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 expensed on a straight-line basis over the requisite service period (the vesting period of the stock option) which is one to four years.  We recorded stock-based compensation expense related to service-based stock options granted to employees and directors of approximately $2,019,000 and $1,649,000 during the six months ended April 30, 2020 and 2019, respectively, and approximately $1,055,000 and $805,000 during the three months ended April 30, 2020 and 2019, 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 $-0- and $376,000 during the six months ended April 30, 2020 and 2019, respectively.  We did not have any market condition stock-based compensation expense during the three months ended April 30, 2020 and 2019.

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 $112,000 and $50,000 during the six months ended April 30, 2020 and 2019, respectively, and approximately $55,000 and $25,000 during the three months ended April 30, 2020 and 2019, respectively.

Stock Option Activity

During the six months ended April 30, 2020, we granted options to purchase 800,000 shares of common stock to employees and consultants, with exercise prices ranging from $3.84 to $4.04 per share, pursuant to the Anixa Biosciences, Inc. 2018 Share Incentive Plan (the “2018 Share Plan”).  We did not grant any options during the six months ended April 30, 2019.  During the six months ended April 30, 2020 and 2019, stock options to purchase 43,900 and 30,000 shares of common stock, respectively, were exercised with aggregate proceeds of approximately $104,000 and $80,000, respectively. 

Stock Option Plans

During the six months ended April 30, 2020, we had three stock option plans: the Anixa Biosciences, Inc. 2003 Share Incentive Plan (the "2003 Share Plan"), the Anixa Biosciences, Inc. 2010 Share Incentive 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

During the six months ended April 30, 2020, the remaining outstanding options granted under the 2003 Share Plan expired.  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 six months ended April 30, 2020 is as follows:

			Weighted Average Exercise Price Per Share			Aggregate Intrinsic Value
	Shares
Options outstanding at October 31, 2019	400			$ 17.00
Forfeited	(400)			$ 17.00
Options outstanding and exercisable at    April 30, 2020	-			$  -0-			$  -0-

Information regarding the 2003 Share Plan for the six months ended April 30, 2019 is as follows:

			Weighted Average Exercise Price Per Share			Aggregate Intrinsic Value
	Shares
Options outstanding at October 31, 2018	12,000			$ 2.77
Exercised	(4,000)			$ 3.63
Options outstanding and exercisable at    April 30, 2019	8,000			$ 2.34			$ 19,666

The following table summarizes information about stock options outstanding and exercisable under the 2003 Share Plan as of April 30, 2019:

				Weighted Average Remaining Contractual Life (in years)
						Weighted Average Exercise Price
Range of Exercise Prices		Number Outstanding and Exercisable
$ 0.67 - $17.00		8,000		0.45		$ 2.34

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 April 30, 2020, the 2010 Share Plan had 800,000 shares available for future grants.  Information regarding the 2010 Share Plan for the six months ended April 30, 2020 is as follows:

			Weighted Average Exercise  Price Per Share
						Aggregate  Intrinsic  Value
	Shares
Options Outstanding at October 31, 2019	1,998,668			$ 2.80
Exercised	(43,900)			$ 2.36
Forfeited	(5,534)			$ 2.58
Options Outstanding at April 30, 2020	1,949,234			$ 2.81			$ 291,195
Options Exercisable at April 30, 2020	1,740,484			$ 2.85			$ 213,820

The following table summarizes information about stock options outstanding and exercisable under the 2010 Share Plan as of April 30, 2020:

	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 - $2.30	561,500	6.03	$1.56		480,250	5.84	$1.66
$2.58 - $3.13	853,200	3.28	$2.79		853,200	3.72	$2.79
$3.46 - $5.75	534,534	7.69	$4.16		407,034	7.54	$4.38

Information regarding the 2010 Share Plan for the six months ended April 30, 2019 is as follows:

			Weighted Average Exercise  Price Per Share
						Aggregate  Intrinsic  Value
	Shares
Options outstanding at October 31, 2018	2,131,868			$ 2.11
Exercised	(22,000)			$ 2.27
Forfeited	(87,200)			$ 3.34
Options outstanding at April 30, 2019	2,022,668			$ 2.06			$ 4,452,704
Options exercisable at April 30, 2019	1,580,168			$ 1.88			$ 3,732,441

The following table summarizes information about stock options outstanding and exercisable under the 2010 Share Plan as of April 30, 2019:

	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	938,000	6.19	$0.67		776,750	5.78	$0.67
$ 2.27 -$ 3.01	610,134	4.07	$2.58		610,134	4.07	$2.58
$ 3.46 -$ 7.00	474,534	8.62	$4.13		193,284	7.64	$4.57

            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 April 30, 2020, the 2018 Share Plan had 2,000,000 shares available for future grants.  Information regarding the 2018 Share Plan for the six months ended April 30, 2020 is as follows:

			Weighted Average Exercise  Price Per Share
						Aggregate  Intrinsic  Value
	Shares
Options Outstanding at October 31, 2019	3,935,500			$ 3.74
Granted	800,000			$ 3.85
Options Outstanding at April 30, 2020	4,735,000			$ 3.76			$ -0-
Options Exercisable at April 30, 2020	2,107,779			$ 3.75			$ -0-

The following table summarizes information about stock options outstanding and exercisable under the 2018 Share Plan as of April 30, 2020:

	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	3,100,000	8.03	$3.70		1,566,666	8.03	$3.70
$ 3.84 - $4.61	1,635,000	8.92	$3.88		541,113	8.37	$3.75

Information regarding the 2018 Share Plan for the six months ended April 30, 2019 is as follows:

			Weighted Average Exercise  Price Per Share
						Aggregate  Intrinsic  Value
	Shares
Options outstanding at October 31, 2018	3,482,000			$ 3.73
Exercised	(4,000)			$ 3.84
Forfeited	(8,000)			$ 3.84
Options outstanding at April 30, 2019	3,470,000			$ 3.73			$ 1,525,200
Options exercisable at April 30, 2019	1,156,947			$ 3.72			$ 511,156

The following table summarizes information about stock options outstanding and exercisable under the 2018 Share Plan as of April 30, 2019:

	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 - $4.61	3,470,000	9.03	$3.73		1,156,947	9.02	$ 3.72

Outside of Share Plans

In addition to options granted under the 2003 Share Plan, the 2010 Share Plan and the 2018 Share Plan, during the years ended October 31, 2012 and 2013, the Board of Directors approved the grant of stock options to certain employees and directors.  Information regarding stock options that were granted outside of Share Plans for the six months ended April 30, 2020 is as follows:

			Weighted Average Exercise Price Per Share				Aggregate Intrinsic Value
	Shares
Options Outstanding at October 31, 2019	1,698,000			$ 2.58			$ -0-
Options Outstanding and exercisable at      April 30, 2020	1,698,000			$ 2.58			$ -0-

The following table summarizes information about stock options outstanding and exercisable that were granted outside of Share Plans as of  April 30, 2020:

				Weighted Average Remaining Contractual Life (in years)
		Number Outstanding and Exercisable				Weighted Average Exercise Price
Range of Exercise Prices
$2.58		1,698,000		2.25		$ 2.58

Information regarding stock options that were granted outside of Share Plans for the six months ended April 30, 2019 is as follows:

			Weighted Average Exercise Price Per Share				Aggregate Intrinsic Value
	Shares
Options outstanding at October 31, 2018	1,780,000			$ 1.58
Options outstanding and exercisable at       April 30, 2019	1,780,000			$ 1.58			$ 4,683,960

The following table summarizes information about stock options outstanding and exercisable that were granted outside of Share Plans as of April 30, 2019:

				Weighted Average Remaining Contractual Life (in years)
		Number Outstanding and Exercisable				Weighted Average Exercise Price
Range of Exercise Prices
$0.67		1,046,000		3.30		$ 0.67
$ 2.58-$ 5.56		734,000		2.85		$ 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.  We did not grant any stock awards that vested upon grant during the six months ended April 30, 2020 or 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).  During the six-month and three-month periods ended April 30, 2019, we recorded compensation expense related to the restricted stock award of approximately $1,954,000 and $470,000, respectively.  We did not record any compensation expense related to the restricted stock award during the six-month period ended April 30, 2020.

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 six months ended April 30, 2020, employees purchased 9,618 shares with aggregate proceeds of approximately $15,000.  During the six months ended April 30, 2019, employees purchased 5,411 shares with aggregate proceeds of approximately $19,000.

Warrants

During the six months ended April 30, 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.  On November 1, 2019 the warrant was exchanged for a stock option with the same terms as the warrant.  During the six-month and three-month periods ended April 30, 2019, we recorded consulting expense of approximately $43,000 and $21,000, respectively, based on the fair value of the warrant recognized on a straight-line basis over the vesting period.  No warrants were issued during the six months ended April 30, 2020.

As of April 30, 2020, we also had warrants outstanding to purchase 500,000 shares of common stock at $5.03 per share expiring on November 30, 2021.