Note 8. Goodwill and Intangibles

The Company analyzes its goodwill for impairment annually or at an interim period when events occur or changes in circumstances indicate potential impairment. The result of the analysis performed as of September 30, 2019 did not indicate an impairment of goodwill. During the threenine months ended December 31, 2019, June 30, 2020, there were no triggering events that indicate potential impairment exists.

The Company capitalizes legal costs incurred to obtain patents. Once accepted by either the U.S. Patent Office or the equivalent office of a foreign country, these legal costs are amortized using the straight-line method over the remaining estimated lives, not exceeding 20 years. As of December 31, 2019, June 30, 2020, the Company has 2122 patents granted and multiple pending applications both inside and outside the United States.

In addition, the Company has various finite lived intangible assets, most of which were acquired as a result of the acquisition of the active cabinet product line from Calix, Inc. (“Calix”) during fiscal year 2018. The Company analyzes its intangible assets for impairment annually or at interim periods when events occur or changes in circumstances indicate potential impairment. The result of the analysis performed as of September 30, 2019 did not indicate an impairment of our intangible assets. During the threenine months ended December 31, 2019, June 30, 2020, there were no triggering events that indicate potential impairment exists.

Note 9. Income Taxes

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to future events and typically address the Company’s expected future business and financial performance. Words such as  “plan,” “expect,” “aim,” “believe,” “project,” “target,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could” and other words and terms of similar meaning, typically identify these forward-looking statements. Forward-looking statements are based on certain assumptions and expectations of future events and trends that are subject to risks and uncertainties. Actual results could differ from those projected in any forward-looking statements because of the factors identified in and incorporated by reference from Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended September 30, 2019, as well as in other filings we make with the Securities and Exchange Commission, which should be considered an integral part of Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All forward-looking statements included herein are made as the date of this Quarterly Report on Form 10-Q and we assume no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

The following discussion and analysis of our financial condition and results of operations as of and for the three and nine months ended December 31,June 30, 2020 and 2019 and 2018 should be read in conjunction with the financial statements and related notes in Item 1 of this report and our Annual Report on Form 10-K for the year ended September 30, 2019.

OVERVIEW

General

Clearfield, Inc. designs, manufactures and distributes fiber optic management, protection and delivery products for communications networks. Our “fiber to the anywhere” platform serves the unique requirements of leading Broadband Service Providers in the United States, which include Community Broadband, National Carriers, and MSO’s, while also serving the broadband needs of the International markets, primarily countries in the Caribbean, Canada, and Central and South America. These customers are collectively included in Broadband Service Providers. The Company also provides contract manufacturing services for Build-to-Print customers which include original equipment manufacturers (OEM) requiring copper and fiber cable assemblies built to their specifications.  

The Company has historically focused on the un-servedunserved or under-servedunderserved rural communities whothat receive their voice, video and data services from independent telephone companies. By aligning its in-house engineering and technical knowledge alongside its customers, the Company has been able to develop, customize and enhance products from design through production. Final build and assembly of the Company’s products is completed at Clearfield’s plantsmanufacturing facilities in Brooklyn Park, Minnesota, and Tijuana, Mexico, with manufacturing support from a network of domestic and global manufacturing partners. Clearfield specializes in producing these products on both a quick-turn and scheduled delivery basis. The Company deploys a hybrid sales model with some sales made directly to the customer,customers, some made through two-tier distribution (channel) partners, sales agents and manufacturing representatives, and sales through original equipment suppliers who private label their products.

Due to the role Clearfield’s solutions play in supporting communications infrastructure, the Company’s operations in Minnesota have been classified as critical sector work under the State of Minnesota’s “stay at home” and “stay safe” executive orders adopted in response to the novel coronavirus (“COVID-19”) pandemic. We have transitioned our corporate employees at our Brooklyn Park headquarters to remote work arrangements. In accordance with the CDC and WHO guidelines, we also have implemented health and safety measures for the production staff that remain onsite at our Brooklyn Park facility. We have continued to maintain our manufacturing capacity in Brooklyn Park with these personnel. Similarly, we have implemented the recommended health and safety measures for the production staff that remains onsite at our Tijuana, Mexico manufacturing facilities.

The Company is closely monitoring the operations and staffing levels at its manufacturing facilities in Tijuana, Mexico and the status of restrictions at the U.S.-Mexico border. The State of Baja California, where our facilities are located, adopted an order that temporarily suspended the operations of other manufacturers in the region. While our operations in Tijuana have not been affected, we may become subject to local enforcement orders at any time.

Since the start of the pandemic, we have continued to be fully operational in both our US and Mexico manufacturing facilities and have established multiple contingency plans in the event our ability to operate is diminished or eliminated at either location. Even if our manufacturing capacity in Mexico continues, we may experience challenges to timely supply of materials to our Mexico facilities and timely product deliveries from the facilities due to border restrictions or border delays. Depending on the severity of these border issues, we may experience diminished or temporarily suspended operations, longer lead times than typical for product deliveries, or temporarily suspended product deliveries, which would result in delayed or reduced revenue from the affected orders in production and higher operating costs.

We dual source all our components and most of our supply chain partners remain operational and continue to provide the necessary components for our products to be manufactured in Minnesota and Mexico. We continue to monitor our supply chain, however uncertainties caused by the impact of COVID-19 present significant risk of disruption in our supply chain.

Should the Company experience a disruption in our ability to continue to produce in one or both of our facilities, disruption in our supply chain, or a decline in operational abilities, our contingency plans would result in a potentially significant increase in manufacturing costs and could impair our ability to fulfill customer orders.

RESULTS OF OPERATIONS

Three months ended December 31, 2019June 30, 2020 vS. three months ended December 31, 2018JUNE 30, 2019

Net sales for the firstthird quarter of fiscal 2020 ended December 31, 2019June 30, 2020 were $19,377,000, a decrease$25,970,000, an increase of approximately 4%19% or $711,000,$4,078,000, from net sales of $20,089,000$21,892,000 for the firstthird quarter of fiscal 2019. Net sales to Broadband Service Providers were $18,155,000$25,293,000 in the firstthird quarter of fiscal 2020 versus $18,800,000$21,127,000 in the same period of fiscal 2019. Among this group, the Company recorded $1,137,000 $879,000 in international sales for the firstthird quarter of fiscal 2020 versus $1,585,000$1,648,000 in the same period of fiscal 2019. Net sales to build-to-printBuild-to-Print customers were $1,223,000decreased $87,000 to $678,000 in the firstthird quarter of fiscal 2020 versus $1,289,000from $765,000 in the same period of fiscal 2019. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Accordingly, international sales represented 6%3% and 8% of total net sales for the first quartersthird quarter of fiscal 2020 and 2019, respectively.

The decreaseincrease in net sales for the quarter ended December 31, 2019June 30, 2020 of $711,000$4,078,000 compared to the quarter ended December 31, 2018June 30, 2019 was duedriven by increased sales to reductions in both Community Broadband Service Providers, MSO and International markets totaling $1,865,000, primarily attributable to lower sales of the Company’s active cabinet product line. Offsetting this were increased sales of Tier 1 customers of $772,000,$3,004,000, $1,218,000 and MSO’s of $425,000. Additionally,$637,000, respectively. Offsetting this were decreased sales to build-to-printInternational customers decreased $67,000, relatively unchanged fromof $769,000 due to lower demand for each in the prior period. The decline in international revenue in the fiscal third quarter 2020 was primarily related to currency conversion issues in the Company’s international markets that have made the Company’s products temporarily cost-prohibitive, causing customers to delay purchasing decisions.

Revenue from all customers is obtained from purchase orders submitted from time to time. Accordingly, the Company’s ability to predict orders in future periods or trends affecting orders in future periods is limited.

The Company’s ability to predict revenue has become further limited by potential disruption to product delivery or changes in customer ordering patterns due to COVID-19. The Company’s ability to recognize revenue in the fourth quarter of 2020 for its backlog of customer orders will depend on the Company’s ability to manufacture and deliver products to the customers and fulfill its other contractual obligations. Beginning March 2020, the Company has experienced increased orders as the Company’s customers remained committed to their builds and other projects to expand communications networks, which are part of the world’s critical infrastructure. However, while national carriers have declared a commitment to capital equipment expenditures despite the COVID pandemic, COVID has impacted the deployments plans for 5G both in the near and mid-term. At this time, the Company does not have visibility into how long these customer ordering trends will continue. We expect that restrictions on our employees’ ability to access our customers may negatively impact sales in future quarters.

Cost of sales for the firstthird quarter of fiscal 2020 was $11,650,000, a decrease$15,180,000, an increase of $492,000,$1,700,000, or 4%13%, from $12,142,000$13,480,000 in the comparable period of fiscal 2019. Gross profit percent was 39.9%41.5% of net sales in the fiscal 2020 firstthird quarter, upan increase from 39.6%38.4% of net sales for the fiscal 2019 firstthird quarter. Gross profit decreased $219,000,increased $2,378,000, or 3%28%, to $7,728,000$10,790,000 for the quarterthree months ended December 31, 2019June 30, 2020 from $7,947,000$8,413,000 in the comparable period in fiscal 2019. The decreaseincrease in gross profit in the firstthird quarter of fiscal 2020 was due to decreasedincreased volume while the increase in gross profit percent was primarily due to a favorable product mix.mix and cost reduction efforts across the Company’s product lines, including greater use of its Mexico manufacturing plant, efficiencies realized from supply chain programs, and lower tariff costs. Gross profit was negatively impacted by tariff costs of approximately $127,000 for the three months ended June 30, 2020 and $318,000 in the comparable period in fiscal 2019. In the third quarter of fiscal 2020, the Company did not experience any significant impacts on cost of sales due to COVID-19.

Selling, general and administrative expenses increased $550,000,$336,000, or 8%5%, to $7,326,000$7,207,000 in the third quarter fiscal 2020 first quarter from $6,776,000$6,871,000 for the fiscal 2019 firstthird quarter. The increase in expense in the firstthird quarter of fiscal 2020 when comparedconsists primarily of increases of $692,000 in compensation expense due to additional personnel, and $279,000 in product certification testing expenses, offset by lower travel, entertainment and marketing costs of $499,000 and $126,000, respectively, due to COVID-19 restrictions. In the firstthird quarter of fiscal 2019 consists primarily of an increase of $594,000 in compensation2020, other than the travel and marketing costs mentioned, the Company did not experience any significant impacts on selling, general and administrative expense due primarily to additional sales and engineering personnel and an increase of $160,000 of external sales commissions and agent fees. These were somewhat offset by a decrease of $271,000 in stock compensation expense in the quarter.COVID-19.

Income from operations for the quarter ended December 31, 2019June 30, 2020 was $402,000$3,583,000 compared to income from operations of $1,171,000$1,542,000 for the comparable quarter of fiscal 2019, a decreasean increase of approximately 66%132%. This decreaseincrease is primarily attributable to increased gross profit, offset by higher selling, general and administrative expenses.

Interest income for the quarter ended December 31, 2019June 30, 2020 was $223,000$175,000 compared to $135,000$213,000 for the comparable quarter for fiscal 2019. The increasedecrease is due to higher investment balances andlower interest rates earned on its investments in the third quarter of fiscal 2020. We expect interest income to decline due to the prevailing lower interest rates and the potential for further decreases in rates in the current economic environment. The Company invests its excess cash primarily in FDIC-backed bank certificates of deposit, US TreasuryU.S. treasury securities, and money market accounts.

We recorded a provision for income taxes of $123,000$763,000 and $296,000$454,000 for the quartersthree months ended December 31,June 30, 2020 and 2019, and 2018, respectively. We record our quarterly provision for income taxes based on our estimated annual effective tax rate for the year. The decreaseincrease in tax expense of $173,000$309,000 from the firstthird quarter for fiscal 2019 is primarily due decreased taxableto increased income during the first quarter for fiscal 2020, as well as a lower effective tax rate. from operations. The decrease in the income tax expense rate to 19.7%20.3% for the firstthird quarter of fiscal 2020 from 22.7%25.9% for the firstthird quarter of fiscal 2019 is primarily due to increased research and development costs.tax credits and FDII deduction.

The Company’s net income for the quarterthree months ended December 31, 2019June 30, 2020 was $501,000,$2,995,000, or $0.04$0.22 per basic and diluted share. The Company’s net income for the quarterthree months ended December 31, 2018June 30, 2019 was $1,010,000,$1,301,000, or $0.08$0.10 per basic and diluted share.

NINE months ended JUNE 30, 2020 vS. NINE months ended June 30, 2019

Net sales for the nine months ended June 30, 2020 were $65,757,000, an increase of 8%, or approximately $4,691,000, from net sales of $61,066,000 for the first nine months of fiscal 2019. Net sales to Broadband Service providers were $63,102,000 for the first nine months of fiscal 2020, versus $57,887,000 in the same period of fiscal 2019. Among this group, the Company recorded $2,991,000 in International sales versus $5,205,000 in the same period of fiscal 2019. Net sales to Build-to-Print customers were $2,655,000 in the first nine months of fiscal 2020 versus $3,179,000 in the same period of fiscal 2019. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Accordingly, international sales represented 5% and 9% of total net sales for the first nine months of fiscal 2020 and 2019, respectively.

The increase in net sales for the nine months ended June 30, 2020 of $4,691,000 compared to the nine months ended June 30, 2019 is primarily attributable to an increase in sales to Tier 1, MSO, and Community Broadband customers of $2,960,000, $2,773,000 and $1,701,000 respectively. This was offset by decreased sales to International customers of $2,213,000, and Build-to-Print of $530,000.

Cost of sales for the nine months ended June 30, 2020 was $39,087,000, an increase of $1,406,000, or 4%, from $37,681,000 in the comparable period of fiscal 2019. Gross profit percent was 40.6% of net sales in the fiscal 2020 first nine months, up from 38.3% for the comparable nine months in fiscal 2019. Gross profit increased $3,285,000, or 14%, to $26,669,000 for the nine months ended June 30, 2020 from $23,385,000 in the comparable period in fiscal 2019. The increase in gross profit in the nine months ended June 30, 2020 was due to increased volume and a higher gross profit percent. The increase in gross profit percent was primarily due to improved manufacturing efficiencies and costs in its manufacturing facilities, and lower tariff costs. Tariff costs were $288,000 in the nine months ended June 30, 2020, compared to $877,000 in the comparable nine month period. In the nine months ended June 30, 2020, the Company did not experience any significant impacts on cost of sales due to COVID-19.

Selling, general and administrative expenses increased 8%, or $1,590,000, from $20,375,000 for the first nine months of fiscal 2019 to $21,965,000 for the first nine months of fiscal 2020. The increase in the first nine months of fiscal 2020 consists primarily of increases of $2,524,000 in compensation expense due to additional personnel, and $536,000 in product certification testing expenses, offset by decreases of $924,000 in stock-based compensation expense, and lower travel, entertainment and marketing costs of $590,000 and $178,000, respectively, due to COVID-19 restrictions.

Income from operations for the nine months ended June 30, 2020 was $4,704,000 compared to income from operations of $3,010,000 for the first nine months of fiscal 2019, a increase of $1,694,000, or 56%. This increase is primarily attributable to increased gross profit, offset by increased selling, general and administrative expenses.

Interest income for the nine months ended June 30, 2020 was $616,000 compared to $517,000 for the comparable period for fiscal 2019. The increase is due to increased balances and higher interest rates earned on investments in the first half of fiscal 2020.

We recorded a provision for income taxes of $1,076,000 and $849,000 for the nine months ended June 30, 2020 and 2019, respectively. The increase in tax expense of $227,000 from the nine months ended June 30, 2019 is primarily due to increased pre-tax income offset by a lower effective tax rate for the nine months ended June 30, 2020. The decrease in the effective tax rate to 20.2% for the nine months ended June 30, 2020 from 24.1% for the nine months ended June 30, 2019 is primarily due to increased research and development credits and FDII deduction.

The Company’s net income for the first nine months of fiscal 2020 ended June 30, 2020 was $4,244,000, or $0.31 per basic and diluted share. The Company’s net income for the first nine months of fiscal 2019 ended June 30, 2019 was $2,678,000, or $0.20 per basic and diluted share.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2019,June 30, 2020, our principal source of liquidity was our cash, cash equivalents and short-term investments. Those sources total $25,110,000$20,372,000 as of December 31, 2019June 30, 2020 compared to $23,606,000 as of September 30, 2019. Our excess cash is invested mainly in certificates of deposit backed by the FDIC, USU.S. Treasury securities and money market accounts. Substantially all of our funds are insured by the FDIC or backed by the United StatesU.S. Government. Investments considered long-term were $21,704,000$28,072,000 as of December 31, 2019,June 30, 2020, compared to $23,902,000 as of September 30, 2019. We believe the combined balances of short-term cash and investments along with long-term investments provide a more accurate indication of our available liquidity. At the end of the third quarter 2020, our cash, cash equivalents and short-term and long-term investments remained consistent at $48.4 million compared to the prior quarter end. We had no long-term debt obligations as of December 31, 2019June 30, 2020 or September 30, 2019.

We believe our existing cash equivalents and short-term investments, along with cash flow from operations, will be sufficient to meet our working capital and investment requirements for beyond the next 12 months. The Company intends on utilizing its available cash and assets primarily for its continued organic growth and potential future strategic transactions, as well as executionto mitigate the potential impacts of COVID-19 on the share repurchase program adopted by our Board of Directors. The share repurchase program was originally adopted on November 13, 2014 with $8,000,000 authorized for common stock repurchases. On April 25, 2017, our Board of Directors increased the authorization to $12,000,000 of common stock.Company’s business.

Operating ActivitiesDue to the economic crisis resulting from the COVID-19 pandemic, our future cash flow from operating and investing activities may be negatively impacted. Our uses of cash may also be materially impacted by increased operating expense associated with mitigating supply chain, logistics, and customer fulfillment risks caused by COVID-19.

Operating Activities

Net cash used inprovided by operating activities totaled $100,000$2,440,000 for the threenine months ended December 31, 2019.June 30, 2020. This was primarily due to net income of $501,000,$4,244,000, non-cash expenses for depreciation and amortization of $607,000,$1,825,000, and stock basedstock-based compensation of $241,000$542,000 in addition to changes in operating assets and liabilities providing cash. Changes in operating assets and liabilities using cash include increasesan increase in inventory of $1,617,000, decreases$5,869,000, offset by increases in accounts payable, accrued expenses and deferred rent of $1,816,000, offset by decreases$1,554,000. The increase in accounts receivableinventory is a result of $2,093,000.additional stocking levels to support the Company’s increased backlog and higher demand, and additional safety stock across the Company’s multiple locations due to the uncertainty of COVID-19 on the Company’s supply chain and manufacturing locations. Accounts receivable balances can be influenced by the timing of shipments for customer projects and payment terms. Day’s sales outstanding, which measures how quickly receivables are collected, decreased two daysone day to 3332 days from September 30, 2019 to December 31, 2019. The increase in inventory represents an adjustment for seasonal demand along with changes in stocking levels. Changes in working capital reflects items using cash, including a decrease in accounts payable and accrued expenses of $1,848,000 which primarily reflects fiscal 2019 accrued bonus compensation accruals and accounts payable paid in the first quarter of fiscalJune 30, 2020.

Net cash provided by operating activities totaled $6,826,000$8,909,000 for the threenine months ended December 31, 2018.June 30, 2019. This was primarily due to net income of $1,010,000,$2,678,000, non-cash expenses for depreciation and amortization of $529,000,$1,613,000, and stock basedstock-based compensation of $539,000$1,536,000 in addition to changes in operating assets and liabilities providing cash. Changes in operating assets and liabilities providing cash include decreases in accounts receivable and inventories of $4,654,000$3,308,000 and $424,000,$626,000, respectively. Accounts receivable balances can be influenced by the timing of shipments for customer projects and payment terms. Day’s sales outstanding, which measures how quickly receivables are collected, decreased 15from 52 days to 37 days fromat September 30, 2018 to December 31, 2018.39 days at June 30, 2019. The decrease in inventory represents an adjustment for seasonal demand along with changes inis a result of stocking levels. Changes in working capital items using cash include a decrease in accounts payable, accrued expenses and deferred rent of $432,000levels being maintained by suppliers, which primarily reflects fiscal 2018 accrued bonus compensation accruals paid inreduced the first quarter of fiscal 2019.

Company’s inventory.

Investing Activities

Investing Activities

We invest our excess cash in money market accounts, USU.S. Treasury securities and bank CDs in denominations across numerous banks. We believe we obtain a competitive rate of return given the economic climate along with the security provided by the FDIC and USU.S. Government on these investments. During the threenine months ended December 31, 2019,June 30, 2020, we used cash to purchase $3,211,000$31,838,000 of both FDIC-backed and treasury securities and received $4,438,000$30,163,000 on CDs and treasuries that matured. Purchases of property, plant and equipment, mainly related to manufacturing equipment, consumed $757,000$1,493,000 of cash during the threenine months ended December 31, 2019.

June 30, 2020.

During the threenine months ended December 31, 2018,June 30, 2019, we used cash to purchase $1,558,000$17,444,000 of both FDIC-backed and treasury securities and received $1,680,000$7,235,000 on CDs that matured. Purchases of patents and capital equipment, mainly related to information technology and manufacturing equipment, consumed $277,000$1,100,000 of cash duringin the threenine months ended December 31, 2018.

June 30, 2019.

Financing Activities

For the threenine months ended December 31, 2019,June 30, 2020, we received $170,000$349,000 from employees’ participation and purchase of stock through our ESPP and used $6,000 to pay for taxes as a result of employees’ vesting of restricted shares using share withholding. We used $429,000 to repurchase 41,796 shares of our common stock under the share repurchase program in the nine months ended June 30, 2020. As of June 30, 2020, we had the authority to purchase approximately $4,981,000 in additional shares under the repurchase program announced on November 13, 2014 that was subsequently increased on April 25, 2017. In April 2020, the Board of Directors suspended the share repurchase plan due to uncertainties caused by COVID-19 and the Company’s desire to maintain capital flexibility.

For the threenine months ended December 31, 2018,June 30, 2019, we received $146,000$314,000 from employees’ participation and purchase of stock through our ESPP and used $7,000$432,000 to pay for taxes as a result of employees’ vesting of restricted shares using share withholding. We did not repurchase our common stock under the repurchase program in the nine months ended June 30, 2019. As of June 30, 2019, approximately $5,400,000 in additional shares were available for purchase under the repurchase program announced on November 13, 2014 that was subsequently increased on April 25, 2017.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management utilizes its technical knowledge, cumulative business experience, judgment and other factors in the selection and application of the Company’s accounting policies. The accounting policies considered by management to be the most critical to the presentation of the financial statements because they require the most difficult, subjective and complex judgments include revenue recognition, stock basedstock-based compensation, and valuation of inventory, long-lived assets, finite lived intangible assets and goodwill.

These accounting policies are described in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended September 30, 2019. Management made no changes to the Company’s critical accounting policies during the quarter ended December 31, 2019.

June 30, 2020.

In applying its critical accounting policies, management reassesses its estimates each reporting period based on available information. Changes in these estimates did not have a significant impact on earnings for the quarter ended December 31, 2019.June 30, 2020.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2019.June 30, 2020. Based upon that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes to the Company’s internal control over financial reporting, as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, that occurred during the quarter ended December 31, 2019 June 30, 2020 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no pending legal proceedings against or involving the Company for which the outcome is likely to have a material adverse effect upon its financial position or results of operations.

ITEM 1A. RISK FACTORS

The most significant risk factors applicable to the Company are described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended September 30, 2019.2019, as updated by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K.

10-K, as updated.