2.         STOCK BASED COMPENSATION

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 recognized as an expense on a straight-line basis over the requisite service period (the vesting period of the stock option) which is one to ten years. We recorded stock-based compensation expense related to service based stock options granted to employees and directors of approximately $1,153,000 and $933,000 during the nine months ended July 31, 2018 and 2017, respectively, and approximately $702,000 and $481,000 during the three months ended July 31, 2018 and 2017, 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. The assumptions used in the Monte Carlo Simulation were stock price on date of grant and exercise price of $3.70, contract term of 10 years, expected volatility of 119.6% and risk-free interest rate of 2.97%. We recorded stock-based compensation expense related to market condition stock options granted to employees and directors of approximately $2,446,000 during the three and nine months ended July 31, 2018. As of July 31, 2018, the unrecognized compensation cost related to market condition stock options was approximately $1,689,000, which will be recognized over future periods through the first quarter of fiscal 2019. We did not have any market condition stock options in fiscal year 2017.

We estimate the fair value of service based and performance based stock options granted to consultants and recognize expense at each reporting period using the Black-Scholes pricing model.  We recorded stock-based compensation expense related to stock options granted to consultants of approximately $197,000 and $-0- during the nine months ended July 31, 2018 and 2017, respectively, and approximately $49,000 and $-0- during the three months ended July 31, 2018 and 2017, respectively.

Stock Option Activity

During the nine months ended July, 2018 and 2017, we granted options to purchase 3,897,000 shares and 352,000 shares of common stock, respectively, to employees, directors and consultants at weighted average exercise prices of $3.65 and $2.18 per share, respectively, pursuant to the ITUS Corporation 2010 Share Incentive Plan (the "2010 Share Plan”) and the ITUS Corporation 2018 Share Incentive Plan (the "2018 Share Plan”).  During the nine months ended July 31, 2018 and 2017, stock options to purchase 48,600 and 2,200 shares of common stock, respectively, were exercised with aggregate proceeds of approximately $-0- and $6,000, respectively.  Under certain circumstances, stock options may be exercised on a cashless basis.  During the nine months ended July 31, 2018 and 2017, 8,784 and -0- shares of common stock, respectively, were withheld in connection with cashless exercises of stock options.

Stock Option Plans

As of July 31, 2018, we have three stock option plans:  the ITUS Corporation 2003 Share Incentive Plan (the "2003 Share Plan"), the 2010 Share Plan and 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.

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, 2018 is as follows:

			Weighted Average Exercise Price Per Share			Aggregate Intrinsic Value
	Shares
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:

		Number Outstanding and Exercisable		Weighted Average Remaining Contractual Life (in years)
						Weighted Average Exercise Price
Range of Exercise Prices
$ 0.67 - $17.00		12,000		0.99		$	2.77
							.

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, 2018, the 2010 Share Plan had 425,719 shares available for future grants.  Information regarding the 2010 Share Plan for the nine months ended July31, 2018 is as follows:

			Weighted Average Exercise Price Per Share			Aggregate Intrinsic Value
	Shares
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
		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	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

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, 2018, the 2018 Share Plan had 78,000 shares available for future grants.  Information regarding options outstanding under the 2018 Share Plan for the nine months ended July 31, 2018 is as follows:

			Weighted Average Exercise Price Per Share			Aggregate Intrinsic Value
	Shares
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 under the 2018 Share Plan as of July 31, 2018:

	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
$ 3.70 - $3.84	3,422,000	9.77	$	3.71		167,779	9.76	$	3.73
									.

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.  Information regarding stock options outstanding that were not granted under the 2003 Share Plan, the 2010 Share Plan or the 2018 Share Plan for the nine months ended July 31, 2018 is as follows:

			Weighted Average Exercise Price Per Share			Aggregate Intrinsic Value
	Shares
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 not granted under the 2003 Share Plan, the 2010 Share Plan or the 2018 Plan as of July 31, 2018:

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

Stock Awards

We account for stock awards granted to employees, directors and consultants based on the grant date market price of the underlying common stock.  During the nine months ended July 31, 2018 and 2017, we issued 5,347 shares and 3,463 shares, respectively, of common stock to consultants for services rendered.  We recorded consulting expense for the nine months ended July 31, 2018 and 2017 of approximately $15,000 and $18,000, respectively, for the shares of common stock issued to consultants.

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). The assumptions used in the Monte Carlo Simulation were stock price on date of grant of $3.70, contract term of 3.06 years, expected volatility of 128.8% and risk-free interest rate of 2.66%. During the three and nine months ended July 31, 2018 we recorded compensation expense related to the restricted stock award of approximately $1,374,000. As of July 31, 2018, the unrecognized compensation cost related to the restricted stock award was approximately $3,440,000, which will be recognized over future periods through the second quarter of fiscal 2019.

Warrants

            During the three months ended July 31, 2018 we issued a warrant 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 issuance date fair value.  No warrants were issued during the three months ended July 31, 2017.