Stock-based compensation and equity transactions

3 Months Ended

Jan. 31, 2012

Stock-based compensation and equity transactions

Note 6 - Stock-based compensation and equity transactions

The stock incentive plans provide for the granting of qualified and nonqualified options to the Company’s officers, directors and employees. Non-qualified stock options granted during the quarter ended January 31, 2012 vest and are exercisable immediately and expire in five years from date of grant. During the three months ended January 31, 2012, the Company granted a total of 15,000 non-qualified stock options to a director. The Company satisfies the exercise of options by issuing previously unissued common shares.

The weighted average fair value of employee stock options granted by the Company in the three months ended January 31, 2012 and 2011 was estimated to be $1.41 and $1.99 per share, respectively, using the Black-Scholes option pricing model with the following assumptions:

	2012		2011
Risk-free interest rate	0.39	%	1.03	%
Dividend yield	3.00	%	1.91	%
Expected life of the option	3.8 years		2.5 years
Volatility factor	65.65	%	55.78	%

Expected volatilities are based on historical volatility of the Company’s stock and other factors. The Company used the simplified method to calculate the expected life of the 2012 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.

Issuances of common stock by the Company

During the three months ended January 31, 2012, the Company issued 51,335 shares of common stock and received net proceeds of $22,741 in connection with the exercise of employee stock options.

Company Stock Option Plans

Descriptions of the Company’s stock option plans are included in Note 7 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2011. A summary of the status of the options granted under the Company’s stock option plans as of January 31, 2012 and the changes in options outstanding during the three months then ended is presented in the table that follows:

	Shares			Weighted Average Exercise Price
Outstanding at November 1, 2011		2,099,672		$	2.13
Options granted		16,500		$	3.35
Options exercised		(51,335	)	$	0.44
Options canceled or expired		(8,000	)	$	3.22
Options outstanding at January 31, 2012		2,056,837		$	2.18
Options exercisable at January 31, 2012		1,576,260		$	2.05
Options vested and expected to vest at January 31, 2012		3,377,383		$	2.05

Weighted average remaining contractual life of options outstanding as of January 31, 2012: 4.30 years

Weighted average remaining contractual life of options exercisable as of January 31, 2012: 4.00 years

Weighted average remaining contractual life of options vested and expected to vest as of January 31, 2012: 4.00 years

Aggregate intrinsic value of options outstanding at January 31, 2012: $3,381,680

Aggregate intrinsic value of options exercisable at January 31, 2012: $2,796,895

Aggregate intrinsic value of options vested and expected to vest at January 31, 2012: $7,376,654

As of January 31, 2012, $384,950 of expense with respect to nonvested share-based arrangements has yet to be recognized which is expected to be recognized over a weighted average period of 3.61 years.

Stock Option Expense

During the three months ended January 31, 2012 and 2011, stock-based compensation expense totaled $67,187 and $92,609, respectively. For the three months ended January 31, 2012 and 2011, stock-based compensation classified in cost of sales amounted to $13,913 and $14,680 and stock-based compensation classified in selling and general expense amounted to $53,274 and $77,929, respectively.