Note

Stock-Based Compensation

The Company recorded

$485,794

and

$969,081

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

six

months ended

March 31, 2018,

respectively. For the

three

months ended

March 31, 2018,

$443,763

of this expense is included in selling, general and administrative expense, and

$42,031

is included in cost of sales. For the

six

months ended

March 31, 2018,

$885,020

of this expense is included in selling, general and administrative expense, and

$84,061

is included in cost of sales. The Company recorded

$590,165

and

$1,183,911

of compensation expense related to current and past equity awards for the

three

and

six

months ended

March 31, 2017,

respectively. For the

three

months ended

March 31, 2017,

$535,464

of this expense was included in selling, general and administrative expense, and

$54,701

was included in cost of sales. For the

six

months ended

March 31, 2017,

$1,074,510

of this expense was included in selling, general and administrative expense, and

$109,401

was included in cost of sales. As of

March 31, 2018,

$3,999,219

of total unrecognized compensation expense related to non-vested equity awards is expected to be recognized over a period of approximately

6.6

years.

There were

stock options granted during the

six

months ended

March 31, 2018

March 31, 2017.

The following is a summary of stock option activity during the

six

months ended

March 31, 2018:

	Number of options			Weighted average exercise price
Outstanding as of September 30, 2017		38,950		$	2.79
Granted		-			-
Exercised		(6,100	)		3.89
Cancelled or Forfeited		-			-
Outstanding as of March 31, 2018		32,850		$	2.58

The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price. As of

March 31, 2018,

the weighted average remaining contractual term for all outstanding and exercisable stock options was

2.4

years and their aggregate intrinsic value was

$339,012.

During the

six

months ended

March 31, 2018,

the Company received proceeds of

$17,949

from the exercise of stock options. During the

six

months ended

March 31, 2017,

exercised stock options totaled

15,750

shares, resulting in

$28,459

of proceeds to the Company.

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

ten

years.

During the

six

months ended

March 31, 2018,

the Company granted non-employee directors restricted stock awards totaling

4,235

shares of common stock, with a vesting term of approximately

one

year and a fair value of

$14.75

per share.

During the

six

months ended

March 31, 2017,

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.

Restricted stock transactions during the

six

months ended

March 31, 2018

are summarized as follows:

	Number of shares			Weighted average grant date fair value
Unvested shares as of September 30, 2017		370,530		$	15.24
Granted		4,235			14.75
Vested		(5,795	)		15.46
Forfeited		(5,644	)		15.39
Unvested as of March 31, 2018		363,326		$	15.23

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

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, 2017

and

December 31, 2016,

employees purchased

14,242

and

11,144

shares at a price of

$10.41

and

$15.21

per share, respectively. After the employee purchase on

December 31, 2017,

103,013

shares of common stock were available for future purchase under the ESPP.