Note

–

Stock options

Incentive and non-qualified stock option plans

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, 2020,

1,197,399

shares of common stock were remaining for future grants of stock options under the

2020

Plan.

Additional disclosures related to stock option plans

December 3, 2018,

two

employees were each granted

25,000

incentive stock options. These options vested

5,000

each on the date of grant, and the balance vests as to

5,000

shares each per year thereafter on each of the next

four

anniversaries of

December 3, 2018,

and expire

ten

years from the date of grant. Also on

December 3, 2018,

one

employee was granted

10,000

incentive stock options. These options vested

2,000

shares on the date of grant, and the balance vests as to

2,000

shares per year thereafter on each of the next

four

anniversaries of

December 3, 2018,

and expire

ten

years from the date of grant.

March 8, 2019,

one

employee was granted

25,000

incentive stock options. These options vested

5,000

on the date of grant, and the balance vests as to

5,000

shares per year thereafter on each of the next

four

anniversaries of

March 8, 2019,

and expire

ten

years from the date of grant.

January 6, 2020,

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

January 6, 2020,

and expire

ten

years from the date of grant.

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 shall vest 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.

June 29, 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.

other shares or options were granted to company employees during fiscal

2020.

The fair value of each option granted in

2020

and

2019

was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions:

	2020			2019
Weighted average volatility		52.68	%		55.42	%
Expected dividends		0.63	%		0.98	%
Expected term (in years)		7.0			5.9
Risk-free interest rate		1.58	%		2.86	%
Weighted average fair value of options granted during the year	$	3.06		$	3.98
Weighted average fair value of options vested during the year	$	2.38		$	2.56

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

2020

and

2019

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, 2020

and

2019

and changes in outstanding stock options in

2020

and

2019

follows:

	2020					2019
	Shares or			Weighted		Shares or			Weighted
	Price Per			Average		Price Per			Average
	Share			Exercise Price		Share			Exercise Price
Outstanding at beginning of year		890,147		$	3.62		942,366		$	3.09
Options granted		140,241		$	6.40		124,097		$	8.16
Options exercised		(241,209	)	$	1.85		(171,066	)	$	3.86
Options canceled or expired		-		$	-		(5,250	)	$	6.82
Options outstanding at end of year		789,179		$	4.66		890,147		$	3.62

Options exercisable at end of year		459,513		$	4.48		599,981		$	3.25

Options vested and expected to vest at end of year		788,143		$	4.67		889,088		$	3.63

Option price range at end of year	1.90 0 - 8.69 69					1.90 0 - 8.69 69

Aggregate intrinsic value of options exercised during year	$	975,638				$	317,827

Weighted average remaining contractual life of options outstanding as of

October 31, 2020:

4.73

years

Weighted average remaining contractual life of options exercisable as of

October 31, 2020:

2.58

years

Weighted average remaining contractual life of options vested and expected to vest as of

October 31, 2020:

4.72

years

Aggregate intrinsic value of options outstanding at

October 31, 2020:

$643,000

Aggregate intrinsic value of options exercisable at

October 31, 2020:

$387,000

Aggregate intrinsic value of options vested and expected to vest at

October 31, 2020:

$639,000

As of

October 31, 2020,

$571,000

and

$245,000

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

4.09

and

0.89

years, respectively.

Non-employee directors receive

$50,000

annually, which is paid

one

-half in cash and

one

-half through the grant of non-qualified equity awards. For fiscal

2020,

compensation payable to non-employee directors was prorated from

November 1, 2019

through

August 31, 2020.

November 4, 2019,

we granted each of our

five

non-employee directors

3,270

shares of restricted stock. The number of restricted shares granted to each director was determined by prorating

$25,000

for the

months ending

August 31, 2020

and dividing by the

-day average closing stock price (

$6.36

). These restricted shares vested ratably through

August 31, 2020.

As compensation for services to be provided until the

2021

annual meeting of stockholders, in

September 15, 2020,

we granted each of our

five

non-employee directors

5,757

shares of restricted stock, which number was determined by dividing

$25,000

by the

-day average closing stock price (

$4.34

Non-employee directors who are also a chairperson of a committee of the Board receive additional compensation of

$15,000

annually. On

June 5, 2020,

the Board of Directors revised the committee chair compensation so that all future compensation from

July 1, 2020

through the next annual meeting of the stockholders will be payable in shares of common stock rather than cash. Shares issued as compensation will be valued at the closing common stock price on the last day of each quarter. Accordingly, on

July 31, 2020,

each of the

four

committee chairpersons was awarded

279

shares at

$4.47

per share. We account for these shares as stock-based compensation. On

September 15, 2020,

each of the

four

committee chairpersons was awarded

3,454

shares of restricted stock as payment for the

$15,000

retainer payable to Chairpersons for the year ending with the

2021

annual meeting of stockholders. The number of restricted shares granted to each chairperson was determined by dividing

$15,000

by the

-day average RFIL stock price (

$4.34