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Document and Entity Information

v2.4.0.6
Document and Entity Information
3 Months Ended
Jan. 31, 2012
Mar. 13, 2012
Entity Registrant Name MICRO IMAGING TECHNOLOGY, INC.  
Entity Central Index Key 0000808015  
Current Fiscal Year End Date --10-31  
Entity Filer Category Smaller Reporting Company  
Trading Symbol mmtc  
Entity Common Stock, Shares Outstanding   731,328,129
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jan. 31, 2012  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2012  

Condensed Consolidated Balance Sheet

v2.4.0.6
Condensed Consolidated Balance Sheet (USD $)
Jan. 31, 2012
Oct. 31, 2011
ASSETS    
Cash $ 4,288 $ 5,206
Prepaid expenses 220 220
Total current assets 4,508 5,426
Fixed assets, net 72,032 79,177
Total assets 76,540 84,603
LIABILITIES AND STOCKHOLDERS' DEFICIT    
Notes payable to stockholder 587,480 565,000
Convertible notes payable, net of unamortized discount of $117,636 and $123,207 in 2012 and 2011, respectively 231,732 224,161
Trade accounts payable 683,846 685,920
Accounts payable to officers and directors 418,177 355,628
Accrued payroll 264,767 241,479
Derivative liabilities 148,837 175,865
Other accrued expenses 140,491 132,934
Total current liabilities 2,475,330 2,380,987
Long term liabilities:    
Convertible notes payable, net of unamortized discount of $0 and $11,461 in 2012 and 2011, respectively 0 1,039
Redeemable convertible preferred stock, $0.01 par value; 2,600,000 shares authorized, issued and outstanding at January 31, 2012 and October 31, 2011 26,000 26,000
Total long term liabilities 26,000 27,039
Total liabilities 2,501,330 2,408,026
Commitments and contingencies      
Stockholders' deficit:    
Common stock, $0.01 par value; 2,500,000,000 shares authorized; 542,419,525 and 487,342,466 shares issued and outstanding at January 31, 2012 and October 31, 2011, respectively 5,424,194 4,873,425
Additional paid-in capital 36,637,113 36,965,142
Common stock subscribed (1,250) 0
Accumulated deficit from previous operating activities (27,809,201) (27,809,201)
Deficit accumulated during the development stage (16,675,646) (16,352,789)
Total stockholders' deficit (2,424,790) (2,323,423)
Total liabilities and stockholders' deficit $ 76,540 $ 84,603

Condensed Consolidated Balance Sheet [Parenthetical]

v2.4.0.6
Condensed Consolidated Balance Sheet [Parenthetical] (USD $)
Jan. 31, 2012
Oct. 31, 2011
Unamortized discount on convertible notes payable, current (in dollars) $ 117,636 $ 123,207
Unamortized discount on convertible notes payable, noncurrent (in dollars) $ 0 $ 11,461
preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
preferred stock, shares authorized 2,600,000 2,600,000
preferred stock, shares issued 2,600,000 2,600,000
preferred stock, shares outstanding 2,600,000 2,600,000
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized 2,500,000,000 2,500,000,000
Common stock, shares issued 542,419,525 487,342,466
Common stock, shares outstanding 542,419,525 487,342,466

Condensed Consolidated Statements of Operations

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Condensed Consolidated Statements of Operations (USD $)
3 Months Ended 75 Months Ended
Jan. 31, 2012
Jan. 31, 2011
Jan. 31, 2012
Sales $ 0 $ 0 $ 58,000
Cost of Sales 0 0 29,886
Gross profit 0 0 28,114
Operating costs and expenses:      
Research and development 161,365 126,385 5,103,649
Sales, general and administrative 78,584 130,130 7,273,022
Total operating expenses 239,949 256,515 12,376,671
Loss from operations (239,949) (256,515) (12,348,557)
Other income (expense):      
Interest income 0 3 11,359
Interest expense (110,644) (91,237) (4,636,271)
Gain on derivative instruments 28,574 0 121,131
Other income, net 762 0 187,892
Total other income (expense), net (81,308) (91,234) (4,315,889)
Loss from operations:      
Before provision for income tax (321,257) (347,749) (16,664,446)
Provision for income tax (1,600) (1,600) (11,200)
Net loss (322,857) (349,349) (16,675,646)
Net loss attributable to:      
Non-controlling interest (30,818) (24,641) (1,188,171)
Micro Imaging Technology, Inc. stockholders (292,039) (324,708) (15,487,475)
Net loss $ (322,857) $ (349,349) $ (16,675,646)
Net loss per share, basic and diluted (in dollars per share) $ 0 $ 0  
Shares used in computing net loss per share, basic and diluted (in shares) 515,008,741 189,898,875  

Condensed Consolidated Statements of Cash Flows

v2.4.0.6
Condensed Consolidated Statements of Cash Flows (USD $)
3 Months Ended 75 Months Ended
Jan. 31, 2012
Jan. 31, 2011
Jan. 31, 2012
Cash flows from operating activities:      
Net loss $ (322,857) $ (349,349) $ (16,675,646)
Adjustments to reconcile net loss to net cash used in operating activities:      
Depreciation 7,145 6,704 147,593
Amortization of costs and fees related to convertible debentures 85,486 65,358 889,233
Common stock issued for services 0 750 2,144,790
Common stock issued to officers and directors for services 906 1,500 3,079,601
Common stock issued for shares of subsidiary stock 0 0 254,000
Common stock of subsidiary issued to employees and consultants 0 0 2,815
Common stock issued as a commission 0 0 3,000
Common stock issued for accounts payable 0 0 296,583
Common stock issued to former licensee 0 0 41,319
Common stock issued/recovered on cancelled agreements 0 0 20,478
Non-cash compensation for stock options and warrants 0 0 631,923
Costs and fees related to issuance of convertible debt 0 6,420 539,252
Interest expense related to beneficial conversion feature 0 0 1,944,800
Interest paid with common stock 2,700 0 121,187
Interest on notes receivable for common stock 0 0 (1,373)
(Increase) decrease in assets:      
Prepaid expenses 0 50,411 25,371
Inventories 0 0 0
Increase (decrease) in liabilities:      
Derivate liability (27,028) 0 148,837
Trade accounts payable 57,905 22,491 674,449
Accounts payable to officers and directors 62,549 46,529 722,631
Accrued payroll and other expenses 30,845 26,207 292,162
Net cash used in operating activities (102,349) (122,979) (4,696,995)
Cash flows from investing activities:      
Purchase of fixed assets 0 0 (213,142)
Net cash used in investing activities 0 0 (213,142)
Cash flows from financing activities:      
Principal payments on notes payable to stockholders 0 0 (1,133,000)
Proceeds from common stock subscription (1,250) 0 (1,250)
Proceeds from issuance of notes payable to a related party 0 0 1,039,800
Proceeds from issuance of notes and convertible notes payable 32,500 101,869 1,561,734
Proceeds from issuance of common stock, net 70,181 33,928 2,251,843
Net cash provided by financing activities 101,431 135,797 3,719,127
Net change in cash (918) 12,818 (1,191,010)
Cash at beginning of period 5,206 (7,876) 1,195,298
Cash at end of period 4,288 4,942 4,288
Supplemental Disclosure of Cash Flow Information      
Interest paid 0 664 10,321
Income taxes paid 1,600 1,600 18,640
Supplemental Schedule of Non-Cash Investing and Financing Activities      
Conversion of convertible notes payable to shares of common stock $ 80,500 $ 89,865  

Nature of our Business, Development Stage Company and Continuance of Operations

v2.4.0.6
Nature of our Business, Development Stage Company and Continuance of Operations
3 Months Ended
Jan. 31, 2012
Nature Of Business Development Stage Company and Continuance Of Opreations [Abstract]  
Nature Of Business Development Stage Company And Continuance Of Opreations [Text Block]

1.        Nature of our Business, Development Stage Company and Continuance of Operations

 

These unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America applicable to a going concern which contemplated the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Since inception, the Company has incurred substantial losses and there is substantial doubt that the Company will generate sufficient revenues in the foreseeable future to meet its operating cash requirements. Accordingly, the Company’s ability to continue operations depends on its success in obtaining additional capital in an amount sufficient to meet its cash needs. This raises substantial doubt about its ability to continue as a going concern. These financial statements do not include any adjustments that might result from this uncertainty.

 

Our independent registered public accounting firm has included an explanatory paragraph in its report on the financial statements for the year ended October 31, 2011 which raises substantial doubt about our ability to continue as a going concern.

 

Micro Imaging Technology, Inc. (the “Company”), a California corporation, is a holding company whose operations are conducted through its Nevada subsidiary, Micro Imaging Technology (“MIT”). As of January 31, 2012, the Company owns eighty point seven percent (80.7%) of the issued and outstanding stock of MIT.

 

The losses incurred to date which are applicable to the minority stockholders of the Company’s consolidated subsidiary, MIT, exceed the value of the equity held by the minority stockholders. Such losses have been allocated to the Company as the majority stockholder and are included in the net loss and accumulated deficit in the condensed consolidated financial statements for the three months ended January 31, 2012. Any future profits reported by our subsidiary will be allocated to the Company until the minority’s share of losses previously absorbed by the Company have been recovered.

 

In 1997, the Company began marketing a small, point-of-use water treatment product aimed at the high purity segment of commercial and industrial water treatment markets. In February 2000, the Company formed Electropure EDI, Inc. (EDI), a wholly-owned Nevada subsidiary, through which all manufacturing and sales of its proprietary water treatment products were then conducted. In October 2005, the Company sold the assets of the EDI subsidiary and discontinued operations.

 

The Company acquired, in October 1997, an exclusive license to patent and intellectual property rights involving laser light scattering techniques to be utilized in the detection and monitoring of toxicants in drinking water. In February 2000, the Company formed Micro Imaging Technology (MIT), a majority-owned Nevada subsidiary, to conduct research and development based upon advancements developed and patented from the licensed technology. The technology being developed is a non-biologically based system utilizing both proprietary hardware and software to rapidly (near real time) determine the specific specie of an unknown microbe present in a fluid with a high degree of statistical probability (“MIT system”). It will analyze a sample presented to it and compare its characteristics to a library of known microbe characteristics on file. At present, it is the Company’s only operation.

 

Effective with the sale of its EDI operation in October 2005, the Company’s planned principal operation, the further development and marketing of its remaining technology, has not produced any significant revenue and, as such, the Company, beginning with the fiscal year starting November 1, 2005, is considered a development stage enterprise.

Basis of Presentation

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Basis of Presentation
3 Months Ended
Jan. 31, 2012
Organization, Consolidation and Presentation Of Financial Statements [Abstract]  
Basis of Accounting [Text Block]
2. Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements include all adjustments, consisting solely of normal recurring adjustments which management believes are necessary for a fair presentation of the Company’s financial position at January 31, 2012 and results of operations for the periods presented.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted.

 

Results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying condensed consolidated financial statements should be read in conjunction with our audited financial statements and footnotes as of and for the year ended October 31, 2011, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 13, 2012.

Concentration of Credit Risk and Other Risks and Uncertainties

v2.4.0.6
Concentration of Credit Risk and Other Risks and Uncertainties
3 Months Ended
Jan. 31, 2012
Concentration Of Credit Risk and Other Risks and Uncertainties [Abstract]  
Concentration Of Credit Risk and Other Risks and Uncertainties [Text Block]
3. Concentration of Credit Risk and Other Risks and Uncertainties

 

As of January 31, 2012, the amounts due two former consultants to the Company represented 44% ($298,748) and 16% ($112,000) of the total amount due for accounts payable to non-affiliates.

Inventories

v2.4.0.6
Inventories
3 Months Ended
Jan. 31, 2012
Inventory Disclosure [Abstract]  
Inventory Disclosure [Text Block]
4. Inventories

 

Effective October 31, 2011, the Company expensed approximately $13,500 in raw materials and reclassified and capitalized as machinery and equipment eight of its MIT 1000 Systems that it had carried as finished goods valued at $75,788. A redesigned model of the systems is currently underway and the Company will utilize these eight first generation models as laboratory testing equipment. Commencing November 1, 2011, these systems are being depreciated over an expected useful life of 3 years.

Summary of Significant Accounting Policies

v2.4.0.6
Summary of Significant Accounting Policies
3 Months Ended
Jan. 31, 2012
Accounting Policies [Abstract]  
Significant Accounting Policies [Text Block]

5.        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.

 

In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosure about Offsetting Assets and Liabilities, which requires an entity to include additional disclosures about financial instruments and transactions eligible for offset in the statement of financial position, as well as financial instruments subject to a master netting agreement or similar arrangement. ASU 2011-11 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.

 

June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of equity. In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, which defers specific requirements to present reclassification adjustments for each component of accumulated other comprehensive income. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-05 to have a material effect on its operating results or financial position.

 

Earnings Per Share

 

Basic earnings per share is based on the weighted average number of shares outstanding for a period.  Diluted earnings per share is 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 three months ended January 31, 2012.

 

On February 14, 2012, the Board of Directors adopted the 2012 Employee Benefit Plan which is authorized to grant up to Sixty (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. No shares or options have been granted under the Plan as of the date of this report.

 

The following table summarizes information about options granted under the Company’s equity compensation plans through January 31, 2012 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, 2011     3,000,000     $ 0.09       2.1     $  
Granted                            
Exercised                            
Expired                            
Canceled                            
Outstanding at January 31, 2012     3,000,000     $ 0.09       1.9     $  

 

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

 

Range of
Exercise
Prices
  Options
Outstanding
January 31, 
2012
    Weighted
Average
Remaining
Contractual
Life
    Weighted
Average
Exercise
Price
    Options
Exercisable
January 31, 
2012
    Weighted
Average
Exercise
Price
 
$ 0.02 - $0.14     2,300,000       2.1     $ 0.03       2,300,000     $ 0.03  
$ 0.29 - $0.30     700,000       1.0     $ 0.29       700,000     $ 0.29  
TOTAL:     3,000,000                       3,000,000          

 

As of January 31, 20121, 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, 2011 and changes during the three months ended January 31, 2012:

 

    Number of
Warrants
    Weighted
Average
Exercise
Price
    Weighted
Average
Remaining
Contractual 
Term 
(in years)
    Aggregate
Intrinsic 
Value
 
Outstanding at October 31, 2011     5,000,000     $ 0.015       0.9     $  
Granted                            
Exercised                            
Expired                            
Canceled                            
Outstanding at January 31, 2012     5,000,000     $ 0.015       0.6     $  

 

Summary information about the Company’s warrants outstanding at January 31, 2012 is set forth in the table below. Warrants outstanding at January 31, 2012 expire between February and October 2012.

 

Range of
Exercise
Prices
  Warrants
Outstanding
January 31,
 2012
    Weighted
Average
Remaining
Contractual
Life
    Weighted
Average
Exercise
Price
    Warrants
 Exercisable
January 31, 
2012
    Weighted
Average
Exercise
Price
 
$ 0.011- $0.03     5,000,000       0.6     $ 0.015       5,000,000     $ 0.015  

Convertible Debentures

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Convertible Debentures
3 Months Ended
Jan. 31, 2012
Convertible Debt Disclosure [Abstract]  
Convertible Debt Disclosure [Text Block]
6. Convertible Debentures

 

Series 1 Notes

 

Under the provisions of ASC 815-40-15, “Derivatives and Hedging-Contracts in Entity’s Own Equity-Scope and Scope Exceptions,” a number of our outstanding Convertible notes are not considered indexed to our stock, as a result of an anti-dilution protection provision in these notes. The application of ASC 815-40-15, effective August 1, 2011, resulted in our accounting for these notes as derivative instruments, and they are recognized as liabilities in our consolidated balance sheets.

 

Between August 16, 2010 and January 4, 2012, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. in connection with the issuance of ten (10) separate 8% convertible notes in various principal amounts, aggregating $345,000. The Company paid a total of $25,500 out of the proceeds of the notes to Asher for legal fees and expenses related to the referenced agreements. The notes generally mature in nine (9) months, commencing May 2011 through October 2012, and are convertible into shares of common stock at a discount ranging from 39% to 55% of the average of the lowest three closing bid prices of the common stock during the ten trading days prior to the conversion date. The Series I Notes contain a provision requiring an adjustment to the conversion price of the note in the event the Company issues or sells any shares of common stock, or securities convertible into or exercisable for common stock, at a price per share lower than such conversion price. Accordingly, effective August 1, 2011, the Series I Notes have been accounted for as a derivative liability, measured at fair value, with changes in fair value recognized as gain or loss for each reporting period thereafter. Asher may convert any or all of the unpaid principal note prior to the maturity date, commencing 180 days following the date of the Note. The notes are recorded at fair value, using the Binomial valuation model, and a derivative liability of $175,865 was recorded for the fiscal year ended October 31, 2011. This liability is revalued each reporting period and gains and losses are recognized in the statement of operations under “Other Income (Expense)”. As of the three months ended January 31, 2012, this derivative liability was $148,837.

 

As of January 31, 2012, Asher has converted a total of $222,500 and $8,900 in principal and accrued interest, respectively, on these notes and has received a total of 186,040,962 shares of common stock upon the conversions at prices ranging from $0.0004 to $0.004 per share. During the three months ended January 31, 2012, the Company expensed a total of $2,179 accrued interest and there remains an aggregate principal balance of $122,500 due on these notes. If such Series 1 notes were converted at January 31, 2012, the Company would issue an aggregate of 49,152,995 shares of common stock the value of which would exceed, by $72,222, the principal balance due on the notes.

 

See also Note 10 – “Subsequent Events.”

 

Fair value of financial instruments

 

The accounting standards regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash and other current assets and liabilities to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization.

 

The Company has also adopted ASC 820-10 (formerly SFAS 157, “Fair Value Measurements”) which defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:

  

·   Level 1   inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

·   Level 2   inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

 

·   Level 3   inputs to the valuation methodology are unobservable and significant to the fair value.

 

The carrying amounts of our financial instruments, including cash, accounts payable and accrued expenses approximate fair value because of their generally short maturities.

 

We measured the fair value of the Series 1 Notes by using the Binomial Valuation model. As of January 31, 2012, the assumptions used to measure fair value of the liability embedded in our outstanding Series I Notes included an exercise price of $0.0026 per share, a common share price of $0.0047, a discount rate of 0.08%, and a volatility of 185%.

 

The following table sets forth, by level within the fair value hierarchy, our financial instrument liabilities as of January 31, 2012 (See also Note 5 – Convertible Debentures – “Series 1 Notes”) :

 

    Quoted
Prices in
Active
Markets
For
Identical
Assets
    Significant
Other
Observable
Inputs
    Significant
Unobservable
Inputs
     Total  
    (Level 3)     (Level 3)     (Level 3)      
Series 1 Notes   $     $     $ 148,837     $ 148,837  
                                 
Total   $     $     $ 148,837     $ 148,837  

 

The following table sets forth a summary of changes in the fair value of our Level 3 financial instrument liability for the fiscal year ended October 31, 2011 and for the three month period ended January 31, 2012:

 

    Fair Value
Measurements
Using
Significant
Unobservable
Inputs
(Level 3)
 
Balance October 31, 2011   $ 175,865  
Additions     53,239  
Net gain included in earnings     (28,574 )
Settlements     (51,693 )
Balance January 31, 2012   $ 148,837  

 

Similar purchase and conversion transactions have occurred with Asher subsequent to January 31, 2012. See Note 10 – “Subsequent Events.”

 

Other Convertible Notes

 

On November 10, 2010, the Company borrowed $64,868 from the above unaffiliated party on terms similar to the Asher notes. The Note matures on May 31, 2012 and bears interest at the rate of ten percent (10%) per annum. The Note is convertible into shares of common stock at a forty two percent (42%) discount to the average of the lowest three (3) closing bid prices of the common stock during the ten (10) trading days prior to the conversion date. The noteholder may convert any or all of the unpaid principal note prior to the maturity date. The Company calculated the intrinsic value of the conversion feature to be $46,973 as of the date of issuance of the debentures using the same criteria as noted above and is amortizing the expense over the life of the loan. The Company has expensed $36,837 with regard to this beneficial conversion feature as well as $7,944 in accrued interest on the note as of January 31, 2012. If the note had been converted as of January 31, 2012, the Company would have issued a total of 22,670,703 shares of common stock and would have fully amortized the remaining expense of the conversion feature.

 

On March 16, 2009, the Company’s largest stockholder, Mr. Anthony Frank, purchased a $75,000 convertible debenture for which the Company has expensed $21,596 in accrued interest as of January 31, 2012. The debenture matures on March 16, 2012 and bears interest at the rate of ten percent (10%) per annum. The debenture is convertible at any time at the option of the holder into the Company’s common stock at a fair market value of 75% of the lowest closing bid price per share for the twenty (20) trading days immediately preceding conversion. The debentures are also redeemable by the Company: 1) if before six months at 120% of the principal value, plus interest; or 2) if after six months, at 131% of principal, plus interest. The intrinsic value of the beneficial conversion feature, $18,750, is being amortized over the three-year life of the debenture. If the note had been converted as of January 31, 2012, the Company would have issued a total of 20,833,333 shares of common stock and would have fully amortized the remaining expense of the conversion feature.

 

On November 27, 2009, the Company borrowed $25,000 from an unaffiliated lender. In September 2011, the lender converted $12,500 of the principal and $376 in accrued interest into 8,542,222 shares of common stock. The Company issued an Amended and Restated Convertible Note for the $12,500 principal balance of the loan. The amended note matures on December 31, 2012 and bears interest at 6% and is convertible into common shares at a 55% discount of the average of the lowest three (3) closing bid prices of the common stock during the ten (10) trading days prior to the conversion date. The Company calculated the intrinsic value of the conversion feature on the remaining balance to be $10,507 as of the date of issuance of the amended note and will amortize the cost over the life of the loans. As of January 31, 2012, the Company had expensed a total of $269 in accrued interest on the remaining principal balance of $12,500. If the $12,500 balance of the note had been converted as of January 31, 2012, the Company would have issued a total of 5,630,669 shares of common stock and would have fully amortized the remaining expense of the conversion feature.

 

On August 1, 2011, an unaffiliated party purchased a $50,000 convertible debenture for which the Company has accrued interest at the rate of 6% and has expensed $1,504 in accrued interest as of January 31, 2012. The debenture is convertible at any time at the option of the holder into the Company’s common stock at a 25% discount (but not more than $0.002 per share) to the average closing bid prices of the common stock for the three (3) trading days immediately preceding conversion. The intrinsic value of the beneficial conversion feature, $16,667, is being amortized over the one-year life of the debenture. If the note had been converted as of January 31, 2012, the Company would have issued a total of 13,513,605 shares of common stock and would have fully amortized the remaining expense of the conversion feature. The principal balance of this note was converted into common stock in February 2012. See Note 10 – “Subsequent Events.”

 

On January 12, 2012, the Company issued an Amended and Restated 6% Convertible Note for $37,500 to an unaffiliated lender for proceeds received in fiscal 2010. The note, which matures on December 31, 2012, was subsequently sold to Asher Enterprises which converted $13,000 of the principal balance due on January 12, 2012 for 8,125,000 shares of common stock at a conversion price of $0.0016 per share. The intrinsic value of the beneficial conversion feature, $37,500, is being amortized over the one-year life of the debenture. The Company has expensed $23,185 with regard to this beneficial conversion feature as well as $77 in accrued interest on the note as of January 31, 2012. If the $24,500 balance of the note had been converted as of January 31, 2012, the Company would have issued a total of 14,189,285 shares of common stock and would have fully amortized the remaining expense of the conversion feature. The principal balance of this note was converted into common stock in February 2012. See Note 10 – “Subsequent Events.”

 

At January 31, 2012 and October 31, 2011, convertible debentures and Series 1 notes consisted of the following:

  

    January 31,     October 31,  
    2012     2011  
Series 1 Notes, principal and interest at 8% maturing through May 25, 2012.   $ 122,500     $ 157,500  
                 
Convertible note payable to major stockholder; principal and interest at 10% due on March 16, 2012.     75,000       75,000  
                 
Convertible note payable to stockholder; principal and interest at 10% due on May 31, 2012.     64,868       64,868  
                 
Convertible notes payable to various stockholders; principal and interest at 6% maturing through December 31, 2012.     87,000       62,500  
      349,368       359,868  
 Less current maturities     349,368       347,368  
                 
Long term portion of Convertible and Series 1 notes payable   $     $ 12,500  

Notes Payable

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Notes Payable
3 Months Ended
Jan. 31, 2012
Notes Payable To Officer and Stockholders [Abstract]  
Notes Payable To Officer And Stockholders [Text Block]
7. Notes Payable

 

At January 31, 2012 and October 31, 2011, notes payable to an officer and to stockholders consisted of the following:

 

    January 31,     October 31,  
    2012     2011  
Unsecured convertible note payable to major stockholder; principal and interest at 6% due on March 10,2010.   $ 64,000     $ 64,000  
                 
Unsecured convertible note payable to major stockholder; principal and interest at 6% due on October 15, 2010.     30,000       30,000  
                 
Unsecured convertible notes payable to officers/directors of the Company; principal and interest at 6% due on April 9, 2011.     250,000       250,000  
                 
Unsecured notes payable to officers/directors of the Company; principal and interest at 6% due on demand.     74,000       74,000  
                 
Unsecured convertible note payable to various stockholders (including $20,000 to major stockholder); principal and interest at 6% due between November 27, 2010 and March 12, 2012.     169,480       147,000  
      587,480       565,000  
 Less current maturities     587,480       565,000  
                 
Long term portion of notes payable   $     $  

 

With the exception of $74,000 in notes payable to officers and directors, which are payable on demand, and a note for $59,980 which is due in full on March 12, 2012, all of the above notes payable are past due. The Company is currently negotiating with the holders of those notes to either extend the maturity date or convert the note into shares of common stock.

Employee Retirement Plan

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Employee Retirement Plan
3 Months Ended
Jan. 31, 2012
Compensation and Retirement Disclosure [Abstract]  
Pension and Other Postretirement Benefits Disclosure [Text Block]
8. Employee Retirement Plan

 

Commencing on January 1, 2005, the Company sponsored a Simple IRA retirement plan which covers substantially all qualified full-time employees. Participation in the plan is voluntary and employer contributions are determined on an annual basis. Employer contributions would be made at the rate of three percent (3%) of the employees’ base annual wages. However, the Company made no contributions to the IRA plan during the three months ended January 31, 2012 and 2011.

Securities Transactions

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Securities Transactions
3 Months Ended
Jan. 31, 2012
Securities Transactions [Abstract]  
Securities Transactions [Text Block]
9. Securities Transactions

 

Common Stock issued to Officers and Directors

 

During the three months ended January 31, 2012, pursuant to his compensation arrangement, the Company issued 150,000 shares of common stock to its Chief Executive Officer, Michael W. Brennan, at prices ranging from $0.0055 to $0.0065 per share. The aggregate fair market value of the shares was determined to be $906.

 

Common Stock Issued in Private Placement Transactions

 

Between November 1, 2011 and January 31, 2012, Dutchess Opportunity Fund purchased 14,191,447 shares of common stock in three separate transactions at prices ranging from $0.004 to $0.0056 per share under the terms of the May 4, 2010 Securities Purchase Agreement. Net of $14,414 in fees and expenses, the Company received proceeds of $54,517 and a common stock subscription in the sum of $1,250 as of January 31, 2012.

 

Common Stock Issued in Cancellation of Debt

 

Between November 10, 2011 and January 30, 2012, the Company issued 40,735,526 shares of common stock to Asher Enterprises, Inc. upon conversion of $80,500 in convertible notes, plus $2,700 in accrued interest thereon, at prices ranging from $0.0015 to $0.003 per share.

Subsequent Events

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Subsequent Events
3 Months Ended
Jan. 31, 2012
Subsequent Events [Abstract]  
Subsequent Events [Text Block]
10. Subsequent Events

 

In accordance with his consulting arrangement, in February 2012, the Company issued 50,000 shares of common stock to its Chief Executive Officer, Michael Brennan.

 

On February 1, 2012, the holder of a $50,000 convertible note converted the principal balance of such note into twenty five (25) million shares of common stock at $0.002 per share.

 

On February 2, 2012, the Company sold 11,065,750 shares of common stock to an unaffiliated shareholder at $0.002711 per share, for a total of $30,000. On March 13, 2012, this same shareholder purchased an additional 10,553,442 shares of common stock for $31,660, or $0.003 per share.

 

On February 2, 2012, the Company issued its legal counsel a total of 4,200,000 shares of common stock in payment for $12,500 in legal services rendered, or $0.003 per share.

 

On February 2, 2012, the Company issued 3,571,429 shares of common stock to a consultant in payment of $25,000 in accrued fees. The conversion price was $0.007 per share.

 

During February 2012, the Company’s Chief Executive and Chief Financial Officers, Michael Brennan and Victor Hollander, respectively, exchanged $100,000 in accrued fees for services rendered in exchange for the issuance of fifty (50) million shares of common stock each. The shares were issued at a conversion price of $0.002 per share.

 

During February 2012 and March, Asher converted an additional $62,000 in principal loans and $1,000 in interest into 49,183,733 shares of common stock at prices ranging from $0.0011 to $0.0014 per share.

 

In February 2012, the Company issued 600,000 shares of common stock at $0.05 per share as partial consideration for a $30,000 loan.

 

On February 29, 2012, the Company received an additional $40,000, net of fees and expenses, from Asher Enterprises, Inc. pursuant to a Stock Purchase Agreement.

 

In late December 2011, the Company was served with an unlawful detainer action brought by the landlord for non-payment of back rent. On February 13, 2012, the Company paid all past due rent, totaling $27,355 through February 2012, and $4,983 in interest, fees and penalties. The Company remains at its San Clemente, California facility on a month-to-month rental basis.

 

On March 7, 2012, the Company entered into a Securities Purchase Agreement with Alpine MIT Partners, LLC (“Alpine’) to sell up to $2.0 million of 7% Senior Secured Convertible Debentures (the “Debentures). The Debentures will have a five-year term. The initial Debenture will be convertible into shares of common stock at a conversion rate of $.003 per share. The purchase and sale of the first $1.0 million Debenture is scheduled to close on or before April 7, 2012. The agreement provides that Alpine will be granted a 6-month “additional investment right” to purchase up to an additional $1.0 million of Debentures. If the additional investment right is exercised, the second Debenture will have a conversion rate of $0.00375 per share during the first six months, $0.005 per share during the following three months and $0.0075 per share thereafter. The Debentures will be secured by a first lien security interest in all the assets of the Company. The agreement provides that Alpine will have the right to have four of its nominees be appointed to the Company’s board of directors.

 

The sale of the Debentures is subject to several closing conditions, including the conversion at the closing of $1,240,906 of existing Company indebtedness, primarily held by affiliates, at a conversion rate of $.007 per share, the granting of a six month option by the Company’s three largest shareholders to Alpine to purchase an aggregate of 107,142,857 shares at $0.007 per share, and Alpine closing the necessary equity funding to consummate the transactions.