UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~[ X ]~~☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2020~~2021

~~[ ]~~☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to ___________________

Commission File Number 0-16106

Clearfield, Inc.

(Exact name of Registrant as specified in its charter)

Minnesota	41-1347235
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7050 Winnetka Avenue North, Suite 100, Brooklyn Park, Minnesota 55428

(Address of principal executive offices and zip code)

(763) 476-6866

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value	CLFD	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

~~[X]~~

☒ YES ~~[_]~~☐ NO

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

~~[X]~~☒ YES ~~[_]~~ ☐NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company in Rule 12b-2 of the Exchange Act.

Large accelerated filer ~~[_]~~☐ Accelerated filer ~~[X]~~ ☐ Non-accelerated filer ☒~~[_]~~

Smaller reporting company ~~[X]~~ ☒ Emerging growth company ~~[_]~~

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ~~[_]~~☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

~~[_]~~☐ YES ~~[X]~~☒ NO

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class:	Outstanding as of April 14, ~~2020~~2021
Common stock, par value $.01	~~13,627,639~~13,732,806

CLEARFIELD, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CLEARFIELD, INC.

CONDENSED BALANCE SHEETS

(Unaudited)
March 31,
2020 September 30,
2019
Assets
Current Assets
Cash and cash equivalents $ 8,575,556 $ 10,081,721
Short-term investments 14,708,841 13,524,270
Accounts receivables, net 8,069,531 9,118,639
Inventories, net 11,688,103 9,012,980
Other current assets 687,881 769,161
Total current assets 43,729,912 42,506,771

Property, plant and equipment, net 5,563,814 5,413,241

Other Assets
Long-term investments 25,130,000 23,902,000
Goodwill 4,708,511 4,708,511
Intangible assets, net 4,968,938 5,147,135
Right of use lease asset 2,911,577 -
Other 194,174 210,905
Total other assets 37,913,200 33,968,551
Total Assets $ 87,206,926 $ 81,888,563

Liabilities and Shareholders’ Equity
Current Liabilities
Current portion of lease liability $ 714,008 $ -
Accounts payable 3,873,534 3,173,599
Accrued compensation 3,472,731 3,224,860
Accrued expenses 327,363 208,603
Total current liabilities 8,387,636 6,607,062

Other Liabilities
Long-term portion of lease liability 2,468,858 -
Deferred taxes 101,690 101,690
Deferred rent - 246,424
Total other liabilities 2,570,548 348,114
Total liabilities 10,958,184 6,955,176

Shareholders’ Equity
Preferred stock, $.01 par value; 500,000 shares; no shares issued or outstanding - -
Common stock, authorized 50,000,000, $.01 par value; 13,627,639 and 13,641,805 shares issued and outstanding as of March 31, 2020 and September 30, 2019 136,276 136,418
Additional paid-in capital 57,042,604 56,976,162
Retained earnings 19,069,862 17,820,807
Total shareholders’ equity 76,248,742 74,933,387
Total Liabilities and Shareholders’ Equity $ 87,206,926 $ 81,888,563

~~SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS~~

	(Unaudited) March 31, 2021		September 30, 2020
Assets
Current Assets
Cash and cash equivalents	$	22,338,721	$	16,449,636
Short-term investments		9,957,831		10,582,527
Accounts receivables, net		13,195,295		10,496,672
Inventories, net		14,627,176		14,408,538
Other current assets		717,599		585,436
Total current assets		60,836,622		52,522,809

Property, plant and equipment, net		4,749,530		4,952,819

Other Assets
Long-term investments		25,565,000		25,143,000
Goodwill		4,708,511		4,708,511
Intangible assets, net		4,793,137		4,986,216
Right of use lease assets		2,724,233		2,539,100
Deferred tax asset		178,118		178,118
Other		262,352		266,857
Total other assets		38,231,351		37,821,802
Total Assets	$	103,817,503	$	95,297,430

Liabilities and Shareholders’ Equity
Current Liabilities
Current portion of lease liability	$	887,677	$	665,584
Accounts payable		5,011,965		3,689,587
Accrued compensation		5,496,056		4,856,885
Accrued expenses		492,758		1,202,753
Total current liabilities		11,888,456		10,414,809

Other Liabilities
Long-term portion of lease liability		2,080,562		2,129,343
Total other liabilities		2,080,562		2,129,343
Total liabilities		13,969,018		12,544,152

Shareholders’ Equity
Preferred stock, $.01 par value; 500,000 shares; no shares issued or outstanding		-		-
Common stock, authorized 50,000,000, $.01 par value; 13,732,806 and 13,649,962 shares issued and outstanding as of March 31, 2021 and September 30, 2020.		137,328		136,500
Additional paid-in capital		57,794,061		57,502,905
Retained earnings		31,917,096		25,113,873
Total shareholders’ equity		89,848,485		82,753,278
Total Liabilities and Shareholders’ Equity	$	103,817,503	$	95,297,430

~~CLEARFIELD, INC.~~

~~CONDENSED STATEMENTS OF EARNINGS~~

~~UNAUDITED~~

Three Months Ended Six Months Ended
March 31, March 31,
2020 2019 2020 2019

Net sales $ 20,408,509 $ 19,084,365 $ 39,786,500 $ 39,173,515

Cost of sales 12,257,076 12,059,122 23,907,532 24,201,574

Gross profit 8,151,433 7,025,243 15,878,968 14,971,941

Operating expenses
Selling, general and administrative 7,431,261 6,727,744 14,757,881 13,503,619
Income from operations 720,172 297,499 1,121,087 1,468,322

Interest income 217,725 169,443 440,968 304,580

Income before income taxes 937,897 466,942 1,562,055 1,772,902

Income tax expense 190,000 99,000 313,000 395,000
Net income $ 747,897 $ 367,942 $ 1,249,055 $ 1,377,902

Net income per share Basic $ 0.05 $ 0.02 $ 0.09 $ 0.10
Net income per share Diluted $ 0.05 $ 0.02 $ 0.09 $ 0.10

Weighted average shares outstanding:
Basic 13,521,172 13,422,222 13,516,608 13,411,183
Diluted 13,521,172 13,450,212 13,571,674 13,425,178

~~SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS~~

~~CLEARFIELD, INC.~~

~~CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY~~

~~UNAUDITED~~

~~For the three months ended March 31, 2020~~

Common Stock Additional Retained Total share-
Shares Amount paid-in capital earnings holders’ equity
Balance at December 31, 2019 13,657,459 $ 136,575 $ 57,383,020 $ 18,321,965 $ 75,841,560
Repurchase of common stock (41,796 ) (418 ) (428,236 ) - (428,654 )
Stock-based compensation expense - - 87,937 - 87,937
Restricted stock issuance, net 9,580 96 (96 ) - -
Exercise of stock options 2,396 23 (21 ) - 2
Net income - - - 747,897 747,897
Balance at March 31, 2020 13,627,639 $ 136,276 $ 57,042,604 $ 19,069,862 $ 76,248,742

~~For the three months ended March 31, 2019~~

Common Stock Additional Retained Total share-
Shares Amount paid-in capital earnings holders’ equity
Balance at December 31, 2018 13,662,456 $ 136,625 $ 56,161,405 $ 14,264,611 $ 70,562,641
Stock-based compensation expense - - 563,666 - 563,666
Restricted stock issuance, net 3,486 35 (35 ) - -
Exercise of stock options, net of shares exchanged for payment 2,466 24 (17 ) - 7
Net income - - - 367,942 367,942
Balance at March 31, 2019 13,668,408 $ 136,684 $ 56,725,019 $ 14,632,553 $ 71,494,256

SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS

CLEARFIELD, INC.

CONDENSED STATEMENTS OF EARNINGS

UNAUDITED

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2021		2020		2021		2020

Net sales	$	29,691,934	$	20,408,509	$	56,784,081	$	39,786,500

Cost of sales		16,750,354		12,257,076		32,473,256		23,907,532

Gross profit		12,941,580		8,151,433		24,310,825		15,878,968

Operating expenses
Selling, general and administrative		8,490,120		7,431,261		16,145,657		14,757,881
Income from operations		4,451,460		720,172		8,165,168		1,121,087

Interest income		123,324		217,725		257,055		440,968

Income before income taxes		4,574,784		937,897		8,422,223		1,562,055

Income tax expense		935,000		190,000		1,619,000		313,000
Net income	$	3,639,784	$	747,897	$	6,803,223	$	1,249,055

Net income per share Basic	$	0.27	$	0.05	$	0.50	$	0.09
Net income per share Diluted	$	0.27	$	0.05	$	0.50	$	0.09

Weighted average shares outstanding:
Basic		13,730,150		13,521,172		13,711,135		13,516,608
Diluted		13,779,779		13,521,172		13,738,090		13,571,674

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

CLEARFIELD, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY

UNAUDITED

For the three months ended March 31, 2021

	Common Stock						Additional			Retained		Total share-
	Shares			Amount			paid-in capital			earnings		holders’ equity
Balance at December 31, 2020		13,727,906		$	137,279		$	57,696,847		$	28,277,312	$	86,111,438
Stock-based compensation expense		-			-			334,178			-		334,178
Restricted stock issuance, net of forfeitures		(1,178	)		(12	)		12			-		-
Exercise of stock options, net of shares exchanged for payment		7,828			79			(193,733	)		-		(193,654	)
Tax withholding related to vesting of restricted stock grants		(1,750	)		(18	)		(43,243	)		-		(43,261	)
Net income		-			-			-			3,639,784		3,639,784
Balance at March 31, 2021		13,732,806		$	137,328		$	57,794,061		$	31,917,096	$	89,848,485

For the three months ended March 31, 2020

	Common Stock						Additional			Retained		Total share-
	Shares			Amount			paid-in capital			earnings		holders’ equity
Balance at December 31, 2019		13,657,459		$	136,575		$	57,383,020		$	18,321,965	$	75,841,560
Repurchase of common stock		(41,796	)		(418	)		(428,236	)		-		(428,654	)
Stock-based compensation expense		-			-			87,937			-		87,937
Restricted stock issuance, net		9,580			96			(96	)		-		-
Exercise of stock options, net of shares exchanged for payment		2,396			23			(21	)		-		2
Net income		-			-			-			747,897		747,897
Balance at March 31, 2020		13,627,639		$	136,276		$	57,042,604		$	19,069,862	$	76,248,742

SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS

CLEARFIELD, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY

UNAUDITED

For the six months ended March 31, ~~2020~~ 2021

	Common Stock						Additional			Retained		Total share-			Common Stock						Additional			Retained		Total share-
	Shares			Amount			paid-in capital			earnings		holders’ equity			Shares			Amount			paid-in capital			earnings		holders’ equity
Balance as of September 30, 2019		13,641,805		$	136,418		$	56,976,162		$	17,820,807	$	74,933,387
Repurchase of common stock		(41,796	)	$	(418	)	$	(428,236	)	$	-	$	(428,654	)
Balance as of September 30, 2020																13,649,962		$	136,500		$	57,502,905		$	25,113,873	$	82,753,278
Stock-based compensation expense		-			-			328,523			-		328,523			-			-			623,235			-		623,235
Restricted stock issuance, net		9,580			96			(96	)		-		-
Restricted stock issuance, net of forfeitures																36,509			365			(365	)		-		-
Issuance of common stock under employee stock purchase plan		15,107			151			169,501			-		169,652			15,011			150			178,931			-		179,081
Exercise of stock options, net of shares exchanged for payment		3,396			33			2,549			-		2,582			33,543			336			(456,460	)		-		(456,124	)
Tax withholding related to vesting of restricted stock grants		(453	)		(4	)		(5,799	)		-		(5,803	)		(2,219	)		(23	)		(54,185	)		-		(54,208	)
Net income		-			-			-			1,249,055		1,249,055			-			-			-			6,803,223		6,803,223
Balance at March 31, 2020		13,627,639		$	136,276		$	57,042,604		$	19,069,862	$	76,248,742
Balance at March 31, 2021																13,732,806		$	137,328		$	57,794,061		$	31,917,096	$	89,848,485

For the six months ended March 31, ~~2019~~ 2020

	Common Stock						Additional			Retained		Total share-			Common Stock						Additional			Retained		Total share-
	Shares			Amount			paid-in capital			earnings		holders’ equity			Shares			Amount			paid-in capital			earnings		holders’ equity
Balance as of September 30, 2018		13,646,553		$	136,466		$	55,483,759		$	13,254,651	$	68,874,876
Balance as of September 30, 2019																13,641,805		$	136,418		$	56,976,162		$	17,820,807	$	74,933,387
Repurchase of common stock																(41,796	)	$	(418	)	$	(428,236	)	$	-	$	(428,654	)
Stock-based compensation expense		-			-			1,102,190			-		1,102,190			-			-			328,523			-		328,523
Restricted stock issuance, net		(352	)		(4	)		4			-		-			9,580			96			(96	)		-		-
Issuance of common stock under employee stock purchase plan		17,312			173			145,767			-		145,940			15,107			151			169,501			-		169,652
Exercise of stock options, net of shares exchanged for payment		5,440			54			(30	)		-		24			3,396			33			2,549			-		2,582
Tax withholding related to vesting of restricted stock grants		(545	)		(5	)		(6,671	)		-		(6,676	)		(453	)		(4	)		(5,799	)		-		(5,803	)
Net income		-			-			-			1,377,902		1,377,902			-			-			-			1,249,055		1,249,055
Balance at March 31, 2019		13,668,408		$	136,684		$	56,725,019		$	14,632,553	$	71,494,256
Balance at March 31, 2020																13,627,639		$	136,276		$	57,042,604		$	19,069,862	$	76,248,742

SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS

CLEARFIELD, INC.

CONDENSED STATEMENTS OF CASH FLOWS

UNAUDITED

	Six Months Ended March 31,
	2021			2020
Cash flows from operating activities
Net income	$	6,803,223		$	1,249,055
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		1,139,261			1,210,961
Change in allowance for doubtful accounts		209,612			-
Amortization of discount on investments		-			(55,641	)
Stock-based compensation		623,235			328,523
Changes in operating assets and liabilities:
Accounts receivable		(2,908,235	)		1,049,108
Inventories, net		(218,638	)		(2,675,123	)
Other assets		(188,542	)		98,010
Accounts payable and accrued expenses		1,239,733			1,091,431
Net cash provided by operating activities		6,699,649			2,296,324

Cash flows from investing activities
Purchases of property, plant and equipment and intangible assets		(682,009	)		(1,183,336	)
Purchases of investments		(6,448,304	)		(19,076,930	)
Proceeds from maturities of investments		6,651,000			16,720,000
Net cash used in investing activities		(479,313	)		(3,540,266	)

Cash flows from financing activities
Proceeds from issuance of common stock under employee stock purchase plan		179,081			169,652
Tax withholding related to exercise of stock options		(456,124	)		2,582
Tax withholding related to vesting of restricted stock grants		(54,208	)		(5,803	)
Repurchase of common stock		-			(428,654	)
Net cash used in financing activities		(331,251	)		(262,223	)

Increase (Decrease) in cash and cash equivalents		5,889,085			(1,506,165	)

Cash and cash equivalents, beginning of period		16,449,636			10,081,721

Cash and cash equivalents, end of period	$	22,338,721		$	8,575,556

Supplemental disclosures for cash flow information
Cash paid during the year for income taxes	$	2,331,002		$	355,657

Non-cash financing activities
Cashless exercise of stock options	$	1,269,414		$	7,737

Six Months Ended March 31,
2020 2019
Cash flows from operating activities
Net income $ 1,249,055 $ 1,377,902
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization 1,210,961 1,064,024
Change in allowance for doubtful accounts - 210,000
Amortization of discount on investments (55,641 ) (15,855 )
Stock-based compensation 328,523 1,102,190
Changes in operating assets and liabilities:
Accounts receivable, net 1,049,108 3,623,266
Inventories, net (2,675,123 ) 1,776,613
Other assets 98,010 (486,554 )
Accounts payable, accrued expenses and deferred rent 1,091,431 (179,024 )
Net cash provided by operating activities 2,296,324 8,472,562

Cash flows from investing activities
Purchases of property, plant and equipment and intangible assets (1,183,336 ) (551,607 )
Purchases of investments (19,076,930 ) (12,274,393 )
Proceeds from maturities of investments 16,720,000 3,572,000
Net cash used in investing activities (3,540,266 ) (9,254,000 )

Cash flows from financing activities
Proceeds from issuance of common stock under employee stock purchase plan 169,652 145,940
Proceeds from issuance of common stock upon exercise of stock options 2,582 24
Tax withholding related to vesting of restricted stock grants (5,803 ) (6,676 )
Repurchase of common stock (428,654 ) -
Net cash (used in) provided by financing activities (262,223 ) 139,288

Decrease in cash and cash equivalents (1,506,165 ) (642,150 )

Cash and cash equivalents, beginning of period 10,081,721 8,547,777

Cash and cash equivalents, end of period 8,575,556 7,905,627

Supplemental disclosures for cash flow information
Cash paid during the year for income taxes $ 355,657 $ 1,051,716

Non-cash financing activities
Cashless exercise of stock options $ 7,737 $ 17,390

SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTES TO CONDENSED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying (a) condensed balance sheet as of September 30, ~~2019,~~2020, which has been derived from audited financial statements, and (b) unaudited interim condensed financial statements as of and for the three and six months ended March 31, ~~2020~~2021 have been prepared by ~~the Company~~Clearfield, Inc. (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission. Pursuant to these rules and regulations, certain financial information and footnote disclosures normally included in the financial statements have been condensed or omitted. However, in the opinion of management, the financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position, results of operations and cash flows of the interim periods presented. Operating results for the interim periods presented are not necessarily indicative of results to be expected for the full year or for any other interim period, due to variability in customer purchasing patterns and seasonal, operating and other factors. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, ~~2019.~~2020.

In preparation of the Company’s financial statements, management is required to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses during the reporting periods. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

~~Recently Adopted~~For the purposes of comparability, certain prior period amounts have been reclassified to conform to current period classification. There was no impact to prior period net income or shareholders’ equity.

New Accounting Pronouncements

~~Effective October 1, 2019 we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02,~~ ~~Leases~~, using the effective date method under the modified retrospective approach. The amended guidance requires lessees, at the commencement date, to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis, and to record a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. In ~~July 2018,~~January 2017, the FASB issued ASU ~~2018-11,~~ ~~Leases, Targeted Improvements~~,2017-04, Intangibles-Goodwill, which ~~gave companies~~offers amended guidance to simplify the ~~option~~accounting for goodwill impairment by removing Step 2 of ~~applying~~ the ~~new standard at~~goodwill impairment test. A goodwill impairment will now be measured as the ~~adoption date, rather than retrospectively~~amount by which a reporting unit’s carrying value exceeds its fair value, limited to the ~~earliest period presented~~amount of goodwill allocated to that reporting unit. This guidance is to be applied on a prospective basis effective for the Company’s interim and annual periods beginning after December 15, 2019. The new guidance is effective for the Company beginning in the ~~financial statements.~~first quarter of fiscal 2021. The Company elected the package of practical expedients permitted under the new standard, which among other things, allowed the Company to carry forward the historical lease classification. The Company also elected the practical expedient to not recognize a lease liability and ROU asset for short-term leases less than 12 months. We chose the option to apply the new standard at the adoption date, and therefore we are not required to restate the financial statements for prior periods, nor are we required to provide the disclosures required by the new standard for prior periods. Upon adoption, we recognized an approximate $2.4 million right-of-use asset, and an approximate $2.6 million lease liability. Our adoption of ASU 2017-04 in the ~~new standard~~first quarter of fiscal 2021 did not ~~impact our cash flows or~~ have a material impact on ~~our results~~the Company’s financial statements.

In June 2016, the FASB issued ASU 2016-13, Measurement of ~~operations. We have expanded~~Credit Losses on Financial Instruments. In November 2018, the FASB issued update ASU 2018-19 that clarifies the scope of the standard in the amendments in ASU 2016-13. This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. Financial instruments impacted include accounts receivable, trade receivables, other financial assets measured at amortized cost and other off-balance sheet credit exposures. The new guidance is effective for the Company beginning in the first quarter of fiscal 2023, with early adoption permitted. The Company is evaluating the impact of the adoption of ASU 2016-13 on our financial ~~statement disclosures to comply with the requirements of the new standard.~~statements.

Note 2. Net Income Per Share

Basic net income per common share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the reporting period. Diluted EPS equals net income divided by the sum of the weighted average number of shares of common stock outstanding plus all additional common stock equivalents, such as stock options, when dilutive.

The following is a reconciliation of the numerator and denominator of the net income per common share computations for the three and six months ended March 31, ~~2020~~2021 and ~~2019:~~2020:

	Three Months Ended March 31,				Six Months Ended March 31,				Three Months Ended March 31,				Six Months Ended March 31,
	2020		2019		2020		2019		2021		2020		2021		2020
Net income	$	747,897	$	367,942	$	1,249,055	$	1,377,902	$	3,639,784	$	747,897	$	6,803,223	$	1,249,055
Weighted average common shares		13,521,172		13,422,222		13,516,608		13,411,183		13,730,150		13,521,172		13,711,135		13,516,608
Dilutive potential common shares		-		27,990		55,066		13,995		49,629		-		26,956		55,066
Weighted average dilutive common shares outstanding		13,521,172		13,450,212		13,571,674		13,425,178		13,779,779		13,521,172		13,738,090		13,571,674
Net income per common share:
Basic	$	0.05	$	0.02	$	0.09	$	0.10	$	0.27	$	0.05	$	0.50	$	0.09
Diluted	$	0.05	$	0.02	$	0.09	$	0.10	$	0.27	$	0.05	$	0.50	$	0.09

Note 3. Cash, Cash Equivalents, and Investments

The Company ~~currently~~ invests its excess cash in bank certificates of deposit (“CDs”) that are fully insured by the Federal Deposit Insurance Corporation (“FDIC”) ~~and Unites States Treasury (“Treasuries”) securities with terms of not more than five years,~~ as well as money market accounts. CDs ~~and Treasuries~~ with original maturities of more than three months are reported as held-to-maturity investments and are recorded at amortized cost, which approximates fair value due to the negligible risk of changes in value due to interest rates. The maturity dates of the Company’s investments as of March 31, ~~2020~~2021 and September 30, ~~2019~~2020 are as follows:

	March 31, 2020		September 30, 2019		March 31, 2021		September 30, 2020
Less than one year	$	14,708,841	$	13,524,270	$	9,957,831	$	10,582,527
1-5 years		25,130,000		23,902,000		25,565,000		25,143,000
Total	$	39,838,841	$	37,426,270	$	35,522,831	$	35,725,527

Note 4. Stock-Based Compensation

The Company recorded ~~$87,937~~$334,178 and ~~$328,523~~$623,235 of compensation expense related to current and past restricted stock grants, non-qualified stock options and the Company’s Employee Stock Purchase Plan (“ESPP”) for the three and six months ended March 31, 2021, respectively, For the three months ended March 31, 2021, $313,658 of this expense is included in selling, general and administrative expense, and $20,520 is included in cost of sales. For the six months ended March 31, 2021, $594,546 of this expense is included in selling, general and administrative expense, and $28,689 is included in cost of sales. The Company recorded $87,937 and $328,523 of compensation expense related to current and past restricted stock grants, non-qualified stock options and the Company’s ESPP for the three and six months ended March 31, 2020, ~~respectively,~~respectively. For the three months ended March 31, 2020, $83,140 of this expense is included in selling, general and administrative expense, and $4,797 is included in cost of sales. For the six months ended March 31, 2020, $318,928 of this expense is included in selling, general and administrative expense, and $9,595 is included in cost of sales. The Company recorded $563,666 and $1,102,190 of compensation expense related to current and past stock option grants, restricted stock grants and the Company’s Employee Stock Purchase Plan (“ESPP”) for the three and six months ended March 31, 2019, respectively. For the three months ended March 31, 2019, $532,425 of this expense is included in selling, general and administrative expense, and $31,241 is included in cost of sales. For the six months ended March 31, 2019, $1,039,709 of this expense is included in selling, general and administrative expense, and $62,481 is included in cost of sales. As of March 31, ~~2020, $2,324,790~~2021, $3,182,923 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 ~~4.4~~3.4 years.

Stock Options

The Company uses the Black-Scholes option pricing model to determine the fair value of options granted. During the six months ended March 31, 2021, the Company granted employees non-qualified stock options to purchase an aggregate of 105,089 shares of common stock with a weighted average contractual term of five years, a weighted average three-year vesting term, and a weighted average exercise price of $23.74. During the six months ended March 31, 2020, the Company granted employees non-qualified stock options to purchase an aggregate of 116,600 shares of common stock with a weighted average contractual term of 5.78 years, a weighted average 4.78 year vesting term, and an exercise price of $12.43. During the six months ended March 31, 2019, the Company granted employees non-qualified stock options to purchase an aggregate of 172,000 shares of common stock with a weighted average contractual term of four years, a three year vesting term, and a weighted average exercise price of $12.17.

~~This~~The fair value of stock option awards during the six months ended March 31, ~~2020~~2021 was estimated as of the grant date using the ~~range of~~ assumptions listed below:

Six months ended March 31, 2020
Dividend yield 0%
Expected volatility 39.5 - 41.5%
Risk-free interest rate 1.65 - 1.69%
Expected life (years) 4 - 6
Vesting period (years) 3 - 5

	Six months ended
	March 31, 2021
Dividend yield		0	%
Expected volatility		46.9	%
Risk-free interest rate		0.24	%
Expected life (years)		5
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 as of the grant date on zero-coupon U.S. governmental bonds ~~having~~with 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. 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 six months ended March 31, ~~2020:~~2021:

Number of
options Weighted average
exercise price
Outstanding as of September 30, 2019 290,750 $ 11.86
Granted 116,600 12.43
Exercised (4,000 ) 2.58
Cancelled or Forfeited (48,000 ) 13.35
Outstanding as of March 31, 2020 355,350 $ 11.95

	Number of options			Weighted average exercise price
Outstanding as of September 30, 2020		337,100		$	12.48
Granted		105,089			23.74
Exercised		(101,800	)		12.47
Forfeited or Expired		(25,309	)		13.89
Outstanding as of March 31, 2021		315,080		$	16.13

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, ~~2020,~~2021, the weighted average remaining contractual term for all outstanding and exercisable stock options was ~~2.31~~2.79 years and their aggregate intrinsic value was $102,150. During the six months ended March 31, 2020, the Company received proceeds of $2,582 from the exercise of stock options. During the six months ended March 31, 2019, the Company received proceeds of $24 from the exercise of stock options.$890,093.

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 six months ended March 31, 2021, the Company granted non-employee directors elected at the Company’s 2021 Annual Meeting of Shareholders restricted stock awards totaling 2,120 shares of common stock, with a vesting term of approximately one year and a fair value of $32.41 per share. During the six months ended March 31, 2021, the Company also granted employees restricted stock awards totaling 37,687 shares of common stock, with a vesting term of approximately three years and a fair value of $23.74 per share.

During the six months ended March 31, 2020, the Company granted non-employee directors elected at the Company’s 2020 Annual Meeting of Shareholders restricted stock awards totaling 5,830 shares of common stock, with a vesting term of approximately one year and a fair value of $10.72 per share. The Company also granted 8,625 performance stock units entitling the participant to receive the same number of shares of the Company’s common stock, upon achievement of a fiscal year 2020 performance goal. The shares issued to the participant in settlement of the performance stock unit, if any, will be restricted stock subject to forfeiture that will vest one year following the settlement date of the performance stock unit. The Company has determined the fair value per underlying share of the performance stock unit awards to be $11.86 as of the grant date. These performance stock unit awards were forfeited during the six months ended March 31, 2020.

During the six months ended March 31, 2019, the Company granted non-employee directors elected at the Company’s 2019 Annual Meeting of Shareholders 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.

Restricted stock transactions during the six months ended March 31, ~~2020~~2021 are summarized as follows:

Number of
shares Weighted average grant
date fair value
Unvested shares as of September 30, 2019 130,440 $ 13.25
Granted 19,455 11.30
Vested (5,740 ) 14.01
Forfeited (9,875 ) 12.03
Unvested as of March 31, 2020 134,280 $ 13.02

	Number of shares			Weighted average grant date fair value
Unvested shares as of September 30, 2020		109,070		$	12.97
Granted		39,807			24.20
Vested		(12,230	)		11.08
Forfeited		(3,298	)		16.07
Unvested as of March 31, 2021		133,349		$	16.41

Employee Stock Purchase Plan

~~Clearfield, Inc.’s~~The Company’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~~six-month phases, with phases beginning on January 1 and July 1 of each calendar year. For the phases that ended on December 31, ~~2019~~2020 and December 31, ~~2018,~~2019, employees purchased ~~15,107~~15,011 and ~~17,312~~15,107 shares at a price of ~~$11.23~~$11.93 and ~~$8.43~~$11.23 per share, respectively. ~~In February 2020,~~After the ~~shareholders of Clearfield approved an increase of 200,000 shares to the Company’s ESPP share pool. As a result, as of March~~employee purchase on December 31, 2020, ~~the Company has 234,739~~204,612 shares of common stock were available for future purchase under the ESPP.

Note 5. Revenue

Revenue Recognition

Net sales include products and shipping and handling charges. Revenue is measured as the amount of consideration ~~we expect~~the Company expects to receive in exchange for transferring products. All revenue is recognized when ~~we satisfy our~~the Company satisfies its performance obligations under the contract. ~~We recognize~~The Company recognizes revenue by transferring the promised products to the customer, with substantially all revenue recognized at the point in time the customer obtains control of the products. ~~We recognize~~The Company recognizes revenue for shipping and handling charges at the time the products are delivered to or picked up by the customer. The majority of ~~our~~the Company’s contracts have a single performance obligation and are short term in nature. Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales.

Disaggregation of Revenue

The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Sales outside the United States are principally to countries in the Caribbean, Canada, Central and South America.

~~Our revenues~~Revenues related to the following geographic areas were as follows for the three and six months ended:

	Three Months Ended March 31,				Six Months Ended March 31,				Three Months Ended March 31,				Six Months Ended March 31,
	2020		2019		2020		2019		2021		2020		2021		2020
United States	$	19,489,270	$	17,136,328	$	37,731,957	$	35,640,795	$	27,743,937	$	19,489,270	$	53,776,138	$	37,731,957
All other countries		919,239		1,948,037		2,054,543		3,532,720		1,947,997		919,239		3,007,943		2,054,543
Total Net Sales	$	20,408,509	$	19,084,365	$	39,786,500	$	39,173,515	$	29,691,934	$	20,408,509	$	56,784,081	$	39,786,500

~~Clearfield~~

The Company manufactures and sells a proprietary product line designed for the Broadband Service Provider marketplace. In addition, the ~~Company~~Company’s Legacy business provides ~~Build-to-Print~~build-to-print services for original equipment manufacturers requiring copper and fiber cable assemblies built to their specification.

The percentages of our sales by markets were as follows for the three and six months ended:

	Three Months Ended March 31,						Six Months Ended March 31,						Three Months Ended March 31,						Six Months Ended March 31,
	2020			2019			2020			2019			2020			2020			2020			2020
Broadband service providers		96	%		94	%		95	%		94	%		97	%		96	%		98	%		95	%
Build-to-print customers		4	%		6	%		5	%		6	%
Legacy customers														3	%		4	%		2	%		5	%
Total Net Sales		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%

Broadband Service Providers are made up of Community Broadband, which includes local and regional telecom companies, utilities, municipalities and alternative carriers, multiple system operators (“MSO’s, or Cable TV”), which are also referred to as Tier 2 and Tier 3 ~~customers,~~customers; National Carriers, which includes large national and global wireline and wireless providers also referred to as Tier 1’s~~, MSO’s, which include cable television companies,~~; and International customers.

Accounts Receivable

Credit is extended based on the evaluation of a customer’s financial condition, and collateral is generally not required. Accounts that are outstanding longer than the contractual payment terms are considered past due. The Company writes off accounts receivable when they become uncollectible; payments subsequently received on such receivables are credited to the allowance for doubtful accounts. As of ~~both~~ March 31, ~~2020~~2021 and September 30, ~~2019,~~2020, the balance in the allowance for doubtful accounts was ~~$289,085.~~$79,473 and $289,085, respectively. The allowance for doubtful accounts decreased by the amount recovered during the three months ended March 31, 2021 on an account previously reserved.

See Note 7, “Major Customer Concentration” for further information regarding accounts receivable and net sales.

Note 6. Inventories

Inventories consist of the following as of:

March 31, 2020 September 30, 2019
Raw materials $ 8,795,376 $ 7,115,298
Work-in-progress 942,023 540,962
Finished goods 1,950,704 1,356,720
Inventories, net $ 11,688,103 $ 9,012,980

	March 31, 2021			September 30, 2020
Raw materials	$	11,932,008		$	12,287,134
Work-in-process		2,191,469			1,033,021
Finished goods		1,541,111			2,048,514
Inventories, gross		15,664,588			15,368,669
Inventory reserve		(1,037,412	)		(960,131	)
Inventories, net	$	14,627,176		$	14,408,538

Note 7. Major Customer Concentration

For the three months ended March 31, 2021, Customers A and B comprised 21% and 11% of the Company’s net sales, respectively. For the six months ended March 31, 2021, Customers A and B comprised 20% and 11% of the Company’s net sales, respectively. Both of these customers were distributors. For the three months ended March 31, 2020, Customer A comprised 21% of the Company’s net sales. For the six months ended March 31, 2020, Customers A, B and C comprised 20%, 11% and 10%, respectively, of the Company’s net sales. All of these customers were distributors. For the three months ended March 31, 2019, Customers A and B comprised 17% and 10%, respectively, of the Company’s net sales. For the six months ended March 31, 2019, Customers A and B comprised 18% and 11%, respectively, of the Company’s net sales. These major customers, like our other customers, purchase our products from time to time through purchase orders, and ~~we do~~the Company does not have any agreements that obligate these major customers to purchase products from us in the ~~future from us.~~future.

As of March 31, ~~2020, three customers~~2021, Customers A and B accounted for ~~12%,~~ 10% and ~~10%, respectively, or 32% in the aggregate,~~14% of accounts ~~receivable. One of these customers is a distributor, one is a private label original equipment manufacturer and one is a broadband service provider.~~receivable, respectively. As of September 30, ~~2019, two customers~~2020, Customers A and B accounted for ~~16%,~~12% and ~~12%~~13%, ~~respectively, or 28% in the aggregate~~ of accounts ~~receivable.~~receivable, respectively. Both of these customers are distributors.

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~~2020 did not indicate an impairment of goodwill. During the six months ended March 31, ~~2020,~~2021, 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 March 31, ~~2020,~~2021, the Company has 2226 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~~2020 did not indicate an impairment of our intangible assets. During the six months ended March 31, ~~2020,~~2021, there were no triggering events that indicate potential impairment exists.

Note 9. Income Taxes

For the three and six months ended March 31, 2021, the Company recorded income tax expense of $935,000 and $1,619,000, reflecting an effective tax rate of 20.4% and 19.2%, respectively. The differences between the effective tax rate and the statutory tax rate were primarily related to excess tax benefits from non-qualified stock options exercised during the quarter, research and development credits, and foreign derived intangibles income deduction (FDII). For the three and six months ended March 31, 2020, the Company recorded income tax expense of $190,000 and $313,000, reflecting an effective tax rate of 20.3% and 20.0%, respectively. For the three and six months ended March 31, 2019, the Company recorded a provision for income taxes of $99,000 and $395,000, respectively, reflecting an effective tax rate of 21.2% and 22.3%, respectively.The differences between the effective tax rate and the statutory tax rate were related to nondeductible meals and entertainment, nondeductible stock compensation, ~~foreign derived intangibles deduction~~FDII, and research and development credits.

Deferred taxes recognize the impact of temporary differences between the amounts of the assets and liabilities recorded for financial statement purposes and these amounts measured in accordance with tax laws. The Company’s realization of deferred tax temporary differences is contingent upon future taxable earnings. The Company reviewed its deferred tax asset for expected utilization using a “more likely than not” criteria by assessing the available positive and negative factors surrounding its ~~recoverability.~~

Asrecoverability and determined that as of March 31, ~~2020~~2021 and September 30, ~~2019, the Company had~~2020 a ~~remaining~~ valuation allowance ~~of approximately $47,000 related~~against our deferred tax assets is not required. The Company will continue to ~~state net operating loss carry forwards~~assess the ~~Company does not expect to utilize. Based on the Company’s analysis and review of long-term forecasts and all available evidence, the Company determined that there should be no further change in the~~need for a valuation allowance ~~for the six months ended March 31, 2020.~~based on changes in assumptions of estimated future income and other factors in future periods.

As of March 31, ~~2020, we do~~2021, the Company does not have any unrecognized tax benefits. It is the Company’s practice to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not expect any material changes in its unrecognized tax positions over the next 12 months.

Note 10. Leases

~~Clearfield~~The Company leases ~~a 71,000~~an 85,000 square foot facility at 7050 Winnetka Avenue North, Brooklyn Park, Minnesota consisting of our corporate offices, manufacturing and warehouse space. The lease term is ten years and two months, ~~and commenced~~ending on ~~January 1, 2015. On June 30, 2019, the Company amended its lease to add 14,000 square feet to this facility, with the lease term for the additional space coterminous with the original lease.~~February 28, 2025. Upon proper notice and payment of a termination fee of approximately $249,000, the Company has a one-time option to terminate the lease effective as of the last day of the eighth year of the term after the Company commenced paying base rent. The renewal and termination options have not been included within the lease term because it is not reasonably certain that wethe Company will exercise either option.

~~We also have~~On October 9, 2020, the Company entered into an indirect lease arrangement for aits original 46,000 square foot manufacturing facility in Tijuana, Mexico. The Company had previously been leasing this facility on a month to month basis after its three-year lease expired on July 31, 2020. The new lease term is three ~~years and commenced on August 1, 2017.~~years. This lease ~~does not contain~~contains a written option to ~~renew.~~renew and rent payments that increase annually based on U.S. inflation for the preceding 12 months.

On February 12, 2020, the Company entered into an indirect lease arrangement for an additional 52,000 square foot manufacturing facility in Tijuana, Mexico. The lease term is approximately 42 months and commenced on February 12, 2020. The lease contains written options to renew for two additional consecutive periods of three years each.

Right-of-use lease assets and lease liabilities are recognized as of the commencement date based on the present value of the remaining lease payments over the lease term which includes renewal periods ~~we are~~the Company is reasonably certain to exercise. ~~Our~~The Company’s leases do not contain any material residual value guarantees or material restrictive covenants. As of March 31, ~~2020, we do~~2021, the Company does not have material lease commitments that have not commenced.

Operating lease expense included within cost of goods sold and selling, general and administrative expense was as follows for the three and six months ended March 31, ~~2020.~~2021:

Operating lease expense under ASC842, Leases, within: Three months ended
March 31, 2020 Six months ended
March 31, 2020
Cost of goods sold $ 218,874 $ 404,502
Selling, general and administrative 55,398 111,764
Total lease expense $ 274,272 $ 516,266

	Three Months Ended March 31,				Six Months Ended March 31,
Operating lease expense within:	2021		2020		2021		2020
Cost of sales	$	252,459	$	218,874	$	505,395	$	404,502
Selling, general and administrative		55,335		55,398		110,733		111,764
Total lease expense	$	307,794	$	274,272	$	616,128	$	516,266

Future maturities of lease liabilities were as follows as of March 31, ~~2020:~~2021:

Operating
Leases
2020 (remainder of fiscal year) $ 440,312
2021 752,423
2022 772,803
2023 744,963
2024 516,725
Thereafter 217,552
Total lease payments 3,444,778
Less: Interest (261,912 )
Present value of lease liabilities $ 3,182,866

FY2021	$	485,717
FY2022		986,844
FY2023		943,682
FY2024		516,725
FY2025		217,552
Thereafter		-
Total lease payments		3,150,520
Less: Interest		(182,281	)
Present value of lease liabilities	$	2,968,239

The weighted average term and weighted average discount rate for ~~our~~the Company’s leases as of March 31, ~~2020~~2021 were 3.33 years and 3.40%, respectively, compared to 4.78 years and 3.48%, ~~respectively.~~respectively, as of March 31, 2021. For the three and six months ended March 31, ~~2020,~~2021, the operating cash outflows from ~~our~~the Company’s leases ~~were~~was $240,066 and $479,801, respectively, compared to $168,815 and $336,655, ~~respectively.~~

~~Rent expense for our operating leases as accounted for under ASC 840,~~~~Leases~~~~, included within cost of goods sold and selling, general and administrative expense was as follows~~ for the three and six months ended March 31, ~~2019.~~

Operating lease expense under ASC840,Leases, within: Three months ended
March 31, 2019 Six months ended
March 31, 2019
Cost of goods sold $ 164,118 $ 332,946
Selling, general and administrative 53,838 107,376
Total lease expense $ 217,956 $ 440,322

2020, respectively.

~~As previously disclosed in Note B of the Notes to the Financial Statements in our 2019 Annual Report on Form 10-K, prior to the adoption of ASU 2016-02,~~ ~~Leases (Topic 842)~~~~, the future minimum payments required under lease agreements were~~ ~~as follows:~~

As of September 30, 2019
2020 $ 643,040
2021 479,213
2022 491,397
2023 503,895
2024 516,720
Thereafter 217,551
Total minimum lease payments $ 2,851,816

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,~~2020 and Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q, 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~~the Company’s financial condition and results of operations as of and for the three and six months ended March 31, ~~2020~~2021 and ~~2019~~2020 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.~~2020.

OVERVIEW

General

Clearfield, Inc. (“Clearfield” or the “Company”) 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 (“U.S.”), which include Community Broadband, MSO’s, and 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~~its Legacy 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-served~~unserved or ~~under-served~~underserved rural communities ~~who~~that 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 manufacturing 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 “stay at home” executive order adoptedUnder U.S. federal and state guidance in response to the ~~novel coronavirus~~COVID-19 pandemic, Clearfield’s operations are classified as part of the Cybersecurity and Infrastructure Security Agency (“~~COVID-19”~~CISA”) ~~pandemic. We have~~critical infrastructure sector and similar categorization in Minnesota. In March 2020, we transitioned our corporate employees at our Brooklyn Park headquarters to remote work ~~arrangements.~~arrangements and they currently continue remote work. In accordance with the ~~CDC~~Centers for Disease Control and ~~WHO~~Prevention (“CDC”) and World Health Organization (“WHO”) guidelines, we ~~also~~implemented and have ~~implemented~~continued health and safety measures for the production staff that remain onsite at our Brooklyn Park facility. We have ~~continued to maintain~~maintained our manufacturing capacity in Brooklyn Park with these ~~personnel.~~personnel at near historic levels. Similarly, we have implemented the recommended health and safety measures for the production staff that remains onsite at our Tijuana, Mexico manufacturing facilities.

~~The~~ Throughout the COVID-19 pandemic, the Company ishas closely ~~monitoring~~monitored the operations and staffing levels at its Brooklyn Park facility and its two 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, has adopted an order that has 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 of the order at any time.Mexico.

~~Even if our manufacturing capacity in Mexico continues, we may experience challenges~~

Due to the risks to timely supply of materials to our facilities, we have taken multiple actions to ensure sufficient safety stock inventory levels at both our Minnesota and Mexico ~~facilities~~facilities. Additionally, we made the decision to maximize the availability of all product lines at all three of our plants by assuring that each location can manufacture across our broad product portfolio. These actions, combined with our historic practice of dual sourcing most of our components, has positioned us to meet our obligations to customers and ~~timely product deliveries from~~to fulfill our order backlog going forward. However, in the ~~facilities due to~~event of serious border restrictions or border ~~delays. Depending on the severity of these border issues,~~delays, component material shortages, supply chain transportation delays, or other serious disruption in our supply chain, 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 ~~MArch~~March 31, ~~2020~~2021 vS. three months ended ~~mARCH~~March 31, ~~2019~~2020

Net sales for the second quarter of fiscal ~~2020~~2021 ended March 31, ~~2020~~2021 were ~~$20,409,000,~~$29,692,000, an increase of approximately 7%45% or ~~$1,324,000,~~$9,283,000, from net sales of ~~$19,084,000~~$20,409,000 for the second quarter of fiscal ~~2019.~~2020. Net sales to Broadband Service Providers were ~~$19,642,000~~$28,934,000 in the second quarter of fiscal ~~2020~~2021 versus ~~$17,948,000~~$19,642,000 in the same period of fiscal ~~2019.~~2020. Among this group, the Company recorded $$1,948~~919,000~~,000 in ~~international~~International sales for the second quarter of fiscal ~~2020~~2021 versus ~~$1,949,000~~$919,000 in the same period of fiscal ~~2019.~~2020. Net sales to ~~build-to-print~~Legacy customers were ~~$766,000~~$758,000 in the second quarter of fiscal ~~2020~~2021 versus ~~$1,136,000~~$766,000 in the same period of fiscal ~~2019.~~2020. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Accordingly, ~~international~~International sales represented 5%7% and ~~10%~~5% of total net sales for the second quarter of fiscal ~~2020~~2021 and ~~2019,~~2020, respectively.

The increase in net sales for the quarter ended March 31, ~~2020~~2021 of ~~$1,324,000~~$9,283,000 compared to the quarter ended March 31, ~~2019~~2020 was driven primarily by increased sales to Community Broadband Service Providers, MSO and International customers of $8,296,000, $1,581,000, and $1,029,000, respectively. Offsetting this was decreased sales to Tier 1 customers of $1,623,000. Net sales to Legacy customers remained relatively consistent over this period. The increase to Community Broadband and MSO customers was due to continuing increased demand for fiber connectivity products in response to COVID-19 driven by customers accelerating their purchasing decisions and deployment schedules of ~~$1,549,000~~our fiber optic solutions and ~~$1,130,000, respectively. Offsetting this were decreased~~the need for high-speed broadband required in the work from anywhere environment. The increase in International sales was driven by government funding of deployments within those markets. The decrease in sales to ~~International~~Tier 1 customers ~~of $1,005,000, and Build-to-Print customers of $475,000,~~is due to ~~lower demand for each in~~COVID-19 constraints limiting the ~~period. Additionally, sales to Community Broadband customers increased $125,000, relatively unchanged from~~deployment of fiber products into the ~~prior period.~~access part of Tier 1 networks.

Revenue from ~~all~~ customers is obtained from purchase orders submitted from time to ~~time.~~time, with a limited number of customers recently issuing purchase orders for longer time frames. 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~~its supply chains or changes in customer ordering patterns due to ~~COVID-19.~~COVID-19, global supply chain issues and the impact of government programs. The Company’s ability to recognize revenue in the ~~third quarter of 2020~~future 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. ~~During March 2020, the Company experienced increased orders as the Company’s customers remained committed to their 5G builds and other projects to expand~~ communications networks, which are part of the world’s critical infrastructure. The Company believes that Tier 1 customers may expand their 5G-related capital expenditure budgets, which may lead to accelerated opportunities for sales due to COVID-19. However, 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 second quarter of fiscal ~~2020~~2021 was ~~$12,257,000,~~$16,750,000, an increase of ~~$198,000,~~$4,493,000, or ~~1.6%~~37%, from ~~$12,059,000~~$12,257,000 in the comparable period of fiscal ~~2019.~~2020. Gross profit percent was ~~39.9%~~43.6% of net sales in the ~~fiscal 2020~~ second quarter of fiscal 2021, an increase from ~~36.8%~~39.9% of net sales for the second quarter of fiscal ~~2019 second quarter.~~2020. Gross profit increased ~~$1,126,000,~~$4,790,000 or ~~16%~~59%, to ~~$8,151,000~~$12,942,000 for the three months ended March 31, ~~2020~~2021 from ~~$7,025,000~~$8,151,000 in the comparable period in fiscal ~~2019.~~2020. The increase in gross profit in the second quarter of fiscal ~~2020~~2021 was due to increased volume of net sales described above while the increase in gross profit percent was primarily due to ~~improved~~a favorable product mix and cost reduction efforts across the Company’s product lines, including greater use of its Mexico manufacturing ~~costs, supply chain management initiatives~~plants and ~~lower tariff costs. Gross profit was negatively impacted by tariff costs of approximately $61,000 for the three months ended March 31, 2020 and $268,000 in the comparable period in fiscal 2019.~~efficiencies realized from higher sales volumes. In the second quarter of fiscal ~~2020 ended March 31, 2020,~~2021, the Company did not experience any significant impacts on cost of sales due to COVID-19.

Selling, general and administrative expenses increased ~~$704,000,~~$1,058,000, or ~~10%~~14%, to $8,490,000 in the second quarter fiscal 2021 from $7,431,000 infor the fiscal 2020 ~~second quarter from $6,728,000 for the fiscal 2019~~ second quarter. The increase in expense in the second quarter of fiscal ~~2020~~2021 consists primarily of increases of ~~$1,176,000~~$1,405,000 in compensation expense due to additional ~~personnel, $187,000 in product certification testing expenses~~headcount and ~~$174,000 in outside~~increased wages and performance compensation accruals driven by higher net sales, ~~representative commissions,~~and increased stock compensation expense of $231,000, offset by ~~decreases~~a recovery of ~~$449,000 in stock based compensation expense and $210,000 in~~ bad debt expense ~~related~~of $210,000 and a decrease in travel and entertainment expenses of $335,000 due to ~~a customer bankruptcy occurring in the prior year period.~~COVID-19 restrictions. In the second quarter of fiscal ~~2020 ended March 31, 2020,~~2021, other than the travel and entertainment costs mentioned above, the Company did not experience any significant impacts on selling, general and administrative expense due to COVID-19.

Income from operations for the quarter ended March 31, ~~2020~~2021 was ~~$720,000~~$4,451,000 compared to ~~$297,000~~$720,000 for the comparable quarter of fiscal ~~2019,~~2020, an increase of approximately ~~142%~~518%. This increase is attributable to increased gross profit driven by higher sales, offset by higher selling, general and administrative expenses.

Interest income for the quarter ended March 31, ~~2020~~2021 was ~~$218,000~~$123,000 compared to ~~$169,000~~$218,000 for the comparable quarter for fiscal ~~2019.~~2020. The ~~increase~~decrease is due to ~~increased balances and higher~~lower interest rates earned on investments in the second quarter of fiscal ~~2020.~~2021. 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 in~~ ~~FDIC-backed bank certificates of deposit, U.S. treasury securities, and money market accounts~~.environment.

We recorded a provision for income taxes of ~~$190,000~~$935,000 and ~~a provision for income taxes of $99,000~~$190,000 for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. We record our quarterly provision for income taxes based on our estimated annual effective tax rate for the year. The increase in tax expense of ~~$91,000~~$745,000 from the second quarter for fiscal ~~2019~~2020 is primarily due to increased income from operations. The ~~decrease in the~~ income tax expense rate ~~to 20.3%~~ for the second quarter of fiscal ~~2020~~2021 was 20.4%, relatively unchanged from ~~21.2% for~~20.3% recorded in the second quarter of fiscal ~~2019 is primarily due to increased research and development tax credits.~~2020.

The Company’s net income for the three months ended March 31, 2021 was $3,640,000, or $0.27 per basic and diluted share. The Company’s net income for the three months ended March 31, 2020 was $748,000, or $0.05 per basic and diluted share.~~The Company’s net income~~ ~~for the three months ended March 31, 2019 was $368,000, or $0.02 per basic and diluted share.~~

Six months ended March 31, ~~2020~~2021 vS. six months ended March 31, ~~2019~~2020

Net sales for the six months ended March 31, ~~2020~~2021 were ~~$39,787,000,~~$56,784,000, an increase of 2%43%, or approximately ~~$613,000,~~$16,998,000, from net sales of ~~$39,174,000~~$39,787,000 for the first six months of fiscal ~~2019.~~2020. Net sales to Broadband Service providers were ~~$37,798,000~~$55,507,000 for the first six months of fiscal ~~2020,~~2021, versus ~~$36,761,000~~$37,798,000 in the same period of fiscal ~~2019.~~2020. Among this group, the Company recorded ~~$2,055,000~~$3,008,000 in ~~international~~International sales versus ~~$3,533,000~~$2,055,000 in the same period of fiscal ~~2019.~~2020. Net sales to ~~build-to-print~~Legacy customers were ~~$1,990,000~~$1,277,000 in the first six months of fiscal ~~2020~~2021 versus ~~$2,413,000~~$1,990,000 in the same period of fiscal ~~2019.~~2020. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Accordingly, ~~international~~International sales represented 5% ~~and 9%~~ of total net sales for the first six months of fiscal ~~2020~~2021 and ~~2019, respectively.~~2020.

The increase in net sales for the six months ended March 31, ~~2020~~2021 of ~~$613,000~~$16,998,000 compared to the six months ended March 31, ~~2019~~2020 is primarily attributable to an increase in sales to ~~Tier 1~~Community Broadband, MSO and ~~MSO~~International customers of ~~$2,324,000~~$16,490,000, $2,282,000 and ~~$1,555,000,~~$907,000, respectively. This was offset by decreased sales to ~~International~~Tier 1 and Legacy customers of ~~$1,445,000,~~$1,999,000, and $683,000, respectively. The increase to Community Broadband and MSO customers was due to increased demand in response to COVID-19 driven by customers accelerating their purchasing decisions and deployment schedules of ~~$1,304,000~~our fiber optic solutions and ~~Build-to-Print~~the need for high-speed broadband required in the work from anywhere environment. The increase in International sales was driven by government funding of ~~$518,000.~~deployments within those markets. The decrease in sales to Tier 1 customers is the result of COVID-19 constraints limiting the deployment of fiber products into the access part of the network.

Cost of sales for the six months ended March 31, ~~2020~~2021 was ~~$23,908,000, a decrease~~$32,473,000, an increase of ~~$294,000,~~$8,566,000, or 1%36%, from ~~$24,202,000~~$23,908,000 in the comparable period of fiscal ~~2019.~~2020. Gross profit percent was ~~39.9%~~42.8% of net sales in the fiscal ~~2020~~2021 first six months, up from ~~38.2%~~39.9% for the comparable six months in fiscal ~~2019.~~2020. Gross profit increased ~~$907,000,~~$8,432,000, or 6%53%, to ~~$15,879,000~~$24,311,000 for the six months ended March 31, ~~2020~~2021 from ~~$14,972,000~~$15,879,000 in the comparable period in fiscal ~~2019.~~2020. The increase in gross profit in the six months ended March 31, ~~2020~~2021 was due to increased volume of net sales described above and a higher gross profit percent. The increase in gross profit percent was primarily due to ~~improved~~favorable product mix and cost reduction efforts across the Company’s product lines, including greater use of its Mexico manufacturing plants and efficiencies ~~and costs in its manufacturing facilities, and lower tariff costs. Tariff costs were $161,000 in the six months ended March 31, 2020, compared to $559,000 in the comparable six month period.~~realized from higher sales volumes. In the six months ended March 31, ~~2020,~~2021, the Company did not experience any significant impacts on cost of sales due to COVID-19.

Selling, general and administrative expenses increased 9%, or ~~$1,254,000,~~$1,388,000, from ~~$13,504,000 for the first six months of fiscal 2019 to~~ $14,758,000 for the first six months of fiscal ~~2020.~~2020 to $16,146,000 for the first six months of fiscal 2021. The ~~decrease~~increase in the first six months of fiscal ~~2020~~2021 consists primarily of increases of ~~$1,932,000~~$2,214,000 in compensation expense due to additional personnel ~~$257,000 in product certification testing expenses~~along with increased wages and ~~$333,000 in outside~~performance compensation accruals driven by higher net sales, ~~representative commissions,~~and increased stock compensation expense of $276,000, offset by ~~decreases~~a recovery of ~~$721,000 in stock based compensation expense and $210,000 in~~ bad debt expense ~~related~~of $210,000 and decreases in travel, entertainment and trade show expenses of $807,000 due to ~~a customer bankruptcy in the prior year period.~~COVID-19 restrictions. In the six months ended March 31, ~~2020,~~2021, other than the travel, entertainment and trade show costs mentioned above, the Company did not experience any significant impacts on selling, general and administrative expense due to COVID-19.

Income from operations for the six months ended March 31, ~~2020~~2021 was ~~$1,121,000~~$8,165,000 compared to income from operations of ~~$1,468,000~~$1,121,000 for the first six months of fiscal ~~2019, a decrease~~2020, an increase of ~~$347,000,~~$7,044,000, or ~~24%~~628%. This ~~decrease~~increase is primarily attributable to increased gross profit driven by higher sales, offset by increased selling, general and administrative expenses.

Interest income for the six months ended March 31, ~~2020~~2021 was ~~$441,000~~$257,000 compared to ~~$305,000~~$441,000 for the comparable period for fiscal ~~2019.~~2020. The ~~increase~~decrease is due to ~~increased balances and higher~~lower interest rates earned on investments in the second quarter of fiscal ~~2020.~~2021. We expect interest income to decline due to the prevailing lower interest rates in the current economic environment.

We recorded a provision for income taxes of ~~$313,000~~$1,619,000 and ~~a provision for income taxes of $395,000~~$313,000 for the six months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~decrease~~increase in tax expense of ~~$82,000~~$1,306,000 from the six months ended March 31, ~~2019~~2020 is primarily due ~~a lower effective tax rate for the six months ended March 31, 2020.~~to increased income from operations. The decrease in the income tax expense rate to 19.2% for the six months ended March 31, 2021 from 20.0% for the six months ended March 31, 2020 is primarily due to excess tax benefits from ~~22.3% for~~non-qualified stock options exercised during the six months ended March 31, ~~2019 is primarily due to increased research and development credits.~~2021.

The Company’s net income for the first six months of fiscal 2021 ended March 31, 2021 was $6,803,000, or $0.50 per basic and diluted share.The Company’s net income for the first six months of fiscal 2020 ended March 31, 2020 was $1,249,000, or $0.09 per basic and diluted share. ~~The Company’s net income~~ ~~for the first six months of fiscal 2019 ended March 31, 2019 was $1,378,000, or $0.10 per basic and diluted share.~~

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, ~~2020,~~2021, our principal source of liquidity was our cash, cash equivalents and short-term investments. Those sources total ~~$23,284,000~~$32,297,000 as of March 31, ~~2020~~2021 compared to ~~$23,606,000~~$27,032,000 as of September 30, ~~2019.~~2020. Our excess cash is invested mainly in certificates of deposit backed by the FDIC, U.S. Treasury securities and money market accounts. ~~Substantially all of our funds are insured by the FDIC or backed by the U. S. Government.~~ Investments considered long-term were ~~$25,130,000~~$25,565,000 as of March 31, ~~2020,~~2021, compared to ~~$23,902,000~~$25,143,000 as of September 30, ~~2019.~~2020. 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 second quarter of fiscal 2021, our cash, cash equivalents and short-term and long-term investments increased to $57.9 million compared to $54.4 million as of the prior quarter end. We had no long-term debt obligations as of March 31, ~~2020~~2021 or September 30, ~~2019.~~2020.

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 to mitigate the potential impacts ~~of COVID-19~~ on the Company’s business. Due to the uncertainties caused by COVID-19 and the Company’s desire to maintain capital flexibility, the Board of Directors has suspended the share repurchase program originally adopted on November 13, 2014. As originally adopted, the Board of Directors authorized $8,000,000 for common stock repurchases and on April 25, 2017, our Board of Directors increased the authorization ~~to $12,000,000 of common stock. As of March 31, 2020, there was approximately $4,981,000 remaining for repurchases under the authorization.~~

~~Due to the economic crisis resulting from the COVID-19 pandemic, we expect that our future cash flow may be negatively impacted~~business due to ~~COVID -19 impacts within our operating and investing activities. We also expect that our uses of cash may be materially impacted by increased operating expense associated with mitigating~~COVID-19 or supply chain, logistics, and customer fulfillment ~~risks caused by COVID-19.~~

risks.

Operating Activities

Net cash ~~used~~provided by operating activities totaled $6,700,000 for the six months ended March 31, 2021. This was primarily due to net income of $6,803,000, non-cash expenses for depreciation and amortization of $1,139,000, and stock-based compensation of $623,000 in addition to changes in operating assets and liabilities providing cash. The primary changes in operating assets and liabilities using cash include an increase in accounts receivable of $2,908,000, offset by increases in accounts payable and accrued expenses of $1,240,000. The increase in accounts receivable is due to increased sales during the most recent quarter and the timing of payments from customers. Accounts receivable balances can be influenced by the timing of shipments for customer projects and payment terms. Days sales outstanding, which measures how quickly receivables are collected, increased five days to 40 days from September 30, 2020 to March 31, 2021. The increase in accounts payable and accrued expenses is due to the timing of payments to vendors in the quarter and $2,373,000 of fiscal 2020 accrued bonus compensation accruals paid in the first quarter of fiscal 2021.

Net cash provided by operating activities totaled $2,296,000 for the six months ended March 31, 2020. This was primarily due to net income of $1,249,000, non-cash expenses for depreciation and amortization of $1,211,000, and ~~stock based~~stock-based compensation of $329,000 in addition to changes in operating assets and liabilities providing cash. Changes in operating assets and liabilities using cash include increases in inventory of $2,675,000 and accounts payable, accrued expenses and deferred rent of $1,091,000, offset by a decrease in accounts receivable of $1,049,000. The increase in inventory is a result of additional stocking levels to support the Company’s increased backlog, and additional safety stock due to the uncertainty of the COVID-19 virus on the Company’s supply ~~chain~~.chain. 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, increased one day to 36 days from September 30, 2019 to March 31, 2020.

Net cash provided by operating activities totaled $8,473,000 for the six months ended March 31, 2019. This was primarily due to net income of $1,378,000, non-cash expenses for depreciation and amortization of $1,064,000, and stock based compensation of $1,102,000 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 $3,623,000 and $1,777,000, 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 from 52 days at September 30, 2018 to 43 days at March 31, 2019. The decrease in inventory is a result of stocking levels being maintained by suppliers, which reduced the Company’s inventory.

Investing Activities

We invest our excess cash in money market accounts, U.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 U.S. Government~~ on these investments. During the six months ended March 31, 2021, we used cash to purchase $6,448,000 of FDIC-backed securities and received $6,651,000 on CDs that matured. Purchases of property, plant and equipment, mainly related to manufacturing equipment, consumed $682,000 of cash during the six months ended March 31, 2021.

During the six months ended March 31, 2020, we used cash to purchase $19,077,000 of both FDIC-backed and treasury securities and received $16,720,000 on CDs and treasuries that matured. Purchases of property, plant and equipment, mainly related to manufacturing equipment, consumed $1,183,000 of cash during the six months ended March 31, 2020.

~~During~~Financing Activities

For the six months ended March 31, ~~2019,~~2021, we received $179,000 from employees’ participation and purchase of stock through our ESPP, we used ~~cash to purchase $12,274,000 of both FDIC-backed and treasury securities and received $3,572,000 on CDs that matured. Purchases of patents and capital equipment, mainly~~$456,000 related to ~~information technology~~share withholding for taxes associated with the issuance of common stock upon cashless exercise of stock options and ~~manufacturing equipment, consumed $552,000~~used $54,000 to pay for taxes as a result of ~~cash~~employees’ vesting of restricted shares using share withholding. We did not repurchase common stock under our share repurchase program in the six months ended March 31, ~~2019.~~2021.

~~Financing Activities~~

For the six months ended March 31, 2020, we received $170,000 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 six months ended March 31, 2020.

As of March 31, 2021 and March 31, 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.~~

For the six months ended March 31, 2019, we received $146,000 from employees’ participation and purchase of stock through our ESPP and used $7,000 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 six months ended March 31, 2019.~~ ~~As of March 31, 2019, we had authority to purchase approximately $5,400,000~~ in additional shares 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 based~~stock-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.~~2020. Management made no changes to the Company’s critical accounting policies during the quarter ended March 31, ~~2020.~~2021.

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 March 31, ~~2020.~~2021.

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 March 31, ~~2020.~~2021. 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 March 31, ~~2020~~2021 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 factor below supplements and should be read in conjunction with the risk factors ~~applicable to the Company are described in~~under Part I,II, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended September 30, ~~2019. There have been no material changes from~~2020.

If any of the ~~risk factors previously disclosed~~risks set forth below or in our Annual Report on Form 10-K ~~except~~ for the ~~addition~~year September 30, 2020 actually occur, our business, results of operations and financial condition and the ~~following~~market price of our common stock could be negatively impacted. Although we believe that these are most significant risk ~~factor:~~factors affecting our business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our performance or financial condition. Any forecast regarding our future performance, including, but not limited to, forecasts regarding future net sales, timing of customer orders, impact of government programs on customer demand, product mix, margins, expenses, or net income, are forward-looking statements. These forward-looking statements reflect various assumptions and are subject to significant uncertainties and risks that could cause the actual results to differ materially from those described in the forward-looking statement, including the risks reflected in these risk factors.

We depend on the availability of sufficient supply of certain materials and global disruptions in the supply chain for these materials could prevent us from meeting customer demand for our products.

We purchase critical components for our products, including injected molded parts, various cabling, optical components, and connectors from third parties, some of whom are single- or limited-source suppliers.

We depend on the ability of these third-party suppliers to secure a sufficient supply of raw materials and maintain sufficient manufacturing and shipping capacity. The global supply chain for raw materials critical to our products, such as resin used to manufacture plastics and fiber optic cable, recently has suffered shortages, shipping delays and shipping shortages. This has led some manufacturers who depend on these raw materials to experience shortages, delivery delays and price increases for both the raw materials and shipping, with the corresponding consequence that these manufacturers may be delayed in delivering products to their customers or may charge higher prices for these products, or there may be increased shipping costs associated with the products. Some manufacturers have allocated short supply among their customers. Additionally, the COVID-19 pandemic has ~~significantly impacted worldwide economic conditions~~driven demand for certain goods that have exacerbated these disruptions as supply has not kept pace with demand. We believe these global supply chain issues will persist and ~~could have a material adverse effect on our business, financial condition~~will likely intensify in 2021 due to the complex and ~~operating results.~~

~~As a result~~compounding problems associated with shortages of personnel due to the COVID-19 pandemic, ~~governmental authorities~~backlogs at ports, shortages of shipping containers, freezing weather in Texas affecting the petrochemical industry, the blockage of the Suez Canal affecting the flow of trade, and other logistical issues.

In the first half of fiscal 2021, Clearfield has experienced and expects to continue to experience increased demand for its products from its customers, putting pressure on Clearfield’s supply chain to meet demand amidst these global issues. While we have ~~implemented~~not experienced significant increases in costs or delays in obtaining the materials and are continuing to implement numerous and constantly evolving measures to try to contain the virus, such as travel bans and restrictions, limits on gatherings, quarantines, shelter-in-place orders, and business shutdowns. We have manufacturing operationscomponents for our products from our suppliers, we cannot assure you that we will not experience these costs or delays in the ~~U.S. and Mexico, which have been affected by~~future. Clearfield’s ability to recognize revenue in the ~~outbreak and have taken measures to try to contain it. Measures providing~~future for business shutdowns generally exclude certain essential services, and those essential services commonly include critical infrastructure and the businesses that support that critical infrastructure. While both of our facilities currently remain operational, these measures have impacted and may further impact our workforce and operations, as well as those of our customers, vendors and suppliers. The constraints and limits imposedcustomer orders will depend on our operations may slow or diminish our product development activities and qualification activities with our customers. Although many governmental measures have had specific expiration dates, some of those measures have already been extended more than once; as a result, there is considerable uncertainty regarding the duration of such measures and potential future measures. Restrictions on our manufacturing, support operations or workforce, or similar limitations for our vendors and suppliers, could limit our ability to manufacture and deliver products to the customers and fulfill its other contractual obligations. Our ability to meet expected future customer demand for our products will in turn depend upon our suppliers receiving timely and ~~could~~adequate supply of raw materials to be able to produce the critical materials and components they supply to us. Although we place a high value on long-term relationships with our suppliers, generally we do not have long-term supply contracts but instead conduct business on an order-by-order basis. Therefore, we also compete with other companies for the production capacity of manufacturers of the materials and components we need for our products. We also are exposed to potentially increasing costs associated with the materials and components we purchase from suppliers or increased costs associated with shipping generally. We may attempt to mitigate the effect of increases in our cost of goods sold through sourcing or stocking initiatives and by selectively increasing the prices of our products. However, we may be unable to fully pass on these costs to our customers.

The reduction of available production capacity among our suppliers, their failures to meet production deadlines or increases to us in their manufacturing or shipping costs may impact our ability to deliver quality products to our customers on a material adverse effect on our financial condition and results of operations. Furthermore, restrictions or disruptions of transportation, such as reduced availability of air transport, port closures and increased border controls or closures, have started to result in higher costs and delays, which could harm our profitability,timely basis, make our products less competitive due to extended delivery times or ~~cause~~increased price, negatively impact our ~~customers to seek alternative suppliers.~~customer or distributor relationships, and result in lower net sales and profit.

The outbreak has significantly increased economic and demand uncertainty. We anticipate that the current outbreak or continued spread of COVID-19 will cause an economic slowdown, and it is possible that it could cause a global recession.

In response to these developments, we have modified our business practices, including restricting employee travel, modifying employee work locations, implementing social distancing and enhanced sanitary measures in our facilities, and cancelling attendance at events and conferences. Many of our suppliers, vendors and service providers have made similar modifications. The resources available to employees working remotely may not enable them to maintain the same level of productivity and efficiency, particularly our sales employees whose in-person access to our customers and customer prospects has been significantly limited. While we have experienced only limited absenteeism from those employees who are required to be on-site to perform their jobs, absenteeism may increase in the future and may harm our productivity. Further, our increased reliance on remote access to our information systems increases our exposure to potential cybersecurity breaches. We may take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees, customers, partners and suppliers. There is no certainty that such measures will be sufficient to mitigate the risks posed by COVID-19, in which case our ability to continue operations may be significantly negatively impacted, and we may be required to temporarily suspend our operations in the U.S. or in Mexico or in both locations. The resumption of normal business operations after such interruptions may be delayed or constrained by lingering effects of COVID-19 on our suppliers, third-party service providers, and/or customers.

The degree to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus and address its impact, and how quickly and to what extent normal economic and operating conditions can resume.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In the three months ended March 31, ~~2020,~~2021, the Company repurchased shares of stock as follows:

ISSUER PURCHASES OF EQUITY SECURITIES
Period Total
Number
of Shares
Purchased Average
Price Paid
per Share Total Number of
Shares
Purchased as Part
of Publicly
Announced Plans
or Programs Approximate Dollar Value
of Shares that
May Yet Be Purchased
Under the Program ⁽¹⁾
January 1-31, 2020 - - 523,794 $ 5,409,326
February 1-29, 2020 3,538 10.89 527,332 5,370,783
March 1-31, 2020 38,258 10.20 565,590 4,980,671
Total 41,796 $ 10.26 565,590 $ 4,980,671

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program ⁽¹⁾
January 1-31, 2021		—	$	—		—	$	4,980,671
February 1-28, 2021		1,750		24.72		—		4,980,671
March 1-31, 2021		—		—		—		4,980,671
Total		1,750		24.72		—	$	4,980,671

(1)

Amount remaining from the aggregate $12,000,000 repurchase authorizations approved by the Company’s Board of ~~Directors.~~ Directors on April 25, 2017.

In the three months ended March 31, 2021, the Company repurchased a total of 1,750 shares in connection with payment of taxes upon vesting of restricted stock previously issued to employees.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

~~On April 11, 2020, the Company received a $3.7 million loan under the Payroll Protection Program (PPP) within the Coronavirus Aid Relief and Economic Security (CARES) Act.~~

The Company carefully reviewed the economic impact and uncertainty caused by COVID-19 and the necessity of the PPP loan request to support the Company’s ongoing operations and believes that the Company made the required certifications for the PPP loan in good faith under the standards established by the CARES Act and the PPP regulations at the time of the Company’s loan application and the receipt of the loan.

However, due to the uncertainties caused by the changing guidance and statements from the U.S. Small Business Administration and U.S. Department of Treasury issued following the time of the Company’s loan application and the receipt of the loan, the Company repaid the PPP loan in full on April 30, 2020.

ITEM 6. Exhibits

~~Exhibit 31.1 – Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act~~

Exhibit 31.1*	–	Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act

Exhibit 31.2 *	–	Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act

Exhibit 32.1 **	–	~~Exhibit 31.2 – Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act~~ ~~Exhibit 32.1 –~~ Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350

* Filed herewith.
**Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

~~CLEARFIELD, INC.~~

~~May 1, 2020~~	CLEARFIELD, INC.	~~/s/~~

April 28, 2021	/s/ Cheryl Beranek
	By: Cheryl Beranek
	Its: President and Chief Executive Officer
	(Principal Executive Officer)

~~May 1, 2020~~April 28, 2021	/s/ Daniel Herzog
	By: Daniel Herzog
	Its: Chief Financial Officer
	(Principal Financial and Accounting Officer)

	(Unaudited) March 31, 2020		September 30, 2019
Assets
Current Assets
Cash and cash equivalents	$	8,575,556	$	10,081,721
Short-term investments		14,708,841		13,524,270
Accounts receivables, net		8,069,531		9,118,639
Inventories, net		11,688,103		9,012,980
Other current assets		687,881		769,161
Total current assets		43,729,912		42,506,771

Property, plant and equipment, net		5,563,814		5,413,241

Other Assets
Long-term investments		25,130,000		23,902,000
Goodwill		4,708,511		4,708,511
Intangible assets, net		4,968,938		5,147,135
Right of use lease asset		2,911,577		-
Other		194,174		210,905
Total other assets		37,913,200		33,968,551
Total Assets	$	87,206,926	$	81,888,563

Liabilities and Shareholders’ Equity
Current Liabilities
Current portion of lease liability	$	714,008	$	-
Accounts payable		3,873,534		3,173,599
Accrued compensation		3,472,731		3,224,860
Accrued expenses		327,363		208,603
Total current liabilities		8,387,636		6,607,062

Other Liabilities
Long-term portion of lease liability		2,468,858		-
Deferred taxes		101,690		101,690
Deferred rent		-		246,424
Total other liabilities		2,570,548		348,114
Total liabilities		10,958,184		6,955,176

Shareholders’ Equity
Preferred stock, $.01 par value; 500,000 shares; no shares issued or outstanding		-		-
Common stock, authorized 50,000,000, $.01 par value; 13,627,639 and 13,641,805 shares issued and outstanding as of March 31, 2020 and September 30, 2019		136,276		136,418
Additional paid-in capital		57,042,604		56,976,162
Retained earnings		19,069,862		17,820,807
Total shareholders’ equity		76,248,742		74,933,387
Total Liabilities and Shareholders’ Equity	$	87,206,926	$	81,888,563

	Six months ended March 31, 2020
Dividend yield		0%
Expected volatility	39.5	-	41.5%
Risk-free interest rate	1.65	-	1.69%
Expected life (years)	4	-	6
Vesting period (years)	3	-	5

	Number of options			Weighted average exercise price
Outstanding as of September 30, 2019		290,750		$	11.86
Granted		116,600			12.43
Exercised		(4,000	)		2.58
Cancelled or Forfeited		(48,000	)		13.35
Outstanding as of March 31, 2020		355,350		$	11.95

	Number of shares			Weighted average grant date fair value
Unvested shares as of September 30, 2019		130,440		$	13.25
Granted		19,455			11.30
Vested		(5,740	)		14.01
Forfeited		(9,875	)		12.03
Unvested as of March 31, 2020		134,280		$	13.02

Operating lease expense under ASC842, Leases, within:	Three months ended March 31, 2020		Six months ended March 31, 2020
Cost of goods sold	$	218,874	$	404,502
Selling, general and administrative		55,398		111,764
Total lease expense	$	274,272	$	516,266

	Operating Leases
2020 (remainder of fiscal year)	$	440,312
2021		752,423
2022		772,803
2023		744,963
2024		516,725
Thereafter		217,552
Total lease payments		3,444,778
Less: Interest		(261,912	)
Present value of lease liabilities	$	3,182,866

Operating lease expense under ASC840,Leases, within:	Three months ended March 31, 2019		Six months ended March 31, 2019
Cost of goods sold	$	164,118	$	332,946
Selling, general and administrative		53,838		107,376
Total lease expense	$	217,956	$	440,322

	As of September 30, 2019
2020	$	643,040
2021		479,213
2022		491,397
2023		503,895
2024		516,720
Thereafter		217,551
Total minimum lease payments	$	2,851,816