10-Q

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, 2017

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

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)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

[X] YES [_] NO

Indicate by check mark whether the registrant is a “large accelerated filer,” an “accelerated filer,” a “non-accelerated filer” or a “smaller reporting company” (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer [_] Accelerated filer [X] Non-accelerated filer [_]

Smaller reporting company [_] 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 at April 27, 2017
Common stock, par value $.01	14,094,112

CLEARFIELD, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I.  FINANCIAL INFORMATION	1
ITEM 1.  FINANCIAL STATEMENTS	1
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	8
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	13
ITEM 4.   CONTROLS AND PROCEDURES	13
PART II. OTHER INFORMATION	13
ITEM 1.  LEGAL PROCEEDINGS	13
ITEM 1A.  RISK FACTORS	14
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	14
ITEM 4. MINE SAFETY DISCLOSURES	14
ITEM 5. OTHER INFORMATION	14
ITEM 6. EXHIBITS	15
SIGNATURES	15

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CLEARFIELD, INC.

CONDENSED BALANCE SHEETS

	(Unaudited) March 31, 2017		(Audited) September 30, 2016
Assets
Current Assets
Cash and cash equivalents	$	22,483,013	$	28,014,321
Short-term investments		5,813,150		5,527,075
Accounts receivables, net		8,114,221		7,999,210
Inventories		9,970,877		8,373,155
Other current assets		974,990		1,198,917
Total current assets		47,356,251		51,112,678
Property, plant and equipment, net		6,024,930		5,780,814
Other Assets
Long-term investments		15,015,000		10,703,000
Goodwill		2,570,511		2,570,511
Other		438,720		428,310
Total other assets		18,024,231		13,701,821
Total Assets	$	71,405,412	$	70,595,313
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable		2,361,377		2,573,292
Accrued compensation		2,627,890		4,697,138
Accrued expenses		54,793		75,306
Total current liabilities		5,044,060		7,345,736
Other Liabilities
Deferred taxes		411,779		411,779
Deferred rent		248,887		243,755
Total other liabilities		660,666		655,534
Total Liabilities		5,704,726		8,001,270
Commitments and Contingencies
Shareholders’ Equity
Preferred stock, $.01 par value; authorized 500 shares; no shares outstanding		-		-
Common stock, authorized 50,000,000, $.01 par value; 14,144,112 and 14,126,279, shares issued and outstanding at March 31, 2017 and September 30, 2016		141,441		141,263
Additional paid-in capital		58,642,529		57,320,515
Retained earnings		6,916,716		5,132,265
Total Shareholders’ Equity		65,700,686		62,594,043
Total Liabilities and Shareholders’ Equity	$	71,405,412	$	70,595,313

SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS

1 

CLEARFIELD, INC.

CONDENSED STATEMENTS OF OPERATIONS

UNAUDITED

	Three Months Ended March 31,				Six Months Ended March 31,
	2017		2016		2017		2016
Net sales	$	17,651,771	$	16,947,187	$	35,917,933	$	32,636,902
Cost of sales		10,208,957		9,666,738		21,266,399		18,679,657
Gross profit		7,442,814		7,280,449		14,651,534		13,957,245
Operating expenses
Selling, general and administrative		6,162,178		5,136,952		12,179,702		9,833,967
Income from operations		1,280,636		2,143,497		2,471,832		4,123,278
Interest income		59,885		39,169		112,619		72,708
Income before income taxes		1,340,521		2,182,666		2,584,451		4,195,986
Income tax expense		433,000		689,687		800,000		1,215,553
Net income	$	907,521	$	1,492,979	$	1,784,451	$	2,980,433
Net income per share:
Basic	$	0.07	$	0.11	$	0.13	$	0.22
Diluted	$	0.07	$	0.11	$	0.13	$	0.22
Weighted average shares outstanding:
Basic		13,589,109		13,309,181		13,578,178		13,298,874
Diluted		13,803,697		13,581,810		13,797,126		13,578,430

SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS

2 

CLEARFIELD, INC.

CONDENSED STATEMENTS OF CASH FLOWS

UNAUDITED

	Six Months Ended March 31,
	2017			2016
Cash flows from operating activities
Net income	$	1,784,451		$	2,980,433
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		800,136			706,176
Deferred taxes		-			1,125,507
(Gain) loss on disposal of assets		(5,100	)		1,390
Stock-based compensation		1,183,911			473,193
Changes in operating assets and liabilities:
Accounts receivable, net		(115,011	)		(1,843,207	)
Inventories		(1,597,722	)		(919,675	)
Prepaid expenses and other		234,201			(207,489	)
Accounts payable and accrued expenses		(2,296,544	)		713,999
Net cash (used in) provided by operating activities		(11,678	)		3,030,327
Cash flows from investing activities
Purchases of property, plant and equipment and intangible assets		(1,064,936	)		(421,637	)
Proceeds from sale of property, plant and equipment		5,100			-
Purchases of investments		(10,166,075	)		(3,820,075	)
Proceeds from maturities of investments		5,568,000			3,858,000
Net cash used in investing activities		(5,657,911	)		(383,712	)
Cash flows from financing activities
Proceeds from issuance of common stock under employee stock purchase plan		169,500			118,013
Proceeds from issuance of common stock upon exercise of stock options		28,459			84,738
Tax withholding related to exercise of stock options		(10,326	)		(36,223	)
Repurchase of common stock		(49,352	)		(333,761	)
Net cash provided by (used in) financing activities		138,281			(167,233	)
(Decrease) increase in cash and cash equivalents		(5,531,308	)		2,479,382
Cash and cash equivalents, beginning of period		28,014,321			18,071,210
Cash and cash equivalents, end of period	$	22,483,013		$	20,550,592
Supplemental disclosures for cash flow information
Cash paid during the year for income taxes	$	416,750		$	83,884
Non-cash financing activities
Cashless exercise of stock options	$	34,268		$	234,460

SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS

3 

NOTES TO CONDENSED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying (a) condensed balance sheet as of September 30, 2016, which has been derived from audited financial statements, and (b) unaudited interim condensed financial statements have been prepared by 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 and 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, 2016.

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.

In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. The standard is required to be adopted by all companies in their first fiscal year beginning after December 15, 2016 but allows companies to early adopt prior to this date. The standard is intended to simplify various aspects of the accounting and presentation of share-based payments. During the quarter ended September 30, 2016, the Company elected to early adopt this standard as of October 1, 2015. Adoption of this standard impacted the previously filed 10-Q for the period ended March 31, 2016 as follows:

Statement of earnings – The standard requires that the tax effects of stock-based compensation be recognized in the income tax provision of the Company’s Statements of Earnings. Previously, these amounts were recognized in additional paid-in capital on the Company’s Balance Sheets. The new standard requires these amounts to be recasted within these quarters due to the prospective adoption of this standard in the fourth quarter of fiscal 2016. Accordingly, net tax benefits related to stock-based compensation awards of $54,313 and $158,447 for the three and six months ended March 31, 2016, respectively, were recognized as reductions of income tax expense in the statements of earnings. This tax benefit reduced our effective income tax rates 2.5% and 3.7% for the three and six months ended March 31, 2016, respectively, and resulted in an increase in basic and diluted earnings per share of $0.01 for the six months ended March 31, 2016. The change had no effect on basic and diluted earnings per share for the three months ended March 31, 2016.

Statement of cash flows – The standard requires that excess tax benefits from share-based employee awards be reported as operating activities in the consolidated statements of cash flows. Previously, these cash flows were included as hypothetical inflows and outflows in both the operating and financing activities. We elected to apply this change on a prospective basis, resulting in an increase in net cash provided by operating activities and a decrease in net cash used by financing activities of $741,000 for the six months ended March 31, 2016.

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 and restricted stock awards, when dilutive.

4 

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, 2017 and 2016:

	Three Months Ended March 31,				Six Months Ended March 31,
	2017		2016		2017		2016
Net income	$	907,521	$	1,492,979	$	1,784,451	$	2,980,433
Weighted average common shares		13,589,109		13,309,181		13,578,178		13,298,874
Dilutive potential common shares		214,588		272,629		218,948		279,556
Weighted average dilutive common shares outstanding		13,803,697		13,581,810		13,797,126		13,578,430
Net income per common share:
Basic	$	0.07	$	0.11	$	0.13	$	0.22
Diluted	$	0.07	$	0.11	$	0.13	$	0.22

Note 3. Cash, Cash Equivalents and Investments

The Company currently invests its excess cash in money market accounts and bank certificates of deposit (CDs) with a term of not more than five years. CDs with original maturities of more than three months are reported as held-to-maturity investments and are carried at amortized cost. Investments maturing in less than one year are classified as short term investments on the balance sheet, and investments maturing in one year or greater are classified as long term investments on the balance sheet. The maturity dates of the Company’s CDs at March 31, 2017 and September 30, 2016 are as follows:

	March 31, 2017		September 30, 2016
Less than one year	$	5,813,150	$	5,527,075
1-5 years		15,015,000		10,703,000
Total	$	20,828,150	$	16,230,075

Note 4. Stock-Based Compensation

The Company recorded $590,165 and $1,183,911 of compensation expense related to current and past option grants, restricted stock grants and the Company’s Employee Stock Purchase Plan (“ESPP”) for the three and six months ended March 31, 2017, respectively. For the three months ended March 31, 2017, $535,464 of this expense is included in selling, general and administrative expense, and $54,701 is included in cost of sales. For the six months ended March 31, 2017, $1,074,510 of this expense is included in selling, general and administrative expense, and $109,401 is included in cost of sales. The Company recorded $246,426 and $473,193 of compensation expense related to current and past equity awards for the three and six months ended March 31, 2016, respectively. For the three months ended March 31, 2016, $224,156 of this expense was included in selling, general and administrative expense, and $22,270 was included in cost of sales. For the six months ended March 31, 2016, $429,037 of this expense was included in selling, general and administrative expense, and $44,156 was included in cost of sales. As of March 31, 2017, $6,324,696 of total unrecognized compensation expense related to non-vested equity awards is expected to be recognized over a period of approximately 7.6 years.

There were no stock options granted during the six month periods ended March 31, 2017 or March 31, 2016. The following is a summary of stock option activity during the six months ended March 31, 2017:

	Number of options			Weighted average exercise price
Outstanding at September 30, 2016		54,800		$	3.13
Granted		-			-
Exercised		(15,750	)		3.98
Cancelled or Forfeited		-			-
Outstanding at March 31, 2017		39,050		$	2.78

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, 2017, the weighted average remaining contractual term for all outstanding and exercisable stock options was 3.2 years and their aggregate intrinsic value was $533,632. During the six months ended March 31, 2017, the Company received proceeds of $28,459 from the exercise of stock options. During the six months ended March 31, 2016, exercised stock options totaled 57,050 shares, resulting in $84,738 of proceeds to the Company.

5 

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 month period ended March 31, 2017, the Company granted non-employee directors restricted stock awards totaling 3,795 shares of common stock, with a vesting term of approximately one year and a fair value of $16.45 per share.

During the six month period ended March 31, 2016, the Company granted non-employee directors restricted stock awards totaling 2,712 shares of common stock, with a vesting term of approximately one year and a fair value of $14.73 per share. The Company also granted outgoing non-employee directors fully-vested stock awards totaling 1,356 shares of common stock, with a fair value of $14.73 per share. Additionally, the Company granted employees restricted stock awards totaling 8,500 shares of common stock, with a vesting term of five years and a fair value of $13.64 per share during the six month period ended March 31, 2016.

Restricted stock transactions during the six month period ended March 31, 2017 are summarized as follows:

	Number of shares			Weighted average grant date fair value
Unvested shares at September 30, 2016		563,570		$	14.26
Granted		3,795			16.45
Vested		(5,262	)		14.66
Forfeited		(7,526	)		14.91
Unvested at March 31, 2017		554,577		$	14.26

Employee Stock Purchase Plan

Clearfield, Inc.’s ESPP allows participating employees to purchase shares of the Company’s common stock at a discount through payroll deductions. The ESPP is available to all employees subject to certain eligibility requirements. Terms of the ESPP provide that participating employees may purchase the Company’s common stock on a voluntary after-tax basis. Employees may purchase the Company’s common stock at a price that is no less than the lower of 85% of the fair market value of one share of common stock at the beginning or end of each stock purchase period or phase. The ESPP is carried out in six month phases, with phases beginning on January 1 and July 1 of each calendar year. For the phases that ended on December 31, 2016 and December 31, 2015, employees purchased 11,144 and 10,352 shares at a price of $15.21 and $11.40 per share, respectively. After the employee purchase on December 31, 2016, 131,978 shares of common stock were available for future purchase under the ESPP.

Note 5. Accounts Receivable and Net Sales

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 March 31, 2017 and September 30, 2016, the balance in the allowance for doubtful accounts was $90,473 and $93,473, respectively.

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

6 

Note 6. Inventories

Inventories consist of the following as of:

	March 31, 2017		September 30, 2016
Raw materials	$	7,190,262	$	5,702,762
Work-in-progress		610,219		471,305
Finished goods		2,170,396		2,199,088
Inventories	$	9,970,877	$	8,373,155

Note 7. Major Customer Concentration

The following table summarizes customers comprising 10% or more of net sales for the three and six months ended March 31, 2017 and March 31, 2016:

	Three Months Ended March 31,						Six Months Ended March 31,
	2017			2016			2017			2016
Customer A		18	%		21	%		23	%		23	%
Customer B		15	%		18	%		15	%		15	%
Customer C		11	%		*			10	%		*

* Less than 10%

As of March 31, 2017, Customers B and C accounted for 22% and 12% of accounts receivable, respectively. As of September 30, 2016, Customers A and B accounted for 18% and 12% of accounts receivable, respectively. Customers A and B are both distributors. Customer C is a large national telecom provider (Tier 1).

Note 8. Goodwill and Patents

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 in the fourth quarter ended September 30, 2016 did not indicate an impairment of goodwill. During the six months ended March 31, 2017, 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, 2017, the Company has nine patents granted and nine pending applications inside the United States.

Note 9. Income Taxes

For the three and six months ended March 31, 2017, the Company recorded a provision for income taxes of $433,000 and $800,000, respectively, reflecting an effective tax rate of 32.3% and 31.0%, respectively. The primary difference between the effective tax rate and the statutory tax rate is related to nondeductible meals and entertainment, favorable domestic manufacturing deduction and research and development credits, expenses related to equity award compensation and favorable discrete items for the three and six months ended March 31, 2017 from tax benefits related to stock-based compensation awards.

As of both March 31, 2017 and September 30, 2016, the Company had a remaining valuation allowance of approximately $322,000 related to state net operating loss carry forwards 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 has determined that there should be no change in this existing valuation allowance in the quarter ended March 31, 2017.

For the three and six months ended March 31, 2016, the Company recorded a provision for income taxes of $690,000 and $1,216,000, respectively, reflecting an effective tax rate of 31.6% and 29.0%, respectively. The primary difference between the effective tax rate and the statutory tax rate is related to nondeductible meals and entertainment, expenses related to equity award compensation and favorable discrete items for the three and six months ended March 31, 2016 from tax benefits related to stock-based compensation awards and research and development credits which were permanently extended in December 2015 by the federal government.

7 

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 assets for expected utilization using a “more likely than not” criteria by assessing the available positive and negative factors surrounding its recoverability.

As of March 31, 2017, we do 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. Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the FASB issued guidance creating Accounting Standards Codification (“ASC”) Section 606, Revenue from Contracts with Customers. The new section will replace Section 605, “Revenue Recognition” and creates modifications to various other revenue accounting standards for specialized transactions and industries. The section is intended to conform revenue accounting principles with a concurrently issued International Financial Reporting Standards with previously differing treatment between United States practice and those of much of the rest of the world, as well as, to enhance disclosures related to disaggregated revenue information. The updated guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within that reporting period. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Although the Company has not completed a full impact assessment of this guidance, we do not believe it will have a material impact on the reported net sales amounts.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330) Related to Simplifying the Measurement of Inventory which applies to all inventory except inventory that is measured using last-in, first-out (“LIFO”) or the retail inventory method. Inventory measured using first-in, first-out (“FIFO”) or average cost is covered by the new amendments. Inventory within the scope of the new guidance should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments will take effect for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The new guidance should be applied prospectively, and earlier application is permitted as of the beginning of an interim or annual reporting period. Although the Company has not completed a full impact assessment of this guidance, we do not believe it will have a material impact on reported inventory amounts.

In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to present right-of-use assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. The guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements and is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact the adoption of this ASU will have on our financial statements.

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, 2016, 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.

8 

The following discussion and analysis of our financial condition and results of operations as of and for the three and six months ended March 31, 2017 and 2016 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, 2016.

OVERVIEW

General

Clearfield, Inc. designs, manufactures and distributes fiber optic management, protection and delivery products for communications networks. Our “fiber to the anywhere” platform serves the unique requirements of leading incumbent local exchange carriers (Traditional Carriers, within the Tier 2 and Tier 3 broadband markets), including large national and global telecom providers (Tier 1), wireless operators, MSO/cable TV companies, utility/municipality, enterprise, data center and military markets, while also serving the broadband needs of the competitive local exchange carriers (Alternative Carriers). The Company also provides contract manufacturing services for original equipment manufacturers (OEM) requiring copper and fiber cable assemblies built to their specifications.  

The Company has historically focused on the un-served or under-served rural communities who 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 plants in Brooklyn Park, Minnesota, and 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, some made through two-tier distribution (channel) partners, and some sales through original equipment suppliers who private label their products.

RESULTS OF OPERATIONS

Three months ended March 31, 2017 vS. three months ended March 31, 2016

Net sales for the second quarter of fiscal 2017 ended March 31, 2017 were $17,652,000, an increase of approximately 4%, or $705,000, from net sales of $16,947,000 for the second quarter of fiscal 2016. Net sales to broadband service providers and commercial data networks customers were $16,623,000 in the second quarter of fiscal 2017, versus $15,678,000 in the same period of fiscal 2016. Among this group, the Company recorded $1,787,000 in international sales for the second quarter of fiscal 2017, versus $713,000 in the same period of fiscal 2016. Net sales to build-to-print and OEM customers were $1,029,000 in the second quarter of fiscal 2017 versus $1,269,000 in the same period of fiscal 2016. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Accordingly, international sales represented 10% and 4% of total net sales for the second quarters of fiscal 2017 and 2016, respectively.

The increase in net sales for the quarter ended March 31, 2017 of $705,000 compared to the quarter ended March 31, 2016 is partially attributable to an increase of $115,000 in net sales to our customer base of commercial data network providers, build-to-print and OEM manufacturers, and broadband service providers, outside of the Alternative Carrier group and international sales noted below, when compared to the same period of fiscal 2016. The improvement was due to increased deployments by the Company’s Traditional Carrier and Tier 1 customers. Also, international sales increased $1,074,000 during the same period due to an increase in demand. Net sales were negatively affected by a decrease in the ongoing builds of an Alternative Carrier customer of $484,000 in the quarter ended March 31, 2017. Revenue from all customers is obtained from purchase orders submitted from time to time. Accordingly, the Company’s ability to predict orders in future periods or trends affecting orders in future periods is limited.

9 

Cost of sales for the second quarter of fiscal 2017 was $10,209,000, an increase of $542,000, or 6%, from $9,667,000 in the comparable period of fiscal 2016. Gross profit was 42.2% of net sales in the fiscal 2017 second quarter, a decrease from 43.0% of net sales for the fiscal 2016 second quarter. Gross profit increased $163,000, or 2%, to $7,443,000 for the three months ended March 31, 2017 from $7,280,000 in the comparable period in fiscal 2016. The increase in gross profit in the second quarter of fiscal 2017 was due to increased volume while the decrease in gross profit percent for the quarter was due to a higher percentage of sales to the Tier 1 customer group, which typically have lower margins, along with a lower percentage of sales associated with the integration of optical components within our product line, which typically have higher margins.

Selling, general and administrative expenses increased $1,025,000, or 20%, to $6,162,000 in the fiscal 2017 second quarter from $5,137,000 for the fiscal 2016 second quarter. The increase in the second quarter of fiscal 2017 consists primarily of increased compensation costs of $562,000 due primarily to additional sales and marketing personnel, increased stock compensation expense of $311,000, increased product development costs of $209,000, and increased legal expenses of $165,000, somewhat offset by lower performance compensation accruals of $397,000 when compared to the fiscal 2016 second quarter.

Income from operations for the quarter ended March 31, 2017 was $1,281,000 compared to income from operations of $2,143,000 for the comparable quarter of fiscal 2016, a decrease of approximately 40%. This decrease is primarily attributable to increased selling, general and administrative expenses.

Interest income for the quarter ended March 31, 2017 was $60,000 compared to $39,000 for the comparable quarter for fiscal 2016. The increase is due mainly to higher interest rates earned on its investments in fiscal 2017 as well as higher cash invested balances. The Company invests its excess cash primarily in FDIC-backed bank certificates of deposit and money market accounts.

We recorded a provision for income taxes of $433,000 and $690,000 for the three months ended March 31, 2017 and 2016, respectively. We record our quarterly provision for income taxes based on our estimated annual effective tax rate for the year. The decrease in tax expense of $257,000 from the second quarter of fiscal 2016 is primarily due to lower profitability in the second quarter of fiscal 2017. The increase in the income tax expense rate to 32.3% for the second quarter of fiscal 2017 from 31.6% for the second quarter of fiscal 2016 is primarily the result of the Company having additional positive discrete items during the second quarter of fiscal 2016 primarily related to excess tax benefits for stock-based compensation awards.

The Company’s net income for the three months ended March 31, 2017 was $908,000, or $0.07 per basic and diluted share. The Company’s net income for the three months ended March 31, 2016 was $1,493,000, or $0.11 per basic and diluted share.

Six months ended March 31, 2017 vS. six months ended March 31, 2016

Net sales for the six months ended March 31, 2017 were $35,918,000, an increase of 10%, or approximately $3,281,000, from net sales of $32,637,000 for the first six months of fiscal 2016. Net sales to broadband service providers and commercial data networks customers were $33,651,000 for the first six months of fiscal 2017, versus $30,321,000 in the same period of fiscal 2016. Among this group, the Company recorded $3,373,000 in international sales versus $1,459,000 in the same period of fiscal 2016. Net sales to build-to-print and OEM customers were $2,267,000 in the first six months of fiscal 2017 versus $2,316,000 in the same period of fiscal 2016. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Accordingly, international sales represented 9% and 4% of total net sales for the first six months of fiscal 2017 and 2016, respectively.

The increase in net sales for the six months ended March 31, 2017 of $3,281,000 compared to the six months ended March 31, 2016 is primarily attributable to an increase of $2,591,000 in net sales to our customer base of commercial data network providers, build-to-print and OEM manufacturers, and broadband service providers, outside of the Alternative Carrier group and international sales noted below, when compared to the same period of fiscal 2016. The improvement was due to increased deployments by the Company’s Traditional Carrier and Tier 1 customers. Also, international sales increased $1,914,000 during the same period due to an increase in demand. Net sales were negatively affected by a decrease in the ongoing builds of an Alternative Carrier customer of $1,224,000 for the six months ended March 31, 2017. Revenue from all customers is obtained from purchase orders submitted from time to time. Accordingly, the Company’s ability to predict orders in future periods or trends affecting orders in future periods is limited.

10 

Cost of sales for the six months ended March 31, 2017 was $21,266,000, an increase of $2,586,000, or 14%, from $18,680,000 in the comparable period of fiscal 2016. Gross profit was 40.8% of net sales in the fiscal 2017 first six months, down from 42.8% for the comparable six months in fiscal 2016. Gross profit increased $695,000, or 5%, to $14,652,000 for the six months ended March 31, 2017 from $13,957,000 in the comparable period in fiscal 2016. The increase in cost of sales in the first six months of fiscal 2017 was due to increased volume while the decrease in gross profit percent was due to a higher percentage of sales to the Tier 1 customer group, which typically have lower margins, along with a lower percentage of sales associated with the integration of optical components within our product line, which typically have higher margins.

Selling, general and administrative expenses increased 24%, or $2,346,000, from $9,834,000 for the first six months of fiscal 2016 to $12,180,000 for the first six months of fiscal 2017. The increase in the first six months of fiscal 2017 consists primarily of higher compensation expense in the amount of $1,222,000 mainly due to additional sales and marketing personnel and wage increases. Also contributing to the increase were increased stock compensation expense of $645,000, increased product development costs of $426,000, and increased legal expenses of $178,000 when compared to the same period of fiscal 2016. These were somewhat offset by lower performance compensation accruals of $245,000.

Income from operations for the six months ended March 31, 2017 was $2,472,000 compared to income from operations of $4,123,000 for the first six months of fiscal 2016, a decrease of $1,651,000, or 40%. This decrease is primarily attributable to increased selling, general and administrative expenses.

Interest income for the six months ended March 31, 2017 was $113,000 compared to $73,000 for the comparable period for fiscal 2016. The increase is due mainly to higher interest rates earned on its investments in fiscal 2017 as well as higher cash invested balances. The Company invests its excess cash primarily in FDIC-backed bank certificates of deposit and money market accounts.

We recorded a provision for income taxes of $800,000 and $1,216,000 for the six months ended March 31, 2017 and 2016, respectively. We record our quarterly provision for income taxes based on our estimated annual effective tax rate for the year. The decrease in tax expense of $416,000 from the six months ended March 31, 2016 is primarily due to lower profitability in the first six months fiscal 2017. The increase in the income tax expense rate to 31.0% for the first six months of fiscal 2017 from 29.0% for the first six months of fiscal 2016 is primarily the result of the Company having additional positive discrete items during the first six months of fiscal 2016 primarily related to excess tax benefits for stock-based compensation awards.

The Company’s net income for the first six months of fiscal 2017 ended March 31, 2017 was $1,784,000, or $0.13 per basic and diluted share. The Company’s net income for the first six months of fiscal 2016 ended March 31, 2016 was $2,980,000, or $0.22 per basic and diluted share.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2017, our principal source of liquidity was our cash, cash equivalents and short-term investments. Those sources total $28,296,000 at March 31, 2017 compared to $33,541,000 at September 30, 2016. Our excess cash is invested mainly in certificates of deposit backed by the FDIC and money market accounts. Substantially all of our funds are insured by the FDIC. Investments considered long-term were $15,015,000 as of March 31, 2017, compared to $10,703,000 as of September 30, 2016. 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. We had no long-term debt obligations at March 31, 2017 or September 30, 2016.

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 execution of the share repurchase program adopted by our Board of Directors. The share repurchase program was originally adopted on November 13, 2014 with $8,000,000 authorized for common stock repurchases. On April 25, 2017, our Board of Directors increased the authorization to $12,000,000 of common stock.

11 

Operating Activities

Net cash used in operating activities totaled $12,000 for the six months ended March 31, 2017. This was primarily due to net income of $1,784,000, non-cash expenses for depreciation and amortization of $800,000, and stock based compensation of $1,184,000 offset by changes in operating assets and liabilities using cash. Changes in operating assets and liabilities providing cash include a decrease in other assets of $234,000. The decrease in other assets primarily represents a decrease in the current income tax receivable. Changes in working capital items using cash include an increase in accounts receivable of $115,000, an increase in inventory of $1,598,000, and a decrease in accounts payable and accrued expenses of $2,297,000. 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 six days to 41 days from September 30, 2016 to March 31, 2017. The increase in inventory represents an adjustment for seasonal demand along with new product introductions while the decrease in accounts payable and accrued expenses primarily reflects fiscal 2016 accrued bonus compensation accruals paid in the first quarter of fiscal 2017.

Net cash provided by operating activities totaled $3,030,000 for the six months ended March 31, 2016. This was primarily due to net income of $2,980,000, non-cash expenses for depreciation and amortization of $706,000, deferred taxes of $1,126,000, and stock-based compensation of $473,000 offset by changes in operating assets and liabilities using cash. Changes in operating assets and liabilities using cash include increases for the six months ending March 31, 2016 in accounts receivable and inventory of $1,843,000 and $920,000, respectively. 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 seven days to 42 days from September 30, 2015 to March 31, 2016. The increase in inventory represented an adjustment for seasonal demand along with changes in stocking levels. Changes in working capital items providing cash include an increase in accounts payable and accrued expenses in the amount of $714,000, primarily reflecting inventory purchases.

Investing Activities

We invest our excess cash in money market accounts 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 on these investments. During the six months ended March 31, 2017, we used cash to purchase $10,166,000 of FDIC-backed securities and received $5,568,000 on CDs that matured. Purchases of patents and capital equipment, mainly related to information technology and manufacturing equipment, consumed $1,065,000 of cash in the six months ended March 31, 2017.

During the six months ended March 31, 2016, we used cash to purchase $3,820,000 of FDIC-backed securities and received $3,858,000 on CDs that matured. Purchases of patents and capital equipment, mainly related to information technology and manufacturing equipment, consumed $422,000 of cash in the six months ended March 31, 2016.

Financing Activities

For the six months ended March 31, 2017, we received $170,000 from employees’ participation and purchase of stock through our ESPP. We also received $28,000 from stock option exercises. Additionally, we used $49,000 to repurchase our common stock in the six months ended March 31, 2017. As of March 31, 2017, we had authority to purchase approximately $6,768,000 in additional shares under the repurchase program announced on November 13, 2014.

12 

For the six months ended March 31, 2016, we received $118,000 from employees’ participation and purchase of stock through our ESPP. We also received $85,000 from stock option exercises. Additionally, we used $334,000 to repurchase our common stock in the six months ended March 31, 2016.

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 compensation, deferred tax asset valuation allowances, accruals for uncertain tax positions, and impairment of goodwill and long-lived assets.

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, 2016. Management made no changes to the Company’s critical accounting policies during the quarter ended March 31, 2017.

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, 2017.

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, 2017. 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, 2017 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

On January 31, 2017, CommScope Technologies LLC (“CommScope”) filed a Complaint against Clearfield, Inc. in the United States District Court for the District of Minnesota. The Complaint asserts infringement of thirteen CommScope patents by certain Clearfield products, including our FieldSmart® PON Cabinets, WaveSmart® Ruggedized Splitters, Clearview® Blue and Clearview® Classic Cassettes, FieldShield® Deployment Reel System, SmartRoute® Panel, FieldShield® Multiport SmarTerminal and FieldShield® Hardened Connectors. The asserted CommScope patents are U.S. Patent Nos. 7,233,731; 8,811,791; 7,198,409; 7,809,233; 9,201,206; 7,809,234; 7,816,602; 8,263,861; 8,705,929; 8,938,147; RE42,258; 7,397,997 and 9,122,021. CommScope’s Complaint seeks an injunction against further infringement and an award of unspecified compensatory and enhanced damages, interest, costs and attorneys’ fees.

On April 24, 2017, we filed an Answer to CommScope’s Complaint denying all claims of infringement and asserting affirmative defenses on the grounds of non-infringement, invalidity and unenforceability, among others. We intend to vigorously defend this lawsuit and believe that none of our products violate any valid intellectual property of CommScope. However, litigation is inherently uncertain, and any judgment or injunctive relief entered against us or any adverse settlement could negatively affect our business, results of operations and financial condition. In addition, this litigation may negatively affect our business, results of operations and financial condition due to the likely substantial cost of defense and potential diversion of the attention of company management away from operational activities.

13 

In addition to the matter described above, we are exposed to a number of asserted and unasserted legal claims encountered in the ordinary course of business. Although the outcome of any such legal action cannot be predicted, we do not believe that any of these other claims or potential claims will be material to our business, results of operations or financial condition.

ITEM 1A. RISK FACTORS

The most significant risk factors applicable to the Company are described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended September 30, 2016. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K.

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

In the three months ended March 31, 2017, 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, 2017		—	$	—		—	$	6,817,082
February 1-28, 2017		—		—		—		6,817,082
March 1-31, 2017		2,991		16.50		2,991		6,767,730
Total		2,991	$	16.50		2,991	$	6,767,730

(1) Amount remaining from the $8,000,000 repurchase authorization approved by the Company’s Board of Directors in November 2014.  On April 25, 2017, the Board of Directors increased the repurchase authorization by $4,000,000 to $12,000,000 of common stock.  The program does not obligate Clearfield to repurchase any particular amount of common stock during any period.  The repurchase will be funded by cash on hand.  The repurchase program is expected to continue indefinitely until the maximum dollar amount of shares has been repurchased or until the repurchase program is earlier modified, suspended or terminated by the Board of Directors.  

The Company may also repurchase shares of our common stock in connection with payment of taxes upon vesting of restricted stock previously issued to employees. There were no such repurchases during the quarter ended March 31, 2017.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

14 

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 31.2 – 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

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 4, 2017	/s/ Cheryl Beranek
	By: Cheryl Beranek Its: President and Chief Executive Officer
	(Principal Executive Officer)
May 4, 2017	/s/ Daniel Herzog
	By: Daniel Herzog Its: Chief Financial Officer
	(Principal Financial and Accounting Officer)

15

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Cheryl Beranek, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Clearfield, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

May 4, 2017	/s/ Cheryl Beranek
	By: Cheryl Beranek, President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Daniel Herzog, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Clearfield, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

May 4, 2017	/s/ Daniel Herzog
	By: Daniel Herzog, Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

The undersigned certify pursuant to 18 U.S.C. § 1350, that:

(1) The accompanying Quarterly Report on Form 10-Q for the period ended March 31, 2017 of Clearfield, Inc. (the “Company”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the accompanying report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 4, 2017	/s/ Cheryl Beranek
	By: Cheryl Beranek, President and Chief Executive Officer
	(Principal Executive Officer)

May 4, 2017	/s/ Daniel Herzog
	By: Daniel Herzog, Chief Financial Officer
	(Principal Financial and Accounting Officer)

XML

Document And Entity Information - shares	6 Months Ended
	Mar. 31, 2017	Apr. 27, 2017
Document Information [Line Items]
Entity Registrant Name	Clearfield, Inc.
Entity Central Index Key	0000796505
Trading Symbol	clfd
Current Fiscal Year End Date	--09-30
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		14,094,112
Document Type	10-Q
Document Period End Date	Mar. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Condensed Balance Sheets (Current Period Unaudited) - USD ($)	Mar. 31, 2017	Sep. 30, 2016
Current Assets
Cash and cash equivalents	$ 22,483,013	$ 28,014,321
Short-term investments	5,813,150	5,527,075
Accounts receivables, net	8,114,221	7,999,210
Inventories	9,970,877	8,373,155
Other current assets	974,990	1,198,917
Total current assets	47,356,251	51,112,678
Property, plant and equipment, net	6,024,930	5,780,814
Other Assets
Long-term investments	15,015,000	10,703,000
Goodwill	2,570,511	2,570,511
Other	438,720	428,310
Total other assets	18,024,231	13,701,821
Total Assets	71,405,412	70,595,313
Current Liabilities
Accounts payable	2,361,377	2,573,292
Accrued compensation	2,627,890	4,697,138
Accrued expenses	54,793	75,306
Total current liabilities	5,044,060	7,345,736
Other Liabilities
Deferred taxes	411,779	411,779
Deferred rent	248,887	243,755
Total other liabilities	660,666	655,534
Total Liabilities	5,704,726	8,001,270
Commitments and Contingencies
Shareholders’ Equity
Preferred stock, $.01 par value; authorized 500 shares; no shares outstanding
Common stock, authorized 50,000,000, $.01 par value; 14,144,112 and 14,126,279, shares issued and outstanding at March 31, 2017 and September 30, 2016	141,441	141,263
Additional paid-in capital	58,642,529	57,320,515
Retained earnings	6,916,716	5,132,265
Total Shareholders’ Equity	65,700,686	62,594,043
Total Liabilities and Shareholders’ Equity	$ 71,405,412	$ 70,595,313

XML

Condensed Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Mar. 31, 2017	Sep. 30, 2016
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, authorized (in shares)	500	500
Preferred stock, outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized (in shares)	50,000,000	50,000,000
Common stock, issued (in shares)	14,144,112	14,126,279
Common stock, outstanding (in shares)	14,144,112	14,126,279

XML

Condensed Statements of Operations (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Mar. 31, 2016
Net sales	$ 17,651,771	$ 16,947,187	$ 35,917,933	$ 32,636,902
Cost of sales	10,208,957	9,666,738	21,266,399	18,679,657
Gross profit	7,442,814	7,280,449	14,651,534	13,957,245
Operating expenses
Selling, general and administrative	6,162,178	5,136,952	12,179,702	9,833,967
Income from operations	1,280,636	2,143,497	2,471,832	4,123,278
Interest income	59,885	39,169	112,619	72,708
Income before income taxes	1,340,521	2,182,666	2,584,451	4,195,986
Income tax expense	433,000	689,687	800,000	1,215,553
Net income	$ 907,521	$ 1,492,979	$ 1,784,451	$ 2,980,433
Net income per common share:
Basic (in dollars per share)	$ 0.07	$ 0.11	$ 0.13	$ 0.22
Diluted (in dollars per share)	$ 0.07	$ 0.11	$ 0.13	$ 0.22
Weighted average shares outstanding:
Basic (in shares)	13,589,109	13,309,181	13,578,178	13,298,874
Diluted (in shares)	13,803,697	13,581,810	13,797,126	13,578,430

XML

Condensed Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Cash flows from operating activities
Net income	$ 1,784,451	$ 2,980,433
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	800,136	706,176
Deferred taxes		1,125,507
(Gain) loss on disposal of assets	(5,100)	1,390
Stock-based compensation	1,183,911	473,193
Changes in operating assets and liabilities:
Accounts receivable, net	(115,011)	(1,843,207)
Inventories	(1,597,722)	(919,675)
Prepaid expenses and other	234,201	(207,489)
Accounts payable and accrued expenses	(2,296,544)	713,999
Net cash (used in) provided by operating activities	(11,678)	3,030,327
Cash flows from investing activities
Purchases of property, plant and equipment and intangible assets	(1,064,936)	(421,637)
Proceeds from sale of property, plant and equipment	5,100
Purchases of investments	(10,166,075)	(3,820,075)
Proceeds from maturities of investments	5,568,000	3,858,000
Net cash used in investing activities	(5,657,911)	(383,712)
Cash flows from financing activities
Proceeds from issuance of common stock under employee stock purchase plan	169,500	118,013
Proceeds from issuance of common stock upon exercise of stock options	28,459	84,738
Tax withholding related to exercise of stock options	(10,326)	(36,223)
Repurchase of common stock	(49,352)	(333,761)
Net cash provided by (used in) financing activities	138,281	(167,233)
(Decrease) increase in cash and cash equivalents	(5,531,308)	2,479,382
Cash and cash equivalents, beginning of period	28,014,321	18,071,210
Cash and cash equivalents, end of period	22,483,013	20,550,592
Supplemental disclosures for cash flow information
Cash paid during the year for income taxes	416,750	83,884
Non-cash financing activities
Cashless exercise of stock options	$ 34,268	$ 234,460

XML

Note 1 - Basis of Presentation

6 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Basis of Accounting [Text Block]

Note

1.

Basis of Presentation

The accompanying (a) condensed balance sheet as of

September

30,

2016,

which has been derived from audited financial statements, and (b) unaudited interim condensed financial statements have been prepared by 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 and 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,

2016.

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.

In

March

2016,

the Financial Accounting Standards Board (“FASB”) issued ASU No.

2016

-

09,

Improvements to Employee Share-Based Payment Accounting

. The standard is required to be adopted by all companies in their

first

fiscal year beginning after

December

15,

2016

but allows companies to early adopt prior to this date. The standard is intended to simplify various aspects of the accounting and presentation of share-based payments. During the quarter ended

September

30,

2016,

the Company elected to early adopt this standard as of

October

1,

2015.

Adoption of this standard impacted the previously filed

10

-Q for the period ended

March

31,

2016

as follows:

Statement of earnings

– The standard requires that the tax effects of stock-based compensation be recognized in the income tax provision of the Company’s Statements of Earnings. Previously, these amounts were recognized in additional paid-in capital on the Company’s Balance Sheets. The new standard requires these amounts to be recasted within these quarters due to the prospective adoption of this standard in the

fourth

quarter of fiscal

2016.

Accordingly, net tax benefits related to stock-based compensation awards of

$54,313

and

$158,447

for the

three

and

six

months ended

March

31,

2016,

respectively, were recognized as reductions of income tax expense in the statements of earnings. This tax benefit reduced our effective income tax rates

2.5%

and

3.7%

for the

three

and

six

months ended

March

31,

2016,

respectively, and resulted in an increase in basic and diluted earnings per share of

$0.01

for the

six

months ended

March

31,

2016.

The change had

no

effect on basic and diluted earnings per share for the

three

months ended

March

31,

2016.

Statement of cash flows

– The standard requires that excess tax benefits from share-based employee awards be reported as operating activities in the consolidated statements of cash flows. Previously, these cash flows were included as hypothetical inflows and outflows in both the operating and financing activities. We elected to apply this change on a prospective basis, resulting in an increase in net cash provided by operating activities and a decrease in net cash used by financing activities of

$741,000

for the

six

months ended

March

31,

2016.

XML

Note 2 - Net Income Per Share

6 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Earnings Per Share [Text Block]

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 and restricted stock awards, 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,

2017

and

2016:

	Three Months Ended March 31,				Six Months Ended March 31,
	2017		2016		2017		2016
Net income	$	907,521	$	1,492,979	$	1,784,451	$	2,980,433
Weighted average common shares		13,589,109		13,309,181		13,578,178		13,298,874
Dilutive potential common shares		214,588		272,629		218,948		279,556
Weighted average dilutive common shares outstanding		13,803,697		13,581,810		13,797,126		13,578,430
Net income per common share:
Basic	$	0.07	$	0.11	$	0.13	$	0.22
Diluted	$	0.07	$	0.11	$	0.13	$	0.22

XML

Note 3 - Cash, Cash Equivalents and Investments

6 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Cash and Cash Equivalents Disclosure [Text Block]

Note

3.

Cash, Cash Equivalents and Investments

The Company currently invests its excess cash in money market accounts and bank certificates of deposit (CDs) with a term of not more than

five

years. CDs with original maturities of more than

three

months are reported as held-to-maturity investments

and are carried at amortized cost. Investments maturing in less than

one

year are classified as short term investments on the balance sheet, and investments maturing in

one

year or greater are classified as long term investments on the balance sheet.

The maturity dates of the Company’s CDs at

March

31,

2017

and

September

30,

2016

are as follows:

	March 31, 2017		September 30, 2016
Less than one year	$	5,813,150	$	5,527,075
1-5 years		15,015,000		10,703,000
Total	$	20,828,150	$	16,230,075

XML

Note 4 - Stock-based Compensation

6 Months Ended

Mar. 31, 2017

Notes to Financial Statements

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

Note

4.

Stock-Based Compensation

The Company recorded

$590,165

and

$1,183,911

of compensation expense related to current and past option grants, restricted stock grants and the Company’s Employee Stock Purchase Plan (“ESPP”) for the

three

and

six

months ended

March

31,

2017,

respectively. For the

three

months ended

March

31,

2017,

$535,464

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

$54,701

is included in cost of sales. For the

six

months ended

March

31,

2017,

$1,074,510

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

$109,401

is included in cost of sales. The Company recorded

$246,426

and

$473,193

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

three

and

six

months ended

March

31,

2016,

respectively. For the

three

months ended

March

31,

2016,

$224,156

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

$22,270

was included in cost of sales. For the

six

months ended

March

31,

2016,

$429,037

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

$44,156

was included in cost of sales. As of

March

31,

2017,

$6,324,696

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

7.6

years.

There were

no

stock options granted during the

six

month periods ended

March

31,

2017

or

March

31,

2016.

The following is a summary of stock option activity during the

six

months ended

March

31,

2017:

	Number of options			Weighted average exercise price
Outstanding at September 30, 2016		54,800		$	3.13
Granted		-			-
Exercised		(15,750	)		3.98
Cancelled or Forfeited		-			-
Outstanding at March 31, 2017		39,050		$	2.78

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,

2017,

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

3.2

years and their aggregate intrinsic value was

$533,632.

During the

six

months ended

March

31,

2017,

the Company received proceeds of

$28,459

from the exercise of stock options. During the

six

months ended

March

31,

2016,

exercised stock options totaled

57,050

shares, resulting in

$84,738

of proceeds to the Company.

Restricted Stock

The Company’s

2007

Stock Compensation Plan permits its Compensation Committee to grant stock-based awards, including stock options and restricted stock, to key employees and non-employee directors. The Company has made restricted stock grants that vest over

one

to

ten

years.

During the

six

month period ended

March

31,

2017,

the Company granted non-employee directors restricted stock awards totaling

3,795

shares of common stock, with a vesting term of approximately

one

year and a fair value of

$16.45

per share.

During the

six

month period ended

March

31,

2016,

the Company granted non-employee directors restricted stock awards totaling

2,712

shares of common stock, with a vesting term of approximately

one

year and a fair value of

$14.73

per share. The Company also granted outgoing non-employee directors fully-vested stock awards totaling

1,356

shares of common stock, with a fair value of

$14.73

per share. Additionally, the Company granted employees restricted stock awards totaling

8,500

shares of common stock, with a vesting term of

five

years and a fair value of

$13.64

per share during the

six

month period ended

March

31,

2016.

Restricted stock transactions during the

six

month period ended

March

31,

2017

are summarized as follows:

	Number of shares			Weighted average grant date fair value
Unvested shares at September 30, 2016		563,570		$	14.26
Granted		3,795			16.45
Vested		(5,262	)		14.66
Forfeited		(7,526	)		14.91
Unvested at March 31, 2017		554,577		$	14.26

Employee Stock Purchase Plan

Clearfield, Inc.’s ESPP allows participating employees to purchase shares of the Company’s common stock at a discount through payroll deductions. The ESPP is available to all employees subject to certain eligibility requirements. Terms of the ESPP provide that participating employees

may

purchase the Company’s common stock on a voluntary after-tax basis. Employees

may

purchase the Company’s common stock at a price that is no less than the lower of

85%

of the fair market value of

one

share of common stock at the beginning or end of each stock purchase period or phase. The ESPP is carried out in

six

month phases, with phases beginning on

January

1

and

July

1

of each calendar year. For the phases that ended on

December

31,

2016

and

December

31,

2015,

employees purchased

11,144

and

10,352

shares at a price of

$15.21

and

$11.40

per share, respectively. After the employee purchase on

December

31,

2016,

131,978

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

XML

Note 5 - Accounts Receivable and Net Sales

6 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Financing Receivables [Text Block]

Note

5.

Accounts Receivable and Net Sales

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

March

31,

2017

and

September

30,

2016,

the balance in the allowance for doubtful accounts was

$90,473

and

$93,473,

respectively.

See Note

7,

“Major Customer Concentration” for further information regarding accounts receivable and net sales.

XML

Note 6 - Inventories

6 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Inventory Disclosure [Text Block]

Note

6.

Inventories

Inventories consist of the following as of:

	March 31, 2017		September 30, 2016
Raw materials	$	7,190,262	$	5,702,762
Work-in-progress		610,219		471,305
Finished goods		2,170,396		2,199,088
Inventories	$	9,970,877	$	8,373,155

XML

Note 7 - Major Customer Concentration

6 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

Note

7.

Major Customer Concentration

The following table summarizes customers comprising

10%

or more of net sales for the

three

and

six

months ended

March

31,

2017

and

March

31,

2016:

	Three Months Ended March 31,						Six Months Ended March 31,
	2017			2016			2017			2016
Customer A		18	%		21	%		23	%		23	%
Customer B		15	%		18	%		15	%		15	%
Customer C		11	%		*			10	%		*

* Less than

10%

As of

March

31,

2017,

Customers B and C accounted for

22%

and

12%

of accounts receivable, respectively. As of

September

30,

2016,

Customers A and B accounted for

18%

and

12%

of accounts receivable, respectively. Customers A and B are both distributors. Customer C is a large national telecom provider (Tier

1).

XML

Note 8 - Goodwill and Patents

6 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

Note

8.

Goodwill and Patents

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 in the

fourth

quarter ended

September

30,

2016

did

not

indicate an impairment of goodwill. During the

six

months ended

March

31,

2017,

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,

2017,

the Company has

nine

patents granted and

nine

pending applications inside the United States.

XML

Note 9 - Income Taxes

6 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

9.

Income Taxes

For the

three

and

six

months ended

March

31,

2017,

the Company recorded a provision for income taxes of

$433,000

and

$800,000,

respectively, reflecting an effective tax rate of

32.3%

and

31.0%,

respectively. The primary difference between the effective tax rate and the statutory tax rate is related to nondeductible meals and entertainment, favorable domestic manufacturing deduction and research and development credits, expenses related to equity award compensation and favorable discrete items for the

three

and

six

months ended

March

31,

2017

from tax benefits related to stock-based compensation awards.

As of both

March

31,

2017

and

September

30,

2016,

the Company had a remaining valuation allowance of approximately

$322,000

related to state net operating loss carry forwards 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 has determined that there should be no change in this existing valuation allowance in the quarter ended

March

31,

2017.

For the

three

and

six

months ended

March

31,

2016,

the Company recorded a provision for income taxes of

$690,000

and

$1,216,000,

respectively, reflecting an effective tax rate of

31.6%

and

29.0%,

respectively. The primary difference between the effective tax rate and the statutory tax rate is related to nondeductible meals and entertainment, expenses related to equity award compensation and favorable discrete items for the

three

and

six

months ended

March

31,

2016

from tax benefits related to stock-based compensation awards and research and development credits which were permanently extended in

December

2015

by the federal government.

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 assets for expected utilization using a “more likely than not” criteria by assessing the available positive and negative factors surrounding its recoverability.

As of

March

31,

2017,

we do

not

have any unrecognized tax benefits. It is the Company’s practice to recognize interest and penalties accrued on any unrecognize

d 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.

XML

Note 10 - Accounting Pronouncements

6 Months Ended

Mar. 31, 2017

Notes to Financial Statements

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

Note

10.

Accounting Pronouncements

Recent Accounting Pronouncements

In

May

2014,

the FASB issued guidance creating Accounting Standards Codification (“ASC”) Section

606,

Revenue from Contracts with Customers

. The new section will replace Section

605,

“Revenue Recognition” and creates modifications to various other revenue accounting standards for specialized transactions and industries. The section is intended to conform revenue accounting principles with a concurrently issued International Financial Reporting Standards with previously differing treatment between United States practice and those of much of the rest of the world, as well as, to enhance disclosures related to disaggregated revenue information. The updated guidance is effective for annual reporting periods beginning after

December

15,

2017,

and interim periods within that reporting period. Early application is permitted only as of annual reporting periods beginning after

December

15,

2016,

including interim periods within that reporting period. Although the Company has not completed a full impact assessment of this guidance, we do not believe it will have a material impact on the reported net sales amounts.

In

July

 

2015,

the FASB issued ASU

2015

-

11,

 

Inventory (Topic

330)

Related to Simplifying the Measurement of Inventory

which applies to all inventory except inventory that is measured using last-in,

first

-out (“LIFO”) or the retail inventory method. Inventory measured using

first

-in,

first

-out (“FIFO”) or average cost is covered by the new amendments. Inventory within the scope of the new guidance should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments will take effect for public business entities for fiscal years beginning after

December

 

15,

2016,

including interim periods within those fiscal years. The new guidance should be applied prospectively, and earlier application is permitted as of the beginning of an interim or annual reporting period. Although the Company has not completed a full impact assessment of this guidance, we do not believe it will have a material impact on reported inventory amounts.

In

February

2016,

the FASB issued ASU

2016

-

02,

Leases

, which requires lessees to present right-of-use assets and lease liabilities on the balance sheet for all leases with terms longer than

12

months. The guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements and is effective for fiscal years beginning after

December

15,

2018,

including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact the adoption of this ASU will have on our financial statements.

XML

Note 2 - Net Income Per Share (Tables)

6 Months Ended

Mar. 31, 2017

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended March 31,				Six Months Ended March 31,
	2017		2016		2017		2016
Net income	$	907,521	$	1,492,979	$	1,784,451	$	2,980,433
Weighted average common shares		13,589,109		13,309,181		13,578,178		13,298,874
Dilutive potential common shares		214,588		272,629		218,948		279,556
Weighted average dilutive common shares outstanding		13,803,697		13,581,810		13,797,126		13,578,430
Net income per common share:
Basic	$	0.07	$	0.11	$	0.13	$	0.22
Diluted	$	0.07	$	0.11	$	0.13	$	0.22

XML

Note 3 - Cash, Cash Equivalents and Investments (Tables)

6 Months Ended

Mar. 31, 2017

Notes Tables

Investments Classified by Contractual Maturity Date [Table Text Block]

	March 31, 2017		September 30, 2016
Less than one year	$	5,813,150	$	5,527,075
1-5 years		15,015,000		10,703,000
Total	$	20,828,150	$	16,230,075

XML

Note 4 - Stock-based Compensation (Tables)

6 Months Ended

Mar. 31, 2017

Notes Tables

Share-based Compensation, Stock Options, Activity [Table Text Block]

	Number of options			Weighted average exercise price
Outstanding at September 30, 2016		54,800		$	3.13
Granted		-			-
Exercised		(15,750	)		3.98
Cancelled or Forfeited		-			-
Outstanding at March 31, 2017		39,050		$	2.78

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity [Table Text Block]

	Number of shares			Weighted average grant date fair value
Unvested shares at September 30, 2016		563,570		$	14.26
Granted		3,795			16.45
Vested		(5,262	)		14.66
Forfeited		(7,526	)		14.91
Unvested at March 31, 2017		554,577		$	14.26

XML

Note 6 - Inventories (Tables)

6 Months Ended

Mar. 31, 2017

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	March 31, 2017		September 30, 2016
Raw materials	$	7,190,262	$	5,702,762
Work-in-progress		610,219		471,305
Finished goods		2,170,396		2,199,088
Inventories	$	9,970,877	$	8,373,155

XML

Note 7 - Major Customer Concentration (Tables)

6 Months Ended

Mar. 31, 2017

Notes Tables

Schedules of Concentration of Risk, by Risk Factor [Table Text Block]

	Three Months Ended March 31,						Six Months Ended March 31,
	2017			2016			2017			2016
Customer A		18	%		21	%		23	%		23	%
Customer B		15	%		18	%		15	%		15	%
Customer C		11	%		*			10	%		*

XML

Note 1 - Basis of Presentation (Details Textual) - Adjustments for New Accounting Principle, Early Adoption [Member] - Accounting Standards Update 2016-09 [Member]	6 Months Ended
	Mar. 31, 2017 USD ($)
Three Months Ended March 31, 2016 [Member]
Employee Service Share-based Compensation, Tax Benefit from Compensation Expense	$ 54,313
Increase (Decrease) in Effective Income Tax Rate Reconciliation, Percent	(2.50%)
Increase (Decrease) in Earnings Per Share, Basic	0
Six Months Ended March 31, 2016 [Member]
Employee Service Share-based Compensation, Tax Benefit from Compensation Expense	$ 158,447
Increase (Decrease) in Effective Income Tax Rate Reconciliation, Percent	(3.70%)
Increase (Decrease) in Earnings Per Share, Basic	0.01
Prior Period Reclassification Adjustment	$ 741,000

XML

Note 2 - Net Income Per Share - Net Income Per Common Share (Details) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Mar. 31, 2016
Net income	$ 907,521	$ 1,492,979	$ 1,784,451	$ 2,980,433
Weighted average common shares (in shares)	13,589,109	13,309,181	13,578,178	13,298,874
Dilutive potential common shares (in shares)	214,588	272,629	218,948	279,556
Weighted average dilutive common shares outstanding (in shares)	13,803,697	13,581,810	13,797,126	13,578,430
Net income per common share:
Basic (in dollars per share)	$ 0.07	$ 0.11	$ 0.13	$ 0.22
Diluted (in dollars per share)	$ 0.07	$ 0.11	$ 0.13	$ 0.22

XML

Note 3 - Cash, Cash Equivalents and Investments (Details Textual)	6 Months Ended
	Mar. 31, 2017
Maximum [Member]
Held-to-maturity Securities, Investment Term	5 years

XML

Note 3 - Cash, Cash Equivalents and Investments - CD Maturity Dates (Details) - USD ($)	Mar. 31, 2017	Sep. 30, 2016
Less than one year	$ 5,813,150	$ 5,527,075
1-5 years	15,015,000	10,703,000
Total	$ 20,828,150	$ 16,230,075

XML

Note 4 - Stock-based Compensation (Details Textual) - USD ($)	3 Months Ended				6 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2017	Mar. 31, 2016
Allocated Share-based Compensation Expense	$ 590,165		$ 246,426		$ 1,183,911	$ 473,193
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	6,324,696				$ 6,324,696
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition					7 years 219 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross					0	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term					3 years 73 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	533,632				$ 533,632
Proceeds from Stock Options Exercised					$ 28,459	$ 84,738
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period					15,750	57,050
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Market Price Percentage, Offering Date					85.00%
Stock Issued During Period, Shares, Employee Stock Purchase Plans		11,144		10,352
Share-based Compensation Arrangement by Share-based Payment Award, Purchase Price		$ 15.21		$ 11.40
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant		131,978
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period					3,795
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value					$ 16.45
Restricted Stock [Member] | Non Employee Directors [Member] | Stock Compensation Plan 2007 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period					1 year	1 year
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period					3,795	2,712
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value					$ 16.45	$ 14.73
Restricted Stock [Member] | Outgoing Non Employee Directors [Member] | Stock Compensation Plan 2007 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period						1,356
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value						$ 14.73
Restricted Stock [Member] | Employees [Member] | Stock Compensation Plan 2007 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period						5 years
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period						8,500
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value						$ 13.64
Minimum [Member] | Restricted Stock [Member] | Employee and Non-Employee Directors [Member] | Stock Compensation Plan 2007 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period					1 year
Maximum [Member] | Restricted Stock [Member] | Employee and Non-Employee Directors [Member] | Stock Compensation Plan 2007 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period					10 years
Selling, General and Administrative Expenses [Member]
Allocated Share-based Compensation Expense	535,464		224,156		$ 1,074,510	$ 429,037
Cost of Sales [Member]
Allocated Share-based Compensation Expense	$ 54,701		$ 22,270		$ 109,401	$ 44,156

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Note 4 - Stock-based Compensation - Stock Option Activity (Details) - $ / shares	6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Options, outstanding (in shares)	54,800
Weighted-average exercise price, outstanding (in dollars per share)	$ 3.13
Exercised (in shares)	(15,750)	(57,050)
Exercised (in dollars per share)	$ 3.98
Options, outstanding (in shares)	39,050
Weighted-average exercise price, outstanding (in dollars per share)	$ 2.78

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Note 4 - Stock-based Compensation - Restricted Stock Transactions (Details) - Restricted Stock [Member]	6 Months Ended
	Mar. 31, 2017 $ / shares shares
Balance, unvested shares (in shares) | shares	563,570
Balance, weighted-average grant date fair value (in dollars per share) | $ / shares	$ 14.26
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period | shares	3,795
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value | $ / shares	$ 16.45
Vested (in shares) | shares	(5,262)
Vested (in dollars per share) | $ / shares	$ 14.66
Forfeited (in shares) | shares	(7,526)
Forfeited (in dollars per share) | $ / shares	$ 14.91
Balance, unvested shares (in shares) | shares	554,577
Balance, weighted-average grant date fair value (in dollars per share) | $ / shares	$ 14.26

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Note 5 - Accounts Receivable and Net Sales (Details Textual) - USD ($)	Mar. 31, 2017	Sep. 30, 2016
Allowance for Doubtful Accounts Receivable, Current	$ 90,473	$ 93,473

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Note 6 - Inventories - Components of Inventory (Details) - USD ($)	Mar. 31, 2017	Sep. 30, 2016
Raw materials	$ 7,190,262	$ 5,702,762
Work-in-progress	610,219	471,305
Finished goods	2,170,396	2,199,088
Inventories	$ 9,970,877	$ 8,373,155

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Note 7 - Major Customer Concentration (Details Textual) - Customer Concentration Risk [Member] - Accounts Receivable [Member]	6 Months Ended	12 Months Ended
	Mar. 31, 2017	Sep. 30, 2016
Customers B and C [Member]
Concentration Risk, Percentage	22.00%
Customer A [Member]
Concentration Risk, Percentage	12.00%	18.00%
Customer B [Member]
Concentration Risk, Percentage		12.00%

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Note 7 - Major Customer Concentration - Customers Comprising 10% or More of Net Sales (Details) - Customer Concentration Risk [Member] - Sales Revenue, Net [Member]	3 Months Ended			6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016		Mar. 31, 2017	Mar. 31, 2016
Customer A [Member]
Concentration Risk, Percentage	18.00%	21.00%		23.00%	23.00%
Customer B [Member]
Concentration Risk, Percentage	15.00%	18.00%		15.00%	15.00%
Customer C [Member]
Concentration Risk, Percentage	11.00%		[1]	10.00%		[1]

[1] Less than 10%

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Note 8 - Goodwill and Patents (Details Textual) $ in Thousands	3 Months Ended	6 Months Ended
	Sep. 30, 2016 USD ($)	Mar. 31, 2017 USD ($)
Number of Patents Granted		9
Number of Patents Pending		9
Goodwill, Impairment Loss	$ 0	$ 0
Patents [Member]
Finite-Lived Intangible Asset, Useful Life		20 years

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Note 9 - Income Taxes (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Mar. 31, 2016	Sep. 30, 2016
Income Tax Expense (Benefit)	$ 433,000	$ 689,687	$ 800,000	$ 1,215,553
Effective Income Tax Rate Reconciliation, Percent	32.30%	31.60%	31.00%	29.00%
Unrecognized Tax Benefits	$ 0		$ 0
State and Local Jurisdiction [Member]
Operating Loss Carryforwards, Valuation Allowance	$ 322,000		$ 322,000		$ 322,000