Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENTS

v2.4.0.8
FAIR VALUE MEASUREMENTS
6 Months Ended
Apr. 30, 2014
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]

FAIR VALUE MEASUREMENTS


ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements.  In accordance with ASC 820, we have categorized our financial assets, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below.  If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.


Financial assets and liabilities recorded in the accompanying condensed consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:


Level 1 - Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market which we have the ability to access at the measurement date.


Level 2 - Financial assets and liabilities whose values are based on quoted market prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets.  


Level 3 – Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.  These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset and liabilities.  We do not currently have any Level 3 financial assets.


The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of April 30, 2014:


               

  

Level 1

 

Level 2

 

Level 3

 

Total

Money market funds – Cash and cash equivalents

          $617,719

 

        

  $             -

 

        

$        -

 

$    617,719

Certificates of deposit Short-term investments

2,050,000

 

 

-

 

 

-

 

2,050,000

Videocon Industries Limited global depository receipts

 

   3,977,452

 

 

-

 

 

-

 

 

3,977,452

 

Total financial assets

         

$ 6,645,171

 

 

 $              -

 

   

 $        -

 

              $6,645,171


The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of October 31, 2013:


               

 

Level 1

 

Level 2

 

Level 3

 

Total

Money market funds – Cash and cash equivalents

        

$    898,172

 

        

  $             -

 

        

$        -

 

        

$     898,172

Videocon Industries Limited global depository receipts

 

   4,197,341

 

 

-

 

 

-

 

 

4,197,341

Total financial assets

$ 5,095,513

 

-

 

           -

 

$ 5,095,513


The following table presents the hierarchy for our financial liabilities measured at fair value on a recurring basis as of April 30, 2014:



  

Level 1

 

Level 2

 

Level 3

 

Total

 

Derivative liability


 $           -

 


 $          -

 

   

$ 2,750,000

 

   

 $ 2,750,000

Patent acquisition  obligation

              -

 

             -

 

   3,036,745

 

    3,036,745

 

 $           -

 

 $          -

 

$ 5,786,745

 

 $ 5,786,745


The following table presents the hierarchy for our financial liabilities measured at fair value on a recurring basis as of October 31, 2013:


  

Level 1

 

Level 2

 

Level 3

 

Total

 

Derivative liability


   $        -

 


 $          -

 

   

$   540,000

 

   

$  540,000


The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis:


       

 

 

 

 For the Six Months Ended April 30, 2014

Beginning balance

 

 

    $     540,000

Fair value of patent acquisition obligation

 

 

      

   Initial fair value, discounted to present value

$2,850,511

 

 

   Amortized interest on patent obligation

     186,234

 

      3,036,745

 Aggregate fair value of bifurcated conversion feature issued

 

 

      1,570,000

Change in fair value of bifurcated conversion feature

 

 

       2,310,704

Fair value of bifurcated conversion features related to the  Extinguished of debt

 

 

      (1,670,704)

Ending balance

 

 

     $ 5,786,745


The Company developed the assumptions that were used as follows: The stock price on the valuation date of the Company’s common stock was derived from the trading history of the Company’s common stock.  The stock premium for liquidity was computed as the premium required to adjust for the effect of the additional time that it would be expected to take for the market to absorb the converted shares and warrant exercises, given the Company’s current trading volume.  The term represents the remaining contractual term of the derivative; the volatility rate was developed based on analysis of the Company’s historical volatility; the risk free interest rate was obtained from publicly available US Treasury yield curve rates; the dividend yield is zero because the Company has not paid dividends and does not expect to pay dividends in the foreseeable future.


Our non-financial assets that are measured on a non-recurring basis include our property and equipment which are measured using fair value techniques whenever events or changes in circumstances indicate a condition of impairment exists.  The estimated fair value of accounts payable and accrued liabilities approximates their individual carrying amounts due to the short term nature of these measurements.  It is impractical to determine the fair value of the loan receivable and loan payable to the related party given the nature of these loans.  The convertible debentures have been reported net of the discount for the beneficial conversion features and related warrants.  Cash and cash equivalents are stated at carrying value which approximates fair value.  These assets and liabilities were not presented in the preceding table.