Annual report pursuant to Section 13 and 15(d)

SHAREHOLDERS' EQUITY

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SHAREHOLDERS' EQUITY
12 Months Ended
Oct. 31, 2017
Stockholders' Equity Note [Abstract]  
Stockholders' Equity Note Disclosure [Text Block]

5.         SHAREHOLDERS’ EQUITY 


Common Stock Issuances


We account for stock granted to employees, directors and consultants based on the grant date market price of the underlying common stock.   During the years ended October 31, 2017 and 2016, we issued 9,463 shares and 10,833 shares, respectively, of common stock to consultants for services rendered.  We recorded consulting expense for the years ended October 31, 2017 and 2016 of approximately $32,000 and $31,000, respectively, for shares of common stock issued to consultants.  During the year ended October 31, 2017 we issued 200,000 shares to directors for services rendered and recorded expense of $454,000.


Stock Option Plans


As of October 31, 2017, we have two stock option plans: the ITUS Corporation 2003 Share Incentive Plan (the “2003 Share Plan”) and the ITUS Corporation 2010 Share Incentive Plan (the “2010 Share Plan”) which were adopted by our Board of Directors on April 21, 2003 and July 14, 2010, respectively.


          The 2003 Share Plan provided for the grant of nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to key employees and consultants.  The 2003 Share Plan was administered by the Board of Directors or committees thereof, which determined the option price, term and provisions of each option.  The exercise price with respect to all of the options granted under the 2003 Share Plan since its inception was equal to the fair market value of the underlying common stock at the grant date.  In accordance with the provisions of the 2003 Share Plan, the plan terminated with respect to the grant of future options on April 21, 2013.


Information regarding the 2003 Share Plan for the two years ended October 31, 2017 is as follows:


     

Weighted

Average Exercise

 Price Per Share

     
       

Aggregate

 Intrinsic Value

 

Shares

   
               

Options Outstanding at October 31, 2015

366,200

 

$

17.86

 

 

 

Exercised

(11,080)

 

$

2.58

     

Forfeited

(129,520)

 

$

17.72

 

 

 

Options Outstanding at October 31, 2016

225,600

 

$

18.69

     

Exercised

(5,800)

 

$

1.39

 

 

 

Forfeited

(189,200)

 

$

21.55

     

Options Outstanding and Exercisable at October 31, 2017

30,600

 

$

3.16

 

$

20,148


The following table summarizes information about stock options outstanding and exercisable under the 2003 Share Plan as of October 31, 2017:


       

Weighted Average

Remaining

Contractual Life

(in years)

   
         

Weighted

Average

Exercise Price

Range of

Exercise Prices

 

Number

Outstanding

   
     

$  0.67 - $  17.50

 

30,600

 

1.13

 

$3.16

           

.


The 2010 Share Plan provides for the grant of nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to key employees and consultants.  On the first business day of each calendar year the maximum aggregate number of shares available for future issuance is replenished such that 800,000 shares are available.  The 2010 Share Plan is administered by the Board of Directors or committees thereof, which determines the option price, term and provisions of each option. The exercise price with respect to all of the options granted under the 2010 Share Plan was equal to the fair market value of the underlying common stock at the grant date.  As of October 31, 2017, the 2010 Share Plan had 69,226 shares available for future grants. 


Information regarding the 2010 Share Plan as of October 31, 2017 is as follows:


     

 Weighted

Average Exercise

 Price Per Share

     
       

Aggregate
 Intrinsic

 Value

 

Shares

   
               

Options Outstanding at October 31, 2015

526,272

 

$

3.33

 

 

 

Granted

557,000

 

$

2.92

     

Exercised

(2,400)

 

$

4.25

 

 

   

Options Outstanding at October 31, 2016

1,080,872

 

$

3.12

     

Granted

682,000

 

$

2.03

 

 

 

Exercised

(44,400)

 

$

0.67

     

Forfeited

(81,226)

 

$

6.20

 

 

 

Options Outstanding at October 31, 2017

1,637,246

 

$

1.50

 

$

1,381,380

Options Exercisable at October 31, 2017

909,024

 

$

1.72

 

$

721,433


The following table summarizes information about stock options outstanding under the 2010 Share Plan as of October 31, 2017:


 

Options Outstanding

 

Options Exercisable

   

Weighted

Average

Remaining

Contractual Life

(in years)

         
         

Weighted

Average

Remaining

Contractual Life (in years)

 
   

Weighted

Average

Exercise Price

   

Weighted

Average

Exercise Price

Range of

Exercise Prices

Number

Outstanding

 

Number

Exercisable

 

$0.67

1,001,000

8.14

$0.67

 

522,778

7.09

$0.67

$2.27 - $7.00

636,246

6.69

$2.80

 

386,246

4.62

$3.14


In addition to options granted under the 2003 Share Plan and the 2010 Share Plan, during the years ended October 31, 2012 and 2013, the Board of Directors approved the grant of stock options to purchase 1,660,000 shares and 120,000 shares, respectively.


Information regarding stock options that were not granted under the 2003 Share Plan or the 2010 Share Plan for the two years ended October 31, 2017 is as follows:


     

Weighted

Average Exercise

Price Per Share

   

Aggregate

Intrinsic

Value

         
 

Shares

   

 

      

     

      

     

Options Outstanding and exercisable at
   October 31, 2016

1,780,000

 

$

2.70

 

 

 

Options Outstanding and exercisable at
   October 31, 2017

1,780,000

 

$

1.58

 

$

1,443,480


The following table summarizes information about stock options outstanding and exercisable that were not granted under the 2003 Share Plan or the 2010 Share Plan as of October 31, 2017:


       

Weighted Average

Remaining

Contractual Life

(in years)

   
   

Number

Outstanding and

Exercisable

   

Weighted

Average

Exercise Price

Range of

Exercise Prices

     
     

$0.67

 

1,046,000

 

4.91

 

$0.67

$ 2.58 - $ 5.56

 

734,000

 

4.36

 

$2.88


Re-Priced Stock Options


On September 6, 2017 the Board of Directors re-priced 2,029,600 issued and outstanding stock options (the “Re-Priced Options”) for all of the officers, directors and employees of the Company.  The new exercise price of the Re-Priced Options is $0.67, the closing sales price of the Company’s common stock on September 6, 2017.  All other terms of the previously granted Re-Priced Options remain the same.  The Company recorded additional stock-based compensation of approximately $261,000, as of September 6, 2017, related to this re-pricing.  This amount was determined to be the incremental value of the fair value of the Re-Priced Options compared to the fair value of the original option immediately before the re-pricing.  Accordingly, 18,200 stock options in the 2003 Share Plan with exercise prices of $2.58, 965,400 stock options in the 2010 Share Plan with exercise prices ranging from $0.82 to $5.30 and 1,046,000 stock options that were not granted under the 2003 Share Plan or the 2010 Share plan with exercise prices of $2.58, were re-priced.


Preferred Stock


On November 11, 2016, the holder of all our outstanding Series A Preferred Stock (the “Series A Preferred”) with an aggregate stated value of $3,500,000 exercised its right of redemption to receive such amount from proceeds from the sale of the Company’s equity securities.  On December 6, 2016, we entered into an agreement with the holder of the Series A Preferred setting forth the terms under which such redemption would take place (the “Series A Redemption Terms”).  Pursuant to the Series A Redemption Terms, on December 9, 2016 the holder of the Series A Preferred received (i) $500,000 in cash, (ii) a 12% secured debenture evidencing the remaining $3,000,000 amount to be redeemed, $1,000,000 of which was due on or before June 1, 2017 and the remainder of which was due November 11, 2017 (the “Redemption Debenture”), and (iii) a 5 year warrant to purchase 500,000 shares of the Company’s common stock at an exercise price equal to 10% below the thirty (30) day volume weighted average closing price of our common stock at closing (the “Redemption Warrant”). The Redemption Debenture was secured by a lien on the Company’s assets and prohibited the Company from incurring any senior indebtedness other than equipment financing in connection with the Company’s business.  The Redemption Debenture was paid in full during fiscal year 2017.  Interest expense during the year ended October 31, 2017 in connection with the Redemption Debenture was approximately $272,000.


The difference between the fair value of the consideration given to the holder of our Series A Preferred and the carrying value of the Series A Preferred represents a return to the preferred stockholder which is treated in a similar manner as that of dividends paid on preferred stock.  In the redemption, the Series A Preferred holder received $500,000 in cash, the Redemption Debenture with a present value of approximately $2,999,000 and the Redemption Warrant with a fair value of approximately $2,801,000, determined using the Black Scholes pricing model, and waived the Series A Preferred’s conversion right with an intrinsic value of approximately $792,000, resulting in total consideration given to the Series A Preferred holder of approximately $5,508,000.  The difference between the fair value of the consideration and the $3,500,000 carrying value of the Series A Preferred resulted in a deemed dividend to the Series A Preferred holder of approximately $2,008,000.


Common Stock Purchase Warrants


As of October 31, 2017, we had warrants to purchase 10,000 shares and 10,000 shares of common stock at $9.25 and $13.875 per share, respectively, expiring on August 19, 2019, warrants to purchase 309,400 shares of common stock at $10.00 per share expiring on July 15, 2019 and warrants to purchase 500,000 shares of common stock at $5.03 per share expiring on November 30, 2021.