debenture

 

(3,500,000)

Intrinsic value of the derivative conversion feature

 $

 1,032,241

Convertible Debenture Warrant [Member]  
CONVERTIBLE DEBENTURES (Tables) [Line Items]  
Schedule of Assumptions for Fair Value as of Balance Sheet Date of Assets or Liabilities that relate to Transferor's Continuing Involvement [Table Text Block]

 

As of

November 11,

2013

Stock price on valuation date

$

5.00

Exercise price

$

9.45

Discount for lack of marketability

 

22%

Term (years)

 

3.00

Expected volatility

 

102.8%

Weighted average risk-free interest rate

 

0.6%

Number of warrants

 

369,979

Aggregate fair value

$

740,000

Schedule of Debt Issuance Cost [Table Text Block]

 Attributable to:

 

Accounting Treatment

 

 

Amount

The embedded conversion feature (derivative)

 

Expensed as incurred

 

$

8,593

The 8% Convertible Debenture Warrant

 

Charged to additional paid-in capital

 

 

2,824

 

 

 

 

 

 

The 8% Convertible Debenture

 

Recorded as deferred issuance costs and amortized under the interest method over the term of the 8% Convertible Debenture

 

 

7,739

Total

 

 

 

$

19,156

Convertible Debenture Due January 2015 [Member]  
CONVERTIBLE DEBENTURES (Tables) [Line Items]  
Convertible Debt [Table Text Block]

Face value of Convertible Debenture due January 2015

 

 

 

$

 

1,765,000

Fair value of embedded conversion feature

$

1,180,000


 

 

Relative fair value of Convertible Debenture Warrant

 

214,819


 

 

Discount

$

1,394,819


 

(1,394,819)

Proceeds attributable to the Convertible Debenture due January 2015

 

 


 

$

370,181

Schedule of Debt Issuance Cost [Table Text Block]

Attributable to:

 

Accounting Treatment

 


Amount

The embedded conversion feature (derivative)

 

Expensed as incurred

 

$

55,999

The 8% Convertible Debenture Warrant

 

Charged to additional paid-in capital

 

 

10,194

 

 

 

 

 

 

The 8% Convertible Debenture

 

Recorded as deferred issuance costs and amortized under the interest method over the term of the 8% Convertible Debenture

 

 

17,567

Total

 

 

 

$

83,760

Schedule of Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Grant Date Intrinsic Value [Table Text Block]

  

As of

April 30,

2014

Stock price used for valuation

$

8.50

 

 

266.68 shares issued per $1,000 face value

Aggregate intrinsic value of the $1,150,000 of principal outstanding on April 30, 2014, immediately prior to conversion and repayment

$

1,456,797

 

 

 

Schedule of Extinguishment of Debt [Table Text Block]

 

Year Ended

October 31,

2014

Face value of debt converted

$

  1,440,000

Less: discount

 

    (658,232)

Plus: fair value of derivative liability

 

  1,670,704

Net book value of debt converted

$

  2,452,472

Fair value of common stock issued

 

  2,935,387

Loss on extinguishment of debt

$

  (482,915)

Convertible Debenture Due January 2015 [Member] | Convertible Debentures Embedded Conversion Feature [Member]  
CONVERTIBLE DEBENTURES (Tables) [Line Items]  
Schedule of Assumptions for Fair Value as of Balance Sheet Date of Assets or Liabilities that relate to Transferor's Continuing Involvement [Table Text Block]

  

As of

January 25,


2013

Stock price on valuation date

$

5.25

Conversion price

$

3.75

Stock premium for liquidity

 

57%

Term (years)

 

2.00

Expected volatility

 

110%

Weighted average risk-free interest rate

 

0.3%

Trials

 

100,000

Aggregate fair value

$

1,180,000

 


As of

October 31,


2013

Stock price on valuation date


$      4.875

Conversion price


$        3.75

Stock premium for liquidity


42%

Term (years)


1.25

Expected volatility


115%

Weighted average risk-free interest rate


0.3%

Trials


100,000

Aggregate fair value

 

$  540,000

 


 

Convertible Debenture Due January 2015 [Member] | Convertible Debenture Warrant [Member]  
CONVERTIBLE DEBENTURES (Tables) [Line Items]  
Schedule of Assumptions for Fair Value as of Balance Sheet Date of Assets or Liabilities that relate to Transferor's Continuing Involvement [Table Text Block]

 

As of

January 25,


2013

Stock price on valuation date

$

5.25

Exercise price

$

7.50

Stock premium for liquidity

 

38%

Term (years)

 

3.00

Warrant exercise trigger price

 

41%

Expected volatility

 

95%

Weighted average risk-free interest rate

 

0.4%

Number of warrants

 

 5,882,745

Aggregate fair value

$

 370,000

Convertible Debenture Due November 2016 [Member]  
CONVERTIBLE DEBENTURES (Tables) [Line Items]  
Convertible Debt [Table Text Block]

Face value of Convertible Debenture due November 2016

 

 

 

$

3,500,000

Fair value of embedded conversion feature

$

1,570,000

 

 

 

Relative fair value of Convertible Debenture Warrant

 

515,936

 

 

 

Discount

$

2,085,936

 

 

(2,085,936)

Proceeds attributable to the Convertible Debenture due November 2016

 

 

$

1,414,064

Convertible Debenture Due November 2016 [Member] | Convertible Debentures Embedded Conversion Feature [Member]  
CONVERTIBLE DEBENTURES (Tables) [Line Items]  
Schedule of Assumptions for Fair Value as of Balance Sheet Date of Assets or Liabilities that relate to Transferor's Continuing Involvement [Table Text Block]








 

As of

November 11,

2013

Stock price on valuation date

$

5.00

Conversion price

$

4.725

Discount for lack of marketability

 

35.5%

Term (years)

 

3.00

Expected volatility

 

102.8%

Weighted average risk-free interest rate

 

0.62%

Trials

 

100,000

Aggregate fair value

$

1,570,000

Convertible Debenture Due November 2016 [Member]  
CONVERTIBLE DEBENTURES (Tables) [Line Items]  
Schedule of Extinguishment of Debt [Table Text Block]
     

 

 

Securities extinguished:

 

Face value of convertible debenture converted

$

3,500,000

Less: debt discount

 

(1,684,801)

Less: deferred issuance costs

 

(7,739)

Plus: accrued interest

 

173,833

Plus: fair value of derivative liability

 

1,032,241

Plus: fair value of warrant exchanged in connection with the conversion

 

805,000

Net book value of converted debenture, accrued interest, derivative   

   liability and warrant exchanged

 

3,818,534

Securities issued in conversion/exchange:

 

 

Fair value of 100,800 shares of common stock issued, net (739,958

   shares of Conversion Common Stock issued, less 639,158 shares

   exchanged for 3,500 shares of Series A Convertible Preferred Stock)

 

617,400

Fair value of 3,500 shares of Series A Convertible Preferred Stock (based

   on a stated value per share of $1,000 and a conversion rate of $4.73)

 

4,532,241

Fair value of warrant issued September 9, 2014

 

885,000

Subtotal of securities issued in conversion/exchange

 

6,034,641

(Loss) on conversion/exchange

$

(2,216,107)

XML 36 R23.htm IDEA: XBRL DOCUMENT v3.3.1.900
SHAREHOLDERS' EQUITY (Tables)
12 Months Ended
Oct. 31, 2015
SHAREHOLDERS' EQUITY (Tables) [Line Items]  
Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]



 

Shares

 

Weighted
Average Exercise
Price Per Share

 

Aggregate
Intrinsic Value

 

 

 

 

Options Outstanding at October 31, 2013

625,554

$

18.00

 

  Exercised

(17,400)

$

  3.63

 

  Forfeited

(114,163)

$

19.75

 

Options Outstanding  at October 31, 2014

493,991

$

18.00

 

  Exercised

 (4,000)

$

  2.58

 

  Forfeited

(123,771)

$

14.71

 

Options Outstanding and Exercisable at October 31, 2015

   366,200

$

17.86

$

61,665


Shares

 

 Weighted Average Exercise Price Per Share

 

Aggregate Intrinsic Value





Options Outstanding at October 31, 2013

      119,360

           $6.13

 

  Granted

      612,400

           $5.75

 

  Exercised

         (3,200)

           $4.00

    

Options Outstanding at October 31,  2014

      728,560

           $5.75

 

Granted

        60,400

           $2.91

 

  Exercised

      (13,334)

           $2.58

 

  Forfeited

     (249,355)

           $6.24

 

Options Outstanding at October 31,  2015

      526,271

           $3.33

 $ 471,292

Options Exercisable at October 31, 2015

      406,149

           $3.40

 $ 342,572

2003 Share Plan [Member]  
SHAREHOLDERS' EQUITY (Tables) [Line Items]  
Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range [Table Text Block]

Range of
Exercise Prices

Number
Outstanding

Weighted Average
Remaining

Contractual Life

(in years)

Weighted Average
Exercise Price

$  1.79 - $  9.25

73,880

1.75

$  2.91

$14.75 - $17.25

59,600

1.33

$16.75

$18.75 - $23.00

192,720

1.14

$21.57

$29.25

40,000

1.80

$29.25

2010 Share Plan [Member]  
SHAREHOLDERS' EQUITY (Tables) [Line Items]  
Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range [Table Text Block]
                   
 

Options Outstanding

 

Options Exercisable

Range of
Exercise
Prices

Number
Outstanding

Weighted Average
Remaining
Contractual Life

(in years)

Weighted Average
Exercise Price

 

Number
Exercisable

Weighted Average
Remaining
Contractual Life
(in years)

Weighted Average
Exercise Price

 

 

 

 

 

 

 

 

$2.58 - $9.25

526,271

6.98

$3.33

 

406,149

6.57

$3.40

 

 

 

 

 

 

 

.

Stock Options Not Granted Under 2003 Share Plan Or 2010 Share Plan [Member]  
SHAREHOLDERS' EQUITY (Tables) [Line Items]  
Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range [Table Text Block]
             

Range of
Exercise Prices

 

Number
Outstanding

 

Weighted Average
Remaining
Contractual Life

(in years)

 

Weighted Average
Exercise
Price

$ 2.58 - $ 5.56

 

1,780,000

 

6.76

 

$  2.71

 

 

 

 

 

 

.

XML 37 R24.htm IDEA: XBRL DOCUMENT v3.3.1.900
INCOME TAXES (Tables)
12 Months Ended
Oct. 31, 2015
Income Tax Disclosure [Abstract]  
Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]
           
 

Year Ended October 31,

 

2015

 

2014

Federal:

 

 

   

 

Current

$

                 -

  $

               -

Deferred

 

(487,000)

   

(1,606,000)

State:

 

 

   

 

Current

 

-

   

-

Deferred

 

(120,000)

   

 (1,000)

Adjustment to valuation allowance related

   to net deferred tax assets

 

607,000

   

 

 1,607,000

Income tax provision (benefit) $

                    -

  $

                    -

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]
   

2015

 

2014

 

Long-term deferred tax assets:

 

 

   

 

 

   Federal and state NOL and tax credit carryforwards

$

    31,261,000

  $

   31,864,000

 

   Deferred compensation

 

6,522,000

   

5,437,000

 

   Intangibles

 

483,000

   

              -

 

   Other

 

282,000

   

359,000

 

      Subtotal

 

38,548,000

   

37,660,000

 

           

 

Less: valuation allowance

 

(38,548,000)

   

(37,660,000)

 

Deferred tax asset, net

$

          -

  $

             -

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

 

Year Ended October 31,

 

2015

2014

Income tax benefit at U.S.

   Federal statutory income

   Tax rate

 

 

$     (469,000)

 

 

   (34.00%)

 

 

$    (3,266,000)

 

 

   (34.00%)

State income taxes

(117,000)

  (8.50%)

        (6,000)

(.06%)

Permanent differences

      1,000

.10%

1,529,000

15.92%

Expiring net operating

   losses, credits and other

  

       (22,000)

 

   (1.60%)

  

  115,000

 

1.19%

Foreign rate difference on

   impairment

-

0%

21,000

.22%

Change in valuation  

   allowance

 

       607,000

 

44.00%

 

 1,607,000

 

 16.73%

Income tax provision

$                 -

0%

$                 -

0%

XML 38 R25.htm IDEA: XBRL DOCUMENT v3.3.1.900
BUSINESS AND FUNDING (Details) - USD ($)
1 Months Ended 12 Months Ended
Dec. 29, 2014
Sep. 09, 2014
Aug. 29, 2014
Jul. 15, 2014
Jul. 31, 2014
Nov. 30, 2013
Oct. 31, 2015
Oct. 31, 2014
BUSINESS AND FUNDING (Details) [Line Items]                
Proceeds from Legal Settlements             $ 2,000,000  
Legal Fees             3,604,000  
Sale of Stock, Number of Shares Issued in Transaction (in Shares)         640,000      
Sale of Stock, Price Per Share (in Dollars per share)         $ 6.25      
Proceeds from Issuance of Common Stock       $ 4,000,000 $ 3,673,000     $ 3,673,135
Common Stock, Value, Issued             87,249 87,882
Net Cash Provided by (Used in) Operating Activities             1,363,367 (2,379,261)
Net Cash Provided by (Used in) Investing Activities             45,224 (2,506,684)
Proceeds from Maturities, Prepayments and Calls of Short-term Investments             3,000,000  
Payments to Acquire Short-term Investments             2,900,000 5,200,000
Payments to Acquire Property, Plant, and Equipment             54,776 6,684
Net Cash Provided by (Used in) Financing Activities             (400,618) 7,349,019
Stock Repurchased During Period, Value             $ 445,000 $ (4,134,516)
Stock Repurchased During Period, Shares (in Shares)             92,232  
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in Shares)             16,000
Proceeds from Stock Options Exercised             $ 44,635 $ 75,875
Cash, Period Increase (Decrease)             908,000  
Cash, Cash Equivalents, and Short-term Investments             6,769,000 $ 5,861,000
Convertible Debenture [Member]                
BUSINESS AND FUNDING (Details) [Line Items]                
Proceeds from Issuance of Private Placement           $ 3,500,000    
Debt Instrument, Interest Rate, Stated Percentage           6.00%    
Common Stock [Member]                
BUSINESS AND FUNDING (Details) [Line Items]                
Stock Issued During Period, Shares, Conversion of Convertible Securities (in Shares)   739,958            
Conversion of Stock, Shares Converted (in Shares)   639,159            
Convertible Preferred Stock [Member]                
BUSINESS AND FUNDING (Details) [Line Items]                
Stock Issued During Period, Shares, Conversion of Convertible Securities (in Shares)   3,500            
National Securities Corporation [Member] | Agreement [Member]                
BUSINESS AND FUNDING (Details) [Line Items]                
Common Stock, Value, Issued             10,000,000  
AUO Settlement [Member]                
BUSINESS AND FUNDING (Details) [Line Items]                
Proceeds from Legal Settlements $ 9,000,000              
Patent Assignment Agreement [Member]                
BUSINESS AND FUNDING (Details) [Line Items]                
Proceeds from Legal Settlements             $ 7,000,000  
Subsidiary Loan [Member]                
BUSINESS AND FUNDING (Details) [Line Items]                
Debt of Subsidiary, Not Assumed     $ 5,000,000          
Mars Loan [Member]                
BUSINESS AND FUNDING (Details) [Line Items]                
Debt of Subsidiary, Not Assumed     $ 5,000,000          
Sale of Stock, Number of Shares Issued in Transaction (in Shares)     800,000          
Global Depository Receipts [Member]                
BUSINESS AND FUNDING (Details) [Line Items]                
Stock Issued During Period, Shares, New Issues (in Shares)     1,495,845          
XML 39 R26.htm IDEA: XBRL DOCUMENT v3.3.1.900
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($)
12 Months Ended
Dec. 29, 2014
Oct. 31, 2015
Oct. 31, 2014
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]      
License and Services Revenue     $ 1,187,320
Proceeds from Legal Settlements   $ 2,000,000  
Short-term Investments   $ 2,400,000 $ 2,500,000
Convertible Preferred Stock [Member]      
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]      
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in Shares)   739,958  
Awards Of Options With 10 Year Terms [Member]      
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]      
Share Based Compensation Arrangement By Share Based Payment Award, Award Vesting Period, Description   The stock options we granted during the year ended October 31, 2015 consisted of awards with 10-year terms that vest over one year, options with 10-year terms that vest over 36 months. The stock options we granted during the year ended October 31, 2014 consisted of awards with 10-year terms that vest over one year, options with 10-year terms that vest over 36 months, options with 5-year terms which vest immediately and options with 10-year terms which vest upon achievement of performance milestones.
Employee Stock Option [Member]      
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]      
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in Shares)   2,672,471 3,002,550
AUO License Agreement [Member]      
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]      
License and Services Revenue   $ 3,000,000  
License Agreement, Aggregate License Fee   10,000,000  
License Agreement, Contingent License Fee, Receivable   7,000,000  
Deferred Revenue, Current     $ 1,187,000
AUO Settlement [Member]      
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]      
Proceeds from Legal Settlements $ 9,000,000    
Stock Award Granted To Employees And Consultants [Member]      
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]      
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized   0  
Share-based Compensation   484,000 1,022,000
Amortization Related To Compensation Cost   484,000 964,000
Stock Options Granted To Employees And Directors [Member]      
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]      
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized   432,000  
Share-based Compensation   2,192,000 2,128,000
Amortization Related To Compensation Cost   $ 2,092,781 $ 1,426,000
Property, Plant and Equipment, Useful Life   1 year 36 days  
Warrant [Member]      
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]      
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in Shares)   1,028,931 1,044,931
Sales Revenue, Net [Member] | Customer Concentration Risk [Member] | Licensees 1 [Member]      
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]      
Concentration Risk, Percentage   53.00% 22.00%
Sales Revenue, Net [Member] | Customer Concentration Risk [Member] | Licensees 2 [Member]      
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]      
Concentration Risk, Percentage   37.00% 16.00%
Sales Revenue, Net [Member] | Customer Concentration Risk [Member] | Licensees 3 [Member]      
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]      
Concentration Risk, Percentage   10.00% 14.00%
Sales Revenue, Net [Member] | Customer Concentration Risk [Member] | Licensees 4 [Member]      
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]      
Concentration Risk, Percentage     10.00%
Patents [Member]      
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]      
Acquisition Costs, Period Cost   $ 0 $ 3,036,000
Amortization of Acquisition Costs   $ 325,000 $ 314,000
XML 40 R27.htm IDEA: XBRL DOCUMENT v3.3.1.900
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Hierarchy for our financial assets and liabilities measured at fair value on a recurring basis - USD ($)
Oct. 31, 2015
Oct. 31, 2014
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Hierarchy for our financial assets and liabilities measured at fair value on a recurring basis [Line Items]    
Patent acquisition obligation $ 3,688,187 $ 3,236,281
Global Depository Receipts [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Hierarchy for our financial assets and liabilities measured at fair value on a recurring basis [Line Items]    
Investments   2,500,000
Total financial assets   2,655,964
Money Market Funds [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Hierarchy for our financial assets and liabilities measured at fair value on a recurring basis [Line Items]    
Money market funds – Cash and cash equivalents 467,967 $ 155,964
Certificates of Deposit [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Hierarchy for our financial assets and liabilities measured at fair value on a recurring basis [Line Items]    
Investments 2,400,000  
Total financial assets $ 2,867,967  
Fair Value, Inputs, Level 1 [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Hierarchy for our financial assets and liabilities measured at fair value on a recurring basis [Line Items]    
Patent acquisition obligation
Fair Value, Inputs, Level 1 [Member] | Global Depository Receipts [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Hierarchy for our financial assets and liabilities measured at fair value on a recurring basis [Line Items]    
Investments  
Total financial assets   $ 155,964
Fair Value, Inputs, Level 1 [Member] | Money Market Funds [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Hierarchy for our financial assets and liabilities measured at fair value on a recurring basis [Line Items]    
Money market funds – Cash and cash equivalents $ 467,967 $ 155,964
Fair Value, Inputs, Level 1 [Member] | Certificates of Deposit [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Hierarchy for our financial assets and liabilities measured at fair value on a recurring basis [Line Items]    
Investments  
Total financial assets $ 467,967  
Fair Value, Inputs, Level 2 [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Hierarchy for our financial assets and liabilities measured at fair value on a recurring basis [Line Items]    
Patent acquisition obligation
Fair Value, Inputs, Level 2 [Member] | Global Depository Receipts [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Hierarchy for our financial assets and liabilities measured at fair value on a recurring basis [Line Items]    
Investments   $ 2,500,000
Total financial assets   $ 2,500,000
Fair Value, Inputs, Level 2 [Member] | Money Market Funds [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Hierarchy for our financial assets and liabilities measured at fair value on a recurring basis [Line Items]    
Money market funds – Cash and cash equivalents
Fair Value, Inputs, Level 2 [Member] | Certificates of Deposit [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Hierarchy for our financial assets and liabilities measured at fair value on a recurring basis [Line Items]    
Investments $ 2,400,000  
Total financial assets 2,400,000  
Fair Value, Inputs, Level 3 [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Hierarchy for our financial assets and liabilities measured at fair value on a recurring basis [Line Items]    
Patent acquisition obligation $ 3,688,187 $ 3,236,281
Fair Value, Inputs, Level 3 [Member] | Global Depository Receipts [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Hierarchy for our financial assets and liabilities measured at fair value on a recurring basis [Line Items]    
Investments  
Total financial assets  
Fair Value, Inputs, Level 3 [Member] | Money Market Funds [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Hierarchy for our financial assets and liabilities measured at fair value on a recurring basis [Line Items]    
Money market funds – Cash and cash equivalents
Fair Value, Inputs, Level 3 [Member] | Certificates of Deposit [Member]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Hierarchy for our financial assets and liabilities measured at fair value on a recurring basis [Line Items]    
Investments  
Total financial assets  
XML 41 R28.htm IDEA: XBRL DOCUMENT v3.3.1.900
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Summary of the changes in the fair value of the Company's Level 3 financial liabilities on recurring basis (Incomplete) - USD ($)
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
Patent acquisition obligation:    
Initial fair value $ 3,688,187 $ 3,236,281
Accretion of interest on patent obligation 451,906 $ 385,770
Balance 3,688,187  
Patent Acquisition Obligation [Member]    
Patent acquisition obligation:    
Balance October 31, 2013 3,236,281
Initial fair value   $ 2,850,511
Accretion of interest on patent obligation $ 451,906 385,770
Balance   $ 3,236,281
XML 42 R29.htm IDEA: XBRL DOCUMENT v3.3.1.900
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Weighted average assumptions used in estimating the fair value of stock options - $ / shares
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
Weighted average assumptions used in estimating the fair value of stock options [Abstract]    
Weighted average fair value at grant date (in Dollars per share) $ 3.09 $ 5.75
Valuation assumptions:    
Expected life ( years) 5 years 9 months 5 years 292 days
Expected volatility 117.80% 115.30%
Risk-free interest rate 2.01% 1.82%
Expected dividend yield 0.00% 0.00%
XML 43 R30.htm IDEA: XBRL DOCUMENT v3.3.1.900
INVESTMENTS (Details) - USD ($)
10 Months Ended
Aug. 29, 2014
Oct. 31, 2015
Oct. 31, 2014
Nov. 30, 2007
INVESTMENTS (Details) [Line Items]        
Certificates of Deposit, at Carrying Value   $ 2,400,000 $ 2,500,000  
Investment In Videocon [Member]        
INVESTMENTS (Details) [Line Items]        
Available-for-sale Equity Securities, Amortized Cost Basis       $ 16,200,000
Equity Method Investment, Other than Temporary Impairment $ 63,000      
Impaired Assets to be Disposed of by Method Other than Sale, Carrying Value of Asset $ 4,135,000      
Shares Exchanged for GDR (in Shares) 800,000      
Other than Temporary Impairment, Credit Losses Recognized in Earnings, Credit Losses on Debt Securities Held $ 12,065,000      
XML 44 R31.htm IDEA: XBRL DOCUMENT v3.3.1.900
INVESTMENTS (Details) - The fair value of investment - Investment In Videocon [Member]
10 Months Ended
Aug. 29, 2014
USD ($)
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items]  
Fair Value as of October 31, 2013 $ 4,197,341
Fair value of Videocon GDRs on date of disposition 4,134,516
Other than temporary impairment $ (62,825)
XML 45 R32.htm IDEA: XBRL DOCUMENT v3.3.1.900
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) - Accounts payable and accrued liabilities - USD ($)
Oct. 31, 2015
Oct. 31, 2014
Accounts payable and accrued liabilities [Abstract]    
Accounts payable $ 374,703 $ 540,179
Payroll and related expenses 372,753
Accrued litigation expense, consulting and other professional fees 320,493
Accrued other $ 6,062 16,001
Total $ 380,765 $ 1,249,426
XML 46 R33.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONVERTIBLE DEBENTURES (Details)
1 Months Ended 12 Months Ended
Sep. 30, 2014
USD ($)
$ / shares
shares
Nov. 30, 2013
USD ($)
$ / shares
shares
Jan. 31, 2013
USD ($)
$ / shares
Oct. 31, 2015
USD ($)
$ / shares
shares
Oct. 31, 2014
USD ($)
shares
Oct. 31, 2013
USD ($)
shares
Jan. 25, 2015
$ / shares
Dec. 31, 2014
USD ($)
CONVERTIBLE DEBENTURES (Details) [Line Items]                
Proceeds from Convertible Debt         $ 3,500,000      
Debt Instrument Prepayment Threshold Trading Days Ending Prior To Prepayment Notice       15        
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in Shares) | shares       16,000      
Convertible Debt       $ 1,414,064        
Legal Fees       3,604,000        
Debt Issuance Cost       $ 19,156 $ 83,760      
Derivative, Gain (Loss) on Derivative, Net       (592,945)      
Amortization of Debt Discount (Premium)         634,267      
Gains (Losses) on Extinguishment of Debt       (2,699,022)      
Convertible Debenture Due January 2015 [Member]                
CONVERTIBLE DEBENTURES (Details) [Line Items]                
Proceeds from Convertible Debt     $ 1,765,000          
Debt Instrument, Interest Rate, Stated Percentage     8.00% 8.00%        
Debt Instrument, Convertible, Conversion Price (in Dollars per share) | $ / shares             $ 3.75  
Debt Instrument, Convertible, Stock Price Trigger (in Dollars per share) | $ / shares     $ 3.75 $ 7.50        
Debt Instrument, Convertible, Threshold Trading Days     10          
Debt Instrument Prepayment Notice Period     30 days          
Debt Instrument Prepayment Threshold Trading Days       20        
Debt Instrument Prepayment Threshold Trading Days Ending Prior To Prepayment Notice       30        
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in Shares) | shares       11,041        
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right (in Shares) | shares       1        
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per share) | $ / shares       $ 7.50        
Convertible Debt, Fair Value Disclosures       $ 1,490,000        
Plus: fair value of derivative liability       1,180,000       $ 1,671,000
Warrants Not Settleable in Cash, Fair Value Disclosure       370,000        
Relative fair value of Convertible Debenture Warrant       214,819        
Convertible Debt Instrument Including Embedded Derivative Relative Fair Value       1,550,181        
Debt Instrument, Unamortized Discount       (1,394,819)        
Convertible Debt       370,181        
Debt Instrument, Face Amount       1,765,000 200,000 $ 325,000    
Derivative Liability and Warrant       $ 1,394,819        
Fair Value Inputs, Discount Rate       18.60%        
Cash Fee Compensation Placement Agent       $ 41,400        
Legal Fees       25,000        
Debt Issuance Cost       83,760        
Derivative Liability, Current         0 540,000    
Derivative, Gain (Loss) on Derivative, Net         1,131,000 475,000    
Amortization of Debt Discount (Premium)       0 233,000      
Debt Instrument, Increase, Accrued Interest         $ 9,000 $ 5,878    
Debt Instrument Convertible Number Of Equity Instruments For Principal (in Shares) (in Shares) | shares         330,683 86,671    
Debt Instrument Convertible Number Of Equity Instruments For Interest (in Shares) (in Shares) | shares         1,185 805    
Gains (Losses) on Extinguishment of Debt         $ 482,915      
Convertible Debenture Due January 2015 [Member] | Placement Agent Warrant [Member]                
CONVERTIBLE DEBENTURES (Details) [Line Items]                
Relative fair value of Convertible Debenture Warrant       17,360        
Convertible Debenture Due January 2015 [Member] | Management [Member]                
CONVERTIBLE DEBENTURES (Details) [Line Items]                
Proceeds from Convertible Debt     $ 250,000          
Convertible Debenture Due January 2015 [Member] | Convertible Debentures Embedded Conversion Feature [Member]                
CONVERTIBLE DEBENTURES (Details) [Line Items]                
Plus: fair value of derivative liability       1,180,000        
Warrants Not Settleable in Cash, Fair Value Disclosure       370,000        
Relative fair value of Convertible Debenture Warrant       $ 214,819        
Debt Instrument, Face Amount         1,240,000      
Convertible Debenture Due November 2016 [Member]                
CONVERTIBLE DEBENTURES (Details) [Line Items]                
Proceeds from Convertible Debt   $ 3,500,000            
Debt Instrument, Interest Rate, Stated Percentage   6.00%   6.00%        
Debt Instrument, Convertible, Conversion Price (in Dollars per share) | $ / shares $ 7.75 $ 9.46            
Debt Instrument Prepayment Notice Period   30 days            
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in Shares) | shares 369,979 369,979            
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right (in Shares) | shares   1            
Convertible Debt, Fair Value Disclosures           $ 4,280,000    
Plus: fair value of derivative liability           1,570,000    
Warrants Not Settleable in Cash, Fair Value Disclosure           740,000    
Relative fair value of Convertible Debenture Warrant           515,936    
Convertible Debt Instrument Including Embedded Derivative Relative Fair Value           2,984,064    
Debt Instrument, Unamortized Discount       $ (2,085,936)        
Convertible Debt $ 3,500,000     $ 1,414,064        
Fair Value Inputs, Discount Rate       16.00%        
Derivative Liability, Current         1,032,000      
Derivative, Gain (Loss) on Derivative, Net         538,000      
Amortization of Debt Discount (Premium)       $ 0 401,000      
Debt Instrument, Increase, Accrued Interest $ 173,000              
Debt Conversion Converted Instrument Additional Shares Issued (in Shares) (in Shares) | shares   3.55            
Debt Conversion, Converted Instrument, Shares Issued (in Shares) | shares 739,958              
Conversion of Stock, Shares Converted (in Shares) | shares 639,158              
Conversion of Stock, Shares Issued (in Shares) | shares 3,500              
Retirement and Cancellation Of Shares (in Shares) (in Shares) | shares 639,158              
(Loss) on conversion/exchange $ 2,216,000              
Equity Instrument, Convertible, Conversion Price (in Dollars per share) | $ / shares $ 4.73              
Derivative, Fair Value, Net         $ 0      
Convertible Debenture Due November 2016 [Member] | Convertible Debentures Embedded Conversion Feature [Member]                
CONVERTIBLE DEBENTURES (Details) [Line Items]                
Debt Instrument, Convertible, Conversion Price (in Dollars per share) | $ / shares   $ 4.73            
Debt Instrument, Unamortized Discount       (2,085,936)        
Convertible Debenture Without Conversion Features [Member] | Convertible Debenture Due January 2015 [Member]                
CONVERTIBLE DEBENTURES (Details) [Line Items]                
Convertible Debt, Fair Value Disclosures       $ 2,670,000        
Convertible Debenture Without Conversion Features [Member] | Convertible Debenture Due November 2016 [Member]                
CONVERTIBLE DEBENTURES (Details) [Line Items]                
Convertible Debt, Fair Value Disclosures           2,710,000    
Plus: fair value of derivative liability           1,570,000    
Relative fair value of Convertible Debenture Warrant           $ 740,000    
Convertible Debenture Warrant [Member] | Convertible Debenture Due January 2015 [Member]                
CONVERTIBLE DEBENTURES (Details) [Line Items]                
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in Shares) | shares       235,310        
Relative fair value of Convertible Debenture Warrant       $ 214,819        
XML 47 R34.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONVERTIBLE DEBENTURES (Details) - Convertible Debenture - USD ($)
Oct. 31, 2015
Dec. 31, 2014
Oct. 31, 2014
Oct. 31, 2013
CONVERTIBLE DEBENTURES (Details) - Convertible Debenture [Line Items]        
Proceeds attributable to the Convertible Debenture due January 2015 $ 370,181      
Convertible Debenture Due January 2015 [Member]        
CONVERTIBLE DEBENTURES (Details) - Convertible Debenture [Line Items]        
Face value of Convertible Debenture due January 2015 1,765,000   $ 200,000 $ 325,000
Fair value of embedded conversion feature 1,180,000 $ 1,671,000    
Relative fair value of Convertible Debenture Warrant 214,819      
Discount $ (1,394,819)      
XML 48 R35.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONVERTIBLE DEBENTURES (Details) - Fair value of the embedded conversion feature of the Convertible Debenture - Convertible Debentures Embedded Conversion Feature [Member] - USD ($)
12 Months Ended
Jan. 25, 2013
Oct. 31, 2014
Assumption for Fair Value as of Balance Sheet Date of Assets or Liabilities that relate to Transferor's Continuing Involvement [Line Items]    
Stock price on valuation date (in Dollars per share) $ 5.25 $ 4.875
Conversion price (in Dollars per share) $ 3.75 $ 3.75
Stock premium for liquidity 57.00% 42.00%
Term (years) 2 years 1 year 3 months
Expected volatility 110.00% 115.00%
Weighted average risk-free interest rate 0.30% 0.30%
Trials (in Shares) 100,000 100,000
Aggregate fair value (in Dollars) $ 1,180,000 $ 540,000
XML 49 R36.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONVERTIBLE DEBENTURES (Details) - Fair value of the Convertible - Convertible Debenture Warrant [Member]
Jan. 25, 2013
USD ($)
$ / shares
shares
Assumption for Fair Value as of Balance Sheet Date of Assets or Liabilities that relate to Transferor's Continuing Involvement [Line Items]  
Stock price on valuation date (in Dollars per share) $ 5.25
Exercise price (in Dollars per share) $ 7.50
Stock premium for liquidity 38.00%
Term (years) 3 years
Warrant exercise trigger price 41.00%
Expected volatility 95.00%
Weighted average risk-free interest rate 0.40%
Number of warrants (in Shares) | shares 5,882,745
Aggregate fair value (in Dollars) | $ $ 370,000
XML 50 R37.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONVERTIBLE DEBENTURES (Details) - Issuance Cost Allocation - USD ($)
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
CONVERTIBLE DEBENTURES (Details) - Issuance Cost Allocation [Line Items]    
Allocated issuance costs $ 19,156 $ 83,760
Expensed As Incurred [Member]    
CONVERTIBLE DEBENTURES (Details) - Issuance Cost Allocation [Line Items]    
Allocated issuance costs 8,593 55,999
Charged To Additional Paid In Capital [Member]    
CONVERTIBLE DEBENTURES (Details) - Issuance Cost Allocation [Line Items]    
Allocated issuance costs 2,824 10,194
Recorded As Deferred Issuance Costs And Amortized Under The Interest Method Over The Term Of The 8 Convertible Debenture [Member]    
CONVERTIBLE DEBENTURES (Details) - Issuance Cost Allocation [Line Items]    
Allocated issuance costs $ 7,739 $ 17,567
XML 51 R38.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONVERTIBLE DEBENTURES (Details) - Intrinsic Value Computation - Convertible Debenture [Member]
Apr. 30, 2014
USD ($)
$ / shares
CONVERTIBLE DEBENTURES (Details) - Intrinsic Value Computation [Line Items]  
Stock price used for valuation | $ / shares $ 8.50
266.68 shares issued per $1,000 face value
Aggregate intrinsic value of the $1,150,000 of principal outstanding on April 30, 2014, immediately prior to conversion and repayment | $ $ 1,456,797
XML 52 R39.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONVERTIBLE DEBENTURES (Details) - Intrinsic Value Computation (Parentheticals) - Convertible Debenture [Member]
Apr. 30, 2014
USD ($)
shares
CONVERTIBLE DEBENTURES (Details) - Intrinsic Value Computation (Parentheticals) [Line Items]  
Issuance of shares | shares 266.68
Aggregate intrinsic value | $ $ 1,150,000
XML 53 R40.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONVERTIBLE DEBENTURES (Details) - The loss on extinguishment of debt - USD ($)
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
Extinguishment of Debt [Line Items]    
Fair value of common stock issued   $ 5,229,641
Loss on extinguishment of debt (2,699,022)
Convertible Debenture Due January 2015 [Member]    
Extinguishment of Debt [Line Items]    
Face value of debt converted   1,440,000
Less: discount   (658,232)
Plus: fair value of derivative liability   1,670,704
Net book value of debt converted   2,452,472
Fair value of common stock issued   2,935,387
Loss on extinguishment of debt   $ (482,915)
XML 54 R41.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONVERTIBLE DEBENTURES (Details) - Convertible Debenture
Oct. 31, 2015
USD ($)
CONVERTIBLE DEBENTURES (Details) - Convertible Debenture [Line Items]  
Proceeds attributable to the Convertible Debenture due November 2016 $ 1,414,064
Convertible Debenture Due November 2016 [Member]  
CONVERTIBLE DEBENTURES (Details) - Convertible Debenture [Line Items]  
Face value of Convertible Debenture due November 2016 3,500,000
Fair value of embedded conversion feature 1,570,000
Relative fair value of Convertible Debenture Warrant 515,936
Discount $ 2,085,936
XML 55 R42.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONVERTIBLE DEBENTURES (Details) - Fair value of the embedded conversion feature of the Convertible Debenture - USD ($)
12 Months Ended
Nov. 11, 2013
Jan. 25, 2013
Oct. 31, 2014
Oct. 31, 2015
Convertible Debentures Embedded Conversion Feature [Member]        
Assumption for Fair Value as of Balance Sheet Date of Assets or Liabilities that relate to Transferor's Continuing Involvement [Line Items]        
Stock price on valuation date (in Dollars per share)   $ 5.25 $ 4.875  
Conversion price (in Dollars per share)   $ 3.75 $ 3.75  
Term (years)   2 years 1 year 3 months  
Expected volatility   110.00% 115.00%  
Weighted average risk-free interest rate   0.30% 0.30%  
Trials (in Shares)   100,000 100,000  
Aggregate fair value (in Dollars)   $ 1,180,000 $ 540,000  
Convertible Debenture Due November 2016 [Member]        
Assumption for Fair Value as of Balance Sheet Date of Assets or Liabilities that relate to Transferor's Continuing Involvement [Line Items]        
Aggregate fair value (in Dollars)       $ 1,570,000
Convertible Debenture Due November 2016 [Member] | Convertible Debentures Embedded Conversion Feature [Member]        
Assumption for Fair Value as of Balance Sheet Date of Assets or Liabilities that relate to Transferor's Continuing Involvement [Line Items]        
Stock price on valuation date (in Dollars per share) $ 5.00      
Conversion price (in Dollars per share) $ 4.725      
Discount for lack of marketability 35.50%      
Term (years) 3 years      
Expected volatility 102.80%      
Weighted average risk-free interest rate 0.62%      
Trials (in Shares) 100,000      
Aggregate fair value (in Dollars) $ 1,570,000      
XML 56 R43.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONVERTIBLE DEBENTURES (Details) - Fair value of the Convertible Debenture Warrant - 8% Convertible Debenture Warrant [Member]
Nov. 11, 2013
USD ($)
$ / shares
shares
Assumption for Fair Value as of Balance Sheet Date of Assets or Liabilities that relate to Transferor's Continuing Involvement [Line Items]  
Stock price on valuation date (in Dollars per share) $ 5.00
Exercise price (in Dollars per share) $ 9.45
Discount for lack of marketability 22.00%
Term (years) 3 years
Expected volatility 102.80%
Weighted average risk-free interest rate 0.60%
Number of warrants (in Shares) | shares 369,979
Aggregate fair value (in Dollars) | $ $ 740,000
XML 57 R44.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONVERTIBLE DEBENTURES (Details) - Issuance Cost Allocation - USD ($)
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
CONVERTIBLE DEBENTURES (Details) - Issuance Cost Allocation [Line Items]    
Allocated issuance costs $ 19,156 $ 83,760
Expensed As Incurred [Member]    
CONVERTIBLE DEBENTURES (Details) - Issuance Cost Allocation [Line Items]    
Allocated issuance costs 8,593 55,999
Charged To Additional Paid In Capital [Member]    
CONVERTIBLE DEBENTURES (Details) - Issuance Cost Allocation [Line Items]    
Allocated issuance costs 2,824 10,194
Recorded As Deferred Issuance Costs And Amortized Under The Interest Method Over The Term Of The 8 Convertible Debenture [Member]    
CONVERTIBLE DEBENTURES (Details) - Issuance Cost Allocation [Line Items]    
Allocated issuance costs $ 7,739 $ 17,567
XML 58 R45.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONVERTIBLE DEBENTURES (Details) - The loss on extinguishment of debt - USD ($)
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
Securities extinguished:    
Less: deferred issuance costs $ 19,156 $ 83,760
Convertible Debenture Due November 2016 [Member]    
Securities extinguished:    
Face value of convertible debenture converted 3,500,000  
Plus: fair value of derivative liability 1,570,000  
Net book value of converted debenture, accrued interest, derivative liability and warrant exchanged 3,818,534  
Securities issued in conversion/exchange:    
Subtotal of securities issued in conversion/exchange 6,034,641  
(Loss) on conversion/exchange (2,216,107)  
Convertible Debenture Due November 2016 [Member] | Convertible Debenture [Member]    
Securities issued in conversion/exchange:    
Fair value of 100,800 shares of common stock issued, net (739,958 shares of Conversion Common Stock issued, less 639,158 shares exchanged for 3,500 shares of Series A Convertible Preferred Stock) 617,400  
Fair value of 3,500 shares of Series A Convertible Preferred Stock (based on a stated value per share of $1,000 and a conversion rate of $4.73) 4,532,241  
Fair value of warrant issued September 9, 2014 885,000  
Long-term Debt [Member] | Convertible Debenture Due November 2016 [Member]    
Securities extinguished:    
Face value of convertible debenture converted 3,500,000  
Less: debt discount (1,684,801)  
Less: deferred issuance costs (7,739)  
Plus: accrued interest 173,833  
Plus: fair value of derivative liability 1,032,241  
Plus: fair value of warrant exchanged in connection with the conversion $ 805,000  
XML 59 R46.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONVERTIBLE DEBENTURES (Details) - The loss on extinguishment of debt (Parentheticals) - $ / shares
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
Extinguishment of Debt [Line Items]    
Common stock issued, net 8,724,878 8,788,176
Series A Preferred Stock [Member]    
Extinguishment of Debt [Line Items]    
Preferred Stock 140 140
Convertible Debenture Due November 2016 [Member]    
Extinguishment of Debt [Line Items]    
Common stock issued, net 100,800  
Common Stock issued on Conversion 739,958  
Less: Shares exchnaged for Series A Convertible Preferred Stock 639,158  
Convertible Debenture Due November 2016 [Member] | Series A Preferred Stock [Member]    
Extinguishment of Debt [Line Items]    
Preferred Stock 3,500  
Preferred Stock, Stated value (in Dollars per share) $ 1,000  
Preferred Stock, Conversion Price (in Dollars per share) $ 4.73  
XML 60 R47.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONVERTIBLE DEBENTURES (Details) - Intrinsic Value Computation - 8% Convertible Debenture [Member]
Sep. 09, 2013
USD ($)
$ / shares
CONVERTIBLE DEBENTURES (Details) - Intrinsic Value Computation [Line Items]  
Stock price used for valuation (in Dollars per share) | $ / shares $ 6.125
211.4 shares issued per $1,000 of face value
Aggregate gross intrinsic value of the $3,500,000 of principal outstanding on September 8, 2014, immediately prior to conversion $ 4,532,241
Less the face value of the convertible debenture (3,500,000)
Intrinsic value of the derivative conversion feature $ 1,032,241
XML 61 R48.htm IDEA: XBRL DOCUMENT v3.3.1.900
CONVERTIBLE DEBENTURES (Details) - Intrinsic Value Computation (Parentheticals) - 8% Convertible Debenture [Member]
Sep. 09, 2013
USD ($)
shares
CONVERTIBLE DEBENTURES (Details) - Intrinsic Value Computation (Parentheticals) [Line Items]  
Issuance of shares | shares 211.4
Aggregate intrinsic value | $ $ 3,500,000
XML 62 R49.htm IDEA: XBRL DOCUMENT v3.3.1.900
SHAREHOLDERS' EQUITY (Details) - USD ($)
1 Months Ended 12 Months Ended 37 Months Ended
Feb. 15, 2015
Feb. 05, 2015
Jan. 02, 2015
Nov. 30, 2014
Sep. 09, 2014
Jul. 15, 2014
Feb. 15, 2014
Jan. 02, 2014
Nov. 30, 2013
Nov. 08, 2013
Sep. 30, 2012
Jul. 31, 2014
Mar. 31, 2013
Feb. 28, 2013
Nov. 30, 2012
Oct. 31, 2015
Oct. 31, 2014
Oct. 31, 2013
Nov. 30, 2015
Aug. 29, 2012
Jul. 06, 2011
Jul. 14, 2010
Apr. 21, 2003
May. 31, 1986
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Proceeds from Issuance of Common Stock (in Dollars)           $ 4,000,000           $ 3,673,000         $ 3,673,135              
Class of Warrant or Right, Number of Securities Called by Warrants or Rights                               16,000              
Series A Preferred Stock [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Preferred Stock, Par or Stated Value Per Share (in Dollars per share)                               $ 100 $ 100              
2010 Share Plan [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized                                           600,000    
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant                               988,995                
Share-based Compensation Arrangement by Share-based Payment Award, Other Share Increase (Decrease)     2,569,399         2,225,399   1,956,999                            
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross                               60,400 612,400              
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in Dollars per share)                               $ 2.91 $ 5.75              
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number                               406,149                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value (in Dollars)                               $ 342,572                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price (in Dollars per share)                               $ 3.40                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number                               526,271 728,560 119,360            
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price (in Dollars per share)                               $ 3.33 $ 5.75 $ 6.13            
2010 Share Plan [Member] | Employee Stock Option [Member] | Consultant [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Stock Issued During Period, Shares, Issued for Services                               11,600 12,400              
Consultation Fees Related To Options (in Dollars) (in Dollars)                               $ 46,000 $ 85,000              
2003 Share Plan [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized                                             2,800,000  
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number                                 493,991 625,554            
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price (in Dollars per share)                                 $ 18.00 $ 18.00            
2010 Share Plan Amendmend [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized                                       1,200,000 1,080,000      
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant                   800,000                            
2010 Share Plan Amendmend [Member] | Employee Stock Option [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period               10 years                                
2010 Share Plan Amendmend [Member] | Employee Stock Option [Member] | Non Employee Director [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross               12,000                                
2010 Share Plan Amendmend [Member] | Employee Stock Option [Member] | Board of Directors Chairman [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross               16,000                                
Stock Options Not Granted Under 2003 Share Plan Or 2010 Share Plan [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized                     1,660,000             120,000            
Stock Options Not Granted Under 2003 Share Plan Or 2010 Share Plan [Member] | Employee Stock Option [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period                     10 years                          
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross                     1,600,000                          
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in Dollars per share)                     $ 5.44                          
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number                               1,600,000                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value (in Dollars)                               $ 1,832,000                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price (in Dollars per share)                               $ 3.72                
Stock Options Not Granted Under 2003 Share Plan Or 2010 Share Plan [Member] | Employee Stock Option [Member] | Directors Additional Compensation Service [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross                                     40,000          
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in Dollars per share)                             $ 5.28                  
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares       13,333         13,334                              
Stock Options Not Granted Under 2003 Share Plan Or 2010 Share Plan [Member] | Employee Stock Option [Member] | Board of Directors Chairman [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross                           40,000                    
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares 13,333           13,334                                  
Common Stock, Anti-dilution Threshold Price (in Dollars per share) (in Dollars per share)                           $ 5.88                    
Stock Options Not Granted Under 2003 Share Plan Or 2010 Share Plan [Member] | Employee Stock Option [Member] | President and Chief Executive Officer [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross                     640,000                          
Stock Options Not Granted Under 2003 Share Plan Or 2010 Share Plan [Member] | Employee Stock Option [Member] | Senior Vice President of Engineering [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross                     320,000                          
Stock Options Not Granted Under 2003 Share Plan Or 2010 Share Plan [Member] | Employee Stock Option [Member] | Strategic Advisor [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross                     640,000                          
Stock Options Not Granted Under 2003 Share Plan Or 2010 Share Plan [Member] | Employee Stock Option [Member] | Outside Directors [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross                                   120,000            
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number                               120,000                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value (in Dollars)                               $ 92,000                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price (in Dollars per share)                               $ 3.72                
Stock Options Not Granted Under 2003 Share Plan Or 2010 Share Plan [Member] | Employee Stock Option [Member] | Three Outside Directors [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross                         40,000                      
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in Dollars per share)                         $ 4.88                      
Stock Options Not Granted Under 2003 Share Plan Or 2010 Share Plan [Member] | Nonqualified Stock Option [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period                     10 years                          
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross                     60,000                          
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in Dollars per share)                     $ 5.56                          
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value (in Dollars)                               $ 34,000                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price (in Dollars per share)                               $ 3.72                
Stock Options Not Granted Under 2003 Share Plan Or 2010 Share Plan [Member] | Nonqualified Stock Option [Member] | Chairmans Compensation [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross                     30,000                          
Stock Options Not Granted Under 2003 Share Plan Or 2010 Share Plan [Member] | Nonqualified Stock Option [Member] | Directors Additional Compensation Service [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross                     30,000                          
Stock Options Not Granted Under 2003 Share Plan Or 2010 Share Plan [Member] | Re-Priced Options [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number   2,184,125                                            
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price (in Dollars per share)   $ 2.575                                            
Share-based Compensation (in Dollars)   $ 297,000                                            
Common Stock [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Proceeds from Issuance of Common Stock (in Dollars)                                 $ 6,400              
Stock Issued During Period, Shares, New Issues           640,000                                    
Share Price (in Dollars per share)           $ 6.25                                    
Stock Issued During Period, Shares, Issued for Services                               11,600 12,400              
Stock Issued During Period, Shares, Conversion of Convertible Securities                                 330,683              
Warrant [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Class of Warrant or Right, Number of Securities Called by Warrants or Rights           320,000                                    
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per share)           $ 10.00                                    
Class of Warrant or Right, Expiration Period           5 years                                    
Cancellation of Warrants, Exercise Price (in Dollars per share)           $ 0.025                                    
Preferred Stock [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Preferred Stock, Shares Authorized                               19,860 19,860             200,000
Preferred Stock, Par or Stated Value Per Share (in Dollars per share)                               $ 100 $ 100             $ 100
Convertible Preferred Stock [Member] | Series A Preferred Stock [Member]                                                
SHAREHOLDERS' EQUITY (Details) [Line Items]                                                
Common Stock, Anti-dilution Threshold Price (in Dollars per share) (in Dollars per share)                               3.55                
Preferred Stock, Shares Authorized         140                                      
Preferred Stock, Par or Stated Value Per Share (in Dollars per share)         $ 100                                      
Stock Issued During Period, Shares, Conversion of Convertible Securities         140                                      
Convertible Preferred Stock, Shares Converted, Initial Stated Value (in Dollars per share) (in Dollars per share)                               1,000                
Convertible Preferred Stock, Initial Conversion Price (in Dollars per share) (in Dollars per share)                               $ 4.73                
Common Stock, Shares Outstanding, Maximum Ownership Percentage                               4.99%                
Convertible Preferred Stock, Mandatory Conversion, Measurment Period                               the average of the high and low trading prices of the Company’s common stock for any 10 out of 20 consecutive trading days                
Convertible Preferred Stock,Mandatory Conversion, Threshold Trading Volume Percentage                               50.00%                
Convertible Preferred Stock Redemption, Notice Period                               60 days                
Conertible Preferred Stock, Observer Designation, Notice Period                               10 days                
XML 63 R50.htm IDEA: XBRL DOCUMENT v3.3.1.900
SHAREHOLDERS' EQUITY (Details) - Information regarding the 2003 and 2010 Share Plan - USD ($)
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
2003 Share Plan [Member]    
SHAREHOLDERS' EQUITY (Details) - Information regarding the 2003 and 2010 Share Plan [Line Items]    
Options Outstanding, Shares 493,991 625,554
Options Outstanding, Weighted Average Exercise Price Per Share $ 18.00 $ 18.00
Options Exercised, Shares (4,000) (17,400)
Options Exercised, Weighted Average Exercise Price Per Share $ 2.58 $ 3.63
Options Forfeited, Shares (123,771) (114,163)
Options Forfeited, Weighted Average Exercise Price Per Share $ 14.71 $ 19.75
Options Outstanding and Exercisable at October 31, 2015 366,200  
Options Outstanding and Exercisable at October 31, 2015 $ 17.86  
Options Outstanding and Exercisable at October 31, 2015 $ 61,665  
Options Outstanding, Shares   493,991
Options Outstanding, Weighted Average Exercise Price Per Share   $ 18.00
2010 Share Plan [Member]    
SHAREHOLDERS' EQUITY (Details) - Information regarding the 2003 and 2010 Share Plan [Line Items]    
Options Outstanding, Shares 728,560 119,360
Options Outstanding, Weighted Average Exercise Price Per Share $ 5.75 $ 6.13
Options Granted, Shares 60,400 612,400
Options Granted, Weighted Average Exercise Price Per Share $ 2.91 $ 5.75
Options Exercised, Shares (13,334) (3,200)
Options Exercised, Weighted Average Exercise Price Per Share $ 2.58 $ 4.00
Options Forfeited, Shares (249,355)  
Options Forfeited, Weighted Average Exercise Price Per Share $ 6.24  
Options Outstanding, Shares 526,271 728,560
Options Outstanding, Weighted Average Exercise Price Per Share $ 3.33 $ 5.75
Options Outstanding, Aggregate Intrinsic Value $ 471,292  
Options Exercisable at October 31, 2015 406,149  
Options Exercisable at October 31, 2015 $ 3.40  
Options Exercisable at October 31, 2015 $ 342,572  
XML 64 R51.htm IDEA: XBRL DOCUMENT v3.3.1.900
SHAREHOLDERS' EQUITY (Details) - Stock options outstanding and exercisable under 2003 share plan
12 Months Ended
Oct. 31, 2015
$ / shares
shares
Range Of Exercise Prices $1.79 To $9.25 [Member]  
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]  
Options Outstanding, Number | shares 73,880
Options Outstanding,Weighted Average Remaining Contractual Life (in years) 1 year 9 months
Options Outstanding, Weighted Average Exercise Price (in Dollars per share) | $ / shares $ 2.91
Range Of Exercise Prices $14.75 To $17.25 [Member]  
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]  
Options Outstanding, Number | shares 59,600
Options Outstanding,Weighted Average Remaining Contractual Life (in years) 1 year 120 days
Options Outstanding, Weighted Average Exercise Price (in Dollars per share) | $ / shares $ 16.75
Range Of Exercise Prices $18.75 To $23.00 [Member]  
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]  
Options Outstanding, Number | shares 192,720
Options Outstanding,Weighted Average Remaining Contractual Life (in years) 1 year 51 days
Options Outstanding, Weighted Average Exercise Price (in Dollars per share) | $ / shares $ 21.57
Range Of Exercise Prices $29.25 [Member]  
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]  
Options Outstanding, Number | shares 40,000
Options Outstanding,Weighted Average Remaining Contractual Life (in years) 1 year 292 days
Options Outstanding, Weighted Average Exercise Price (in Dollars per share) | $ / shares $ 29.25
XML 65 R52.htm IDEA: XBRL DOCUMENT v3.3.1.900
SHAREHOLDERS' EQUITY (Details) - Stock options outstanding under 2010 Share Plan - Range of Exercise Prices $2.58 To $9.25 [Member] - 2010 Share Plan [Member]
12 Months Ended
Oct. 31, 2015
$ / shares
shares
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]  
Options Outstanding, Number | shares 526,271
Options Outstanding, Weighted Average Remaining Contractual Life 6 years 357 days
Options Outstanding, Weighted Average Exercise Price | $ / shares $ 3.33
Options Exercisable, Number | shares 406,149
Options Exercisable, Weighted Average Remaining Contractual Life 6 years 208 days
Options Exercisable,Weighted Average Exercise Price | $ / shares $ 3.40
XML 66 R53.htm IDEA: XBRL DOCUMENT v3.3.1.900
SHAREHOLDERS' EQUITY (Details) - Stock options granted not under 2003 Share Plan and 2010 Share Plan - Range of Exercise Prices $2.58 To $5.56 [Member] - Stock Options Not Granted Under 2003 Share Plan Or 2010 Share Plan [Member]
12 Months Ended
Oct. 31, 2015
$ / shares
shares
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]  
Options Outstanding, Shares | shares 1,780,000
Options Outstanding, Weighted Average Remaining Contractual Life 6 years 277 days
Options Outstanding, Weighted Average Exercise Price | $ / shares $ 2.71
XML 67 R54.htm IDEA: XBRL DOCUMENT v3.3.1.900
COMMITMENTS AND CONTINGENCIES (Details)
12 Months Ended
Oct. 31, 2015
USD ($)
Oct. 31, 2014
USD ($)
COMMITMENTS AND CONTINGENCIES (Details) [Line Items]    
Patent Acquisition Obligations Discounted, Present Value $ 3,688,000  
Interest Expense, Patent Acquisition Obligations 452,000 $ 386,000
Operating Leases, Future Minimum Payments Due 44,000  
Operating Leases, Rent Expense $ 100,000 $ 109,000
Property Available for Operating Lease [Member] | Los Angeles California [Member]    
COMMITMENTS AND CONTINGENCIES (Details) [Line Items]    
Area of Land (in Square Meters) | m² 3,000  
XML 68 R55.htm IDEA: XBRL DOCUMENT v3.3.1.900
INCOME TAXES (Details) - USD ($)
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
INCOME TAXES (Details) [Line Items]    
Operating Loss Carryforward and Tax Credit Carryforward Expiration, Date Range expiring at various dates between 2016 and 2035  
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent (34.00%) (34.00%)
Effective Income Tax Rate Reconciliation, Percent 0.00% 0.00%
Federal Corporate Taxable [Member]    
INCOME TAXES (Details) [Line Items]    
Operating Loss Carryforwards $ 75,642,000  
Tax Credit Carryforward, Amount 1,110,000  
New York State [Member]    
INCOME TAXES (Details) [Line Items]    
Operating Loss Carryforwards 72,505,000  
Tax Credit Carryforward, Amount 11,000  
California State [Member]    
INCOME TAXES (Details) [Line Items]    
Operating Loss Carryforwards $ 2,803,000  
XML 69 R56.htm IDEA: XBRL DOCUMENT v3.3.1.900
INCOME TAXES (Details) - Income tax provision (benefit) - USD ($)
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
Federal:    
Current
Deferred $ (487,000) $ (1,606,000)
State:    
Current
Deferred $ (120,000) $ (1,000)
Adjustment to valuation allowance related to net deferred tax assets $ 607,000 $ 1,607,000
Income tax provision (benefit)
XML 70 R57.htm IDEA: XBRL DOCUMENT v3.3.1.900
INCOME TAXES (Details) - The tax effects of temporary differences of the deferred tax - USD ($)
Oct. 31, 2015
Oct. 31, 2014
Long-term deferred tax assets:    
Federal and state NOL and tax credit carryforwards $ 31,261,000 $ 31,864,000
Deferred compensation 6,522,000 $ 5,437,000
Intangibles 483,000
Other 282,000 $ 359,000
Subtotal 38,548,000 37,660,000
Less: valuation allowance $ (38,548,000) $ (37,660,000)
Deferred tax asset, net
XML 71 R58.htm IDEA: XBRL DOCUMENT v3.3.1.900
INCOME TAXES (Details) - Reconciliation of income taxes at the Federal statutory tax rate - USD ($)
12 Months Ended
Oct. 31, 2015
Oct. 31, 2014
Reconciliation of income taxes at the Federal statutory tax rate [Abstract]    
Income tax benefit at U.S. Federal statutory income Tax rate $ (469,000) $ (3,266,000)
Income tax benefit at U.S. Federal statutory income Tax rate (34.00%) (34.00%)
State income taxes $ (117,000) $ (6,000)
State income taxes (8.50%) (0.06%)
Permanent differences $ 1,000 $ 1,529,000
Permanent differences 0.10% 15.92%
Expiring net operating losses, credits and other $ (22,000) $ 115,000
Expiring net operating losses, credits and other (1.60%) 1.19%
Foreign rate difference on impairment $ 21,000
Foreign rate difference on impairment 0.00% 0.22%
Change in valuation allowance $ 607,000 $ 1,607,000
Change in valuation allowance 44.00% 16.73%
Income tax provision
Income tax provision 0.00% 0.00%
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