Quarterly report pursuant to sections 13 or 15(d)

FAIR VALUE

v2.4.0.6
FAIR VALUE
 9 Months Ended
Jul. 31, 2012
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]

13.    FAIR VALUE

 

The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii)knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

 

·   Level 1 — Quoted prices in active markets for identical assets or liabilities

 

·   Level 2— Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities

 

·   Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities

 

The following table provides the liabilities carried at fair value measured on a recurring basis as of July 31, 2012:

 

July 31, 2012   Level 1     Level 2     Level 3     Total  
                         
Common stock warrant liability, warrants exercisable at $0.15 - $0.17 from October 2012 through November 2015   $ -     $              $ 1,265,985     $ 1,265,985  
Embedded derivative liability, convertible at $0.15 from May 2012 through January 2013   $ -     $     $ 2,136     $ 2,136  
May 2012 Notes               $ 472,840     $ 472,870  

 

 

The following table summarizes the changes in fair value of the Company's Level 3 financial instruments for the three and nine months ended July 31, 2012 and July 31, 2011.

 

Embedded derivative liability

    July 31,
2012		     July 31,
2011		  
Beginning balance at October 31, 2011 and 2010   $ 946,046     $ 81,028  
Issuance of embedded derivatives associated with convertible notes     306,568       200,569  
Note Conversions and Payoffs     (670,755 )     -  
Change in fair value     159,657       (51,972 )
Balance at January 31, 2012 and 2011     741,496       229,625  
Issuance of embedded derivatives associated with convertible notes     -       697,736  
Note Conversions     (165,693 )     -  
Note Payoffs     -       (5,904 )
Change in fair value     (438,054 )     918,870  
Balance at April 30, 2012 and 2011   $ 137,749     $ 1,840,327  
Issuance of embedded derivatives associated with convertible notes             2,719,345  
Debt for Equity Exchanges: May, October and December 2011 Notes     (115,046 )        
Note Conversions and Payoffs     -       (739,787 )
Reclassification of JMJ Note             (516,571 )
Change in fair value     (20,567 )     (2,216,715 )
Balance at July 31, 2012 and 2011     2,136       1,086,599  

 

Common stock warrant liability:

 

    July 31,
2012		     July 31,
2011		  
Beginning balance at October 31, 2011 and 2010   $ 6,391,071     $ 13,006,194  
Issuance of common stock warrants     -       600,407  
Exercises and Exchanges of warrants     59,572       (1,295,884 )
Change in fair value     (923,052 )     (3,789,889 )
Balance at January 31, 2012 and 2011   $ 5,527,591     $ 8,520,828  
                 
Issuance of common stock warrants     -       3,111,758  
Exercises of warrants     -       (639,960 )
Exchanges of warrants     (134,796 )     -  
Change in fair value     (2,302,707 )     4,915,676  
Balance at April 30, 2012 and 2011   $ 3,090,088     $ 15,908,302  
Issuance of common stock warrants     291,400       36,376  
Reclassification of liabilities to equity     -       613,003  
Debt for Equity Exchange:  Bridge Notes     (4,750 )     -  
July Warrant Exchanges     (407,501 )     -  
Exercises and/or Exchanges of warrants     -       (1,714,266 )
Change in fair value     (1,703,252 )     (6,906,747 )
Balance at July 31, 2012 and 2011     1,265,985       7,936,668  

 

May 2012 Notes   July 31, 2012  
       
Issuance of notes     687,000  
         
Issuance of C/S warrants     (291,400 )
         
Changes in fair value     77,270  
         
    $ 472,870  

 

In fair valuing the embedded derivative liability, at July 31, 2012 and July 31, 2011, the Company used the following inputs:

in its BSM Model:

      7/31/2012       7/31/2011  
                 
                 
Exercise Price:     0.15       0.15  
                 
Stock Price     0.073       0.1485  
                 
Expected term:     92-162 days       92-286 days  
                 
Volatility %     79.53%-86%       54.73%-78.46%  
                 
Risk Free Rate:     .11%-.15%       .10-.18%  

 

In fair valuing the warrant liability, at July 31, 2012 and July 31, 2011, the Company used the following inputs:

in its BSM Model:

 

      7/31/2012       7/31/2011  
                 
                 
Exercise Price:     0.15       0.15  
                 
Stock Price     0.073       0.1485  
                 
Expected term:     15-1752 days       185-1825 days  
                 
Volatility %     65.59%-91.95%       65.68%-174.18%  
                 
Risk Free Rate:     .07%-.27%       .10-.18%  

 

For those warrants with exercise price reset features (anti-dilution provisions), the Company computes multiple valuations, each quarter, using an adjusted BSM model, to account for the various possibilities that could occur due to changes in the inputs to the BSM model as a result of contractually-obligated changes (for example, changes in strike price to account for down-round provisions). As of July 31, 2012, the Company utilized different exercise prices of $0.15 and $0.10, weighting the possibility of warrants being exercised at $0.15 between 50% and 70% and warrants being exercised at $0.10 between 50% and 30%.

 

In fair valuing the embedded conversion feature related to the May 2012 Notes, at July 31, 2012, the Company used the following inputs in its BSM Model:

 

Exercise Price:     0.15  
         
Stock Price     0.073  
         
Expected term:     291 days  
         
Volatility %     71.25 %
         
Risk Free Rate:     0.15 %