Quarterly report pursuant to Section 13 or 15(d)

Note 4 - Stock Based Compensation

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Note 4 - Stock Based Compensation
 9 Months Ended
Jun. 30, 2011
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
Note 4.  Stock Based Compensation

The Company recorded $208,557 of compensation expense related to current and past option grants, restricted stock grants and the Company’s 2010 Employee Stock Purchase Plan (for which the first of the six month contribution periods was July 1, 2010 to December 31, 2010)  for the nine-month period ended June 30, 2011.  The Company recorded $119,106 of compensation expense related to current and past equity awards for the nine-month period ended June 30, 2010.  This expense is included in selling, general and administrative expense.  There was no tax benefit from recording this non-cash expense.  As of June 30, 2011, $344,766 of total unrecognized compensation expense related to non-vested awards is expected to be recognized over a weighted average period of approximately 1.45 years.

We used the Black-Scholes option pricing model to determine the weighted average fair value of options during the nine-month periods ended June 30, 2011 and 2010, respectively.

During the nine month period ended June 30, 2011, the Company granted key employees incentive stock options and granted non-employee directors non-qualified stock options to purchase an aggregate of 17,500 shares of common stock with a contractual term of 6 years, vesting terms between one and three years, a weighted average exercise price of $4.67 and a fair value of $3.29 per share.

During the nine month period ended June 30, 2010, the Company granted key employees incentive stock options to purchase an aggregate of 100,000 shares of common stock with a contractual term of 6 to 7 years, a three year vesting term and an exercise price of $3.30 and $2.58 with a fair value range of $1.42 and $1.96 per share. During the nine month period ended June 30, 2010, directors received 5,000 shares of common stock with a contractual term of 6 years, a one year vesting term and an exercise price of $2.87 with a fair value of $1.77 per share.

The weighted-average fair values at the grant date for options issued during the nine months ended June 30, 2011 and 2010 were $3.29 and $1.95, respectively. This fair value was estimated at grant date using the weighted-average assumptions listed below.

   
Nine months ended June 30,
 
   
2011
   
2010
 
Dividend yield
    0 %     0 %
Expected volatility
    79.17 %     66.95 %
Average risk-free interest rate
    2.04 %     2.33 %
Expected life
 
6 years
   
5-6 years
 
Vesting period
 
1-3 years
   
1-3 years
 

During the nine month period ended June 30, 2011, employees exercised stock options totaling 74,251 shares, resulting in $58,944 of proceeds to the Company. During the nine month period ended June 30, 2010, employees exercised stock options totaling 20,700 shares, resulting in $22,437 of proceeds to the Company.

The expected stock price volatility is based on the historical volatility of the Company’s stock for a period approximating the expected life. The expected life represents the period of time that options are expected to be outstanding after their grant date. The risk-free interest rate reflects the interest rate at grant date on zero-coupon U.S. governmental bonds having a remaining life similar to the expected option term.

Employee Stock Purchase Plan

Clearfield, Inc. 2010 Employee Stock Purchase Plan (ESPP) adopted on February 25, 2010, allows participating employees to purchase shares of the Company’s common stock at a discount through payroll deductions. The ESPP is available to all employees subject to certain eligibility requirements. Terms of the ESPP provide that participating employees may purchase the Company’s common stock on a voluntary after-tax basis. Employees may purchase the Company’s common stock at a price that is no less than the lower of 85% of the fair market value of one share of common stock at the beginning or end of each stock purchase period or phase. The ESPP is carried out in six-month phases, with phases beginning on January 1 and July 1 of each calendar year. For the phase that ended on December 31, 2010 and June 30, 2011, employees purchased 17,710 and 14,519 shares at a price of $2.13 and $3.44 per share, respectively. After the employee purchase on June 30, 2011, 267,771 shares of common stock were available for future purchase under the ESPP.