Summary of Significant Accounting Policies

6 Months Ended

Apr. 30, 2013

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

7. Summary of Significant Accounting Policies

The accounting policies followed are as set forth in Note 1 of the Notes to Financial Statements in the Company’s 2011 Annual Report on Form 10-K. The Company has not experienced any material change in its critical accounting policies since November 1, 2011. The Company’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments regarding uncertainties that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, the Company evaluates its estimates, which are based upon historical experience and on other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The Company considers the following accounting policies to be most critical in their potential effect on its financial position or results of operations.

New Accounting Pronouncements

The following accounting standards updates were recently issued and have not yet been adopted by us.  These standards are currently under review to determine their impact on our consolidated financial position, results of operations, or cash flows. There were various other updates recently issued which represented technical corrections to the accounting literature or application to specific industries.  None of the other updates are expected to a have a material impact on our consolidated financial position, results of operations or cash flows.

On January 31, 2013, the FASB issued Accounting Standards Update [ASU] 2013-01, entitled Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.  The guidance in ASU 2013-01 amends the requirements in the FASB Accounting Standards Codification [FASB ASC] Topic 210, entitled Balance Sheet. The ASU 2013-01 amendments to FASB ASC 210 clarify that ordinary trade receivables and receivables in general are not within the scope of ASU 2011-11, entitled Disclosure about Offsetting Assets and Liabilities, where that ASU amended the guidance in FASB ASC 210.  As those disclosures now are modified with the ASU 2013-01 amendments, the FASB ASC 210 balance sheet offsetting disclosures now clearly are applicable only where reporting entities are involved with bifurcated embedded derivatives, repurchase agreements, reverse repurchase agreements, and securities borrowing and lending transactions that either are offset using the FASB ASC 210 or 815 requirements, or that are subject to enforceable master netting arrangements or similar agreements.  ASU 2013-01 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU is not expected to have a material impact on our financial statements.

On February 7, 2013, the FASB issued Accounting Standards Update [ASU] 2013-03, entitled Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities. The guidance in ASU 2013-03 amends the requirements in the FASB Accounting Standards Codification [FASB ASC] Topic 825, entitled Financial Instruments.  The objective associated with issuing this amended guidance is to clarify the scope and applicability of a particular disclosure for nonpublic entities [nonissuers] that resulted from the issuance of ASU 2011-04, entitled Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, where that amended guidance essentially served to rewrite the guidance in FASB ASC 820, entitled Fair Value Measurement. The ASU 2013-03 amendments to FASB ASC 825 became effective upon issuance of the guidance.  Since the amendments were issued on February 7, 2013, that date serves as the effective date of the amended guidance. The adoption of ASU 2013-03 is not expected to have a material effect on the Company’s operating results or financial position.

On February 28, 2013, the FASB issued Accounting Standards Update [ASU] 2013-04, entitled Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date.  The ASU 2013-04 amendments add to the guidance in FASB Accounting Standards Codification [FASB ASC] Topic 405, entitled Liabilities and require reporting entities to measure obligations resulting from certain joint and several liability arrangements where the total amount of the obligation is fixed as of the reporting date, as the sum of the following:

●The amount the reporting entity agreed to pay on the basis of its arrangement among co-obligors.

●Any additional amounts the reporting entity expects to pay on behalf of its co-obligors.

While early adoption of the amended guidance is permitted, for public companies, the guidance is required to be implemented in fiscal years, and interim periods within those years, beginning after December 15, 2013.  The amendments need to be implemented retrospectively to all prior periods presented for obligations resulting from joint and several liability arrangements that exist at the beginning of the year of adoption.  The adoption of ASU 2013-04 is not expected to have a material effect on the Company’s operating results or financial position.

On April 22, 2013, the FASB issued Accounting Standards Update [ASU] 2013-07, entitled Liquidation Basis of Accounting.  With ASU 2013-07, the FASB amends the guidance in the FASB Accounting Standards Codification [FASB ASC] Topic 205, entitled Presentation of Financial Statements.  The amendments serve to clarify when and how reporting entities should apply the liquidation basis of accounting.  The guidance is applicable to all reporting entities, whether they are public or private companies or not-for-profit entities.  The guidance also provides principles for the recognition of assets and liabilities and disclosures, as well as related financial statement presentation requirements. The requirements in ASU 2013-07 are effective for annual reporting periods beginning after December 15, 2013, and interim reporting periods within those annual periods.  Reporting entities are required to apply the requirements in ASU 2013-07 prospectively from the day that liquidation becomes imminent.  Early adoption is permitted. The adoption of ASU 2013-07 is not expected to have a material effect on the Company’s operating results or financial position.

Earnings Per Share

Basic earnings per share are based on the weighted average number of shares outstanding for a period.  Diluted earnings per share are based upon the weighted average number of shares and potentially dilutive common shares outstanding.  Potential common shares outstanding principally include convertible notes payable and stock options under our stock plan.  Since the Company has incurred losses, the effect of any common stock equivalent would be anti-dilutive.

Stock Based Compensation

Stock-based compensation costs for stock options issued to employees is measured at the grant date, based on the fair value of the award using the Black Scholes Option Pricing Model, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant).

No stock-based compensation was recognized during the six months ended April 30, 2013.

On February 14, 2012, the Board of Directors adopted the 2012 Employee Benefit Plan which is authorized to grant up to 120,000 shares of common stock or options to purchase common stock to eligible employees, directors, officers, consultants or advisors. Eligibility and vesting, in the case of options, is determined by the Board of Directors. Between January 16, 2013 and February 22, 2013, the Company issued 16,000 shares of common stock which vested immediately under the Plan to legal counsel for services rendered and the fair market value of $1.05 and $1.50 per share. The aggregate value of the shares was $20,400.

The following table summarizes information about options granted under the Company’s equity compensation plans through April 30, 2013 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, in the case of an employee, vested options terminate when an employee leaves the Company. The options granted have contractual lives ranging from two to ten years.

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at October 31, 2012		5,600		$	40.00		1.2	$	—
Granted		—			—
Exercised		—			—
Expired		(1,000	)		145.00
Canceled		—			—
Outstanding at April 30, 2013		4,600		$	19.29		0.9	$	—

Summary information about the Company’s options outstanding at April 30, 2013 is set forth in the table below. Options outstanding at April 30, 2013 expire between August 2013 and January 2016.

Range of Exercise Prices		Options Outstanding April 30, 2013		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Options Exercisable April 30, 2013		Weighted Average Exercise Price
$ 7.68-$70.00			4,400		0.9	$	13.35		4,400	$	13.35
$ 150.00			200		0.3	$	150.00		200	$	150.00
	TOTAL:		4,600						4,600

As of April 30, 2013, all outstanding options had fully vested and there was no estimated unrecognized compensation from unvested stock options.

The following table summarizes the information relating to warrants granted to non-employees as of October 31, 2012 and changes during the six months ended April 30, 2013:

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at October 31, 2012		146,667		$	1.00		1.8	$	—
Granted		—			—
Exercised		(40,000	)		1.00
Expired		—			—
Canceled		(66,667	)		1.50
Outstanding at April 30, 2013		40,000		$	1.00		2.0	$	—

Summary information about the Company’s warrants outstanding at April 30, 2013 is set forth in the table below. Warrants outstanding at April 30, 2013 expire in and April 2015.

Range of Exercise Prices		Warrants Outstanding April 30, 2013		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Warrants Exercisable April 30, 2013		Weighted Average Exercise Price
$	1.00		40,000		2.0	$	1.00		40,000	$	1.00
			40,000						40,000