Note 4 - Stock Based Compensation

3 Months Ended

Dec. 31, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note 4.  Stock Based Compensation

The Company recorded $112,153 of compensation expense related to current and past option grants, restricted stock grants and the Company’s Employee Stock Purchase Plan for the three-month period ended December 31, 2011.  The Company recorded $58,287 of compensation expense related to current and past equity awards for the three-month period ended December 31, 2010.  This expense is included in selling, general and administrative expense.  There was no tax benefit from recording this non-cash expense.  As of December 31, 2011, $1,021,887 of total unrecognized compensation expense related to non-vested awards is expected to be recognized over a weighted average period of approximately 5.6 years.

We used the Black-Scholes option pricing model to determine the weighted average fair value of options during the three-month period ended December 31, 2010.  The weighted-average fair values at the grant date for options issued during the three months ended December 31, 2010 was $1.92. This fair value was estimated at grant date using the weighted-average assumptions listed below.

	Three months ended December 31, 2010
Dividend yield		0	%
Expected volatility		74.17	%
Average risk-free interest rate		1.58	%
Expected life	6 years
Vesting period	3 years

During the three month period ended December 31, 2011, the Company did not grant any incentive stock options or non-qualified stock options. During the three-month period ended December 31, 2010, the Company granted key employees incentive stock options to purchase an aggregate of 5,000 shares of common stock with a contractual term of 7 years, a three year vesting term and an exercise price of $3.00 with a fair value of $1.92 per share.

During the three month period ended December 31, 2011, exercised stock options totaled 46,106 shares, resulting in $37,681 of proceeds to the Company. During the three month period ended December 31, 2010, exercised stock options totaled 7,132 shares, resulting in $10,530 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.’s Employee Stock Purchase Plan (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 December 31, 2011 and December 31, 2010, employees purchased 11,267 and 17,710 shares at a price of $6.24 and $2.13 per share, respectively. After the employee purchase on December 31, 2011, 256,504 shares of common stock were available for future purchase under the ESPP.