Note 9 - Stock Options

12 Months Ended

Oct. 31, 2021

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

Note 9 – Stock options

Incentive and non-qualified stock option plans

On July 22, 2020, the Company’s Board of Directors adopted the 2020 Equity Incentive Plan (the “2020 Plan”). In September 2020, the Company’s stockholders approved the 2020 Plan by vote as required by NASDAQ. An aggregate of 1,250,000 shares of common stock was set aside and reserved for issuance under the 2020 Plan. As of October 31, 2021, 1,123,232 shares of common stock were remaining for future grants of stock options under the 2020 Plan.

Additional disclosures related to stock option plans 

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 two officers and one employee. 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 three officers and two 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 vested 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.

On June 30, 2020, one employee was granted 10,000 incentive stock options. These options vested 2,500 on the date of grant, and the balance vests as to 2,500 shares per year thereafter on each of the next three anniversaries of June 30, 2020, and expire ten years from the date of grant.

On January 12, 2021, we granted a total of 33,500 shares of restricted stock and 67,000 incentive stock options to one manager and three officers. 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 12, 2022; and (ii) the remaining restricted shares and options shall vest in twelve equal quarterly installments over the next three years. All incentive stock options expire ten years from the date of grant.

On July 16, 2021, our Chief Executive Officer was granted incentive stock options to purchase 50,000 shares. These options immediately vested on the date of grant, and expire ten years from the date of grant.

No other shares or options were granted to Company employees during fiscal 2021.

The fair value of each option granted in 2021 and 2020 was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions:

	2021			2020
Weighted average volatility		52.34	%		52.68	%
Expected dividends		0.00	%		0.63	%
Expected term (in years)		7.0			7.0
Risk-free interest rate		0.58	%		1.58	%
Weighted average fair value of options granted during the year	$	3.38		$	3.06
Weighted average fair value of options vested during the year	$	3.41		$	2.38

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 2021 and 2020 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 our outstanding stock options at October 31, 2021 and 2020 and changes in outstanding stock options in 2021 and 2020 follows:

	2021					2020
	Shares or			Weighted		Shares or			Weighted
	Price Per			Average		Price Per			Average
	Share			Exercise Price		Share			Exercise Price
Outstanding at beginning of year		789,179		$	4.66		890,147		$	3.62
Options granted		117,000		$	6.57		140,241		$	6.40
Options exercised		(195,528	)	$	3.10		(241,209	)	$	1.85
Options canceled or expired		(91,793	)	$	5.88		-		$	-
Options outstanding at end of year		618,858		$	5.33		789,179		$	4.66
Options exercisable at end of year		313,381		$	5.95		459,513		$	4.48
Options vested and expected to vest at end of year		618,522		$	5.35		788,143		$	4.67
Option price range at end of year	1.900 -8.6969					1.900 -8.6969
Aggregate intrinsic value of options exercised during year	$	642,181				$	975,638

Weighted average remaining contractual life of options outstanding as of October 31, 2021: 6.36 years

Weighted average remaining contractual life of options exercisable as of October 31, 2021: 5.59 years

Weighted average remaining contractual life of options vested and expected to vest as of October 31, 2021: 6.36 years

Aggregate intrinsic value of options outstanding at October 31, 2021: $1,544,000

Aggregate intrinsic value of options exercisable at October 31, 2021: $628,000

Aggregate intrinsic value of options vested and expected to vest at October 31, 2021: $1,533,000

As of October 31, 2021, $527,000 and $393,000 of expense 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 2.64 and 1.12 years, respectively.

Under the compensation policies adopted by the Compensation Committee, directors who also are officers and/or employees of the Company do not receive any compensation for serving on the Board. For their service as directors beginning in 2020 until the annual meeting of stockholders held in 2021, non-employee directors (i.e., directors who are not employed by the Company as officers or employees) were awarded $50,000 as Board fees, which amount was paid (a) one-half in cash ($25,000), with payments made on a quarterly basis, and (b) one-half through the grant of restricted shares that vest on a quarterly basis. In addition, the Chairman of the Board of Directors and the Chair of each committee of the Board of Directors received an annual retainer of $15,000, also payable in restricted shares that vest in four equal quarterly installments commencing on September 15, 2020 and ending on the earlier of September 15, 2021 or the next annual meeting of stockholders. In each case, the equity portion of the award was calculated based on the 20-day average trailing closing price of the Company's common stock from the date of grant ($4.34); and payments were pro-rated for Board members who served less than the entire service period during fiscal 2021.