Note 7 - Stock-based Compensation and Equity Transactions

6 Months Ended

Apr. 30, 2024

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

Note 7 – Stock-based compensation and equity transactions

On January 11, 2023, we granted a total of 54,092 shares of restricted stock and 108,181 incentive stock options to one manager and three officers, respectively. 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, 2024 and (ii) the remaining restricted shares and options shall vest in 12 equal quarterly installments over the next three years. Also on January 11, 2023, we granted another manager 50,000 incentive stock options. As of October 31, 2023, the 50,000 incentive stock options granted to the manager were cancelled and forfeited as the manager was no longer employed. All incentive stock options expire 10 years from the date of grant.

On August 29, 2023, we granted one employee 10,000 incentive stock options. These options vested with respect to 2,500 shares on the date of grant, and the remaining shares vests in equal installments thereafter on each of the next three anniversaries of August 29, 2023. The options expire 10 years from the date of grant.

On November 1, 2023, we granted 15,202 shares of restricted stock to one officer in lieu of cash compensation. The shares of restricted stock vest over one year as follows: (i) one-quarter of the restricted shares on January 31, 2024 and (ii) the remaining restricted shares shall vest in three equal quarterly installments.

On January 11, 2024, we granted a total of 110,099 shares of restricted stock and 220,001 incentive stock options to one manager and three officers, respectively. 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 11, 2025 and (ii) the remaining restricted shares and options shall vest in 12 equal quarterly installments over the next three years.

On April 16, 2024, we granted a total of 25,000 incentive stock options to three managers. The shares of incentive stock options vest over four years as follows: (i) one-quarter of the restricted shares and options shall vest on April 16, 2025 and (ii) the remaining restricted shares and options shall vest in 12 equal quarterly installments over the next three years.

No other shares or options were granted to Company employees during the three and six months ended April 30, 2024 and 2023.

The weighted average fair value of employee stock options that were granted during the six months ended April 30, 2024 and 2023 was estimated to be $1.76 and $3.21, respectively, per share, using the Black-Scholes option pricing model with the following assumptions:

	Six Months Ended April 30,
	2024			2023
Risk-free interest rate		4.00	%		3.76	%
Dividend yield		0.00	%		0.00	%
Expected life of the option (in years)	7.00			7.00
Volatility factor		51.80	%		54.30	%

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 2024 and 2023 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, 2023. A summary of the status of the options granted under our stock option plans as of April 30, 2024 and the changes in options outstanding during the three months then ended is presented in the table that follows:

				Weighted
				Average
	Shares			Exercise Price
Outstanding at November 1, 2023		754,186		$	6.04
Options granted		245,001		$	3.01
Options exercised		-		$	-
Options cancelled		(36,015	)	$	8.07
Options outstanding at April 30, 2024		963,172		$	5.19
Options exercisable at April 30, 2024		516,776		$	5.94
Options vested and expected to vest at April 30, 2024		957,705		$	5.09

Weighted average remaining contractual life of options outstanding as of April 30, 2024: 7.03 years

Weighted average remaining contractual life of options exercisable as of April 30, 2024: 5.66 years

Weighted average remaining contractual life of options vested and expected to vest as of April 30, 2024: 7.03 years

Aggregate intrinsic value of options outstanding at April 30, 2024: $49,760

Aggregate intrinsic value of options exercisable at April 30, 2024: $38,720

Aggregate intrinsic value of options vested and expected to vest at April 30, 2024: $49,261

As of April 30, 2024, $1,005,945 and $852,384 of expenses with respect to nonvested stock options and restricted shares, respectively, have yet to be recognized but are expected to be recognized over a weighted average period of 3.0 and 1.0 years, respectively.

Stock option expense

During the three months ended April 30, 2024 and 2023, stock-based compensation expense totaled $248,000 and $229,000, respectively, and was classified in selling and general expense. During the six months ended April 30, 2024 and 2023, stock-based compensation expense totaled $503,000 and $441,000, respectively, and was classified in selling and general expense.