3.         STOCK BASED COMPENSATION AND WARRANTS

The Company maintains stock equity incentive plans under which the Company grants incentive stock options, non-qualified stock options, stock appreciation rights, stock awards, performance awards, or stock units to employees, directors and consultants.

Stock Option Compensation Expense

The compensation cost for service-based stock options granted to employees and directors is measured at the grant date, based on the fair value of the award using the Black-Scholes pricing model, and is expensed on a straight-line basis over the requisite service period (the vesting period of the stock option).  We recorded stock-based compensation expense related to service-based stock options granted to employees and directors of approximately $2,433,000 and $1,153,000 during the nine months ended July 31, 2019 and 2018, respectively, and approximately $784,000 and $702,000 during the three months ended July 31, 2019 and 2018, respectively.

For stock options granted to employees and directors that vest based on market conditions, such as the trading price of the Company’s common stock exceeding certain price targets, we use a Monte Carlo Simulation in estimating the fair value at grant date and recognize compensation cost over the implied service period (median time to vest).  On May 8, 2018, we issued market condition options to purchase 1,500,000 shares of common stock, to our Chairman, President and Chief Executive Officer, vesting at target trading prices of $5.00 to $8.00 per share before May 31, 2021, with implied service periods of three to seven months.  In October 2018, the first tranche of 500,000 shares of market condition options became exercisable upon achieving an average closing price above $5.00 per share for twenty consecutive trading days.  We recorded stock-based compensation expense related to market condition stock options granted to employees of approximately $376,000 and $2,446,000 during the nine months ended July 31, 2019 and 2018, respectively, and approximately $-0- and $2,446,000 during the three months ended July 31, 2019 and 2018, respectively.  

On November 1, 2018 we adopted Accounting Standards Update 2018-07 (“ASU 2018-07”) for stock options granted to consultants.  Upon adoption of ASU 2018-07 we estimated the fair value of unvested service-based and performance-based stock options at the date of adoption, using the Black-Scholes pricing model.  Subsequent to adoption of ASU 2018-07, future grants to consultants are measured at the grant date, based on the fair value of the award using the Black-Scholes pricing model, consistent with our policy for grants to employees and directors.  In prior periods, in accordance with US GAAP, we estimated the fair value of service-based and performance-based stock options granted to consultants at each reporting period using the Black-Scholes pricing model.  We recognize the fair value of stock options granted to consultants as consulting expense over the requisite or implied service period of the grant.  We recorded stock-based consulting expense related to stock options granted to consultants of approximately $75,000 and $197,000 during the nine months ended July 31, 2019 and 2018, respectively, and approximately $25,000 and $49,000 during the three months ended July 31, 2019 and 2018, respectively.

Stock Option Activity

During the nine months ended July 31, 2019 and 2018, we granted options to purchase 10,000 shares and 3,897,000 shares of common stock, respectively,  to employees, directors and consultants, with exercise prices ranging from $2.30 to $3.84 per share, pursuant to the Anixa Biosciences, Inc. 2010 Share Incentive Plan (the "2010 Share Plan”) and the Anixa Biosciences, Inc. 2018 Share Plan (the “2018 Share Plan”).    During the nine months ended July 31, 2019 and 2018, stock options to purchase 40,000 and 48,600 shares of common stock, respectively, were exercised with aggregate proceeds of approximately $103,000 and $-0-, respectively.  Under certain circumstances, stock options may be exercised on a cashless basis.  During the nine months ended July 31, 2019 and 2018, -0- and 8,784 shares of common stock, respectively, were withheld in connection with cashless exercises of stock options.

Stock Option Plans

As of July 31, 2019, we have three stock option plans:  the Anixa Biosciences, Inc. 2003 Share Incentive Plan (the "2003 Share Plan"), the 2010 Share Plan and the 2018 Share Plan, which were adopted by our Board of Directors on April 21, 2003, July 14, 2010 and January 25, 2018, respectively.  The 2018 Share Plan was approved by our shareholders on March 29, 2018.

2003 Plan

The 2003 Share Plan provided for the grant of nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to employees, directors and consultants.  In accordance with the provisions of the 2003 Share Plan, the plan terminated with respect to the ability to grant future options on April 21, 2013.  Information regarding the 2003 Share Plan for the nine months ended July 31, 2019 is as follows:

	Shares		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Options outstanding at October 31, 2018	12,000		$ 2.77
Exercised	(4,000)		$ 3.63
Options outstanding and exercisable at    July 31, 2019	8,000		$ 2.34		$     23,694

The following table summarizes information about stock options outstanding and exercisable under the 2003 Share Plan as of July 31, 2019:

Range of Exercise Prices		Number Outstanding and Exercisable		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$ 0.67 - $17.00		8,000		0.19		$ 2.34

Information regarding the 2003 Share Plan for the nine months ended July 31, 2018 is as follows:

	Shares		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Options outstanding at October 31, 2017	30,600		$ 3.16
Exercised	(10,600)		$ 0.67
Forfeited	(8,000)		$ 7.04
Options outstanding and exercisable at    July 31, 2018	12,000		$ 2.77		$        13,054

The following table summarizes information about stock options outstanding and exercisable under the 2003 Share Plan as of July 31, 2018:

Range of Exercise Prices		Number Outstanding and Exercisable		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$ 0.67 - $17.00		12,000		.99		$ 2.77

2010 Plan

The 2010 Share Plan provides for the grant of nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to employees, directors and consultants.  As of July 31, 2019, the 2010 Share Plan had 889,200 shares available for future grants.  Information regarding the 2010 Share Plan for the nine months ended July 31, 2019 is as follows:

	Shares		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Options outstanding at October 31, 2018	2,131,868		$ 2.11
Granted	10,000		$ 3.64
Exercised	(32,000)		$ 2.27
Forfeited	(99,200)		$ 3.78
Options outstanding at July 31, 2019	2,010,668		$ 2.03		$    5,422,886
Options exercisable at July 31, 2019	1,639,556		$ 1.92		$    4,609,165

The following table summarizes information about stock options outstanding and exercisable under the 2010 Share Plan as of July 31, 2019:

	Options Outstanding							Options Exercisable
		Number Outstanding		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
Range of Exercise Prices
$ 0.67		938,000		5.94		$ 0.67		799,388		5.59		$ 0.67
$ 2.27 -$ 3.01		600,134		3.81		$ 2.58		600,134		3.81		$ 2.58
$ 3.46 -$ 5.75		472,534		8.51		$ 4.05		240,034		8.19		$ 4.43

Information regarding the 2010 Share Plan for the nine months ended July 31, 2018 is as follows:

	Shares		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Options outstanding at October 31, 2017	1,637,246		$ 1.50
Granted	475,000		$ 3.22
Exercised	(38,000)		$ 0.67
Forfeited	(49,800)		$ 2.15
Options outstanding at July 31, 2018	2,024,446		$ 1.90		$    2,965,764
Options exercisable at July 31, 2018	1,284,190		$ 1.73		$    2,108,817

The following table summarizes information about stock options outstanding and exercisable under the 2010 Share Plan as of July 31, 2018:

	Options Outstanding							Options Exercisable
		Number Outstanding		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
Range of Exercise Prices
$ 0.67		943,000		6.94		$ 0.67		653,142		6.18		$ 0.67
$ 2.27 -$ 3.01		729,712		5.21		$ 2.61		579,314		5.28		$ 2.60
$ 3.46 -$ 7.00		351,734		8.74		$ 3.73		51,734		1.46		$ 5.27

            2018 Plan

The 2018 Share Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to employees, directors and consultants.  As of July 31, 2019, the 2018 Share Plan had 2,008,000 shares available for future grants.  Information regarding options outstanding under the 2018 Share Plan for the nine months ended July 31, 2019 is as follows:

	Shares		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Options outstanding at October 31, 2018	3,482,000		$ 3.73
Exercised	(4,000)		$ 3.84
Forfeited	(8,000)		$ 3.84
Options outstanding at July 31, 2019	3,470,000		$ 3.73		$    3,337,300
Options exercisable at July 31, 2019	1,321,111		$ 3.73		$    1,273,443

The following table summarizes information about stock options outstanding and exercisable under the 2018 Share Plan as of July 31, 2019:

	Options Outstanding							Options Exercisable
Range of Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$ 3.70 -$ 4.61		3,470,000		8.78		$ 3.73		1,321,111		8.77		$ 3.73

Information regarding the 2018 Share Plan for the nine months ended July 31, 2018 is as follows:

	Shares		Weighted Average Exercise Price Per Share		Aggregate Intrinsic  Value
Options outstanding at October 31, 2017	-0-
Granted	3,422,000		$ 3.71
Options outstanding at July 31, 2018	3,422,000		$ 3.71		$               -0-
Options exercisable at July 31, 2018	167,779		$ 3.73		$               -0-

The following table summarizes information about stock options outstanding and exercisable under the 2018 Share Plan as of July 31, 2018:

	Options Outstanding							Options Exercisable
Range of Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$ 3.70 -$ 3.84		3,422,000		9.77		$ 3.71		167,779		9.76		$ 3.73

Outside of Share Plans

In addition to options granted under the 2003 Share Plan, the 2010 Share Plan and the 2018 Share Plan, the Board of Directors approved the grant of stock options to purchase 1,780,000 shares to employees and directors outside of Share Plans.  Information regarding stock options outstanding that were granted outside of Share Plans for the nine months ended July 31, 2019 is as follows:

	Shares		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Options outstanding at October 31, 2018	1,780,000		$1.58
Options outstanding and exercisable at    July 31, 2019	1,780,000		$1.58		$    5,583,900

The following table summarizes information about stock options outstanding and exercisable that were granted outside of Share Plans as of July 31, 2019:

Range of Exercise Prices		Number Outstanding and Exercisable		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$ 0.67		1,046,000		3.05		$ 0.67
$ 2.58-$ 5.56		734,000		2.59		$ 2.88

Information regarding stock options outstanding that were granted outside of Share Plans for the nine months ended July 31, 2018 is as follows:

	Shares		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Options outstanding at October 31, 2017	1,780,000		$ 1.58
Options outstanding and exercisable at    July 31, 2018	1,780,000		$ 1.58		$    3,206,700

The following table summarizes information about stock options outstanding and exercisable that were granted outside of Share Plans as of July 31, 2018:

Range of Exercise Prices		Number Outstanding and Exercisable		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$ 0.67		1,046,000		4.05		$ 0.67
$ 2.58-$ 5.56		734,000		3.59		$ 2.88

Stock Awards

For stock awards granted to employees, directors and consultants that vest upon grant we recognize expense at the date of grant based on the grant date market price of the underlying common stock.  During the nine months ended July 31, 2018, we issued 5,347 shares of common stock that vested upon grant to consultants for services rendered.  We recorded consulting expense for the shares of common stock issued to consultants of approximately $15,000 for the nine months ended July 31, 2018 and $-0- for the three months ended July 31, 2018.  We did not grant any stock awards that vested upon grant during the nine months ended July 31, 2019.

On May 8, 2018, a restricted stock award of 1,500,000 shares of common stock was granted under the 2018 Share Plan to our Chairman, President and Chief Executive Officer.  The restricted stock award vests in its entirety upon achievement of a target trading price of $11.00 per share of the Company’s common stock before May 31, 2021.   For restricted stock awards vesting upon achievement of a price target of our common stock we use a Monte Carlo Simulation in estimating the fair value at grant date and recognize compensation cost over the implied service period (median time to vest).  We recorded stock-based compensation expense related to the restricted stock award of approximately $1,954,000 and $1,374,000 during the nine months ended July 31, 2019 and 2018, respectively, and $-0- and approximately $1,374,000 during the three months ended July 31, 2019 and 2018, respectively.

Employee Stock Purchase Plan

The Company maintains the Anixa Biosciences, Inc. Employee Stock Purchase Plan which permits eligible employees to purchase shares at not less than 85% of the market value of the Company’s common stock on the offering date or the purchase date of the applicable offering period, whichever is lower.  The plan was adopted by our Board of Directors on August 13, 2018 and approved by our shareholders on September 27, 2018.  During the nine months ended July 31, 2019, employees purchased 5,411 shares at a purchase price of $3.43 per share pursuant to the plan.

Warrants

During the nine months ended July 31, 2019 we issued a warrant, expiring on November 1, 2023, to purchase 25,000 shares of common stock at $4.04 per share, vesting over 12 months, to a consultant for investor relations services.  We recorded consulting expense of approximately $64,000 during the nine months ended July 31, 2019 and approximately $21,000 during the three months ended July 31, 2019, based on the fair value of the warrant recognized on a straight-line basis over the vesting period.  

In July 2018 we issued a warrant exercisable at $3.65 per share vested upon grant to purchase 25,000 shares of common stock to a consultant for investor relations services.  We recorded consulting expense of approximately $57,000 during the three months ended July 31, 2018, based on the fair value of the warrant.  This warrant was exercised in October 2018.

As of July 31, 2019, we also had warrants outstanding 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 and warrants to purchase 500,000 shares of common stock at $5.03 per share expiring on November 30, 2021.