Note 10 - Stock options

Incentive and non-qualified stock option plans

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 stockholders approved the issuance of an additional 500,000 shares of common stock at its annual meeting held on September 5, 2014, another 500,000 shares of common stock at its annual meeting held September 4, 2015 and another 1,000,000 shares of common stock at its annual meeting held September 8, 2017. As of October 31, 2019, 1,405,741 shares of common stock were remaining for future grants of stock options under the 2010 Plan.

Additional disclosures related to stock option plans

On December 13, 2017, the Company granted 80,000 incentive stock options to an employee. These options vested 8,000 shares on the date of grant, and the balance vests as to 8,000 shares per year thereafter on each of the next nine anniversaries of December 13, 2017, and expire ten years from date of grant. On December 3, 2018, the Company granted each of two employees 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. On December 3, 2018, the Company also granted one employee 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. On March 8, 2019, the Company granted one employee 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. No other options were granted to Company employees during fiscal 2019.

The fair value of each option granted in 2019 and 2018 was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions:


	2019			2018
Weighted average volatility		55.42	%		46.83	%
Expected dividends		0.98	%		3.28	%
Expected term (in years)		5.9			4.5
Risk-free interest rate		2.86	%		1.87	%
Weighted average fair value of options granted during the year	$	3.98		$	0.82
Weighted average fair value of options vested during the year	$	6.03		$	2.64

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 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 the Company’s outstanding stock options at October 31, 2019 and 2018 and changes in outstanding stock options in 2019 and 2018 follows:


	2019				2018
	Shares or		Weighted		Shares or		Weighted
	Price Per		Average		Price Per		Average
	Share		Exercise Price		Share		Exercise Price
Outstanding at beginning of year		942,366	$	3.09		1,159,771	$	3.19
Options granted		124,097	$	8.16		269,635	$	2.44
Options exercised		(171,066)	$	3.86		(418,955)	$	2.66
Options canceled or expired		(5,250)	$	6.82		(68,085)	$	4.98
Options outstanding at end of year		890,147	$	3.62		942,366	$	3.09

Options exercisable at end of year		599,981	$	3.25		675,033	$	3.01

Options vested and expected to vest at end of year		889,088	$	3.63		940,144	$	3.09

Option price range at end of year		$1.90 - $8.69		—		$1.90 - $5.88

Aggregate intrinsic value of options exercised during year	$	317,827		—	$	1,207,148

Weighted average remaining contractual life of options outstanding as of October 31, 2019: 4.16 years

Weighted average remaining contractual life of options exercisable as of October 31, 2019: 2.62 years

Weighted average remaining contractual life of options vested and expected to vest as of October 31, 2019: 4.15 years

Aggregate intrinsic value of options outstanding at October 31, 2019: $2,340,000

Aggregate intrinsic value of options exercisable at October 31, 2019: $1,735,000

Aggregate intrinsic value of options vested and expected to vest at October 31, 2019: $2,330,000

As of October 31, 2019, $439,000 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 5.25 years.

Non-employee directors receive $50,000 annually, which is 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. During the quarter ended January 31, 2019, the Company granted each of its five non-employee directors 7,203 non-qualified stock options. The options have an exercise price of $8.07 per share. The number of stock options granted to each director was determined by dividing $25,000 by the fair value of a stock option grant using the Black-Scholes model ($3.471 per share). These options vest ratably over fiscal year 2019 and expire five years from the date of grant. Effective November 1, 2018, in addition to the compensation received for serving on the Board of Directors, the Chairman of each committee of the Board will receive $15,000 per year in cash for services rendered as Chairman. On June 7, 2019, a new director joined the Board. The Company granted the new director 3,082 non-qualified stock options with an exercise price of $7.50 per share. The number of stock options granted to this director was determined by dividing $10,000 of compensation (prorated for the period as an active director) by the fair value of a stock option grant using the Black-Scholes model ($3.245 per share). These options vest ratably over fiscal year 2019 and expire five years from the date of grant. No other non-qualified stock options were granted during the fiscal year ended October 31, 2019.