Stock-based compensation and equity transactions

6 Months Ended

Apr. 30, 2013

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Stock-based compensation and equity transactions

Note 5 - 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. Incentive stock options granted to the Company’s employees during the six months ended April 30, 2013 vest and are exercisable equally over three years and expire in five years from date of grant. During the six months ended April 30, 2013, the Company granted a total of 138,280 incentive stock options to company employees. The Company satisfies the exercise of options by issuing previously unissued common shares.

The weighted average fair value of employee and non-employee directors stock options granted by the Company in the six months ended April 30, 2013 and 2012 was estimated to be $1.12 and $1.33 per share, respectively, using the Black-Scholes option pricing model with the following assumptions:

	2013			2012
Risk-free interest rate		0.36	%		0.39	%
Dividend yield		4.17	%		4.99	%
Expected life of the option		3.5 years			3.5 years
Volatility factor		42.85	%		66.16	%

Expected volatilities are based on historical volatility of the Company’s stock price and other factors. The Company used the historical method to calculate the expected life of the 2013 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 six months ended April 30, 2013, the Company issued 801,077 shares of common stock and received net proceeds of $2.1 million 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, 2012. A summary of the status of the options granted under the Company’s stock option plans as of April 30, 2013 and the changes in options outstanding during the six months then ended is presented in the table that follows:

				Weighted
				Average
	Shares			Exercise Price
Outstanding at November 1, 2012		2,004,781		$	2.25
Options granted		176,267		$	4.80
Options exercised		(801,077	)	$	2.61
Options canceled or expired		(74,603	)	$	4.09
Options outstanding at April 30, 2013		1,305,368		$	2.27
Options exercisable at April 30, 2013		878,770		$	1.76
Options vested and expected to vest at April 30, 2013		1,283,287		$	2.25

Weighted average remaining contractual life of options outstanding as of April 30, 2013: 3.33 years

Weighted average remaining contractual life of options exercisable as of April 30, 2013: 2.78 years

Weighted average remaining contractual life of options vested and expected to vest as of April 30, 2013: 3.32 years

Aggregate intrinsic value of options outstanding at April 30, 2013: $4.9 million

Aggregate intrinsic value of options exercisable at April 30, 2013: $3.7 million

Aggregate intrinsic value of options vested and expected to vest at April 30, 2013: $3.8 million

As of April 30, 2013, $335,000 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 3.03 years.

Non-employee directors receive $25,000 annually, which amount is paid one-half in cash and one-half through the grant of non-qualified stock options to purchase shares of the Company’s common stock. During the quarter ended January 31, 2013, the Company granted each of its four non-employee directors 8,405 options. The number of stock options granted to each director was determined by dividing $12,500 by the fair value of a stock option grant using the Black Scholes model ($1.49 per share). These options vest ratably over fiscal year 2013. During the quarter ended April 30, 2013, the Company granted a newly appointed non-employee director 4,367 options. The number of stock options granted was determined by dividing $7,292 (a pro rata portion of the $12,500) by the fair value of a stock option grant using the Black Scholes model ($1.67 per share).

Stock option expense

During the six months ended April 30, 2013 and 2012, stock-based compensation expense totaled $107,000 and $121,000, respectively. During the three months ended April 30, 2013 and 2012, stock-based compensation expense totaled $74,000 and $53,000, respectively. For the six months ended April 30, 2013 and 2012, stock-based compensation classified in cost of sales amounted to $25,000 and $28,000, respectively, and stock-based compensation classified in selling and general expense amounted to $82,000 and $93,000, respectively.