Note 8 - Stock-based Compensation and Equity Transactions

9 Months Ended

Jul. 31, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

Note 8 – Stock-based compensation and equity transactions

On January 10, 2022, we granted a total of 39,666 shares of restricted stock and 106,001 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 vested on January 10, 2023; and (ii) the remaining restricted shares and options shall vest in 12 equal quarterly installments over the next three years. All incentive stock options expire 10 years from the date of grant.

On January 10, 2023, we granted a total of 54,092 shares of restricted stock and 108,181 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 10, 2024; and (ii) the remaining restricted shares and options shall vest in 12 equal quarterly installments over the next three years. Also on January 10, 2023, we granted another manager 50,000 incentive stock options. These options shall vest in five equal installments on each of the next five anniversaries of January 10, 2023, the grant date. All incentive stock options expire 10 years from the date of grant.

No other shares or options were granted to company employees during the three and nine months ended July 31, 2023 and 2022.

The weighted average fair value of employee stock options that were granted during the nine months ended July 31, 2023 and 2022 was estimated to be $3.21 and $3.77, respectively, per share, using the Black-Scholes option pricing model with the following assumptions:

	Nine Months Ended July 31,
	2023			2022
Risk-free interest rate		3.76	%		1.47	%
Dividend yield		0.00	%		0.00	%
Expected life of the option (in years)		7.01			7.00
Volatility factor		54.30	%		53.36	%

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 2023 and 2022 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 9 to our audited financial statements included in our Annual Report on Form 10-K for the year ended October 31, 2022. A summary of the status of the options granted under our stock option plans as of July 31, 2023 and the changes in options outstanding during the nine months then ended is presented in the table that follows:

				Weighted
				Average
	Shares			Exercise Price
Outstanding at November 1, 2022		691,005		$	5.87
Options granted		158,181		$	5.46
Options exercised		(45,000	)	$	1.90
Options cancelled		-		$	-
Options outstanding at July 31, 2023		804,186		$	6.01
Options exercisable at July 31, 2023		471,466		$	6.34
Options vested and expected to vest at July 31, 2023		798,697		$	6.02

Weighted average remaining contractual life of options outstanding as of July 31, 2023: 6.68 years

Weighted average remaining contractual life of options exercisable as of July 31, 2023: 5.65 years

Weighted average remaining contractual life of options vested and expected to vest as of July 31, 2023: 6.69 years

Aggregate intrinsic value of options outstanding at July 31, 2023: $124,280

Aggregate intrinsic value of options exercisable at July 31, 2023: $80,120

Aggregate intrinsic value of options vested and expected to vest at July 31, 2023: $122,285

As of July 31, 2023, $866,591 and $528,229 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 2.74 and 1.30 years, respectively.

Stock option expense

During the three months ended July 31, 2023 and 2022, stock-based compensation expense totaled $246,000 and $191,000, respectively, and was classified in selling and general expense. During the nine months ended July 31, 2023 and 2022, stock-based compensation expense totaled $687,000 and $498,000, respectively, and was classified in selling and general expenses.