Note 10 - Stock options

Incentive and non-qualified stock option plans

In May 2000, the Board of Directors adopted the Company’s 2000 Stock Option Plan (the “2000 Option Plan”). Under the 2000 Option Plan, the Company was authorized to grant options to purchase shares of common stock to officers, directors, key employees and others providing services to the Company. The 2000 Option Plan expired in May 2010. At the time of expiration, the 2000 Plan had authorized the Company to grant options to purchase a total of 1,320,000 shares. Upon the expiration of the 2000 Plan, the Company was no longer able to grant any stock options to its employees, officers and directors. Accordingly, as of October 31, 2016, no shares are available for future grant under the 2000 Option Plan.

On March 9, 2010, the Company’s Board of Directors adopted the RF Industries, Ltd. 2010 Stock Incentive Plan (the “2010 Plan”). In June 2010, the Company’s stockholders approved the 2010 Plan by vote as required by NASDAQ. An aggregate of 1,000,000 shares of common stock was set aside and reserved for issuance under the 2010 Plan. The Company’s shareholders approved the issuance of an additional 500,000 shares of common stock at its annual meeting held on September 5, 2014 and another 500,000 shares of common stock at its annual meeting held September 4, 2015. As of October 31, 2016, 914,821 shares of common stock were remaining for future grants of stock options under the 2010 Plan.

Additional disclosures related to stock option plans

The fair value of each option granted in 2016 and 2015 was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions:

	2016			2015
Weighted average volatility		28.7	%		52.2	%
Expected dividends		2.4	%		6.7	%
Expected term (in years)		3.0			5.4
Risk-free interest rate		0.70	%		1.17	%
Weighted average fair value of options granted during the year	$	0.66		$	1.09
Weighted average fair value of options vested during the year	$	4.36		$	4.78

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 2016 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.

Additional information regarding all of the Company's outstanding stock options at October 31, 2016 and 2015 and changes in outstanding stock options in 2016 and 2015 follows:

	2016				2015
	Shares or		Weighted		Shares or		Weighted
	Price Per		Average		Price Per		Average
	Share		Exercise Price		Share		Exercise Price
Options outstanding at beginning of year		1,240,100	$	3.64		1,044,932	$	3.27
Options granted		104,936	$	3.36		396,039	$	4.21
Options exercised		(180,067)	$	0.27		(153,837)	$	2.12
Options forfeited		(157,118)	$	4.53		(47,034)	$	5.11
Options outstanding at end of year		1,007,851	$	4.07		1,240,100	$	3.27

Options exercisable at end of year		724,457	$	3.93		782,648	$	3.02

Options vested and expected to vest at end of year		1,002,522	$	4.07		1,233,543	$	3.63

Option price range at end of year	$	2.30 - $6.91			$	0.05 - $6.91

Aggregate intrinsic value of options exercised during year	$	456,000			$	363,000

Weighted average remaining contractual life of options outstanding as of October 31, 2016: 4.51 years

Weighted average remaining contractual life of options exercisable as of October 31, 2016: 3.25 years

Weighted average remaining contractual life of options vested and expected to vest as of October 31, 2016: 4.50 years

Aggregate intrinsic value of options outstanding at October 31, 2016: $99,000

Aggregate intrinsic value of options exercisable at October 31, 2016: $99,000

Aggregate intrinsic value of options vested and expected to vest at October 31, 2016: $99,000

As of October 31, 2016, $396,000 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 5.37 years.

For serving on the Board of Directors during the fiscal year ended October 31, 2016, non-employee directors received an annual fee of $30,000, which amount was 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. For the year ended October 31, 2016, the Company granted each of its three non-employee directors options to purchase 17,064 shares. The number of stock option shares granted to each director was determined by dividing $15,000 by the fair value of a stock option grant using the Black-Scholes model ($0.87 per share). These options vest ratably over fiscal year 2016.

On April 6, 2016, Howard Hill, the Company’s Chief Operating Officer, retired from the Company. On becoming a non-employee member of the Board on April 7, 2016, Mr. Hill was granted 33,744 options, representing the director compensation payable to him for his services for the remainder of the 2016 fiscal year. The number of stock options granted was determined by dividing his pro-rata portion of his stock based compensation for serving on the Board of $8,750 by the fair value of a stock option grant using the Black-Scholes model ($0.26). These options vested ratably over fiscal 2016.