Quarterly report pursuant to Section 13 or 15(d)

Note 4 - Stock-based Compensation

v3.19.2
Note 4 - Stock-based Compensation
9 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Share-based Payment Arrangement [Text Block]
Note
4.
Stock-Based Compensation
 
The Company recorded
$433,438
and
$1,535,628
of compensation expense related to current and past option grants, restricted stock grants and the Company’s Employee Stock Purchase Plan (“ESPP”) for the
three
and
nine
months ended
June 30, 2019,
respectively. For the
three
months ended
June 30, 2019,
$410,784
of this expense is included in selling, general and administrative expense, and
$22,654
is included in cost of sales. For the
nine
months ended
June 30, 2019,
$1,450,493
of this expense is included in selling, general and administrative expense, and
$85,139
is included in cost of sales. The Company recorded
$519,223
and
$1,488,304
of compensation expense related to current and past option grants, restricted stock grants and ESPP for the
three
and
nine
months ended
June 30, 2018,
respectively. For the
three
months ended
June 30, 2018,
$477,193
of this expense is included in selling, general and administrative expense, and
$42,030
is included in cost of sales. For the
nine
months ended
June 30, 2018,
$1,362,213
of this expense is included in selling, general and administrative expense, and
$126,091
is included in cost of sales. As of
June 30, 2019,
$2,553,214
of total unrecognized compensation expense related to non-vested restricted stock awards and stock options is expected to be recognized over a period of approximately
5.2
years.
 
Stock Options
 
The Company uses the Black-Scholes option pricing model to determine the fair value of stock options granted. During the
nine
months ended
June 30, 2019,
the Company granted employees non-qualified stock options to purchase an aggregate of
172,000
shares of common stock with a contractual term of
four
years, a
three
year vesting term, and an exercise price of
$12.17.
During the
nine
months ended
June 30, 2018,
the Company granted employees non-qualified stock options to purchase an aggregate of
72,000
shares of common stock with a contractual term of
five
years, a
three
year vesting term, and an exercise price of
$13.35.
The fair value at the grant date for options issued during the
nine
months ended
June 30, 2019
was
$3.53.

 
This fair value was estimated at the grant date using the assumptions listed below:
 
   
Nine months ended
June 30, 2019
Dividend yield    
0
%
Average expected volatility    
37.77
%
Average risk-free interest rate    
2.92
%
Expected life (years)    
3
 
Vesting period (years)    
3
 
 
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.
 
Options are granted at fair market values determined on the date of grant and vesting normally occurs over a
three
to
five
-year period. However, options granted to directors have a
one
year vesting period and a
six
-year contractual term. The maximum contractual term is normally
six
years. Shares issued upon exercise of a stock option are issued from the Company’s authorized but unissued shares.
 
The following is a summary of stock option activity during the
nine
months ended
June 30, 2019:
 
    Number of options   Weighted average exercise price
Outstanding at September 30, 2018    
138,500
    $
10.99
 
Granted    
172,000
     
12.17
 
Exercised    
(6,750
)    
2.58
 
Cancelled or Forfeited    
(12,000
)    
12.17
 
Outstanding at June 30, 2019    
291,750
    $
11.83
 
 
The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price. As of
June 30, 2019,
the weighted average remaining contractual term for all outstanding stock options was
1.14
years and their aggregate intrinsic value was
$253,413.
During the
nine
months ended
June 30, 2019,
the Company received proceeds of
$24
from the exercise of stock options. During the
nine
months ended
June 30, 2018,
the Company received proceeds of
$21,174
from the exercise of stock options.
Restricted Stock
 
The Company’s
2007
Stock Compensation Plan permits its Compensation Committee to grant stock-based awards, including stock options and restricted stock, to key employees and non-employee directors. The Company has made restricted stock grants that vest over
one
to
ten
years.
 
During the
nine
months ended
June 30, 2019,
the Company granted non-employee directors restricted stock awards totaling
4,340
shares of common stock, with a vesting term of approximately
one
year and a fair value of
$14.40
per share.
 
During the
nine
months ended
June 30, 2018,
the Company granted non-employee directors restricted stock awards totaling
3,795
shares of common stock, with a vesting term of approximately
one
year and a fair value of
$16.45
per share. Also, the Company granted employees a restricted stock award totaling
3,000
shares of common stock, with a vesting term of
one
year and a fair value of
$13.35
per share.
 
Restricted stock transactions during the
nine
months ended
June 30, 2019
are summarized as follows:
 
    Number of shares   Weighted average grant date fair value
Unvested shares at September 30, 2018    
248,613
    $
14.65
 
Granted    
4,340
     
14.40
 
Vested    
(84,237
)    
17.16
 
Forfeited    
(11,230
)    
14.44
 
Unvested at June 30, 2019    
157,486
    $
13.31
 
 
Employee Stock Purchase Plan
 
Clearfield, Inc.’s ESPP 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 phases that ended on
June 30, 2019
and
December 31, 2018,
employees purchased
19,923
and
17,312
shares at a price of
$8.43
per share. After the employee purchase on
June 30, 2019,
49,846
shares of common stock were available for future purchase under the ESPP.