Quarterly report pursuant to Section 13 or 15(d)

STOCK BASED COMPENSATION

STOCK BASED COMPENSATION

9 Months Ended

Jul. 31, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

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 $1,671,000 and $1,562,000, during the nine months ended July 31, 2015 and 2014, respectively, and approximately $445,000 and $573,000 during the three months ended July 31, 2015 and 2014, respectively. Stock-based compensation expense for the nine months ended July 31, 2015 and 2014 includes approximately $1,587,000 and $1,089,000, respectively, and during the three months ended July 31, 2015 and 2014 approximately $408,000 and $496,000, respectively, related to the amortization of compensation cost for stock options granted in prior periods but vested in the current period. As of July 31, 2015, there was unrecognized compensation cost related to non-vested stock options granted to employees and directors, related to service based options of approximately $644,000, 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 nine months ended July 31, 2015 and 2014 of approximately $668,000 and $784,000, respectively, and approximately $335,000 and $(103,000) during the three months ended July 31, 2015 and 2014, respectively. Stock-based consulting expense for the nine and three months ended July 31, 2015 represents the amortization of compensation cost for stock options granted in prior periods but vested in the current period. Stock-based consulting expense for the nine and three ended July 31, 2014 includes approximately $736,000 and $(107,000), respectively, related to the amortization of compensation cost for stock options granted in prior periods but vested in the current period. As of July 31, 2015, there was unrecognized consulting expense related to non-vested stock options granted to consultants, related to service based options of approximately $221,000, which will be recognized over a weighted-average period of .5 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 nine months ended July 31, 2015 consisted of awards exercisable for 10 years that vest over one year or over three years. The stock options we granted during the nine months ended July 31, 2014 consisted of awards with 10-year terms that vest over one year, options with 10-year terms that vest over 36 months, options with 5-year terms which vest immediately and options with 10-year terms which vest upon achievement of performance milestones.

The following weighted average assumptions were used in estimating the fair value of stock options granted during the nine months ended July 31, 2015 and 2014, and the three months ended July 31, 2015 and 2014.

	For the Nine Months Ended July 31,		For the Three Months Ended July 31,
	For the Nine Months Ended July 31,		For the Three Months Ended July 31,
	2015	2014	2015	2014
Weighted average fair value at grant date	$2.40	$5.50	$3.09	$6.25
Valuation assumptions:
Expected life (years)	5.36	5.79	5.75	5.98
Expected volatility	114.8%	115.4%	117.8%	115.1%
Risk-free interest rate	1.66%	1.82%	2.01%	1.93%
Expected dividend yield	0	0	0	0

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 nine months ended July 31, 2015 and 2014, we granted options to purchase 60,400 and 520,400 shares, respectively, of common stock at weighted average exercise prices of $2.91 and $5.50 per share, respectively, pursuant to the ITUS Corporation 2010 Share Incentive Plan (the "2010 Share Plan”). During the nine months ended July 31, 2015, stock options to purchase 13,334 shares of common stock were exercised with aggregate proceeds of approximately $34,000. During the nine months ended July 31, 2014, stock options to purchase 13,800 shares of common stock were exercised with aggregate proceeds of approximately $51,000.

Stock Option Plans

As of July 31, 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. 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, 2015 is as follows:

		Weighted Average Exercise Price Per Share	Aggregate Intrinsic Value

	Shares
Options Outstanding at October 31, 2014	493,991	$18.00
Forfeited	(82,191)	$15.57
Options Outstanding and exercisable at July 31, 2015	411,800	$17.22	$	156,896

The following table summarizes information about stock options outstanding and exercisable under the 2003 Share Plan as of July 31, 2015:

		Weighted Average Remaining Contractual Life (in years)
			Weighted Average Exercise Price
Range of Exercise Prices	Number Outstanding
Range of Exercise Prices	Number Outstanding
$ 1.79 - $ 9.25	77,880	1.91	$	2.89
$10.75 - $17.50	101,200	1.04	$	15.21
$18.50 - $23.00	192,720	1.39	$	21.57
$29.25	40,000	2.06	$	29.25

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. As of July 31, 2015, the 2010 Share Plan had 982,955 shares available for future grants. Information regarding the 2010 Share Plan for the nine months ended July 31, 2015 is as follows:

		Weighted Average Exercise Price Per Share	Aggregate Intrinsic Value

	Shares
Options Outstanding at October 31, 2014	728,560	$5.75
Granted	60,400	$2.91
Exercised	(13,334)	$2.58
Forfeited	(243,355)	$6.39
Options Outstanding at July 31, 2015	532,271	$3.32	$	986,700
Options Exercisable at July 31, 2015	383,982	$3.45	$	652,231

The following table summarizes information about stock options outstanding under the 2010 Share Plan as of July 31, 2015:

	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
Range of Exercise Prices	Number Outstanding			Number Exercisable

$2.58 - $9.25	532,271	7.25	$3.32	383,982	6.75	$3.45
						.

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 1,780,000 shares. Information regarding stock options outstanding that were not granted under the 2003 Plan or the 2010 Plan for the nine months ended July 31, 2015 is as follows:

		Weighted Average Exercise Price Per Share	Aggregate Intrinsic Value

	Shares
Options Outstanding at October 31, 2014	1,780,000	$5.50
Options Outstanding at July 31, 2015	1,780,000	$2.69	$	3,958,650
Options Exercisable at July 31, 2015	1,689,179	$2.69	$	3,748,399

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 July 31, 2015:

	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
Range of Exercise Prices	Number Outstanding			Number Exercisable

$2.58-$5.50	1,780,000	7.01	$2.69	1,689,179	7.01	$2.69
						.

On January 28, 2015, the Board of Directors authorized management of the Company to re-price issued and outstanding stock options for all of the officers, directors and employees of the Company, at any time prior to February 16, 2015. On February 5, 2015, management acted to re-price 2,184,126 issued and outstanding stock options (the “Re-Priced Options”) pursuant to the authority granted by the Board of Directors. The new exercise price of the Re-Priced Options is $2.575, 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 option immediately before the re-pricing.

Stock Awards

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 nine months ended July 31, 2015 and 2014, we issued 11,600 shares and 5,200 shares, respectively, of common stock to consultants for services rendered. We recorded consulting expense for the nine months ended July 31, 2015 and 2014 of approximately $46,000 and $41,000, respectively, for the shares of common stock issued to consultants. During the three months ended July 31, 2015 and 2014, we issued 10,000 shares and 800 shares, respectively, of common stock to consultants for services rendered. We recorded consulting expense for the three months ended July 31, 2015 and 2014 of approximately $40,000 and $6,000, respectively, for the shares of common stock issued to consultants.