Summary of Significant Accounting Policies

9 Months Ended

Jul. 31, 2014

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

6. 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 2013 Annual Report on Form 10-K. The Company has not experienced any material change in its critical accounting policies since November 1, 2013. 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

During the period ended July 31, 2014, there were several new accounting pronouncements issued by the Financial Accounting Standards Board (FASB). Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements. Set forth below are the more significant pronouncements.

On June 10, 2014, the FASB issued Accounting Standards Update [ASU] 2014-10, entitled Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. The guidance in ASU 2014-10 removes all incremental financial reporting requirements from GAAP for development-stage entities, including the removal of Topic 915 from the FASB Accounting Standards Codification. In addition, the update adds an example disclosure in Risks and Uncertainties (Topic 275) to illustrate one way that an entity that has not begun planned principal operations could provide information about the risks and uncertainties related to the company’s current activities.

The accounting standards update also removes an exception provided to development stage entities in Consolidations (Topic 810) for determining whether an entity is a variable interest entity—which may change the consolidation analysis, consolidation decision, and disclosure requirements for a company that has an interest in a company in the development stage. ASU 2014-10 is effective for the first annual period beginning after December 15, 2014 the presentation and disclosure requirements in Topic 915 will no longer be required. The revised consolidation standards are effective one year later, in annual periods beginning after December 15, 2015. Early adoption is permitted. The Company has adopted ASU effective for the nine months ended July 31, 2014 and believes that it has not had a material impact on our financial statements.

From time to time new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.

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).

The Company recognized share-based compensation expense of $260,282 for options granted to various employees and consultants in November 2013, $80,348 of which is included in research and development expense and $179,934 is recorded as sales, general and administrative expense.

On November 19, 2013, the Board of Directors adopted the 2014 Employee Benefit Plan which is authorized to grant up to 525,000 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. On November 19, 2013, the Company issued three-year options to purchase 100,000 shares of common stock which vested immediately under the Plan to the Company’s President, Jeffrey Nunez, for services rendered at an exercise price of $0.50 per share at a fair market value of $67,447. Additional three-year options to purchase 300,000 shares of common stock, in the aggregate, were issued to Mr. Nunez and three other employees of the Company on November 19, 2013 at an exercise price of $1.00 per share, for an aggregate value of $192,835.

The following table summarizes information about options granted under the Company’s equity compensation plans through July 31, 2014 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, options granted have contractual lives ranging from two to ten years and, in the case of an employee, vested options terminate 90 days after an employee leaves the Company. All of the options granted on November 19, 2013 vested in their entirety at the time of issuance. Of such options, 50,000 terminated in March 2014 and 25,000 terminated in June 2014 due to voluntary terminations by two employees.

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at October 31, 2013		4,400		$	13.35		0.4	$	—
Granted		400,000			0.88		2.8
Exercised		—			—
Expired		(4,000	)		7.69
Canceled		(75,000	)		1.00
Outstanding at July 31, 2014		325,400		$	0.93		2.3	$	—

Summary information about the Company’s options outstanding at July 31, 2014 is set forth in the table below. Options outstanding at July 31, 2014 expire between January and November 2016.

Range of Exercise Prices		Options Outstanding July 31, 2014		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Options Exercisable July 31, 2014		Weighted Average Exercise Price
$	0.50		100,000		2.6	$	0.50		100,000	$	0.50
$	1.00		225,000		2.3	$	1.00		225,000	$	1.00
$	70.00		400		1.7	$	70.00		400	$	70.00
TOTAL:			325,400						325,400

As of July 31, 2014, 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, 2013 and changes during the nine months ended July 31, 2014:

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic  Value
Outstanding at October 31, 2013		240,000		$	0.90		1.9	$	—
Granted		67,000			1.00		0.5
Exercised		—			—
Expired		(80,000	)		1.00
Canceled		—			—
Outstanding at July 31, 2014		227,000		$	0.89		1.4	$	—

Summary information about the Company’s warrants outstanding at July 31, 2014 is set forth in the table below. Warrants outstanding at July 31, 2014 expire between May 2014 and June 2016.

Range of Exercise Prices	Warrants Outstanding July 31, 2014		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Warrants Exercisable July 31, 2014		Weighted Average Exercise Price
$0.50 - $1.00		227,000		1.4	$	0.89		227,000	$	0.89
		227,000						227,000