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Stock Options and Warrants

12 Months Ended

Oct. 31, 2012

Common Stock Options

In May 2008, the Company adopted the Micro Imaging Technology 2008 Employee Incentive Stock Plan (“Stock Plan”) effective May 2, 2008. Similar to the above-referenced Benefit Plan, the Stock Plan permits the Company to grant up to 3 million shares of common stock or options or purchase common stock to eligible employees, directors, officers, consultants or advisors. The Board of Directors authorized the issuance of 584,472 shares of common stock under the Stock Plan in May 2008 to various individuals, including officers and directors, in exchange for cancellation of loans and interest as well as fees and expenses due them from the Company. The FMV of the stock on the grant date was $0.30 per share in cancellation of $175,342 in accrued debt. An additional 2 million shares were issued under the Stock Plan on June 12, 2009 to a consultant and 50,000 shares were issued on November 2, 2009 to legal counsel in partial payment of legal fees. There are 365,528 shares and/or options available remaining under this Plan as of October 31, 2012.

On February 14, 2012 the Board of Directors authorized the formation of the 2012 Employee Benefit Plan which is authorized to grant up to 60 million shares of common stock or options to purchase common stock to eligible employees, directors, officers, consultants or advisors. Eligibility is determined by the Board of Directors. During the fiscal year ended October 31, 2012, the Company issued all 14,250,000 shares of common stock under the Benefit Plan to consultants for services rendered in the aggregate sum of $57,000. See Note 8 – “Common Stock.”

No options were granted by the Company during fiscal 2012 under any equity compensation plan or otherwise.

The following table summarizes information about options granted under the Company’s equity compensation plans and otherwise to employees, directors and consultants of the Company. Generally, options vest on an annual pro rata basis over various periods of time and are exercisable, upon proper notice, in whole or in part at any time upon vesting. Typically, unvested options terminate when an employee leaves the Company. The options granted have contractual lives ranging from three to ten years.

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at October 31, 2010		5,900,000		$	0.10		1.9	$	—
Granted		100,000			0.30
Exercised		—			—
Expired		(3,000,000	)		0.12
Canceled		—			—
Outstanding at October 31, 2011		3,000,000			0.09		2.1	$	—
Granted		—			—
Exercised		—			—
Expired		(200,000	)		0.16
Canceled		—			—
Outstanding at October 31, 2012		2,800,000		$	0.08		1.2	$	—

The values of the consideration received were based on the values of the options granted. The values of the options were estimated using the Black-Scholes Option Pricing Model with the following weighted average assumptions for grants made in 2012 and 2011.

	2012		2011
Risk-free interest rate		—		1.35	%
Expected dividend yield		—		—
Expected stock price volatility		—		1.62
Expected life in years		—		2 years

Summary information about the Company’s options outstanding at October 31, 2012 is set forth in the table below. Options outstanding at October 31, 2012 expire between January 2013 and January 2016.

Range of Exercise Prices	Options Outstanding October 31, 2012		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Options Exercisable October 31, 2012		Weighted Average Exercise Price
$0.02 - $0.15		2,200,000		1.4	$	0.03		2,200,000	$	0.03
$0.24 - $0.30		600,000		0.3	$	0.29		600,000	$	0.29
TOTAL:		2,800,000						2,800,000

There were no unvested stock options as of October 31, 2012.

Common Stock Warrants

The Company accounts for stock-based compensation awards to non-employees based upon fair values at the grant dates. The consideration received for the issuance of stock purchase warrants (“warrants”) is based on the fair value of the warrants or of the goods or services received for the warrants issued, whichever is more reliably measurable.

When the value of the services is based on the fair value of the warrants, the value is calculated using the Black-Scholes Option Pricing Model. The fair value of the options or warrants is expensed as the services are provided.

As of October 31, 2012, 5,500,000 warrants that had been issued in prior years expired by their terms. No warrants were granted by the Company during fiscal 2011. During the fiscal year ended October 31, 2012, the Company granted warrants as follows:

On April 20, 2012, the Company granted three-year warrants to purchase 40 million shares of common stock to a major shareholder as part of a Subscription Agreement for the purchase of 40 million shares of common stock at $0.015 per share. The warrants are exercisable at $0.002 per share within one year of the subscription; $0.005 per share within two years; and at $0.01 per share during the third year of the warrant. On January 11, 2013, the warrant holder exercised his right to purchase 20 million shares at $0.002 per share under this warrant agreement. See also Note 13 – “Subsequent Events.”

On May 21, 2012, the Company entered into a Subscription Agreement with the above referenced stockholder to purchase a total of two hundred (200) million shares of the Company’s common stock at $0.001 per share, for a total of $200,000, over a six-month period. As additional consideration, the purchaser was granted a one-year option to purchase up to an additional 33,333,333 shares of common stock at $0.003 per share commencing on September 24, 2012 which is the date that the final dollars were invested.

On May 8, 2012, the Company entered into a Subscription Agreement with Gregg Newhuis to purchase a total of 800 million shares of the Company’s common stock at $0.001 per share over a six-month period. The agreement also granted Mr. Newhuis a one-year option to purchase up to 133, 333, 333 shares of common stock at $0.003 per share. As of October 31, 2012, the agreement was corrected to reflect a total purchase commitment of 900 million shares and the termination in full of the options originally granted with the agreement.

The following table summarizes the information relating to warrants granted to non-employees as of October 31, 2012 and 2011 and changes during the years then ended. Warrants outstanding at October 31, 2012 expire between September 2013 and April 2015.

	Number of Warrants			Weighted Average Exercise Price
Outstanding at October 31, 2010		5,500,000		$	0.02
Granted		—			—
Exercised		—			—
Expired		(500,000	)		0.10
Outstanding at October 31, 2011		5,000,000			0.01
Granted		206,666,666			0.002
Exercised		—			—
Cancelled		(133,333,333	)		—
Expired		(5,000,000	)		0.01
Outstanding at October 31, 2012		73,333,333		$	0.002

The values of the consideration received were based on the values of the warrants granted. The values of the warrants were estimated using the Black-Scholes Option Pricing Model with the following weighted average assumptions for grants made in 2012 and 2011:

	2012			2011
Risk-free interest rate		0.72	%		1.57	%
Expected dividend yield		—			—
Expected stock price volatility		1.89			3.68
Expected life in years		1.7 years			2 years

Summary information about the Company’s warrants outstanding at October 31, 2012 is as follows:

Range of Exercise Prices		Warrants October 31, 2012		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Warrants Exercisable October 31, 2012		Weighted Average Exercise Price
$	0.002		40,000,000		2.5	$	0.002		40,000,000	$	0.002
$	0.003		33,333,333		0.9	$	0.003		33,333,333	$	0.003
	TOTAL:		73,333,333						73,333,333