Note 7 - Stock-based compensation and equity transactions

On December 3, 2018, two employees were each granted 25,000 incentive stock options. These options vested 5,000 each on the date of grant, and the balance vests as to 5,000 shares each per year thereafter on each of the next four anniversaries of December 3, 2018, and expire ten years from the date of grant. Also on December 3, 2018, one employee was granted 10,000 incentive stock options. These options vested 2,000 shares on the date of grant, and the balance vests as to 2,000 shares per year thereafter on each of the next four anniversaries of December 3, 2018, and expire ten years from the date of grant.

On March 8, 2019, one employee was granted 25,000 incentive stock options. These options vested 5,000 on the date of grant, and the balance vests as to 5,000 shares per year thereafter on each of the next four anniversaries of March 8, 2019, and expire ten years from the date of grant.

On December 6, 2019, one employee was granted 50,000 incentive stock options. These options vested 10,000 on the date of grant, and the balance vests as to 10,000 shares per year thereafter on each of the next four anniversaries of December 6, 2019, and expire ten years from the date of grant.

On January 9, 2020, we granted the following equity awards to our managers and officers:

•Stock grants for a total of 12,075 common shares to three employees. We accounted for these shares as stock-based compensation totaling $77,000;

•A total of 3,241 incentive stock options to two employees, all of which vested immediately on the date of grant; and

•A total of 38,500 shares of restricted stock and 77,000 incentive stock options to five employees. The shares of restricted stock and incentive stock options vest over four years as follows: (i) one-quarter of the restricted shares and options shall vest on January 9, 2021; and (ii) the remaining restricted shares and options shall vest in twelve equal quarterly installments over the next three years, commencing with the first quarter following January 9, 2021. All incentive stock options expire ten years from the date of grant.

No other shares or options were granted to company employees during the three months ended January 31, 2020 and 2019.

The weighted average fair value of employee stock options that were granted during the three months ended January 31, 2020 and 2019 was estimated to be $3.13 and $4.14, respectively, per share, using the Black-Scholes option pricing model with the following assumptions:


	Three Months Ended January 31,
	2020		2019
Risk-free interest rate	1.57	%	2.98	%
Dividend yield	1.23	%	0.94	%
Expected life of the option	6.47	years	5.76	years
Volatility factor	49.14	%	55.64	%

Expected volatilities are based on historical volatility of our stock price and other factors. We used the historical method to calculate the expected life of the 2020 and 2019 option grants. The expected life represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on the U.S. Treasury rate with a maturity date corresponding to the options’ expected life. The dividend yield is based upon the historical dividend yield.

Company stock option plans

Descriptions of our stock option plans are included in Note 10 of our Annual Report on Form 10-K for the year ended October 31, 2019. A summary of the status of the options granted under our stock option plans as of January 31, 2020 and the changes in options outstanding during the three months then ended is presented in the table that follows:


		Weighted
		Average
	Shares	Exercise Price
Outstanding at November 1, 2019	890,147	$	3.62
Options granted	130,241	$	6.53
Options exercised	(215,943)	$	1.81
Options outstanding at January 31, 2020	804,445	$	4.58
Options exercisable at January 31, 2020	417,279	$	4.24
Options vested and expected to vest at January 31, 2020	803,409	$	4.59

Weighted average remaining contractual life of options outstanding as of January 31, 2020: 5.73 years

Weighted average remaining contractual life of options exercisable as of January 31, 2020: 3.72 years

Weighted average remaining contractual life of options vested and expected to vest as of January 31, 2020: 5.72 years

Aggregate intrinsic value of options outstanding at January 31, 2020: $1,474,000

Aggregate intrinsic value of options exercisable at January 31, 2020: $886,000

Aggregate intrinsic value of options vested and expected to vest at January 31, 2020: $1,464,000

As of January 31, 2020, $765,000 and $313,000 of expenses with respect to nonvested stock options and restricted shares, respectively, has yet to be recognized but is expected to be recognized over a weighted average period of 4.64 and 1.50 years, respectively.

Non-employee directors receive a compensation package of $50,000 annually, which is paid one-half in cash and one-half through the grant of non-qualified awards. For fiscal 2020, compensation payable to non-employee directors will be prorated from November 1, 2019 through August 31, 2020. On November 4, 2019, we granted each of our five non-employee directors 3,270 shares of restricted stock. The number of restricted shares granted to each director was determined by prorating $25,000 for the 10 months ending August 31, 2020 and dividing by the 20-day average RFIL stock price ($6.36). These restricted shares vest ratably through August 31, 2020.

Stock option expense

During the three months ended January 31, 2020 and 2019, stock-based compensation expense totaled $187,000 and $114,000, respectively, and was classified in selling and general expense.