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STOCK BASED COMPENSATION
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Apr. 30, 2015
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| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disclosure of Compensation Related Costs, Share-based Payments [Text Block] |
3.
STOCK BASED COMPENSATION
The Company maintains stock equity incentive plans under which the Company grants non-qualified stock options, stock appreciation rights, stock awards, performance awards, or stock units to employees, directors and consultants.
Stock Option Compensation Expense
We account for stock options granted to employees and directors using the accounting guidance in Accounting Standards Codification 718 “Stock Compensation” (“ASC 718”). In accordance with ASC 718, we estimate the fair value of service based stock options and performance based options on the date of grant, using the Black-Scholes pricing model. For options vesting if the trading price of the Company’s common stock exceeds price targets we use a Monte Carlo Simulation in estimating the fair value at grant date. We recognize compensation expense for service based stock options and options subject to market conditions over the requisite or implied service period of the grant. For performance based awards, compensation expense is recognized over the requisite or implied service period of the grant when the performance target is deemed probable.
We recorded stock-based compensation expense, related to stock options granted to employees and directors, of approximately $1,225,000 and $989,000, during the six months ended April 30, 2015 and 2014, respectively, and approximately $683,000 and $524,000 during the three months ended April 30, 2015 and 2014, respectively. Stock-based compensation expense for the six months ended April 30, 2015 and 2014 includes approximately $1,179,000 and $747,000, respectively, and during the three months ended April 30, 2015 and 2014 approximately $646,000 and $364,000, respectively, related to the amortization of compensation cost for stock options granted in prior periods but not yet vested. As of April 30, 2015, there was unrecognized compensation cost related to non-vested stock options granted to employees and directors, related to service based options of approximately $1,063,000, which will be recognized over a weighted-average period of 1 year.
We account for stock options granted to consultants using the accounting guidance included in ASC 505-50 “Equity-Based Payments to Non-Employees” (“ASC 505-50”). In accordance with ASC 505-50, we estimate the fair value of service based stock options and performance based options at each reporting period, using the Black-Scholes pricing model. For options vesting if the trading price of the Company’s common stock exceeds price targets we estimate the fair value at each reporting period using a Monte Carlo Simulation. We recognize compensation expense for service based stock options and options subject to market conditions over the requisite or implied service period of the grant. For performance based awards, compensation expense is recognized when the performance target is achieved.
We recorded consulting expense, related to stock options granted to consultants, during the six months ended April 30, 2015 and 2014 of approximately $332,000 and $888,000, respectively, and approximately $383,000 and $633,000 during the three months ended April 30, 2015 and 2014, respectively. Stock-based compensation expense for the six months ended April 30, 2015 and 2014 includes approximately $332,000 and $843,000, respectively, and during the three months ended April 30, 2015 and 2014 approximately $383,000 and $633,000, respectively, related to the amortization of compensation cost for stock options granted in prior periods but not yet vested. As of April 30, 2015, there was unrecognized consulting expense related to non-vested stock options granted to consultants, related to service based options of approximately $417,000, which will be recognized over a weighted-average period of .6 years.
Fair Value Determination
We use the Black-Scholes pricing model in estimating the fair value of stock options which vest over a specific period of time or upon achieving performance targets. To determine the weighted average fair value of stock options on the date of grant, employees and directors are included in a single group. The fair value of stock options granted to consultants is determined on an individual basis. Stock options we granted during the six months ended April 30, 2015 consisted of awards exercisable for 10 years that vest over one year. Stock options we granted during the six months ended April 30, 2014 consisted of awards exercisable for 10 years that vest over one year and awards exercisable for 10 years that vest over 36 months.
The following weighted average assumptions were used in estimating the fair value of stock options granted during the six months ended April 30, 2015 and the three months ended April 30, 2015 and 2014. No stock options were granted during the three months ended April 30, 2015.
The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding. We use the simplified method to determine expected term. The simplified method was adopted since we do not believe that historical experience is representative of future performance because of the impact of the changes in our operations and the change in terms from historical options which vested immediately to terms including vesting periods of up to three years. Under the Black-Scholes pricing model we estimated the expected volatility of our shares of common stock based upon the historical volatility of our share price over a period of time equal to the expected term of the options. We estimated the risk-free interest rate based on the implied yield available on the applicable grant date of a U.S. Treasury note with a term equal to the expected term of the underlying grants. We made the dividend yield assumption based on our history of not paying dividends and our expectation not to pay dividends in the future.
Under ASC 718, the amount of stock-based compensation expense recognized is based on the portion of the awards that are ultimately expected to vest. Accordingly, if deemed necessary, we reduce the fair value of the stock option awards for expected forfeitures, which are forfeitures of the unvested portion of surrendered options. Based on our historical experience we have not reduced the amount of stock-based compensation expenses for anticipated forfeitures.
We will reconsider use of the Black-Scholes pricing model if additional information becomes available in the future that indicates another model would be more appropriate. If factors change and we employ different assumptions in the application of ASC 718 and ASC 505-50 in future periods, the compensation expense that we record may differ significantly from what we have recorded in the current period.
Stock Option Activity
During the six months ended April 30, 2015 and 2014, we granted options to purchase 1,300,000 and 8,710,000 shares, respectively, of common stock at weighted average exercise prices of $0.11 and $0.21 per share, respectively, pursuant to the ITUS Corporation 2010 Share Incentive Plan (the "2010 Share Plan”). No stock options were exercised during the six months ended April 30, 2015. During the six months ended April 30, 2014, stock options to purchase 5,000 shares of common stock were exercised with aggregate proceeds of approximately $1,000.
Stock Option Plans
As of April 30, 2015, we have two stock option plans: the ITUS Corporation 2003 Share Incentive Plan (the "2003 Share Plan") and 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 provides for the grant of nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to key employees and consultants. The maximum number of shares of common stock available for issuance under the 2003 Share Plan is 70,000,000 shares. The 2003 Share Plan was administered by the Stock Option Committee through June 2004, from June 2004 through July 2010, by the Board of Directors, from July 2010 through August 2012, by the Stock Option Committee, from August 2012 through November 2012, by the Executive Committee of the Board of Directors and since November 2012, by the Board of Directors, which determine 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 six months ended April, 2015 is as follows:
The following table summarizes information about stock options outstanding and exercisable under the 2003 Share Plan as of April 30, 2015:
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. The maximum number of shares of common stock available for issuance under the 2010 Share Plan was initially 15,000,000 shares. On July 6, 2011, the 2010 Share Plan was amended by our Board of Directors to increase the maximum number of shares of common stock that may be granted to 27,000,000 shares, on August 29, 2012, the maximum number of shares was further increased to 30,000,000 shares. On November 8, 2013, the Board of Directors approved an amendment to provide that effective November 8, 2013, the maximum aggregate number of shares available for issuance will be 20,000,000 shares and that on the first business day in 2014 and on the first business day of each calendar year thereafter the maximum aggregate number of shares available for issuance shall be replenished such that 20,000,000 shares will be available for issuance. Accordingly, during the nine months ended July 31, 2014, the number of shares in the 2010 Share Plan was increased by 25,634,980 shares to 55,634,980 shares. In addition, on November 8, 2013, the 2010 Share Plan was amended to provide that on January 2nd of each year commencing on January 2, 2014, each non-employee director of the Company at that time shall automatically be granted a 10 year stock option to purchase 300,000 shares of common stock (400,000 for the Chairman) that will vest in four equal quarterly installments. The 2010 Share Plan was administered by the Stock Option Committee through August 2012, from August 2012 through November 2012, by the Executive Committee of the Board of Directors and since November 2012, by the Board of Directors, 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 April 30, 2015, the 2010 Share Plan had 24,783,866 shares available for future grants. Information regarding the 2010 Share Plan for the six months ended April 30, 2015 is as follows:
The following table summarizes information about stock options outstanding under the 2010 Share Plan as of April 30, 2015:
In addition to options granted under the 2003 Share Plan and the 2010 Share Plan the Board of Directors approved the grant of stock options to purchase 44,500,000 shares. Information regarding stock options outstanding that were not granted under the 2003 Plan or the 2010 Plan for the six months ended April 30, 2015 is as follows:
The following table summarizes information about stock options outstanding that were not granted under the 2003 Share Plan or the 2010 Share Plan as of April 30, 2015:
On February 5, 2015, management of the Company acted to re-price 54,603,139 issued and outstanding stock options for all of the officers, directors and employees of the Company as of January 28, 2015 (the “Re-Priced Options”) pursuant to the authority granted to management by the Board of Directors of the Company. The new exercise price of the Re-Priced Options is $ 0.1030, the closing sales price of the Company’s common stock on February 5, 2015. All other terms of the previously granted Re-Priced Options remain the same. The Company recorded additional stock-based compensation of approximately $297,000, as of February 5, 2015, 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 options immediately before the re-pricing.
We account for stock awards granted to employees and consultants based on their grant date fair value, in accordance with ASC 718 and ASC 505-50, respectively. During the six months ended April 30, 2015 and 2014, we issued 40,000 shares and 110,000 shares, respectively, of common stock to consultants for services rendered. We recorded consulting expense for the six months ended April 30, 2015 and 2014 of approximately $6,000 and $35,000, respectively, for the shares of common stock issued to consultants. During the three months ended April 30, 2015 and 2014, we issued 20,000 shares and 20,000 shares, respectively, of common stock to consultants for services rendered. We recorded consulting expense for the three months ended April 30, 2015 and 2014 of approximately $2,000 and $7,000, respectively, for the shares of common stock issued to consultants.
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