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<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 31.9pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Principles of Consolidation.</i>
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries;
Polarity NV, Majesco Sub and Majesco Europe Limited. Majesco Europe Limited was dissolved during the year ended October 31, 2016
and Majesco Sub was sold on June 23, 2017. Significant intercompany accounts and transactions have been eliminated in consolidation.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Cash and cash equivalents.</i>
Cash equivalents consist of highly liquid investments with original maturities of three months or less at the date of purchase.
At various times, the Company has deposits in excess of the Federal Deposit Insurance Corporation limit. The Company has not experienced
any losses on these accounts.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Accounts Payable and
Accrued Expenses.</i> The carrying amounts of accounts payable and accrued expenses approximate fair value as these accounts are
largely current and short term in nature.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Property and Equipment.</i>
Property and equipment is stated at cost. Depreciation and amortization is being provided for by the straight-line method over
the estimated useful lives of the assets, generally five years. Amortization of leasehold improvements is provided for over the
shorter of the term of the lease or the life of the asset.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Income Taxes.</i> The
Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The Company evaluates the potential for realization of deferred tax assets
at each quarterly balance sheet date and records a valuation allowance for assets for which realization is not more likely than
not.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Stock Based Compensation.</i>
The Company measures all stock-based compensation to employees using a fair value method and records such expense in general and
administrative and research and development expenses. Compensation expense for stock options with cliff vesting is recognized on
a straight-line basis over the vesting period of the award, based on the fair value of the option on the date of grant. For stock
options with graded vesting, the Company recognizes compensation expense over the service period for each separately vesting tranche
of the award as though the award were in substance, multiple awards.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The fair value for options
issued is estimated at the date of grant using a Black-Scholes option-pricing model. The risk-free rate is derived from the U.S.
Treasury yield curve in effect at the time of the grant. The volatility factor is determined based on the Company’s historical
stock prices.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The value of restricted
stock grants is measured based on the fair market value of the Company’s common stock on the date of grant and amortized
over the vesting period of, generally, six months to three years.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Loss Per Share.</i>
Basic loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average
number of shares of common stock outstanding for the period. Diluted loss per share excludes the potential impact of common stock
options, unvested shares of restricted stock and outstanding common stock purchase warrants because their effect would be anti-dilutive
due to our net loss.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Commitments and Contingencies.</i>
We are subject to claims and litigation in the ordinary course of our business. We record a liability for contingencies when the
amount is both probable and reasonably estimable. We record associated legal fees as incurred.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Accounting for Warrants</i>.
The Company accounts for the issuance of common stock purchase warrants issued in connection with the equity offerings in accordance
with the provisions of ASC 815, Derivatives and Hedging (“ASC 815”). The Company classifies as equity any contracts
that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement
in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts
that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event
is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical
settlement or net-share settlement). In addition, under ASC 815, registered common stock warrants that require the issuance of
registered shares upon exercise and do not expressly preclude an implied right to cash settlement are accounted for as derivative
liabilities. The Company classifies these derivative warrant liabilities on the condensed consolidated balance sheet as a current
liability.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.5pt"><i>Change in Fair Value
of Warrant Liability.</i> The Company assessed the classification of common stock purchase warrants as of the date of each offering
and determined that certain instruments met the criteria for liability classification. Accordingly, the Company classified the
warrants as a liability at their fair value and adjusts the instruments to fair value at each reporting period. This liability
is subject to re-measurement at each balance sheet date until the warrants are exercised or expired, and any change in fair value
is recognized as “change in fair value of warrant liability” in the condensed consolidated statements of operations.
The fair value of the warrants has been estimated using a Black-Scholes valuation model (see Note 7).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Reverse stock-split</i>.
On July 27, 2016, Majesco Entertainment Company (the “Company”) filed a certificate of amendment (the “Amendment”)
to its Restated Certificate of Incorporation with the Secretary of State of the State of Delaware in order to effectuate a reverse
stock split of the Company’s issued and outstanding common stock, par value $0.001 per share on a one (1) for six (6) basis,
effective on July 29, 2016 (the “Reverse Stock Split”).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The Reverse Stock Split
was effective with The NASDAQ Capital Market (“NASDAQ”) at the open of business on August 1, 2016. The par value and
other terms of Company’s common stock were not affected by the Reverse Stock Split. The Company’s post-Reverse Stock
Split common stock has a new CUSIP number, 560690 406. The Company’s transfer agent, Equity Stock Transfer LLC, acted as
exchange agent for the Reverse Stock Split.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">As a result of the Reverse
Stock Split, every six shares of the Company’s pre-Reverse Stock Split common stock was combined and reclassified into one
share of the Company’s common stock. No fractional shares of common stock were issued as a result of the Reverse Stock Split.
Stockholders who otherwise would be entitled to a fractional share shall receive a cash payment in an amount equal to the product
obtained by multiplying (i) the closing sale price of our common stock on the business day immediately preceding the effective
date of the Reverse Stock Split as reported on NASDAQ by (ii) the number of shares of our common stock held by the stockholder
that would otherwise have been exchanged for the fractional share interest.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">All common share and per
share amounts have been restated to show the effect of the Reverse Stock Split.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 14.3pt"><i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Reclassifications.
</i>Certain previously reported amounts have been reclassified to conform with the current financial statement presentation. One
reclassification relates to discontinued operations. Another represents a reclassification of approximately $1.8 million from general
and administrative expenses to research and development expenses for the six months ended April 30, 2017.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Estimates. </i>The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities or the disclosure
of gain or loss contingencies at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting periods. Among the more significant estimates included in these financial statements are the recoverability of advance
payments for capitalized software development costs and intellectual property licenses, the valuation of warrant liability, stock
based compensation and the valuation allowances for deferred tax benefits. Actual results could differ from those estimates.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Recently Adopted Accounting Pronouncements</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">In August 2014, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, <i>Disclosure
of Uncertainties about an Entity’s Ability to Continue as a Going Concern</i> (“ASU No. 2014-15”) that requires
management to evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to
continue as a going concern within one year after the financial statements are issued on both an interim and annual basis. Management
is required to provide certain footnote disclosures if it concludes that substantial doubt exists or when its plans alleviate substantial
doubt about the Company’s ability to continue as a going concern. The Company adopted ASU No. 2014-15 on November 1, 2016
and its adoption did not have a material impact on the Company’s financial statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">In January 2017, the FASB
issued ASU 2017-01, <i>Business Combinations (Topic 805) Clarifying the Definition of a Business</i>. The amendments in this update
clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions
should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas
of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning
after December 15, 2017, including interim periods within those periods. The Company adopted this guidance effective November 1,
2016.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27.5pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Recent Accounting Pronouncements.</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">In February 2016, FASB
issued ASU No. 2016-02, <i>Leases (Topic 842),</i> which supersedes FASB ASC Topic 840, <i>Leases (Topic 840) </i>and provides
principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard
requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether
or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is
recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee
is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months
regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for
operating leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption
permitted upon issuance. When adopted, the Company does not expect this guidance to have a material impact on our financial statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">In March 2016, the FASB
issued ASU No. 2016-09, <i>Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting</i>.
Under ASU No. 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital
(“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in
the income statement and the APIC pools will be eliminated. In addition, ASU No. 2016-09 eliminates the requirement that excess
tax benefits be realized before companies can recognize them. ASU No. 2016-09 also requires companies to present excess tax benefits
as an operating activity on the statement of cash flows rather than as a financing activity. Furthermore, ASU No. 2016-09 will
increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification
for shares used to satisfy the employer’s statutory income tax withholding obligation. An employer with a statutory income
tax withholding obligation will now be allowed to withhold shares with a fair value up to the amount of taxes owed using the maximum
statutory tax rate in the employee’s applicable jurisdiction(s). ASU No. 2016-09 requires a company to classify the cash
paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity
on the statement of cash flows. Under current U.S. GAAP, it was not specified how these cash flows should be classified. In addition,
companies will now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeitures of awards
as they occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change,
as is currently required. The amendments of this ASU are effective for reporting periods beginning after December 15, 2016, with
early adoption permitted but all of the guidance must be adopted in the same period. The Company is currently assessing the impact
that ASU No. 2016-09 will have on its condensed consolidated financial statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">In July 2017, the FASB
issued ASU 2017-11, <i>Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and
Hedging (Topic 815)</i>: <i>I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite
Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling
Interests with a Scope Exception, </i>(ASU 2017-11). Part I of this update addresses the complexity of accounting for certain
financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded
features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting
guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments)
with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update
addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive
pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of
accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily
redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective
for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently assessing
the potential impact of adopting ASU 2017-11 on its financial statements and related disclosures.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>5. PROPERTY AND EQUIPMENT, NET</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 20.9pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Property and equipment,
net, consist of the following (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 20.9pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31, 2017</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>October 31, 2016</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%"><font style="font-size: 10pt">Medical equipment</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">2,193</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Computers and software</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">198</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">61</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Furniture and equipment</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">109</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">78</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Total property and equipment, gross</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2,500</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">139</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Accumulated depreciation</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(427</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(121</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Total property and equipment, net</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">2,073</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">18</font></td>
<td></td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Accounts payable and accrued
expenses consist of the following (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 31.9pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31, 2017</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>October 31, 2016</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%"><font style="font-size: 10pt">Accounts payable</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">56</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Due to Zift</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">66</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Medical equipment purchase</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">108</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Salaries and other compensation</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">662</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">463</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Legal and accounting</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">454</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Other accruals</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">93</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">11</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Total accounts payable and accrued expenses</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">1,439</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">474</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 31.9pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Salaries and other compensation
include accrued payroll expense and employer 401K plan contributions.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>7. STOCKHOLDERS’ EQUITY</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Convertible preferred
stock as of July 31, 2017 consisted of the following (in thousands, except share amounts):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 75.9pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Shares</b></font><br />
<font style="font-size: 9pt"><b>Authorized</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Shares Issued and</b></font><br />
<font style="font-size: 9pt"><b>Outstanding</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Net Carrying</b></font><br />
<font style="font-size: 9pt"><b>Value</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Aggregate</b></font><br />
<font style="font-size: 9pt"><b>Liquidation</b></font><br />
<font style="font-size: 9pt"><b>Preference</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Common Shares</b></font><br />
<font style="font-size: 9pt"><b>Issuable Upon</b></font><br />
<font style="font-size: 9pt"><b>Conversion</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 33%"><font style="font-size: 9pt">Series A</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 9pt">8,830,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 9pt">3,146,671</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 9pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 9pt">769</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 9pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 9pt">2,140</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 10%; text-align: right"><font style="font-size: 9pt">713,245</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 9pt">Series B</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">54,250</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">47,689</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">4,020</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">794,806</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 9pt">Series C</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">26,000</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">17,965</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">1,401</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">417,791</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 9pt">Series D</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">170,000</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">26,667</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">312</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">44,445</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 9pt">Series E</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">7,050</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">7,050</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">104,693</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">7,050,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 9pt">Other authorized, unissued</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">912,700</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 9pt">Total</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">10,000,000</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">3,246,042</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 9pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">111,195</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 9pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">2,140</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">9,020,287</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Convertible preferred
stock as of October 31, 2016 consisted of the following (in thousands, except share amounts):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 14.3pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Shares</b></font><br />
<font style="font-size: 9pt"><b>Authorized</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Shares Issued and</b></font><br />
<font style="font-size: 9pt"><b>Outstanding</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Net Carrying</b></font><br />
<font style="font-size: 9pt"><b>Value</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Aggregate</b></font><br />
<font style="font-size: 9pt"><b>Liquidation</b></font><br />
<font style="font-size: 9pt"><b>Preference</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Common Shares</b></font><br />
<font style="font-size: 9pt"><b>Issuable Upon</b></font><br />
<font style="font-size: 9pt"><b>Conversion</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 33%"><font style="font-size: 9pt">Series A</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 9pt">8,830,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 9pt">7,138,158</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 9pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 9pt">1,745</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 9pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 9pt">4,854</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 10%; text-align: right"><font style="font-size: 9pt">1,189,693</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 9pt">Series B</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">54,250</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">54,201</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">4,569</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">903,362</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 9pt">Series C</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">26,000</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">25,763</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">2,010</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">429,392</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 9pt">Series D</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">170,000</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">156,332</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">1,829</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">260,553</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 9pt">Other authorized, unissued</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">919,750</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 9pt">Total</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">10,000,000</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">7,374,454</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 9pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">10,153</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 9pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">4,854</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">2,783,000</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Series A Preferred Shares</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The Series A Preferred
Shares are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Series A
Preferred Share, plus all accrued and unpaid dividends, if any, on such Series A Preferred Share, as of such date of determination,
divided by the conversion price. The stated value of each Preferred Share is $0.68 and the initial conversion price is $4.08 (current
conversion price is $3.00) per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations,
subdivisions or other similar events. In addition, in the event the Company issues or sells, or is deemed to issue or sell, shares
of its common stock at a per share price that is less than the conversion price then in effect, the conversion price shall be reduced
to such lower price, subject to certain exceptions. Pursuant to the Certificate of Designations, Preferences and Rights of the
0% Series A Convertible Preferred Stock of PolarityTE, Inc., the Company is prohibited from incurring debt or liens, or entering
into new financing transactions without the consent of the lead investor (as defined in the December Subscription Agreements) as
long as any of the Series A Preferred Shares are outstanding. The Series A Preferred Shares bear no dividends.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.5pt">The holders of Series
A Preferred Shares shall vote together with the holders of common stock on all matters on an as if converted basis, subject to
certain conversion and ownership limitations, and shall not vote as a separate class. Notwithstanding the foregoing, the conversion
price for purposes of calculating voting power shall in no event be lower than $3.54 per share. At no time may all or a portion
of the Series A Preferred Shares be converted if the number of shares of common stock to be issued pursuant to such conversion
would exceed, when aggregated with all other shares of common stock owned by the holder at such time, the number of shares of common
stock which would result in such Holder beneficially owning (as determined in accordance with Section 13(d) of the 1934 Act and
the rules thereunder) more than 4.99% of all of the common stock outstanding at such time; provided, however, that the holder may
waive the 4.99% limitation at which time he may not own beneficially own more than 9.99% of all the common stock outstanding at
such time.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The Series A Preferred
Shares do not represent an unconditional obligation to be settled in a variable number of shares of common stock, are not redeemable
and do not contain fixed or indexed conversion provisions similar to debt instruments. Accordingly, the Series A Preferred Shares
are considered equity hosts and recorded in stockholders’ equity.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The Company entered into
separate Registration Rights Agreements with each Series A Preferred Shares Investor, (as amended on January 30, 2015 and March
31, 2015, the “December Registration Rights Agreement”). The Company agreed to use its best efforts to file by March
31, 2015 a registration statement covering the resale of the shares of common stock issuable upon exercise or conversion of the
Series A Preferred Shares and to maintain its effectiveness until all such securities have been sold or may be sold without restriction
under Rule 144 of the Securities Act. In the event the Company fails to satisfy its obligations under the December Registration
Rights Agreements, the Company is required to pay to the Investors on a monthly basis an amount equal to 1% of the investors’
investment, up to a maximum of 12%. On March 31, 2015, the Company and the required holders of Series A Preferred Shares amended
the registration rights agreement to extend the filing deadline for the registration statement to June 30, 2015.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Series B Preferred Shares</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The Series B Preferred
Shares are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Series B
Preferred Shares, plus all accrued and unpaid dividends, if any, on such Series B Preferred Shares, as of such date of determination,
divided by the conversion price. The stated value of each Preferred Share is $140.00 and the initial conversion price is $8.40
per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other
similar events. The Company is prohibited from effecting a conversion of the Series B Preferred Shares to the extent that, as a
result of such conversion, such holder would beneficially own more than 4.99% of the number of shares of common stock outstanding
immediately after giving effect to the issuance of shares of common stock upon conversion of the Series B Preferred Shares, which
beneficial ownership limitation may be increased by the holder up to, but not exceeding, 9.99%. Subject to such beneficial ownership
limitations, each holder is entitled to vote on all matters submitted to stockholders of the Company on an as converted basis,
based on a conversion price of $8.40 per shares. The Series B Preferred Shares rank junior to the Series A Preferred Shares and
bear no dividends. All of the convertible preferred shares do not represent an unconditional obligation to be settled in a variable
number of shares, are not redeemable and do not contain fixed or indexed conversion provisions similar to debt instruments. Accordingly,
the convertible preferred shares are considered equity hosts and recorded in stockholders’ equity.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Series C Preferred Shares</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The Series C Preferred
Shares are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Series C
Preferred Shares, plus all accrued and unpaid dividends, if any, on such Series C Preferred Shares, as of such date of determination,
divided by the conversion price. The stated value of each Series C Preferred Share is $120.00 per share, and the initial conversion
price is $7.20 (current conversion price is $5.16) per share, each subject to adjustment for stock splits, stock dividends, recapitalizations,
combinations, subdivisions or other similar events. In addition, in the event the Company issues or sells, or is deemed to issue
or sell, shares of common stock at a per share price that is less than the conversion price then in effect, the conversion price
shall be reduced to such lower price, subject to certain exceptions and provided that the conversion price may not be reduced to
less than $5.16, unless and until such time as the Company obtains shareholder approval to allow for a lower conversion price.
The Company is prohibited from effecting a conversion of the Series C Preferred Shares to the extent that, as a result of such
conversion, such May Investor would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately
after giving effect to the issuance of shares of common stock upon conversion of the Series C Preferred Shares, which beneficial
ownership limitation may be increased by the holder up to, but not exceeding, 9.99%. Subject to the beneficial ownership limitations
discussed previously, each holder is entitled to vote on all matters submitted to stockholders of the Company, and shall have the
number of votes equal to the number of shares of common stock issuable upon conversion of such holder’s Series C Preferred
Shares, based on a conversion price of $7.80 per share. The Series C Preferred Shares bear no dividends and shall rank junior to
the Company’s Series A Preferred Shares but senior to the Company’s Series B Preferred Shares.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.5pt">In connection with the
sale of the Series C Preferred Shares, the Company also entered into separate registration rights agreements (the “May Registration
Rights Agreement”) with each Investor. The Company agreed to use its best efforts to file a registration statement to register
the Shares and the common stock issuable upon the conversion of the Series C Preferred Shares, within thirty days following the
Closing Date, to cause such registration statement to be declared effective within ninety days of the filing day and to maintain
the effectiveness of the registration statement until all of such shares of common stock have been sold or are otherwise able to
be sold pursuant to Rule 144 without restriction. In the event the Company fails to satisfy its obligations under the Registration
Rights Agreement, the Company is obligated to pay to the Investors on a monthly basis, an amount equal to 1% of the Investor’s
investment, up to a maximum of 12%. Effective as of the original filing deadline of the registration statement, the Company obtained
the requisite approval from the Investors for the waiver of its obligations under the May Registration Rights Agreement.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The Company evaluated
the guidance ASC 480-10 <i>Distinguishing Liabilities from Equity and</i> ASC 815-40 <i>Contracts in an Entity’s Own Equity</i>
to determine the appropriate classification of the instruments. The Series C Preferred Shares do not represent an unconditional
obligation to be settled in a variable number of shares of common stock, are not redeemable and do not contain fixed or indexed
conversion provisions similar to debt instruments. Accordingly, the Series C Preferred Shares are considered equity hosts and recorded
in stockholders’ equity.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> <i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Series D Preferred Shares</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The Preferred D Shares
are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Preferred D Shares,
plus all accrued and unpaid dividends, if any, on such Preferred D Share, as of such date of determination, divided by the conversion
price. The stated value Preferred D Shares is $1,000 per share and the initial conversion price is $600 per share, each subject
to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. The Company
is prohibited from effecting a conversion of the Preferred D Shares to the extent that, as a result of such conversion, such investor
would beneficially own more than 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon conversion of the Preferred D Shares. Upon 61 days written notice, the beneficial ownership
limitation may be increased by the holder up to, but not exceeding, 9.99%. Except as otherwise required by law, holders of Series
D Preferred Shares shall not have any voting rights. Pursuant to the Certificate of Designations, Preferences and Rights of the
0% Series D Convertible Preferred Stock, the Preferred D Shares bear no dividends and shall rank senior to the Company’s
other classes of capital stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Series E Preferred Shares</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The Preferred E Shares
are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Preferred E Shares,
plus all accrued and unpaid dividends, if any as of such date of determination, divided by the conversion price. The stated value
of each Preferred E Share is $1,000 and the initial conversion price is $1.00 per share, each subject to adjustment for stock splits,
stock dividends, recapitalizations, combinations, subdivisions or other similar events. The Preferred E Shares, with respect to
dividend rights and rights on liquidation, winding-up and dissolution, in each case will rank senior to the Company’s common
stock and all other securities of the Company that do not expressly provide that such securities rank on parity with or senior
to the Preferred E Shares. Until converted, each Preferred E Share is entitled to two votes for every share of common stock into
which it is convertible on any matter submitted for a vote of stockholders. The Preferred E Shares participate on an “as
converted” basis with all dividends declared on the Company’s common stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><i>April 2016 Registered Common Stock and Warrant Offering</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">On April 13, 2016, the
Company entered into a Securities Purchase Agreement with certain institutional investors providing for the issuance and sale by
the Company of 250,000 shares of the Company’s common stock, par value $0.001 per share at an offering price of $6.00 per
share, for net proceeds of $1.4 million after deducting placement agent fees and expenses. In addition, the Company sold to purchasers
of common stock in this offering, warrants to purchase 187,500 shares of its common stock. The common shares and the Warrant Shares
were offered by the Company pursuant to an effective shelf registration statement on Form S-3, which was initially filed with the
Securities and Exchange Commission on October 22, 2015 and declared effective on December 7, 2015. The closing of the offering
occurred on April 19, 2016.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Each Warrant is immediately
exercisable for two years, but not thereafter, at an exercise price of $6.90 per share. Subject to limited exceptions, a holder
of warrants will not have the right to exercise any portion of its warrants if the holder, together with its affiliates, would
beneficially own in excess of 4.99% of the number of shares of our common stock outstanding immediately after giving effect to
such exercise. The exercise price and number of warrants are subject to adjustment in the event of any stock dividends and splits,
reverse stock split, stock dividend, recapitalization, reorganization or similar transaction. The Warrants were classified as liabilities
and measured at fair value, with changes in fair value recognized in the Condensed Consolidated Statements of Operations in other
expenses (income) until they were exchanged for shares of common stock on January 18, 2017. The initial recognition of the Warrants
resulted in an allocation of the net proceeds from the offering to a warrant liability of approximately $318,000, with the remainder
being attributable to the common stock sold in the offering.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Preferred Share Conversion Activity</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">During the nine months
ended July 31, 2017, 3,991,487 shares of Convertible Preferred Stock Series A, 6,512 shares of Convertible Preferred Stock Series
B, 7,798 shares of Convertible Preferred Stock Series C and 129,665 shares of Convertible Preferred Stock Series D were converted
into 1,232,793 shares of common stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">During the nine months
ended July 31, 2016, 1,638,810 shares of Convertible Preferred Stock Series A and 12,001 shares of Convertible Preferred Stock
Series D were converted into 293,137 shares of common stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Common Stock</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">On January 4, 2016, the
Company declared a special cash dividend of an aggregate of $10.0 million to holders of record on January 14, 2016 of its outstanding
shares of: (i) common stock (ii) Series A Convertible Preferred Stock; (iii) Series B Convertible Preferred Stock; (iv) Series
C Convertible Preferred Stock and (v) Series D Convertible Preferred Stock. The holders of record of the Company’s outstanding
preferred stock participated in the dividend on an “as converted” basis. Approximately $6.0 million of the special
cash dividend relates to preferred stock shares.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">On January 6, 2016, certain
employees exercised their options at $4.08 in exchange for the Company’s common stock for an aggregated amount of 31,656
shares.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 30.8pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">On December 16, 2016,
the Company sold an aggregate of 759,333 shares of its common stock to certain accredited investors pursuant to separate subscription
agreements at a price of $3.00 per share for gross proceeds of $2.3 million.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">On January 18, 2017, the
Company entered into separate exchange agreements (each an “Exchange Agreement”) with certain accredited investors
(the “Investors”) who purchased warrants to purchase shares of the Company’s common stock (the “Warrants”)
pursuant to the prospectus dated April 13, 2016. In 2016, the Company issued 250,000 shares of the Company’s common stock
and Warrants to purchase 187,500 shares of common stock (taking into account the reverse split of the Company’s common stock
on a 1 for 6 basis effective with The NASDAQ Stock Market LLC on August 1, 2016). The common stock and Warrants were offered by
the Company pursuant to an effective shelf registration statement. Under the terms of the Exchange Agreement, each Investor exchanged
each Warrant it purchased in the Offering for 0.3 shares of common stock. Accordingly, the Company issued an aggregate of 56,250
shares of common stock in exchange for the return and cancellation of 187,500 Warrants.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">During the nine months
ended July 31, 2017, certain employees exercised their options at a weighted-average exercise price of $4.85 in exchange for the
Company’s common stock for an aggregated amount of 231,404 shares. The Company received approximately $1.1 million from
the exercise of stock options.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>8. FAIR VALUE MEASUREMENTS</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">In accordance with ASC
820, Fair Value Measurements, financial instruments were measured at fair value using a three-level hierarchy which maximizes use
of observable inputs and minimizes use of unobservable inputs:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px"><font style="font-size: 10pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 10pt">Level 1: Observable inputs such as quoted prices in active markets for identical instruments</font></td></tr>
<tr style="vertical-align: top">
<td> </td>
<td style="text-align: justify"> </td></tr>
<tr style="vertical-align: top">
<td><font style="font-size: 10pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 10pt">Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the market</font></td></tr>
<tr style="vertical-align: top">
<td> </td>
<td style="text-align: justify"> </td></tr>
<tr style="vertical-align: top">
<td><font style="font-size: 10pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 10pt">Level 3: Significant unobservable inputs supported by little or no market activity. Financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, for which determination of fair value requires significant judgment or estimation.</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">In connection with the
April 19, 2016 common stock offering, the Company issued warrants to purchase an aggregate of 187,500 shares of common stock. These
warrants were exercisable at $6.90 per share and expire on April 19, 2018. These warrants were analyzed and it was determined that
they require liability treatment. Under ASC 815, registered common stock warrants that require the issuance of registered shares
upon exercise and do not expressly preclude an implied right to cash settlement are accounted for as derivative liabilities. The
Company classifies these derivative warrant liabilities on the condensed consolidated balance sheet as a current liability.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The fair value of these
warrants at January 18, 2017 and October 31, 2016 was determined to be approximately $78,000 and $70,000, respectively, as calculated
using Black-Scholes with the following assumptions: (1) stock price of $3.62 and $3.58, respectively; (2) a risk-free rate of 0.97%
and 0.75%, respectively; and (3) an expected volatility of 68% and 61%, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Financial instruments
measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value
measurement. At July 31, 2017, there was no warrant liability balance.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The following table sets
forth the changes in the estimated fair value for our Level 3 classified derivative warrant liability (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Warrant Liability</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 82%; text-align: justify"><font style="font-size: 10pt">Fair value - October 31, 2016</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 15%; text-align: right"><font style="font-size: 10pt">70</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font-size: 10pt">Change in fair value</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">8</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 10pt">Exchanged - January 18, 2017 (see Note 7)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(78</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font-size: 10pt">Fair value - July 31, 2017</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>9. STOCK BASED COMPENSATION ARRANGEMENTS</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 31.9pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Stock-based compensation
expense during the three months ended July 31, 2017 and 2016 amounted to approximately $3.7 million and $1.6 million, respectively.
Stock-based compensation expense (including stock based compensation recorded in discontinued operations) during the nine months
ended July 31, 2017 and 2016 amounted to approximately $11.8 million and $2.8 million, respectively. Stock-based compensation expense
is recorded in general and administrative and research and development expenses in the accompanying consolidated statements of
operations.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">On February 8, 2017, the
Board appointed Steve Gorlin as a Class II director with a term expiring in 2019 and Dr. Jon Mogford as a Class III director with
a term expiring in 2017 to fill vacancies created upon the resignations of Messrs. Brauser and Honig. In addition, Mr. Gorlin was
appointed as a member of each of the Board’s Audit, Compensation and Nominating and Corporate Governance Committees. Each
of Mr. Gorlin and Dr. Mogford are deemed an “independent” director as such term is defined by the rules of The NASDAQ
Stock Market LLC. There are no family relationships between either of Mr. Gorlin and Dr. Mogford and any of our other officers
and directors. Mr. Gorlin and Dr. Mogford were each granted (i) an option to purchase up to 50,000 shares of the Company’s
common stock at an exercise price equal to $4.72 per share (the “Options”) which Options will vest in 24 equal monthly
installments commencing on the one month anniversary of the grant date and (ii) a restricted stock award of 50,000 shares of common
stock that will vest in 24 equal monthly installments commencing on the one month anniversary of the grant date (the “RSUs”).
The Options and the RSUs were granted pursuant to the Company’s 2017 Equity Incentive Plan (the “2017 Plan”).
The 2017 Plan, the vesting and the exercise of the Options and the vesting of the RSUs are subject to stockholder approval (which
was considered perfunctory given management’s high level of ownership interest).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">A summary of the Company’s
employee stock option activity in the nine months ended July 31, 2017 is presented below:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Number of</b></font><br />
<font style="font-size: 10pt"><b>shares</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Weighted-Average</b></font><br />
<font style="font-size: 10pt"><b>Exercise Price</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%"><font style="font-size: 10pt">Outstanding - October 31, 2016</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">383,210</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">5.74</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2,715,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">3.49</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Exercised</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(231,404</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">4.85</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Outstanding - July 31, 2017</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">2,866,806</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">3.68</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Options exercisable - July 31, 2017</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">997,008</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">3.88</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Weighted-average fair value of options granted during the period</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">2.37</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">A summary of the Company’s
non-employee stock option activity in the nine months ended July 31, 2017 is presented below:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Number of</b></font><br />
<font style="font-size: 10pt"><b>shares</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Weighted-Average</b></font><br />
<font style="font-size: 10pt"><b>Exercise Price</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Outstanding - October 31, 2016</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 62%"><font style="font-size: 10pt">Granted</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid"> </td>
<td style="width: 16%; border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">52,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">4.71</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Outstanding - July 31, 2017</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">52,000</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">4.71</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Options exercisable - July 31, 2017</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">10,833</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">4.71</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The value of employee
and non-employee stock option grants is amortized over the vesting period of, generally, one to three years. As of July 31, 2017,
there was approximately $2.8 million of unrecognized compensation cost related to non-vested employee and non-employee stock option
awards, which is expected to be recognized over a remaining weighted-average vesting period of 0.7 years.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.5pt">The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average
assumptions for the nine months ended July 31, 2017:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 82%"><font style="font-size: 10pt">Risk free annual interest rate</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"> </td>
<td style="width: 15%; text-align: right"><font style="font-size: 10pt">1.78-2.28</font></td>
<td style="width: 1%"><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Expected volatility</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">71.65-86.34</font></td>
<td><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Expected life</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">5.04-6.00</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Assumed dividends</font></td>
<td style="text-align: right"> </td>
<td colspan="2" style="text-align: right"><font style="font-size: 10pt">None</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">A summary of the Company’s
restricted stock activity in the nine months ended July 31, 2017 is presented below:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Number of</b></font><br />
<font style="font-size: 10pt"><b>shares</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Weighted-Average</b></font><br />
<font style="font-size: 10pt"><b>Grant-Date Fair Value</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 60%"><font style="font-size: 10pt">Unvested - October 31, 2016</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">274,829</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 18%; text-align: right"><font style="font-size: 10pt">6.00</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1,031,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">4.56</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Vested</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(1,011,466</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">4.22</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Unvested - July 31, 2017</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">294,363</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">7.07</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">During the nine months
ended July 31, 2017, the Company granted 1,031,000 restricted shares to employees and non-employees.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The weighted-average fair
value of restricted shares granted during the nine months ended July 31, 2017 was $4.56. The total fair value of restricted stock
granted during the nine months ended July 31, 2017 was approximately $4.7 million.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The value of restricted
stock grants is measured based on its fair value on the date of grant and amortized over the vesting period of, generally, six
months to three years. As of July 31, 2017, there was approximately $2.0 million of unrecognized compensation cost related to
unvested restricted stock awards, which is expected to be recognized over a remaining weighted-average vesting period of 0.6 years.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>10. INCOME TAXES</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 31.9pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Due to the Company’s
history of losses and uncertainty of future taxable income, a valuation allowance sufficient to fully offset net operating losses
and other deferred tax assets has been established. The valuation allowance will be maintained until sufficient positive evidence
exists to support a conclusion that a valuation allowance is not necessary. The Company’s effective tax rate for the nine
months ended July 31, 2017 and 2016 differed from the expected U.S. federal statutory rate primarily due to the change in the
valuation allowance. The issuance of Preferred Stock in connection with the Polarity acquisition will likely result in limitations
on the utilization of the Company’s net operating loss carryforwards under IRS section 382.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>11. LOSS PER SHARE</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 31.9pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Shares of common stock
issuable under convertible preferred stock, warrants and options and shares subject to restricted stock grants were not included
in the calculation of diluted earnings per common share for the three months and nine months ended July 31, 2017 and 2016, as the
effect of their inclusion would be anti-dilutive.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The table below provides
total potential shares outstanding, including those that are anti-dilutive, on July 31, 2017 and 2016:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center"> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31,</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center"> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2016</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 66%"><font style="font-size: 10pt">Shares issuable upon exercise of warrants</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">187,500</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Shares issuable upon conversion of preferred stock</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">9,020,287</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2,783,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Shares issuable upon exercise of stock options</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2,918,806</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">394,278</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Non-vested shares under restricted stock grants</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">294,363</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">303,477</font></td>
<td></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>12. COMMITMENTS AND CONTINGENCIES</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Contingencies</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 31.9pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">On February 26, 2015,
a complaint for patent infringement was filed in the United States District Court for the Eastern District of Texas by Richard
Baker, an individual residing in Australia, against Microsoft, Nintendo, the Company and a number of other game publisher defendants.
The complaint alleges that the Company’s Zumba Fitness Kinect game infringed plaintiff’s patents in motion tracking
technology. The plaintiff is representing himself pro se in the litigation and is seeking monetary damages in the amount of $1.3
million. The Company, in conjunction with Microsoft, is defending itself against the claim and has certain third-party indemnity
rights from developers for costs incurred in the litigation. In August 2015, the defendants jointly moved to transfer the case
to the Western District of Washington. On May 17, 2016, the Washington Court issued a scheduling order that provides that defendants
leave to jointly file an early motion for summary judgement in June 2016. On June 17, 2016, the defendants jointly filed a motion
for summary judgment that stated that none of the defendants, including the Company, infringed upon the asserted patent. On July
9, 2016, Mr. Baker opposed the motion. On July 15, 2016, the defendants jointly filed a reply. The briefing on the motion is now
closed. The Court has not yet issued a decision or indicated if or when there will be oral argument on the motion.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.5pt">Intelligent Verification
Systems, LLC (“IVS”), filed a patent infringement complaint on September 20, 2012, in the United States District Court
for the Eastern District against the Company and Microsoft Corporation. In March 2015, the court issued an order excluding the
evidence proffered by IVS in support of its alleged damages, including the opinion of its damages expert. IVS appealed that decision.
On January 19, 2016, the Federal Circuit denied IVS’ appeal and affirmed the district court’s orders that excluded
the plaintiff’s damages expert and dismissed the case.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">In addition to the item
above, the Company at times may be a party to claims and suits in the ordinary course of business. We record a liability when it
is both probable that a liability has been incurred and the amount of the loss or range of loss can be reasonably estimated. The
Company has not recorded a liability with respect to the matter above. While the Company believes that it has valid defenses with
respect to the legal matter pending and intends to vigorously defend the matter above, given the uncertainty surrounding litigation
and our inability to assess the likelihood of a favorable or unfavorable outcome, it is possible that the resolution of the matter
could have a material adverse effect on our consolidated financial position, cash flows or results of operations.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Commitments</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 31.9pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The Company leases office
space in Hazlet, New Jersey at a cost of approximately $1,100 per month under a lease agreement that expires on March 31, 2018.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The Company also leases
space in Salt Lake City, Utah at a cost of approximately $24,044 per month under a lease agreement that expires on March 31 2018.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The Company has entered
into employment agreements with key executives that contain severance terms and change of control provisions.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>13. RELATED PARTIES</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 31.9pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">In January 2015, the
Company entered into an agreement with Equity Stock Transfer for transfer agent services. A former Board member of the Company
is a co-founder and chief executive officer of Equity Stock Transfer. Fees under the agreement were approximately $2,000 and $0,
in the nine months ended July 31, 2017 and 2016, respectively.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Prepaid expenses and other
current assets consist of the following (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31, 2017</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>October 31, 2016</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%"><font style="font-size: 10pt">Legal retainer</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">60</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Prepaid insurance</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">86</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">22</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Tax receivable</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">18</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Trade show deposit</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">160</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Other prepaids</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">71</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Deposits</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">32</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Other assets</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">2</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">7</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font-size: 10pt">Total prepaid expenses and other current assets</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">411</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">47</font></td>
<td></td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Property and equipment,
net, consist of the following (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 20.9pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31, 2017</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>October 31, 2016</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%"><font style="font-size: 10pt">Medical equipment</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">2,193</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Computers and software</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">198</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">61</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Furniture and equipment</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">109</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">78</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Total property and equipment, gross</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2,500</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">139</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Accumulated depreciation</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(427</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(121</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Total property and equipment, net</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">2,073</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">18</font></td>
<td></td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Accounts payable and accrued
expenses consist of the following (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 31.9pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31, 2017</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>October 31, 2016</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%"><font style="font-size: 10pt">Accounts payable</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">56</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Due to Zift</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">66</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Medical equipment purchase</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">108</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Salaries and other compensation</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">662</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">463</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Legal and accounting</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">454</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Other accruals</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">93</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">11</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Total accounts payable and accrued expenses</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">1,439</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">474</font></td>
<td></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 31.9pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The following table sets
forth the changes in the estimated fair value for our Level 3 classified derivative warrant liability (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Warrant Liability</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 82%; text-align: justify"><font style="font-size: 10pt">Fair value - October 31, 2016</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 15%; text-align: right"><font style="font-size: 10pt">70</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font-size: 10pt">Change in fair value</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">8</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 10pt">Exchanged - January 18, 2017 (see Note 7)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(78</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font-size: 10pt">Fair value - July 31, 2017</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
7050000
104700000
14.85
P5Y
P6M
P3Y
P24M
P24M
P1Y
P3Y
one (1) for six (6) basis, effective on July 29, 2016
1 for 6 basis
2000
7000
-32000
71000
18000
86000
22000
-60000
427000
121000
2500000
139000
109000
78000
198000
61000
2193000
93000
11000
662000
463000
108000
0.68
140.00
120.00
1000
1000
8.40
7.80
3.54
0.00
0.00
0.0499
0.0499
0.0999
0.0999
0.0499
0.0499
0.0999
0.0999
0.0499
0.01
0.12
0.01
0.12
4.08
8.40
7.20
600
1.00
5.16
250000
759333
6.00
1400000
318000
187500
187500
187500
P2Y
6.90
6.90
30.00
10000000
6000000
4.85
4.08
4.72
2300000
0.3
3.00
9020287
2783000
713245
794806
1189693
903362
417791
429392
44445
260553
7050000
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Principles of Consolidation.
</i>The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries;
Polarity NV, Majesco Sub and Majesco Europe Limited. Majesco Europe Limited was dissolved during the year ended October 31, 2016
and Majesco Sub was sold on June 23, 2017. Significant intercompany accounts and transactions have been eliminated in consolidation.</p>
187500
276364
2018-04-19
3.58
3.62
0.0097
0.0075
0.68
0.61
70000
-78000
8000
50000
50000
1031000
1031000
2800000
2000000
P8M12D
P7M6D
4.56
4700000
383210
2866806
52000
2715000
52000
997008
10833
5.74
3.68
4.71
3.49
4.71
4.85
3.88
4.71
P2Y4M13D
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>4. PREPAID EXPENSES AND OTHER CURRENT ASSETS</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Prepaid expenses and other
current assets consist of the following (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31, 2017</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>October 31, 2016</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%"><font style="font-size: 10pt">Legal retainer</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">60</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Prepaid insurance</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">86</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">22</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Tax receivable</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">18</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Trade show deposit</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">160</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Other prepaids</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">71</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Deposits</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">32</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Other assets</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">2</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">7</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font-size: 10pt">Total prepaid expenses and other current assets</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">411</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">47</font></td>
<td></td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Cash and cash equivalents.
</i>Cash equivalents consist of highly liquid investments with original maturities of three months or less at the date of purchase.
At various times, the Company has deposits in excess of the Federal Deposit Insurance Corporation limit. The Company has not experienced
any losses on these accounts.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Property and Equipment.
</i>Property and equipment is stated at cost. Depreciation and amortization is being provided for by the straight-line method
over the estimated useful lives of the assets, generally five years. Amortization of leasehold improvements is provided for over
the shorter of the term of the lease or the life of the asset.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Income Taxes.</i>
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. The Company evaluates the potential for realization of deferred tax
assets at each quarterly balance sheet date and records a valuation allowance for assets for which realization is not more likely
than not.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Stock Based Compensation.</i>
The Company measures all stock-based compensation to employees using a fair value method and records such expense in general and
administrative and research and development expenses. Compensation expense for stock options with cliff vesting is recognized on
a straight-line basis over the vesting period of the award, based on the fair value of the option on the date of grant. For stock
options with graded vesting, the Company recognizes compensation expense over the service period for each separately vesting tranche
of the award as though the award were in substance, multiple awards.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The fair value for options
issued is estimated at the date of grant using a Black-Scholes option-pricing model. The risk-free rate is derived from the U.S.
Treasury yield curve in effect at the time of the grant. The volatility factor is determined based on the Company’s historical
stock prices.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The value of restricted
stock grants is measured based on the fair market value of the Company’s common stock on the date of grant and amortized
over the vesting period of, generally, six months to three years.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Loss Per Share.</i>
Basic loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average
number of shares of common stock outstanding for the period. Diluted loss per share excludes the potential impact of common stock
options, unvested shares of restricted stock and outstanding common stock purchase warrants because their effect would be anti-dilutive
due to our net loss.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27.35pt"><i>Commitments and Contingencies.
</i>We are subject to claims and litigation in the ordinary course of our business. We record a liability for contingencies when
the amount is both probable and reasonably estimable. We record associated legal fees as incurred.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><i>Accounting for Warrants</i>.
The Company accounts for the issuance of common stock purchase warrants issued in connection with the equity offerings in accordance
with the provisions of ASC 815, Derivatives and Hedging (“ASC 815”). The Company classifies as equity any contracts
that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement
in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts
that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event
is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares
(physical settlement or net-share settlement). In addition, under ASC 815, registered common stock warrants that require the issuance
of registered shares upon exercise and do not expressly preclude an implied right to cash settlement are accounted for as derivative
liabilities. The Company classifies these derivative warrant liabilities on the condensed consolidated balance sheet as a current
liability.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.5pt"><i>Change in Fair Value
of Warrant Liability.</i> The Company assessed the classification of common stock purchase warrants as of the date of each offering
and determined that certain instruments met the criteria for liability classification. Accordingly, the Company classified the
warrants as a liability at their fair value and adjusts the instruments to fair value at each reporting period. This liability
is subject to re-measurement at each balance sheet date until the warrants are exercised or expired, and any change in fair value
is recognized as “change in fair value of warrant liability” in the condensed consolidated statements of operations.
The fair value of the warrants has been estimated using a Black-Scholes valuation model (see Note 7).</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Reverse stock-split</i>.
On July 27, 2016, Majesco Entertainment Company (the “Company”) filed a certificate of amendment (the “Amendment”)
to its Restated Certificate of Incorporation with the Secretary of State of the State of Delaware in order to effectuate a reverse
stock split of the Company’s issued and outstanding common stock, par value $0.001 per share on a one (1) for six (6) basis,
effective on July 29, 2016 (the “Reverse Stock Split”).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The Reverse Stock Split
was effective with The NASDAQ Capital Market (“NASDAQ”) at the open of business on August 1, 2016. The par value and
other terms of Company’s common stock were not affected by the Reverse Stock Split. The Company’s post-Reverse Stock
Split common stock has a new CUSIP number, 560690 406. The Company’s transfer agent, Equity Stock Transfer LLC, acted as
exchange agent for the Reverse Stock Split.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">As a result of the Reverse
Stock Split, every six shares of the Company’s pre-Reverse Stock Split common stock was combined and reclassified into one
share of the Company’s common stock. No fractional shares of common stock were issued as a result of the Reverse Stock Split.
Stockholders who otherwise would be entitled to a fractional share shall receive a cash payment in an amount equal to the product
obtained by multiplying (i) the closing sale price of our common stock on the business day immediately preceding the effective
date of the Reverse Stock Split as reported on NASDAQ by (ii) the number of shares of our common stock held by the stockholder
that would otherwise have been exchanged for the fractional share interest.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">All common share and
per share amounts have been restated to show the effect of the Reverse Stock Split.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Estimates. </i>The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities or the disclosure
of gain or loss contingencies at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting periods. Among the more significant estimates included in these financial statements are the recoverability of advance
payments for capitalized software development costs and intellectual property licenses, the valuation of warrant liability, stock
based compensation and the valuation allowances for deferred tax benefits. Actual results could differ from those estimates.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Recently Adopted Accounting Pronouncements</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">In August 2014, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, <i>Disclosure
of Uncertainties about an Entity’s Ability to Continue as a Going Concern</i> (“ASU No. 2014-15”) that requires
management to evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to
continue as a going concern within one year after the financial statements are issued on both an interim and annual basis. Management
is required to provide certain footnote disclosures if it concludes that substantial doubt exists or when its plans alleviate substantial
doubt about the Company’s ability to continue as a going concern. The Company adopted ASU No. 2014-15 on November 1, 2016
and its adoption did not have a material impact on the Company’s financial statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">In January 2017, the
FASB issued ASU 2017-01, <i>Business Combinations (Topic 805) Clarifying the Definition of a Business</i>. The amendments in this
update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions
should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas
of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning
after December 15, 2017, including interim periods within those periods. The Company adopted this guidance effective November
1, 2016.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Recent Accounting Pronouncements.</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">In February 2016, FASB
issued ASU No. 2016-02, <i>Leases (Topic 842),</i> which supersedes FASB ASC Topic 840, <i>Leases (Topic 840) </i>and provides
principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard
requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether
or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is
recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee
is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months
regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for
operating leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption
permitted upon issuance. When adopted, the Company does not expect this guidance to have a material impact on our financial statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">In March 2016, the FASB
issued ASU No. 2016-09, <i>Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting</i>.
Under ASU No. 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital
(“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in
the income statement and the APIC pools will be eliminated. In addition, ASU No. 2016-09 eliminates the requirement that excess
tax benefits be realized before companies can recognize them. ASU No. 2016-09 also requires companies to present excess tax benefits
as an operating activity on the statement of cash flows rather than as a financing activity. Furthermore, ASU No. 2016-09 will
increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification
for shares used to satisfy the employer’s statutory income tax withholding obligation. An employer with a statutory income
tax withholding obligation will now be allowed to withhold shares with a fair value up to the amount of taxes owed using the maximum
statutory tax rate in the employee’s applicable jurisdiction(s). ASU No. 2016-09 requires a company to classify the cash
paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity
on the statement of cash flows. Under current U.S. GAAP, it was not specified how these cash flows should be classified. In addition,
companies will now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeitures of awards
as they occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change,
as is currently required. The amendments of this ASU are effective for reporting periods beginning after December 15, 2016, with
early adoption permitted but all of the guidance must be adopted in the same period. The Company is currently assessing the impact
that ASU No. 2016-09 will have on its condensed consolidated financial statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">In July 2017, the FASB
issued ASU 2017-11, <i>Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and
Hedging (Topic 815)</i>: <i>I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite
Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling
Interests with a Scope Exception, </i>(ASU 2017-11). Part I of this update addresses the complexity of accounting for certain
financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded
features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting
guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments)
with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update
addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive
pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of
accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily
redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective
for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently assessing
the potential impact of adopting ASU 2017-11 on its financial statements and related disclosures.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Convertible preferred
stock as of July 31, 2017 consisted of the following (in thousands, except share amounts):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 75.9pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Shares</b></font><br />
<font style="font-size: 9pt"><b>Authorized</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Shares Issued and</b></font><br />
<font style="font-size: 9pt"><b>Outstanding</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Net Carrying</b></font><br />
<font style="font-size: 9pt"><b>Value</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Aggregate</b></font><br />
<font style="font-size: 9pt"><b>Liquidation</b></font><br />
<font style="font-size: 9pt"><b>Preference</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Common Shares</b></font><br />
<font style="font-size: 9pt"><b>Issuable Upon</b></font><br />
<font style="font-size: 9pt"><b>Conversion</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 33%"><font style="font-size: 9pt">Series A</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 9pt">8,830,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 9pt">3,146,671</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 9pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 9pt">769</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 9pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 9pt">2,140</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 10%; text-align: right"><font style="font-size: 9pt">713,245</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 9pt">Series B</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">54,250</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">47,689</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">4,020</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">794,806</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 9pt">Series C</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">26,000</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">17,965</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">1,401</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">417,791</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 9pt">Series D</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">170,000</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">26,667</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">312</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">44,445</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 9pt">Series E</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">7,050</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">7,050</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">104,693</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">7,050,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 9pt">Other authorized, unissued</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">912,700</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 9pt">Total</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">10,000,000</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">3,246,042</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 9pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">111,195</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 9pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">2,140</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">9,020,287</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Convertible preferred
stock as of October 31, 2016 consisted of the following (in thousands, except share amounts):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 14.3pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Shares</b></font><br />
<font style="font-size: 9pt"><b>Authorized</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Shares Issued and</b></font><br />
<font style="font-size: 9pt"><b>Outstanding</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Net Carrying</b></font><br />
<font style="font-size: 9pt"><b>Value</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Aggregate</b></font><br />
<font style="font-size: 9pt"><b>Liquidation</b></font><br />
<font style="font-size: 9pt"><b>Preference</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 9pt"><b>Common Shares</b></font><br />
<font style="font-size: 9pt"><b>Issuable Upon</b></font><br />
<font style="font-size: 9pt"><b>Conversion</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 33%"><font style="font-size: 9pt">Series A</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 9pt">8,830,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 9pt">7,138,158</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 9pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 9pt">1,745</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 9pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 9pt">4,854</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 10%; text-align: right"><font style="font-size: 9pt">1,189,693</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 9pt">Series B</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">54,250</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">54,201</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">4,569</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">903,362</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 9pt">Series C</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">26,000</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">25,763</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">2,010</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">429,392</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 9pt">Series D</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">170,000</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">156,332</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">1,829</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 9pt">260,553</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 9pt">Other authorized, unissued</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">919,750</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 9pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 9pt">Total</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">10,000,000</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">7,374,454</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 9pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">10,153</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 9pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">4,854</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 9pt">2,783,000</font></td>
<td></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i></i></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">A summary of the Company’s
employee stock option activity in the nine months ended July 31, 2017 is presented below:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Number of</b></font><br />
<font style="font-size: 10pt"><b>shares</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Weighted-Average</b></font><br />
<font style="font-size: 10pt"><b>Exercise Price</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%"><font style="font-size: 10pt">Outstanding - October 31, 2016</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">383,210</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">5.74</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2,715,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">3.49</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Exercised</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(231,404</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">4.85</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Outstanding - July 31, 2017</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">2,866,806</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">3.68</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Options exercisable - July 31, 2017</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">997,008</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">3.88</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Weighted-average fair value of options granted during the period</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">2.37</font></td>
<td></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">A summary of the Company’s
non-employee stock option activity in the nine months ended July 31, 2017 is presented below:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Number of</b></font><br />
<font style="font-size: 10pt"><b>shares</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Weighted-Average</b></font><br />
<font style="font-size: 10pt"><b>Exercise Price</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Outstanding - October 31, 2016</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 62%"><font style="font-size: 10pt">Granted</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid"> </td>
<td style="width: 16%; border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">52,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">4.71</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Outstanding - July 31, 2017</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">52,000</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">4.71</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Options exercisable - July 31, 2017</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">10,833</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">4.71</font></td>
<td></td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.5pt">The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average
assumptions for the nine months ended July 31, 2017:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 82%"><font style="font-size: 10pt">Risk free annual interest rate</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"> </td>
<td style="width: 15%; text-align: right"><font style="font-size: 10pt">1.78-2.28</font></td>
<td style="width: 1%"><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Expected volatility</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">71.65-86.34</font></td>
<td><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Expected life</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">5.04-6.00</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Assumed dividends</font></td>
<td style="text-align: right"> </td>
<td colspan="2" style="text-align: right"><font style="font-size: 10pt">None</font></td>
<td></td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">A summary of the Company’s
restricted stock activity in the nine months ended July 31, 2017 is presented below:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Number of</b></font><br />
<font style="font-size: 10pt"><b>shares</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Weighted-Average</b></font><br />
<font style="font-size: 10pt"><b>Grant-Date Fair Value</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 60%"><font style="font-size: 10pt">Unvested - October 31, 2016</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">274,829</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 18%; text-align: right"><font style="font-size: 10pt">6.00</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1,031,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">4.56</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Vested</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(1,011,466</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">4.22</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Unvested - July 31, 2017</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">294,363</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">7.07</font></td>
<td></td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The table below provides
total potential shares outstanding, including those that are anti-dilutive, on July 31, 2017 and 2016:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center"> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31,</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center"> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2016</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 66%"><font style="font-size: 10pt">Shares issuable upon exercise of warrants</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">187,500</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Shares issuable upon conversion of preferred stock</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">9,020,287</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2,783,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Shares issuable upon exercise of stock options</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2,918,806</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">394,278</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Non-vested shares under restricted stock grants</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">294,363</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">303,477</font></td>
<td></td></tr>
</table>
<p style="margin: 0pt"></p>
70000
-3991487
761798
-3991487
-1638810
-6512
-7798
-129665
-12001
-1232793
-293137
-976000
1000
975000
104693000
104693000
7050
-549000
549000
-6512
108543
-609000
609000
-7798
146346
-1517000
1517000
-129665
216106
3.00
5.16
6333985
56000
163000
30000
2103000
18000
810000
-120872000
-5267000
-1716000
-3383000
-349000
67000
-770000
-851000
-770000
-349000
-851000
-449000
-33000
-770000
-851000
-33000
-770000
-449000
-851000
75000
78000
108000
-1517000
-140000
-609000
-549000
-976000
-401000
3027000
6523000
17053000
6736000
-3496000
-10317000
3401000
-8764000
299000
2278000
1406000
1123000
129000
10000000
-2243000
-4654000
-1553000
857000
-46000
364000
20000
21000
295000
-4687000
-1716000
33000
163000
33000
163000
-2253000
10000
10000
1.00
5000
10000
100000
5000
5000
5000
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>3. GOING CONCERN</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The accompanying financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has experienced net losses and negative cash flows from operations since its inception.
The Company has sustained cumulative losses of approximately $249.4 million as of July 31, 2017, has negative working capital
and has not generated positive cash flows from operations. The continuation of the Company as a going concern is dependent upon
continued financial support from its shareholders, potential collaborations, the ability of the Company to obtain necessary equity
and/or debt financing to continue operations, and the attainment of profitable operations. These factors raise substantial doubt
regarding the Company’s ability to continue as a going concern. The Company cannot make any assurances that additional financings
will be available to it and, if available, completed on a timely basis, on acceptable terms or at all. If the Company is unable
to complete a debt or equity offering, execute a collaboration arrangement or otherwise obtain sufficient financing when and if
needed, it would negatively impact its business and operations and could also lead to the reduction or suspension of the Company’s
operations and ultimately force the Company to cease operations. These financial statements do not include any adjustments to
the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>14. DISCONTINUED OPERATIONS</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 31.9pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">On July 31, 2015, the
Company transferred to Zift Interactive LLC (“Zift”), a newly-formed subsidiary, certain rights under certain of its
publishing licenses related to developing, publishing and distributing video game products through retail distribution for a term
of one year. The Company transferred Zift to its former chief executive officer, Jesse Sutton. In exchange, the Company received
Mr. Sutton’s resignation from the position of chief executive officer of the Company, including waiver of any severance payments
and the execution of a separation agreement, together with his agreement to serve as a consultant to the Company. In addition,
Zift will pay the Company a specified percent of its net revenue from retail sales on a quarterly basis.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">In addition, the Company
entered into a conveyance agreement with Zift under which it assigned to Zift certain assets used in the retail business and Zift
agreed to assume and indemnify the Company for liabilities and claims related to the retail business, including customer claims
for price protection and promotional allowances. The assets transferred to Zift included cash in an amount of $800,000, of which
$400,000 was transferred immediately and the remaining $400,000 was payable by the Company in twelve equal consecutive monthly
installments of $33,000 commencing August 1, 2015, and certain accounts receivable and inventory with an aggregate carrying value
of approximately $87,000.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27.35pt">On June 23, 2017, the
Company sold Majesco Entertainment Company, a Nevada corporation and wholly-owned subsidiary of the Company (“Majesco”)
to Zift (the “Purchaser”) pursuant to a purchase agreement (the “Purchase Agreement”). Pursuant to the
terms of the Purchase Agreement, the Company sold to the Purchaser 100% of the issued and outstanding shares of common stock of
Majesco, including all of the right, title and interest in and to Majesco’s business of developing, publishing and distributing
video game products through mobile and online digital downloading. Pursuant to the terms of the Purchase Agreement, the Company
will receive total cash consideration of $100,000 ($5,000 upon signing the Purchase Agreement and 19 additional monthly payments
of $5,000) plus contingent consideration based on net revenues valued at $0. The Company received $10,000 in cash consideration
as of July 31, 2017. Subsequent to July 31, 2017, the Company received another $5,000.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27.35pt">The Company recorded
a gain of $100,000 on the sale of Majesco Entertainment Company, calculated as the difference between the $100,000 in non-contingent
consideration and the net carrying amount of Majesco Entertainment Company, which was $0. The gain on the sale of Majesco Entertainment
Company may be adjusted in future periods by the contingent consideration, based upon the achievement of pre-determined revenue
milestones of more than $50,000 per month.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27.35pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27.35pt">The sale of Majesco Entertainment
Company, classified in the Company’s video games segment, qualifies as a discontinued operation as the sale represents a
strategic shift that has (or will have) a major effect on operations and financial results.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27.35pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27.35pt">The results of operations
from the discontinued business for the three and nine months ended July 31, 2017 and 2016 are as follows (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>For the Three Months Ended</b></font></td>
<td> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>For the Nine Months Ended</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31,</b></font></td>
<td> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31,</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2016</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2016</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 48%"><font style="font-size: 10pt">Revenues</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 10pt">143</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 10pt">315</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 10pt">558</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 10pt">1,318</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Expenses</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">176</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">1,085</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">1,007</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">2,169</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Loss from discontinued operations</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(33</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(770</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(449</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(851</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Gain on sale of discontinued operations</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">100</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">100</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27.35pt">The assets and liabilities
related to the discontinued operations as of July 31, 2017 and October 31, 2016 are as follows (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31, 2017</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>October 31, 2016</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 10pt"><b>(Unaudited)</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Current assets related to discontinued operations</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 66%"><font style="font-size: 10pt">Accounts receivable</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">113</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Capitalized software development costs and license fees</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">50</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">163</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Current liabilities related to discontinued operations</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Accounts payable and accrued expenses</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">810</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">810</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27.35pt">The cash flows from the
discontinued business for the nine months ended July 31, 2017 and 2016 are as follows (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>For the nine months ended July 31,</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2016</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt"><b>CASH FLOWS FROM OPERATING ACTIVITIES</b></font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 72%"><font style="font-size: 10pt">Net loss from discontinued operations</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">(349</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">(851</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Adjustments to reconcile net loss from discontinued operations to net cash used in discontinued operating activities:</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Depreciation and amortization</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">11</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">21</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Stock based compensation expense</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1,118</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">994</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Amortization of capitalized software development costs and license fees</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">50</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">150</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Gain on sale of Majesco Sub</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(100</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Changes in operating assets and liabilities:</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Accounts receivable</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">113</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">107</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Capitalized software development costs and license fees</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(21</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Accounts payable and accrued expenses</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(810</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(218</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Payable to Zift</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(19</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Net cash provided by discontinued operating activities</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">33</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">163</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt"><b>CASH FLOWS FROM INVESTING ACTIVITIES</b></font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Cash received from sale of Majesco Sub</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">10</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Net cash provided by discontinued investing activities</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">10</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td></td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Accounts Payable and
Accrued Expenses.</i> The carrying amounts of accounts payable and accrued expenses approximate fair value as these accounts are
largely current and short term in nature.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Reclassifications.
</i>Certain previously reported amounts have been reclassified to conform with the current financial statement presentation. One
reclassification relates to discontinued operations. Another represents a reclassification of approximately $1.8 million from
general and administrative expenses to research and development expenses for the six months ended April 30, 2017.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27.35pt">The results of operations
from the discontinued business for the three and nine months ended July 31, 2017 and 2016 are as follows (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>For the Three Months Ended</b></font></td>
<td> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>For the Nine Months Ended</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31,</b></font></td>
<td> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31,</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2016</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2016</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 48%"><font style="font-size: 10pt">Revenues</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 10pt">143</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 10pt">315</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 10pt">558</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 10pt">1,318</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Expenses</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">176</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">1,085</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">1,007</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">2,169</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Loss from discontinued operations</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(33</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(770</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(449</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(851</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Gain on sale of discontinued operations</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">100</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">100</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27.35pt">The assets and liabilities
related to the discontinued operations as of July 31, 2017 and October 31, 2016 are as follows (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31, 2017</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>October 31, 2016</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 10pt"><b>(Unaudited)</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Current assets related to discontinued operations</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 66%"><font style="font-size: 10pt">Accounts receivable</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">113</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Capitalized software development costs and license fees</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">50</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">163</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Current liabilities related to discontinued operations</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Accounts payable and accrued expenses</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">810</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">810</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27.35pt">The cash flows from the
discontinued business for the nine months ended July 31, 2017 and 2016 are as follows (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>For the nine months ended July 31,</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2016</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt"><b>CASH FLOWS FROM OPERATING ACTIVITIES</b></font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 72%"><font style="font-size: 10pt">Net loss from discontinued operations</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">(349</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">(851</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Adjustments to reconcile net loss from discontinued operations to net cash used in discontinued operating activities:</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Depreciation and amortization</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">11</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">21</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Stock based compensation expense</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1,118</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">994</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Amortization of capitalized software development costs and license fees</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">50</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">150</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Gain on sale of Majesco Sub</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(100</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Changes in operating assets and liabilities:</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Accounts receivable</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">113</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">107</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Capitalized software development costs and license fees</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(21</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Accounts payable and accrued expenses</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(810</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(218</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Payable to Zift</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(19</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Net cash provided by discontinued operating activities</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">33</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">163</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt"><b>CASH FLOWS FROM INVESTING ACTIVITIES</b></font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Cash received from sale of Majesco Sub</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">10</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Net cash provided by discontinued investing activities</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">10</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td></td></tr>
</table>
<p style="margin: 0pt"></p>
160000
66000
454000
60000
0.0178
0.0228
0.7165
0.8634
P5Y0M15D
P6Y
0.00
294363
274829
1031000
1011466
7.07
6.00
4.56
4.22
9020287
2918806
294363
187500
2783000
394278
303477
1300000
1100
24044
2018-03-31
2018-03-31
2000
0
800000
400000
400000
33000
87000
1.00
100000
0
113000
50000
163000
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>1. PRINCIPAL BUSINESS ACTIVITY AND BASIS
OF PRESENTATION</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 31.9pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Asset Acquisition and
Name Change.</i> On December 1, 2016<i>,</i> Majesco Entertainment Company (<i>n/k/a</i> PolarityTE, Inc.), a Delaware corporation
(the “Company”) entered into an agreement to acquire the assets of Polarity NV (as defined below), a regenerative medicine
company. The asset acquisition was subject to shareholder approval, which was received on March 10, 2017 and the transaction closed
on April 7, 2017, as more fully described below. In January, 2017, the Company changed its name to “PolarityTE, Inc.”</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">On December 1, 2016, the
Company appointed Dr. Denver Lough as Chief Executive Officer, Chief Scientific Officer and Chairman of our Board of Directors
and Dr. Ned Swanson as Chief Operating Officer of the Company. Until their respective appointments, both doctors were associated
with Johns Hopkins University, Baltimore, Maryland, as full-time residents. On December 1, 2016, Dr. Lough assigned the patent
application as well as all related intellectual property to a newly-formed Nevada corporation, Polarityte, Inc. (“Polarity
NV”), and the Company entered into an Agreement and Plan of Reorganization (the “Agreement”) with Polarity NV
and Dr. Lough. As a result, at closing, the patent application would be owned by the Company without the need for further assignments
or recordation with the Patent Trademark Office.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">On April 7, 2017, the
Company issued 7,050 shares of its newly authorized Series E Preferred Stock (the “Series E Preferred Shares”) convertible
into an aggregate of 7,050,000 shares of the Company’s common stock with a fair value of approximately $104.7 million which
is equal to 7,050,000 common shares times $14.85 (the closing price of the Company’s common stock as of April 7, 2017) to
Dr. Lough for the purchase of the Polarity NV’s assets. Since the assets purchased were in-process research and development
assets, the total purchase price was immediately expensed as research and development - intellectual property acquired since they
have no alternative future use.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Drs. Lough and Swanson
lead the Company’s current efforts focused on scientific research and development and in this regard on December 1, 2016,
the Company leased laboratory space and purchased laboratory equipment in Salt Lake City, Utah. Subsequent expenditures include
the purchase of medical equipment, including microscopes for high end real-time imaging of cells and tissues required for tissue
engineering and regenerative medicine research. The Company has added additional facilities, and established university and scientific
relationships and collaborations in order to pursue its business. None of these activities were performed by Dr. Lough or Dr. Swanson
prior to December 1, 2016 in connection with their university positions or privately.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Dr. Lough is the named
inventor under a pending patent application for a novel regenerative medicine and tissue engineering platform filed in the United
States and elsewhere. The Company believes that its future success depends significantly on its ability to protect its inventions
and technology. Prior to December 1, 2016, no employees, consultants or partners engaged in any business activity related to the
patent application and no licenses or contracts were granted related to the patent application, other than professional services
related to preparation and filing of the patent.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">There was never any intent
to acquire an ongoing business and no ongoing business was acquired. The asset is preserved in a stand-alone entity merely as a
vehicle to provide the Company a seamless means to acquire the asset (a patent application) without undue cost, expense and time.
Polarity NV has never had employees and, therefore, no employees were acquired in the transaction.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The Company adopted ASU
2017-01, <i>Business Combinations (Topic 805), Clarifying the Definition of a Business</i>, during the first quarter of fiscal
2017. In accordance with ASU 2017-01 we analyzed the above transaction as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Step 1 - Is substantially
all the fair value of the gross assets acquired concentrated in a single or (group of similar) identifiable asset(s)? - The Company
has a proposal to acquire a single intellectual property asset and no employees on the acquisition date.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Step 2 - Evaluate whether
an input and a substantive process exists? Does the set have outputs? - The set does not yet have outputs, as Polarity NV’s
intellectual property does not generate any revenue. Without outputs, the set requires employees that form an organized workforce
with skills, knowledge, or experience to perform an acquired process that is critical to the ability to create outputs to qualify
as a business. Polarity NV never had any employees or workforce. On December 1, 2016, prior to any Polarity NV acquisition, the
Company hired Denver Lough as its Chief Executive and Chief Scientific Officer and Edward Swanson as Chief Operating Officer. Both
of these executives were employed full-time by Johns Hopkins University and were not employed by Polarity NV. In December 2016,
the Company established a clinical advisory board and added three members in December 2016 and three more in January 2017. Establishing
the clinical advisory board and hiring a COO are critical to establishing at the Company for the first time a workforce that has
the knowledge and experience to obtain regulatory approval of the Company’s intellectual property. Therefore, the acquisition
of an intellectual property asset and no employees from Polarity NV on April 7, 2017 did not represent the acquisition of an organized
workforce with the necessary skills and experience to create outputs.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27.35pt"><i>Discontinued Operations.</i>
On June 23, 2017, the Company sold Majesco Entertainment Company, a Nevada corporation and wholly-owned subsidiary of the Company
(“Majesco Sub”) to Zift Interactive LLC, a Nevada limited liability company pursuant to a purchase agreement. Pursuant
to the terms of the agreement, the Company sold 100% of the issued and outstanding shares of common stock of Majesco to Zift, including
all of the right, title and interest in and to Majesco Sub’s business of developing, publishing and distributing video game
products through mobile and online digital downloading. Pursuant to the terms of the agreement, the Company will receive total
cash consideration of approximately $100,000 ($5,000 upon signing the agreement and 19 additional monthly payments of $5,000) plus
contingent consideration based on net revenues valued at $0. As of July 31, 2017, the Company received $10,000 in cash consideration.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 12.95pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27.35pt">As a result of transactions
contemplated above, the Company disposed entirely of its gaming business assets and intends to devote its resources and attention
to its regenerative medicine efforts going forward.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>General. </i>The accompanying
condensed consolidated financial statements present the financial results of PolarityTE, Inc. and its wholly owned subsidiaries;
Polarity NV, Majesco Sub and Majesco Europe Limited. Majesco Europe Limited was dissolved during the year ended October 31, 2016
and Majesco Sub was sold on June 23, 2017.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>Segments. </i>With
the sale of Majesco Sub on June 23, 2017, the Company now solely operates in its Regenerative Medicine segment.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Regenerative Medicine</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">Through its regenerative
medicine efforts, the Company is developing the proprietary tissue engineering platform invented by Dr. Denver Lough to translate
regenerative products into clinical application. Preliminarily, the technological platform has demonstrated the potential capacity
to grow fully functional tissue across the entire spectrum of the musculoskeletal and integumentary systems, including skin, muscle,
bone, cartilage, peripheral nerve, fat, and fascia. Preliminary results indicate it has applications across solid organ and specialty
tissue regeneration as well, including bowel, liver, kidney, and urethra. The product furthest in the development pipeline is an
autologous (tissue from the patient themselves) skin regeneration construct, SkinTE <sup>TM</sup>, to regenerate fully functional
skin with all of its layers, including epidermis, dermis, hypodermis, and all appendages including hair and glands. The Company
is preparing SkinTE <sup>TM</sup> for clinical testing and market entry. The platform provides a pipeline of products to follow
in parallel, with plans for serial clinical and market entry, and each addressing separate and similarly sized potential markets.
The Company’s approach seeks to benefit from fewer regulatory and capital barriers to market entry, avoiding the long timelines
associated with three phase trials and their associated costs seen with other competing technologies and therapeutics. The regenerative
medicine business model being pursued takes advantage of the smaller regulatory hurdles, with streamlined product development from
cell/tissue in vitro and ex vivo testing, to small and large animal preclinical models, manufacturing technology transfer, and
ultimately clinical application and market entry occurring in a mapped out stepwise fashion for each product.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"><i>NASDAQ listing.</i>
On January 6, 2017, PolarityTE, Inc., was notified by The NASDAQ Stock Market, LLC of failure to comply with Nasdaq Listing Rule
5605(b)(1) which requires that a majority of the directors comprising the Company’s Board of Directors be considered “independent”,
as defined under the Rule. The notice had no immediate effect on the listing or trading of the Company’s common stock on
The NASDAQ Capital Market and the common stock continued to trade on The NASDAQ Capital Market under the symbol “COOL”.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">On February 22, 2017,
the Company regained compliance with Listing Rule 5605(b)(1), the independent director requirement for continued listing on The
NASDAQ Stock Market, with the appointment of Mr. Steve Gorlin and Dr. Jon Mogford, and the matter is now closed. PolarityTE’s
common stock will continue to be listed on The NASDAQ Capital Market.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">The accompanying interim
condensed consolidated financial statements of the Company are unaudited, but in the opinion of management, reflect all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of the results for the interim period. Accordingly,
they do not include all information and notes required by generally accepted accounting principles for complete financial statements.
The Company’s financial results are impacted by the seasonality of the retail selling season and the timing of the release
of new titles. The results of operations for interim periods are not necessarily indicative of results to be expected for the
entire fiscal year. The balance sheet at October 31, 2016 has been derived from the audited financial statements at that date
but does not include all of the information and footnotes required by accounting principles generally accepted in the United States
of America for complete financial statements. These interim condensed consolidated financial statements should be read in conjunction
with the Company’s consolidated financial statements and notes thereto for the year ended October 31, 2016 filed with the
Securities and Exchange Commission on Form 10-K on December 30, 2016.</p>
100000
100000
-26.65
-0.94
-0.65
-1.73
-0.08
0.01
-0.29
-0.43
-26.73
-0.93
-0.94
-5.22
4534967
5568072
2631640
1960643
-3.06
100000
50000
143000
315000
558000
1318000
176000
1085000
1007000
2169000
100000
100000
1118000
994000
11000
21000
50000
150000
-100000
113000
107000
-21000
-810000
-218000
-19000
10000
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; background-color: white"><b>15. SUBSEQUENT
EVENTS</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; background-color: white"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 29.7pt">On September 14, 2017,
the Company announced that it has entered into securities purchase agreements with investors for the sale of $15.2 million of
Series F Convertible Preferred Stock. The Investor will also receive 276,364 Warrants exercisable at $30.00 per share of common
stock. The Series F Convertible Preferred stock converts at $27.50 per share into a total of 552,727 shares of common stock, upon
conversion.</p>
15200000
552727
27.50