Stockholders' Equity

12 Months Ended

Oct. 31, 2011

Stockholders' Equity [Abstract]

STOCKHOLDERS' EQUITY

11. STOCKHOLDERS’ EQUITY

Common stock offering

On September 17, 2009, the Company sold 6,420,000 shares of common stock in a “registered direct offering” at a purchase price of $1.50 per share. The sale of the shares was made pursuant to Subscription Agreements and a Prospectus Supplement dated September 17, 2009. The gross proceeds to the Company from the sale of the shares, before deducting for the Placement Agent’s fees and offering expenses, was approximately $9.6 million. The Company recorded net proceeds of $8.6 million, net of $0.8 million of placement agency fees and expenses, and $0.2 million of other expenses related to the offering, as additional paid in capital. The shares were registered with the Securities and Exchange Commission on a prospectus which was declared effective on August 28, 2009.

Common stock warrants and units

The following table sets forth the number shares of common stock purchasable under outstanding stock purchase warrants at October 31, 2011 and 2010:

Issued in connection with	Issue date	Expiration date	Exercise Price		October 31, 2011		October 31, 2010
Equity financing	September 5, 2007	March 5, 2013	$	2.04		1,110,001		1,697,735
Consulting services	June 14, 2006	May 31, 2013	$	1.55		16,500		40,000
Consulting services	March 29, 2010	March 28,2015	$	1.06		70,000		100,000
						1,196,501		1,837,735

On September 5, 2007, the Company completed a private placement of 3,966,668 units, each consisting of one share of common stock and a warrant to purchase 0.4 shares of common stock, in which the Company raised $6.0 million in gross proceeds.

The warrants issued in the transaction have an exercise price of $2.04 per share and a term of five years, which begins six months from the issue date. Additionally, the warrants contain a cashless exercise feature if a registration statement is not effective on the date of exercise, and a provision for exercise price adjustments under certain circumstances as defined in the warrant agreement. If the Company is sold, merged, or otherwise enters into a “fundamental transaction” as defined in the warrant agreement, the successor entity is required to issue securities to the warrant holders equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented by the warrants. In the event the successor entity is not a publicly traded corporation whose securities are traded on a trading market, as defined in the securities purchase agreement the warrant holder can elect to receive a cash payment equal to the lesser of one dollar per share, or the transaction value of a share of common stock, as defined in the agreement, multiplied by: (i) on or prior to the first anniversary of the warrant, 55%; (ii) after the first anniversary of the warrant, but before the second, 45%; (iii) after the second anniversary of the warrant, but before the third, 35%, (iv) after the third anniversary of the warrant, but before the fourth, 25%; or (v) after the fourth anniversary of the warrant, 10%. The warrants contain a provision that may require settlement by transferring assets. Therefore, they are classified as liabilities in accordance with ASC Topic 480, Distinguishing Liabilities from Equity.

The Company initially allocated $2.1 million of the proceeds received in the transaction to the warrants based on the fair values of the warrants on the date of the transaction. The Company measures the fair value of the warrants at each balance sheet date, and records the change in fair value as a non-cash charge or gain to earnings each period. The warrants were valued at $1.9 million and $0.1 million at October 31, 2011 and 2010, respectively, primarily due to fluctuations in the Company’s stock price. This resulted in a non-cash loss of $2.8 million, a non-cash gain of $0.5 million, and a non-cash loss of $0.4 million due to the change in fair value of warrants during the years ended October 31, 2011, 2010 and 2009, respectively. The Company used the Black-Scholes method to value the warrants (see Note 3).

In 2010, the Company issued 100,000 warrants to a consultant for services (see Note 12). In 2011, the Company issued 100,000 warrants in connection with a license agreement which were subsequently cancelled upon termination of the agreement.

Additionally, in connection with the September 5, 2007 equity financing, the Company issued unit purchase options, to purchase at $1.50 per share, units consisting of (1) 277,667 shares of common stock, and (2) warrants to purchase up to 111,067 shares of common stock at $2.04, with terms identical to the warrants issued in the financing. The units and underlying warrants were exercised in the year ended October 31, 2011.

A summary of the status of the Company’s outstanding warrants and units as of October 31 and changes during the years then ended is presented below:

	2011			2010			2009
Outstanding at beginning of year		2,226,469			2,201,469			2,311,469
Issued		100,000			100,000			—
Exercised		(1,029,968	)		—			(110,000	)
Cancelled		(100,000	)		(75,000	)		—
Outstanding at end of year		1,196,501			2,226,469			2,201,469