UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended September 30, 2009.
(cid:3)
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______________ to _______________.
Commission File Number 0-16106
CLEARFIELD, INC.
(Exact Name of Registrant as Specified in its Charter)
Minnesota
(State of incorporation)
5480 Nathan Lane North,
Suite 120
Plymouth, Minnesota 55442
(Address of principal executive office)
41-1347235
(I.R.S. Employer Identification No.)
(763) 476-6866
Registrant’s telephone number, including area code
(Title of class)
Common Stock, par value $.01 per share
(Including Series B Junior Participating Preferred Share Purchase Rights)
(Name of exchange on which registered)
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
(cid:3) YES
NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
(cid:3) YES
NO
Indicate by check mark whether the registrant (1) has 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.
YES
(cid:3) NO
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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).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
(cid:3) YES
(cid:3) NO
(cid:3) 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 (cid:3)
Accelerated filer (cid:3)
Non-accelerated filer (cid:3)
Smaller Reporting Company
Indicate whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
(cid:3) YES
NO
The aggregate market value of the voting and non-voting equity held by non-affiliates of the registrant, as of the last business day of the registrant’s most recently completed second
fiscal quarter computed by reference to the price at which the common equity was last sold was approximately $13,370,507.
The number of shares of common stock outstanding as of December 17, 2009 was 11,978,831.
Documents Incorporated by Reference:
Portions of our proxy statement for the annual shareholders meeting to be held on February 25, 2010 are incorporated by reference into Part III.
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CLEARFIELD, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM 9.
ITEM 9A:
ITEM 9B.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
SIGNATURES
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES.
LEGAL PROCEEDINGS.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS.
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
CONTROLS AND PROCEDURES
OTHER INFORMATION
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
EXECUTIVE COMPENSATION.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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PART I
ITEM 1.
BUSINESS
Background
Clearfield, Inc. (“Clearfield” or the “Company”), formerly APA Enterprises, Inc., is a Minnesota corporation which was founded in 1979. Our corporate headquarters is located at
5480 Nathan Lane North, Suite 120, Plymouth, MN 55442 and our corporate website is www.clearfieldconnection.com. The information available on our website is not part of this
Report. You can access, free of charge, our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, our quarterly reports on Form 10-Q,
current reports on Form 8-K and any other amendments to those reports, through a link at our website, or at the Commission’s website at www.sec.gov .
On January 2, 2008, Clearfield consolidated its sole subsidiary, APA Cables & Networks, Inc., (APACN) into the parent company, Clearfield, Inc. The Company also changed its
NASDAQ stock symbol to CLFD from APAT. The Company’s Optronics business was discontinued during the quarter ended June 30, 2007, and the operations of the Company
have now consisted solely of the operations of Clearfield formerly known as APACN.
On July 24, 2007, we changed our fiscal year end from March 31 to September 30. The first full fiscal year following this change was the period of October 1, 2007 to September
30, 2008.
Description of Business
Clearfield, Inc. manufactures, markets and sells telecommunications equipment. The Company provides a suite of modular, highly-configurable passive connectivity solutions to
telecommunications service providers, as well as commercial and industrial original equipment manufacturers (“OEMs”). The Company has successfully established itself as a
value-added supplier to its target market of independent telephone companies and cable television operators as well as OEMs who value a high level of engineering services as part
of their procurement process. Clearfield has expanded its product offerings and broadened its customer base during the last five years.
Clearfield offers a broad range of telecommunications equipment and products including the design and manufacture of standard and custom connectivity products such as fiber
distribution systems, optical components, Outside Plant (“OSP”) cabinets, and fiber and copper cable assemblies that serve the communication service provider including Fiber-to-
the-Premises (“FTTP”), large enterprise, and OEM markets. Clearfield maintains a range of engineering and technical knowledge in-house that works closely with customers to
develop, customize and enhance products from design through production. Most products are produced at Clearfield’s plant in Plymouth, Minnesota with 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. Key to our business is strong
acceptance of Clearfield’s proprietary FieldSmart™ Fiber Management Platform product line within broadband service providers deploying FTTP networks.
Products
Clearview Cassette The Clearview™ Cassette, introduced in November 2007, is the main building block of the FieldSmart product platform, positioning Clearfield as the only
company to provide the needs of every leg of the telecommunications network with a single building block architecture. This patent-pending technology is a system of five parts that
nest together in the cassette’s main housing to support a wide range of applications. Parts can be added or removed as needed to support the environment in which it is deployed.
Within the cassette, all fibers from the sub-assembly are slack stored, bend radius protected and secured against accidental physical damage from handling. A transparent design
allows the user to see components inside, while the snap-together components provide access without tools for maintenance, cleaning or troubleshooting. All products which
integrate a Clearview product in it’s design are marked as “Clearview Multiplied”.
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FieldSmart Fiber Crossover Distribution System (FxDS) The FieldSmart Fiber Crossover Distribution System (FxDS) provides complete fiber management modularity and
scalability across the fiber network from inside plant to outside plant environments. Using the Clearview building block approach, each fiber management element provides
modularity of physical fiber protection in the environment in which it is placed. The FxDS is system of modular and scalable building blocks that provide for cost containment
configurations with the use of Clearview Multiplied products. Easily configured for initial placement and scaling easily from 12-ports to a full rack of 1728-ports, the FieldSmart
FxDS requires only four unique blocks to configure initial deployment. The user then places what is needed on the frame as subscriber take rates dictate.
FieldSmart Fiber Scalability Center (FSC) The FieldSmart FSC is a modular and scalable outside plant cabinet that allow users to align their capital equipment expense with
subscriber revenue. This allows rollout of FTTP services by communication service providers without a large initial expense. Each outside plant cabinet stores feeder and distribution
splices, splitters, connectors and slack cable neatly and compactly, utilizing field-tested designs to maximize bend radius protection, connector access, ease of cable routing and
physical protection, thereby minimizing the risk of fiber damage. The FSC product, with the Clearview cassette at its heart has been designed to scale with the application
environment as demand requires and to reduce service turn-up time for the end-user.
FieldSmart Fiber Delivery Point (FDP) The Fieldsmart FDP product line is a series of enclosure systems for the access network that incorporates the delivery of fiber connectivity to
the neighborhood or business district in the most cost-effective footprint possible. The FieldSmart FDP family of pedestal inserts teams industry standard pedestal products from a
range of suppliers with a Clearfield designed fiber connectivity module centered around the Clearview Cassette. The FieldSmart FDP family of wall-mount enclosures provides 12 to
144 ports of connectivity for multi-dwelling unit fiber deployments, fiber demarcation, security systems (CCTV), telecommunications room needs and horizontal/intermediate cross-
connects.
Optical Components Clearfield packages optical components for signal coupling, splitting, termination, multiplexing, demultiplexing and attenuation to seamlessly integrate with
the FieldSmart FxDS, FieldSmart FSC and FieldSmart FDP. This value-added packaging allows the customer to source from a single supplier and reduce space requirements. The
products are built and tested to meet the strictest industry standards ensuring customers trouble-free performance in extreme outside plant environments.
Cable Assemblies Clearfield manufactures high quality fiber and copper assemblies with an industry-standard or customer-specified configuration. Industry-standard assemblies
built include but are not limited to: single mode fiber, multimode fiber, multi-fiber, CATV node assembly, DS1 Telco, DS 3 (734/735) coax, Category 5e and 6, SCSI, Token Ring,
and V.35. In addition, Clearfield’s engineering services team works alongside the engineering design departments of our OEM customers to design and manufacturer custom
solutions for both in-the-box as well as network connectivity assemblies specific to that customer’s product line.
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Marketing and Distribution
Clearfield markets its products in the United States through a direct field sales force supported by an internal customer sales and support team. This internal team works proactively
with the outside sales force to maintain a high level of customer contact through regular communication of product availability, order processing, and status and delivery
information. Clearfield works closely with its target customers to configure the Company’s product platform to the client’s unique requirements. Our high level of customer service
helps bring new products to markets with the design input from our customers and network of consulting engineering firms. To ensure we cover all markets we leverage our internal
customer support team with a combination of manufacturer representative organizations.
Competition
Competitors to the FieldSmart FxDS, FSC and FDP product lines include, but are not limited to, ADC Telecommunications, Inc., Corning Cabling Systems, Inc., OFS (Furukawa
Electric North America, Inc.), Telect Inc., Alcatel, Inc., and Tyco Electronics, Inc. Nearly all of these firms are substantially larger than Clearfield and as a result may be able to
procure pricing for necessary components and labor at much lower prices. Competition for the custom fiber and copper termination services for cable assemblies is intense.
Competitors range from small, family-run businesses to very large contract manufacturing facilities. Clearfield believes that it has a competitive advantage with customers who can
leverage the cost savings the Clearview cassette can provide and those who require quick-turn, high-performance customized products, and that it is at competitive disadvantage with
customers who principally seek large volume commodity products.
Sources of Materials and Outsourced Labor
Numerous purchased materials, components, and labor are used in the manufacturing of the Company’s products. Most of these are readily available from multiple suppliers.
However, some critical components and outsourced labor are purchased from a single or a limited number of suppliers. The loss of access to some components and outsourced labor
could have an adverse effect on our ability to deliver products on a timely basis and on our financial performance.
Major Customers
Two customers, Power & Telephone Supply Company and MTS Systems Corporation, comprised approximately 40% and 22% of total sales for the periods ended September 30,
2009 and September 30, 2008, respectively. Power & Telephone Supply Company is a distributor and it accounted for 32% and 10% of revenue for the corresponding respective
periods. MTS Systems Corporation is an end use customer and it accounted for 8% and 12% of revenues for the corresponding respective periods. MTS Systems Corporation
purchases our product through its standard form of purchase order with pricing established by a schedule that is in effect from July 1, 2008 through June 30, 2011. Power &
Telephone Supply Company purchases our product through its standard form of purchase order.
Patents and Trademarks
As of September 30, 2009, we had one patent pending in the United States and two pending patent applications inside and outside the United States. We have also developed and are
using trademarks and logos to market and promote our products, including Clearfield™, Clearview™ and FieldSmart™.
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Backlog
Backlog reflects purchase order commitments for our products received from customers that have yet to be fulfilled. Backlog orders are generally shipped within three months. The
Company had a backlog of $1,228,334 as of September 30, 2009 and $1,865,629 as of September 30, 2008.
Seasonality
We are affected by the seasonal trends in the industries we serve. We typically experience sequentially lower sales in our first and second fiscal quarters, primarily due to customer
budget cycles, deployment schedules, some customer geographical concentrations as well as standard vacation and holiday calendars. Sales usually reach a seasonal peak in our third
and fourth fiscal quarters.
Product Development
Product development for Clearfield’s product line program has been conducted internally. We believe that the communication industry environment is constantly evolving and our
success depends on our ability to anticipate and respond to these changes. Our focus is to analyze the environment and technology and work to develop products that simplify our
customers’ business by developing innovative high quality products utilizing modular design wherever possible.
Employees
As of September 30, 2009, the Company had 113 full-time employees. We also have several part-time employees and independent contractors. None of our employees are covered
by any collective bargaining agreement. We believe our employee relations to be good.
Segment Reporting
The Company operates in a single reportable segment.
ITEM 1A.
RISK FACTORS
The impact and the timing of the impact of the American Recovery and Reinvestment Act on our business is uncertain.
The American Recovery and Reinvestment Act (ARRA), widely known as the “stimulus bill,” was enacted in February 2009. The ARRA allocates $7.2 billion in grants, loans and
loan guarantees for broadband/wireless initiatives for rural unserved and underserved geographies across the country, with these initiatives administered by several federal agencies.
This funding is available to a wide variety of organizations, including our customers and prospective customers, to purchase and implement network infrastructure and services to
improve broadband coverage. As part of the criteria established by the federal agencies administering these programs, the projects to be funded through the new federal stimulus plan
must be approved by the state or states in which the projects will be located.
Currently, only a very small portion of the funding allocated by the ARRA for these broadband/wireless initiatives has been awarded to applicants. Our customers and prospective
customers may postpone projects involving telecommunications equipment such as ours until the availability and amount of stimulus funds for a particular project is known or
awarded. Accordingly, they may experience significant delays in the funding of projects through the ARRA, which, in turn, will delay their purchase of equipment for their
projects. We cannot be assured to what extent the ARRA will impact demand for our products, our results of operations or the timing of purchases by customers.
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A large percentage of our sales have been made to a small number of customers, and the loss of a major customer would adversely affect us.
In fiscal years 2009 and 2008, one distributor customer accounted for 32% and 10% of our revenue, respectively. In addition, another end-user customer accounted for 8% and 12%
of our revenue in fiscal years 2009 and 2008, respectively. If there is a loss of one or more of these major customers or a significant decline in sales to either of these major
customers, it would have a material adverse effect on our results from operations.
Intense competition in our industry may result in price reductions, lower gross profits and loss of market share.
Competition in the telecommunications equipment and services industry is intense. Our competitors may have or could develop or acquire marketing, financial, development and
personnel resources that exceed
ours. Our ability to compete successfully will depend on whether we can continue to advance the technology of our products and develop new products, the acceptance of our
products among our customers and prospective customers and our ability to anticipate customer needs in product development, as well as the price, quality and reliability of our
products, our delivery and service capabilities, and our control of operating expenses.
We cannot assure you that we will be able to compete successfully against our current or future competitors. Increased competition from manufacturers of telecommunications
equipment such as ours may result in price reductions, lower gross profit margins, and increased discounts to customers and loss of market share and could require increased
spending by us on research and development, sales and marketing and customer support.
Our results of operations could be adversely affected by economic conditions and the effects of these conditions on our customers’ businesses.
Recent adverse changes in economic conditions, including the current recession in the United States, have resulted and may continue to result in lower spending among our
customers and contribute to decreased sales to our distributors and customers. Further, our business may be adversely affected by factors such as downturns in economic activity in
specific geographic areas or in the telecommunications industry; social, political or labor conditions; or adverse changes in the availability and cost of capital, interest rates, tax rates,
or regulations. These factors are beyond our control, but may result in further decreases in spending among customers and softening demand for our products. Declines in demand
for our products will adversely affect our revenue. Further, challenging economic conditions also may impair the ability of our customers to pay for products and services they have
purchased. As a result, our cash flow may be negatively impacted and our allowance for doubtful accounts and write-offs of accounts receivable may increase.
Our operating results may fluctuate significantly from quarter to quarter, which may make budgeting for expenses difficult and may negatively affect the market price of our
common stock.
Because many purchases by customers of our products relate to a specific customer project, the short-term demand for our products can fluctuate significantly and our ability to
forecast sales accurately from quarter to quarter is limited. This fluctuation can be further affected by the long sales cycles necessary to obtain contracts to supply equipment for
these projects, the availability of capital to fund our customers’ projects, and the impact of the American Recovery and Reinvestment Act on customer buying patterns. These long
sales cycles may result in significant effort expended with no resulting sales or sales that are not made in the anticipated quarter. Demand for our projects will also depend upon the
extent to which our customers and prospective customers initiate these projects and the extent to which we are selected to provide our equipment in these projects, neither of which
can be assured. These factors generally result in fluctuations, sometimes significant, in our operating results.
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Other factors that may affect our quarterly operating results including:
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the volume and timing of orders from and shipments to our customers;
work stoppages and other developments affecting the operations of our customers;
the timing of and our ability to obtain new customer contracts and the timing of revenue recognition;
the timing of new product and service announcements;
the availability of products and services;
market acceptance of new and enhanced versions of our products and services;
variations in the mix of products and services we sell;
the utilization of our production capacity and employees; and
the availability and cost of key components of our products.
Further, we budget our expenses based in part on expectations of future revenues. If revenue levels in a particular quarter are lower than expected, our operating results will be
affected adversely.
Because of these factors, our quarterly operating results are difficult to predict and are likely to vary in the future. If our operating results are below financial analysts’ or investors’
expectations, the market price of our common stock may fall abruptly and significantly.
To compete effectively, we must continually improve existing products and introduce new products that achieve market acceptance.
The telecommunications equipment industry is characterized by rapid technological changes, evolving industry standards, changing market conditions and frequent new product and
service introductions and enhancements. The introduction of products using new technologies or the adoption of new industry standards can make our existing products, or products
under development, obsolete or unmarketable. In order to remain competitive and increase sales, we will need to anticipate and adapt to these rapidly changing technologies, enhance
our existing products and introduce new products to address the changing demands of our customers.
Many of our competitors have greater engineering and product development resources than we have. Although we expect to continue to invest substantial resources in product
development activities, our efforts to achieve and maintain profitability will require us to be selective and focused with our research and development expenditures. Further, our
existing and development-stage products may become obsolete if our competitors introduce newer or more appealing technologies. If these technologies are patented or proprietary
to our competitors, we may not be able to access these technologies.
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If we fail to anticipate or respond in a cost-effective and timely manner to technological developments, changes in industry standards or customer requirements, or if we experience
any significant delays in product development or introduction, our business, operating results and financial condition could be affected adversely.
We may face circumstances in the future that will result in impairment charges, including, but not limited to, significant goodwill impairment charges.
If the fair value of any of our long-lived assets decreases as a result of an economic slowdown, a downturn in the markets where we sell products and services or a downturn in our
financial performance and/or future outlook, we may be required to record an impairment charge on such assets, including goodwill.
We are required to test intangible assets with indefinite life periods for potential impairment annually and on an interim basis if there are indicators of a potential impairment. We
also are required to evaluate amortizable intangible assets and fixed assets for impairment if there are indicators of a possible impairment. One potential indicator of impairment is
the value of our market capitalization compared to our net book value. Significant declines in our market capitalization could require us to record material goodwill and other
impairment charges. Impairment charges could have a negative impact on our results of operations and financial position, as well as on the market price of our common stock.
We rely on single-source suppliers, which could cause delays, increases in costs or prevent us from completing customer orders, all of which could materially harm our
business.
We assemble our products using materials and components supplied by various subcontractors and suppliers. We purchase critical components for our products, including injected
molded parts and connectors from third parties, some of whom are single- or limited-source suppliers. If any of our suppliers are unable to ship critical components, we may be
unable to manufacture and ship products to our distributors or customers. If the price of these components increases for any reason, or if these suppliers are unable or unwilling to
deliver, we may have to find another source, which could result in interruptions, increased costs, delays, loss of sales and quality control problems.
Further, the costs to obtain certain raw materials and supplies are subject to price fluctuations, which may be substantial, because of global market demands. Many companies utilize
the same raw materials and supplies in the production of their products as we use in our products. Companies with more resources than us may have a competitive advantage in
obtaining raw materials and supplies due to greater purchasing power. Some raw materials or supplies may be subject to regulatory actions, which may affect available supplies.
Furthermore, due to general economic conditions in the United States and globally, our suppliers may experience financial difficulties, which could result in increased delays,
additional costs, or loss of a supplier.
The termination or interruption of any of these relationships, or the failure of these manufacturers or suppliers to supply components or raw materials to us on a timely basis or in
sufficient quantities, likely would cause us to be unable to meet orders for our products and harm our reputation and our business. Identifying and qualifying alternative suppliers
would take time, involve significant additional costs and may delay the production of our products. Further, if we obtain a new supplier or assemble our product using an alternative
source of supply, we may need to conduct additional testing of our products to ensure the product meets our quality and performance standards. Any delays in delivery of our
product to distributors or customers could be extended, and our costs associated with the change in product manufacturing could increase.
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The failure of our third-party manufacturers to manufacture the products for us, and the failure of our suppliers of components and raw materials to supply us consistent with our
requirements as to quality, quantity and timeliness could materially harm our business by causing delays, loss of sales, increases in costs and lower gross profit margins.
We lack experience manufacturing our products at high volumes and we may be required to rapidly increase our manufacturing capacity to deliver our products to our
customers in a timely manner.
We manufacture and assemble our products at our facility in Plymouth, Minnesota. Our success will depend upon our ability to cost-effectively manufacture a reliable product and
deliver that product in a timely manner. Because we lack experience manufacturing our products in large quantities, we may encounter difficulties in maintaining production
efficiencies, quality control and assurance, component supply and qualified personnel. We cannot assure you that we will be able to manufacture a reliable product and deliver that
product to customers in a timely fashion. Our failure to maintain a reputation among our customers as a timely, responsive manufacturer, or our failure to remedy manufacturing
issues in a timely manner and to our customers’ satisfaction, or higher than expected manufacturing costs, would adversely affect our business.
Our success depends upon adequate protection of our patent and intellectual property rights.
Our future success depends in part upon our proprietary technology. We attempt to protect our proprietary technology through patents, trademarks, copyrights and trade
secrets. However, these legal means afford us only limited protection and may not adequately protect our rights or remedies to gain or keep any advantages we may have over our
competitors. Accordingly, we cannot predict whether these protections will be adequate, or whether our competitors will develop similar technology independently, without
violating our proprietary rights.
Our competitors, who may have or could develop or acquire significant resources, may make substantial investments in competing technologies, or may apply for and obtain patents
that will prevent, limit, or interfere with our ability to manufacture or market our products. Further, although we do not believe that any of our products infringe the rights of others,
third parties may in the future claim, our products infringe on their rights, and these third parties may assert infringement claims against us in the future.
We may litigate to enforce patents issued to us and to defend against claimed infringement of the rights of others or to determine the ownership, scope, or validity of our proprietary
rights and the rights of others. Any claim of infringement against us could involve significant liabilities to third parties, could require us to seek licenses from third parties, and could
prevent us from manufacturing, selling or using our products. The occurrence of this litigation, or the effect of an adverse determination in any of this type of litigation, could have a
material adverse effect on our business, financial condition and results of operations.
Our failure to protect or enforce our intellectual property rights could have a material adverse effect on our business, results of operations and financial condition.
Further consolidation among our customers may result in the loss of some customers and may reduce revenue during the pendency of business combinations and related
integration activities.
We believe consolidation among our customers in the future will continue in order for them to increase market share and achieve greater economies of scale. Consolidation has
impacted our business as our customers focus on completing business combinations and integrating their operations. In connection with this merger and acquisition activity, our
customers may postpone or cancel orders for our product based on revised plans for technology or network expansion pending consolidation activity. Customers integrating large-
scale acquisitions may also reduce their purchases of equipment during the integration period, or postpone or cancel orders.
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The impact of significant mergers among our customers on our business is likely to be unclear until sometime after such transactions are completed. After a consolidation occurs, a
customer may choose to reduce the number of vendors from which it purchases equipment and may choose one of our competitors as its preferred vendor. There can be no assurance
that we will continue to supply equipment to the surviving communications service provider after a business combination is completed.
We are dependent on key personnel.
Our failure to attract and retain skilled personnel could hinder the management of our business, our research and development, our sales and marketing efforts, and our
manufacturing capabilities. Our future success depends to a significant degree upon the continued services of key senior management personnel, including Cheryl P. Beranek, our
Chief Executive Officer and John P. Hill, our Chief Operating Officer. We have employment agreements with Ms. Beranek and Mr. Hill that provides that if we terminate the
employment of either executive without cause or if the executive terminates her or his employment for good reason, we would be required to make specified payments to them as
described in their employment agreement. We do not have key person life insurance on Ms. Beranek or Mr. Hill. Further, our future success also depends on our continuing ability to
attract, retain and motivate highly qualified managerial, technical and sales personnel. Our inability to retain or attract qualified personnel could have a significant negative effect and
thereby materially harm our business and financial condition.
Product defects or the failure of our products to meet specifications could cause us to lose customers and revenue or to incur unexpected expenses.
If our products do not meet our customers’ performance requirements, our customer relationships may suffer. Also, our products may contain defects or fail to meet product
specifications. Any failure or poor performance of our products could result in:
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lack of or delayed market acceptance of our products;
delayed product shipments;
unexpected expenses and diversion of resources to replace defective products or identify and correct the source of errors;
damage to our reputation and our customer relationships;
delayed recognition of sales or reduced sales; and
product liability claims or other claims for damages that may be caused by any product defects or performance failures.
Our products are often critical to the performance of telecommunications systems. Many of our supply agreements contain limited warranty provisions. If these contractual
limitations are unenforceable in a particular jurisdiction or if we are exposed to product liability claims that are not covered by insurance, a claim could harm our business.
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Our stock price has been volatile historically and may continue to be volatile. The price of our common stock may fluctuate significantly.
The trading price of our common stock has been and may continue to be subject to wide fluctuations. Our stock price may fluctuate in response to a number of events and factors,
such as quarterly variations in operating results, announcements of technological innovations or new products by us or our competitors, changes in financial estimates and
recommendations by securities analysts, the operating and stock price performance of other companies that investors may deem comparable to us, and new reports relating to trends
in our markets or general economic conditions.
In addition, the stock market is subject to price and volume fluctuations that affect the market prices for companies in general, and small-capitalization, high-technology companies
like us in particular. These broad market and industry fluctuations may adversely affect the price of our common stock, regardless of our operating performance. Further, any failure
by us to meet or exceed the expectations of financial analysts or investors is likely to cause a decline in our common stock price. Further, recent economic conditions have resulted in
significant fluctuations and significant declines in stock prices for many companies, including Clearfield. We cannot predict when the stock markets and the market for our common
stock may stabilize.
Future sales of shares of our common stock in the public market may negatively affect our stock price.
Future sales of our common stock, or the perception that these sales could occur, could have a significant negative effect on the market price of our common stock. In addition, upon
exercise of outstanding options, the number of shares outstanding of our common stock could increase substantially. This increase, in turn, could dilute future earnings per share, if
any, and could depress the market value of our common stock. Dilution and potential dilution, the availability of a large amount of shares for sale, and the possibility of additional
issuances and sales of our common stock may negatively affect both the trading price of our common stock and the liquidity of our common stock. These sales also might make it
more difficult for us to sell equity securities or equity-related securities in the future at a time and price that we would deem appropriate.
Anti-takeover provisions in our organizational documents, our shareholder rights agreement, Minnesota law and other agreements could prevent or delay a change in control of
our company.
Certain provisions of our articles of incorporation and bylaws, our shareholder rights agreement (also known as a “poison pill”), Minnesota law and other agreements may make it
more difficult for a third- party to acquire, or discourage a third-party from attempting to acquire, control of our company, including:
•
•
•
•
•
the provisions of our bylaws regarding the business properly brought before shareholders;
the right of our board of directors to establish more than one class or series of shares and to fix the relative rights and preferences of any such different classes or series;
our shareholder rights agreement, which would cause substantial dilution to any person or group attempting to acquire our company on terms not approved in advance by
our Board of Directors;
the provisions of Minnesota law relating to business combinations and control share acquisitions; and
the provisions of our stock option plans allowing for the acceleration of vesting or payments of awards granted under the plans in the event of specified events that result
in a “change in control” and provisions of agreements with certain of our executive officers requiring payments if their employment is terminated and there is a “change
in control.”
13
These measures could discourage or prevent a takeover of us or changes in our management, even if an acquisition or such changes would be beneficial to our shareholders. This
may have a negative effect on the price of our common stock.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES.
Clearfield leases a 30,000 square foot facility at 5480 Nathan Lane North in Plymouth, Minnesota consisting of our corporate offices, manufacturing and warehouse space. The lease
commenced on July 1, 2006 with rent commencing on November 1, 2006. The initial lease payment was $16,925.88 per month with annual increases of approximately 3.5%.
Currently, our monthly rent is $18,760.The lease expires on November 30, 2013. The lease is backed by an unconditional, irrevocable letter of credit equal to approximately five
months rent.
We own a 24,000 square foot production facility in Aberdeen, South Dakota, which is partially leased and occupied. (See Note C in the Financial Statements included in Item 8 of
this Form 10-K.)
ITEM 3. LEGAL PROCEEDINGS.
The Company is exposed to a number of asserted and unasserted legal claims encountered in the ordinary course of its business. Although the outcome of any such legal actions
cannot be predicted, management believes that there are no pending legal proceedings against or involving the Company for which the outcome is likely to have a material adverse
effect upon its financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None .
14
PART II
ITEM 5 .
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS.
Our common stock is traded on The Nasdaq Global Market system of The Nasdaq Stock Market LLC under the symbol “CLFD.” The following table sets forth the quarterly high
and low sales prices for our common stock for each quarter of the past two fiscal years.
Fiscal Year Ended September 30, 2009
Quarter ended December 31, 2008
Quarter ended March 31, 2009
Quarter ended June 30, 2009
Quarter ended September 30, 2009
Fiscal Year Ended September 30, 2008
Quarter ended December 31, 2007
Quarter ended March 31, 2008
Quarter ended June 30, 2008
Quarter ended September 30, 2008
High
$1.30
$1.31
$2.00
$5.52
High
$1.19
1.18
1.87
1.37
Low
$0.75
1.00
1.09
1.52
Low
$0.96
0.82
1.03
1.01
The foregoing prices reflect inter-dealer prices, without dealer markup, markdown, or commissions and may not represent actual transactions.
Approximate Number of Holders of Common Stock
There were approximately 318 holders of record of our common stock as of September 30, 2009.
Dividends
We have never paid cash dividends on our common stock. We do not intend in the foreseeable future to pay cash dividends on our common stock.
15
Equity Compensation Plan Information
The following table describes shares of our common stock that are available on September 30, 2009 for purchase under outstanding stock-based awards, or reserved for issuance
under stock-based awards or other rights that may be granted in the future, under our equity compensation plans:
Plan Category
Equity compensation plans approved by
security holders
2007 Stock Compensation Option Plan
Stock Option Plan for Non Employee Directors
Equity compensation plans not approved by security holders
Total
(a)
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(b)
Weighted-average
exercise price of
outstanding
options, warrants
and rights
(c)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding those
reflected in column (a))
887,200
112,500
-
999,700
$
$
$
1.06
1.22
-
1.08
510,500
67,500
-
578,000
Issuer Repurchases
We did not purchase any shares of our common stock during the fiscal year ended September 30, 2009.
ITEM 6.
SELECTED FINANCIAL DATA
Not Required
16
ITEM 7.
OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
Cautionary Statement Regarding Forward-Looking Information
Statements made in this Annual Report on Form 10-K, in the Company’s other SEC filings, in press releases and in oral statements, that are not statements of historical fact are
“forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or
performance of the Company to be materially different from the results or performance expressed or implied by such forward-looking statements. The words “believes,” “expects,”
“anticipates,” “seeks” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date the statement was made. The risks and uncertainties that could cause actual results to differ materially and adversely from the forward-looking statements
include those risks described in Part I, Item 1A. “Risk Factors.”
Overview of Business: The Company focuses on highly configurable products for telecommunications customers, primarily related to cabling management requirements of the
FTTP marketplace and the design, manufacture, distribution, and marketing of a variety of fiber optics and copper components to the data communication and telecommunication
industries. The Companies primary manufactured products include standard and custom fiber optic cable assemblies, copper cable assemblies, OSP cabinets, value–added fiber
optics frames, panels and modules.
Critical Accounting Policies: In preparing our consolidated financial statements, we make estimates, assumptions and judgments that can have a significant impact on our
revenues, income or loss from operations and net income or loss, as well as on the value of certain assets and liabilities on our consolidated balance sheet. We believe that there are
several accounting policies that are critical to an understanding of our historical and future performance, as these policies affect the reported amounts of revenues, expenses and
significant estimates and judgments applied by management. While there are a number of accounting policies, methods and estimates affecting our consolidated financial statements,
areas that are particularly significant include:
• Stock option accounting;
• Accounting for income taxes; and
• Valuation and evaluating impairment of long-lived assets and goodwill.
Stock-Based Compensation We measure and recognize compensation expense for all stock-based payments at fair value over the requisite service period. We use the Black-
Scholes option pricing model to determine the weighted average fair value of director and employee stock options. The determination of fair value of share-based payment awards on
the date of grant using an option-pricing model is affected by our stock price as well as by assumptions regarding a number of subjective variables. These variables include, but are
not limited to, the expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors.
The expected terms of the options and employee stock purchase plan rights are based on evaluations of historical and expected future employee exercise behavior. The risk-free
interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at grant date. Volatility is based on historical and
expected future volatility of the Company’s stock. The Company has not historically issued any dividends and does not expect to in the future. Forfeitures are estimated at the time
of the grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates. If factors change we may employ different assumptions in the calculation of
compensation expense.
17
Income Taxes We account for income taxes in accordance with Financial Accounting Standards Board ASC 740, under which, deferred income taxes are determined based on the
estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws. Deferred income tax
provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, we consider tax regulations of the jurisdictions in which we
operate, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary,
adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely
than not” criteria of ASC 740.
In accounting for uncertainty in income taxes we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely
than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit
that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes interest and penalties accrued on any
unrecognized tax benefits as a component of income tax expense.
The Company had U.S. federal and state net operating loss (NOL) carry forwards of approximately $31,684,000 and $23,573,000, respectively, which expire in fiscal years 2019 to
2027. The Company has recently completed an Internal Revenue Code Section 382 analysis of the loss carry-forwards and has determined that all of the company’s loss carry-
forwards are utilizable and not restricted under Section 382.
At September 30, 2008, all of the Company’s net deferred tax assets, which consisted primarily of net operating losses, were offset with a valuation allowance, which amounted to
approximately $13.1 million. As part of the process of preparing our consolidated financial statements, we are required to estimate our income tax liability in each of the jurisdictions
in which we do business. This process involves estimating our actual current tax expense together with assessing temporary differences resulting from differing treatment of items
for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We must then assess the likelihood that these deferred tax assets will be recovered from
future taxable income and, to the extent we believe that recovery is not more likely than not or unknown, we must establish a valuation allowance.
During the fourth quarter of fiscal year 2009, the Company reversed a portion of its valuation allowance in consideration of all available positive and negative evidence, including
our historical operating results, current financial condition, and potential future taxable income. Our future potential taxable income was evaluated based primarily on anticipated
operating results for fiscal years 2010 through 2012. We determined that projecting operating results beyond 2012 involves substantial uncertainty and we discounted forecasts
beyond 2010 as a basis to support our deferred tax assets. The reduction in the valuation allowance in the fourth quarter resulted in a non-cash income tax benefit of approximately
$2.5 million. At September 30, 2009 the Company continues to record a valuation allowance of approximately $9.3 million against its remaining deferred tax assets. We will
continue to assess the assumptions used to determine the amount of our valuation allowance and may adjust the valuation allowance in future periods based on changes in
assumptions of estimated future income and other factors. If the valuation allowance is reduced, we would record an income tax benefit in the period the valuation allowance is
reduced. If the valuation allowance is increased, we would record additional income tax expense.
18
During the fiscal year ended September 30, 2009, the Company recorded a deferred income tax expense of $65,120 for the book and income tax basis difference in goodwill on
acquisitions. This deferred income tax expense was netted against the deferred tax benefit resulting from the reduction in the valuation allowance.
The Company files income tax returns in the U.S. Federal jurisdiction, and various state jurisdictions. Based on its evaluation, the Company has concluded that it has no significant
unrecognized tax benefits. With limited exceptions, the Company is no longer subject to U.S. federal and state income tax examinations for fiscal years ending prior 1993. In 2007
the Company changed its fiscal year to September 30.
Impairment of long-lived assets and goodwill The Company records the excess of purchase cost over the fair value of net tangible assets of acquired companies as goodwill or
other identifiable intangible assets. In the last quarter of each year, or as an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting
unit below its carrying amount. The Company completes the impairment testing of goodwill primarily utilizing a discounted cash flow method.
Determining market values using a discounted cash flow method requires the Company to make significant estimates and assumptions, including long-term projections of cash
flows, market conditions and appropriate discount rates. The Company's judgments are based on historical experience, current market trends, consultations with external valuation
specialists and other information. While the Company believes that the estimates and assumptions underlying the valuation methodology are reasonable, different estimates and
assumptions could result in a different outcome. The Company generally develops these forecasts based on recent sales data for existing products, planned timing of new product
launches, and estimated expansion of the Fiber-To-The-Premise market.
If the carrying amount of a reporting unit exceeds its fair value, the Company measures the possible goodwill impairment loss based on an allocation of the estimate of fair value of
the reporting unit to all of the underlying assets and liabilities of the reporting unit, including any previously unrecognized intangible assets. The excess of the fair value of a
reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized to the extent that a reporting unit's
recorded goodwill exceeds the implied fair value of goodwill. This test for the period ended September 30, 2009 resulted in no change to goodwill from the prior period.
The Company evaluates the recoverability of its long-lived assets when events or circumstances indicate an impairment may have occurred and when the net book value of such
assets exceeds the future undiscounted cash flow attributed to such assets. We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that
that the carrying value may not be recoverable. No impairment of long-lived assets has occurred during the years ended September 30, 2009 or September 30, 2008, respectively.
19
Results of Operations
Year ended September 30, 2009 compared to year ended September 30, 2008
Revenues for the fiscal year ended 2009 increased 6% to $24,944,000 from revenue of $23,494,000 in 2008. This increase is attributable to the acceptance of the Company’s
products, the introduction and acceptance of the FieldSmart™ fiber management product line and engineering-led design services within the FTTH market.
Revenue to broadband service providers and commercial data networks amounted to $21,390,000 or 86% of revenue compared to $18,359,000 or 78% of revenue in 2008. Sales to
non-telecommunication companies, consisting primarily of copper cable assemblies produced to customer design specifications, were 14% of revenue or $3,555,000 compared to
$5,134,000 or 22% of revenue in 2008.
Gross margin increased from 33.4% in 2008 to 35.6% in 2009 resulting in a gross profit of $8,871,000 in 2009 as compared to $7,852,000 in 2008, an increase of $1,019,000 or
13%. The 2.2% increase in gross margin is attributable to product mix, the introduction of the FieldSmart management product line, and the results of on-going programs to reduce
the cost of products through a combination of new product introduction, process improvement, global sourcing of components and supply chain partnerships with non U.S.
manufacturing organizations.
Selling, general and administrative expense increased 12% or $805,000 from $6,855,000 for 2008 to $7,660,000 for 2009. This increase reflects a significant investment in sales,
marketing, product management, product engineering and performance-based compensation that we believe contributed to increased sales and profitability.
Income from operations for 2009 was $1,211,000 compared to $997,000 for 2008, an improvement of $214,000. This change is attributable to increased revenue and increased gross
margin.
Interest income in 2009 continued its decline from 2008 by $143,000 to $125,000 in fiscal year 2009 from $268,000 in fiscal year 2008. This decline is attributable to continued
declining interest rates from the prior year as the Company invested in FDIC backed bank certificates of deposit in 2009 as opposed to auction rate securities in 2008.
Interest expense decreased from $11,000 in 2008 to $6,000 in 2009. The interest is attributable to financing associated with the enterprise information system installed during 2007
and 2008.
Other income increased from $55,000 in 2008 to $82,000 in 2009. This consists of lease income on the Company’s Aberdeen, South Dakota facility. In March 2009, the tenant
defaulted on the lease by failure to pay rent. We terminated the lease with our tenant as of April 2009. As a consequence of the lease termination we recorded as income the amount
of $43,000 previously recorded as an accrual, which would have resulted in a reduced sale price to the tenant, per the lease agreement. We are currently leasing the facility on a
month-to-month basis with the same tenant.
Income tax benefit for 2009 is $2,372,000 which reflects the recognition of a deferred tax asset (DTA). The DTA is $2,464,000 and is offset by tax amortization of goodwill of
$65,000, which is deferred, tax expense for federal alternative minimum tax of approximately $20,000 and various state taxes in the amount of $7,000. Income taxes for 2008
include tax amortization of goodwill of $89,203, which is deferred and tax expense for federal alternative minimum tax and various state taxes in the amount of $3,800.
20
Net income from continuing operations for 2009 was $3,785,000 or $0.32 per share for basic and $0.31 for diluted compared to $1,217,000 or $0.10 per both basic and diluted share
in 2008. There were no discontinued operations for 2009. Net income from discontinued operations for 2008 was $297,000 or $0.03 per basic and diluted share.
The Company’s net income was $3,785,000 or $0.32 per share for basic and $0.31 per diluted share for the year 2009 compared to of $1,514,000 or $0.13 per share for both basic
and diluted share for the year 2008. This is a net change of $2,271,000 or an increase of 150% over the prior year, primarily due to the non-cash income tax benefit realized from the
reversal of the valuation allowance on our net deferred tax assets.
Liquidity and Capital Resources
As of September 30, 2009, our principal source of liquidity was our cash and cash equivalents and short-term investments. Those sources total $6,840,000, compared to $4,334,000
at September 30, 2008. Our cash is invested in money market accounts. We have no long-term debt obligations at September 30, 2009.
Operating Activities
Net cash generated from operations for the twelve months ended September 30, 2009 totaled $2,091,000. This was primarily due to our net income of $3,785,000, depreciation of
$434,000, stock based compensation of $115,000 and a decrease in inventories of $935,000. This was offset by non-cash charges for net deferred taxes of $2,390,000, an increase in
accounts receivable of $190,000 and reduction in accounts payable of $637,000.
Net cash generated from operations for the twelve months ended September 30, 2008 totaled $2,024,000. This was primarily due to our net income of $1,514,000 and depreciation of
$498,000, deferred taxes of $89,000, stock based compensation of $129,000 and an increase in accounts payable of $687,000. This was offset by non-cash charges for the lease
termination of $362,000 and an increase in inventories and accounts receivable of $493,000 and $115,000, respectively.
Investing Activities
For the twelve months ended September 30, 2009, we purchased $181,000 of manufacturing and IT equipment and software. During the same period we purchased $6,503,000 of
FDIC backed certificates of deposit and sold approximately $4,962,000 securities most of which were available-for-sale securities. The net result is a net increase in cash from
investing activities of $1,722,000. The Company intends to continue to invest in the necessary and appropriate manufacturing equipment to help maintain a competitive position in
manufacturing capability.
For the twelve months ended September 30, 2008, we purchased $1,904,000 of property plant and equipment. Of that amount, approximately $1,500,000 was for the purchase of the
Blaine Facility (see Note C) which was subsequently sold. During this same period we made a significant investment in our IT structure and manufacturing equipment totaling
$404,000. The proceeds from the sale of assets amounted to $1,452,000 of which the Blaine building was the major portion at $1,450,000. During the same period we purchased
$3,675,000 and sold $3,200,000 of available for sale securities. The net result is a net increase in cash from investing activities of $927,000.
21
Financing Activities
For the twelve months ended September 30, 2009 we used $62,000 to make scheduled debt principal payments principally associated with the financing of our IT systems. We
received $91,000 from the issuance of stock from the exercise of employee stock options. The net cash received from financing activities totaled $29,000.
For the twelve months ended September 30, 2008 we used $68,000 to make scheduled debt principal payments principally associated with the financing of our IT systems.
The Company believes that its current cash and cash equivalents and cash flow from operations will be sufficient to meet its working capital and investment requirements for the
next 12 months. The Company intends on utilizing its available cash and assets primarily for its continued organic growth, as well as potential future strategic transactions.
However, future growth organically or through acquisition, may require the Company to raise capital through additional equity or debt financing. There can be no assurance that any
such financing would be available on commercially acceptable terms.
Recent Accounting Pronouncements:
In June 2009, the Financial Accounting Standards Board (FASB) issued new standards on generally accepted accounting principles as codified in Accounting Standards Codification
(ASC) 105-10. The new standard stipulates the FASB ASC is the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. The new
standard is effective for financial statements issued for interim and annual periods ending after September 15, 2009. We have adopted this standard and the adoption did not have a
material impact on our consolidated financial statements.
In September 2006, the FASB issued new standards on fair value measurements as codified in ASC 820-10. This standard establishes a framework for measuring fair value in
generally accepted accounting principles clarifies the definition of fair value within that framework and expands disclosures about the use of fair value measurement. This standard
emphasizes that fair value is a market-based measurement, as opposed to a transaction-specific measurement. We adopted this standard at the beginning of fiscal 2009 for financial
assets and liabilities and the adoption did not have a material impact on our consolidated financial statements. We will adopt this standard at the beginning of fiscal 2010 for non-
financial assets and liabilities and do not expect it to have a material effect on our financial statements.
In April 2009, the FASB issued new standards on financial instruments as codified in ASC 825-10, which requires disclosures about fair value of financial instruments in financial
statements for interim reporting periods and in annual financial statements of publicly-traded companies. The new standard also requires entities to disclose the methods and
significant assumptions used to estimate the fair value of financial instruments in financial statements on an interim and annual basis and to highlight any changes from prior periods.
The new standard is effective for interim and annual periods ending after June 15, 2009. We adopted this standard in 2009. The adoption of this standard did not have a material
impact on our consolidated financial statements.
In May 2009, the FASB issued new standards on subsequent events as codified in ASC 855-10. The new standard establishes general standards for accounting for and disclosure of
events that occur after the balance sheet date but before financial statements are available to be issued. More specifically, the new standard sets forth the period after the balance
sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition in the financial statements, identifies the
circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that should be made
about events or transactions that occur after the balance sheet date. The new standard is effective for fiscal years and interim periods ending after June 15, 2009. We adopted this
standard during 2009. The adoption of this standard did not have a material impact on our consolidated financial statements. We have evaluated subsequent events through
December 18, 2009, the date this report on Form 10-K was filed with the U.S. Securities and Exchange Commission. We made no significant changes to our consolidated financial
statements as a result of our subsequent events evaluation.
22
In June 2009, the FASB issued new standards on variable interest entities (VIE), as codified in 810-10, which requires an entity to perform a qualitative analysis to determine
whether the enterprise’s variable interest gives it a controlling financial interest in a VIE. This analysis identifies a primary beneficiary of a VIE as the entity that has both of the
following characteristics: i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and ii) the obligation to absorb losses or
receive benefits from the entity that could potentially be significant to the VIE. The Company is required to complete ongoing reassessments of the primary beneficiary of a VIE and
will be required by the Company effective October 1, 2010. The Company does not expect it to have a material effect on its financial statements.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily to our investments in FDIC guaranteed bank certificates of deposit. The portfolio includes only FDIC
guaranteed bank certificates of deposit with an active secondary or resale markets to ensure liquidity. We have no investments denominated in foreign country currencies and,
therefore, our investments are not subject to foreign exchange risk.
23
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Quarterly Financial Data (Unaudited)
Quarterly data for the years ended September 30, 2009 and 2008 was as follows:
Statement of Operations Data
Net revenue
Gross profit
Net loss
Net income per share, basic and diluted
Statement of Operations Data
Net revenue
Gross profit
Net income
Net income per share, Basic
Diluted
December 31, 2007
March 31, 2008
June 30, 2008
September 30, 2008
Quarter Ended
4,697,440
1,449,471
395,368
0.03
$
$
5,442,493
1,765,564
115,338
0.01
$
$
Quarter Ended
6,165,379
2,107,819
248,894
0.02
$
$
7,188,484
2,528,981
754,660
0.06
December 31, 2008
March 31, 2009
June 30, 2009
September 30, 2009
5,933,287
2,014,208
217,487
0.02
0.02
$
$
5,232,604
1,818,152
131,049
0.01
0.01
$
$
7,160,039
2,684,466
587,020
0.05
0.05
$
$
6,618,907
2,354,194
2,849,533
0.24
0.23
$
$
$
$
24
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Clearfield, Inc.
We have audited the accompanying consolidated balance sheets of Clearfield, Inc. (a Minnesota corporation) and subsidiaries as of September 30, 2009 and 2008, and the related
consolidated statements of operations, shareholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Clearfield, Inc. and subsidiaries as
of September 30, 2009 and 2008, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/Grant Thornton LLP
Minneapolis, Minnesota
December 18, 2009
25
CLEARFIELD, INC.
CONSOLIDATED BALANCE SHEETS
Assets
September 30,
2009
September 30,
2008
Current Assets
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Other Assets
Long-term investments
Goodwill
Deferred taxes –long term
Other
Notes receivable
Total other assets
Total Assets
Current Liabilities
Current maturities of long term debt
Accounts payable
Accrued compensation
Accrued expenses
Total current liabilities
Liabilities and Shareholders’ Equity
Long term debt, net of current maturities
Deferred rent
Deferred income taxes
Total Liabilities
Shareholders’ Equity
Undesignated shares, 4,999,500 authorized shares: no shares issued and outstanding
Preferred stock, $.01 par value; 500 shares authorized, no shares issued or outstanding
Common stock, 50,000,000 shares authorized, $.01 par value; 11,974,631 and 11,938,131 shares issued and outstanding
at September 30, 2009 and 2008, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total shareholders’ equity
Total Liabilities and Shareholders’ Equity
The accompanying notes are an integral part of these financial statements.
26
$
$
$
$
$
$
$
4,731,735
2,108,566
2,723,414
1,153,862
180,635
10,898,212
1,319,492
2,840,000
2,570,511
2,231,990
176,368
392,186
8,211,055
20,428,759
33,081
1,212,541
1,159,245
88,139
2,493,006
-
87,942
-
2,580,948
-
-
119,746
52,372,139
(34,644,074 )
-
17,847,811
20,428,759
$
4,333,709
-
2,533,447
2,088,769
115,344
9,071,269
1,604,202
3,036,000
2,570,511
-
284,309
432,846
6,323,666
16,999,137
62,126
1,849,633
903,276
301,859
3,116,894
33,081
89,641
166,904
3,406,520
-
-
119,381
52,166,219
(38,428,983 )
(264,000 )
13,592,617
16,999,137
Revenues
Cost of sales
Gross profit
Operating expenses
Selling, general and administrative
Loss on disposal of assets
Income from operations
Interest income
Interest expense
Other income
Income before income taxes
Income tax expense (benefit)
Net income from continuing operations
Net income from discontinued operations
Net income
Net income per share:
Continuing operations
Discontinued operations
Basic
Diluted
Shares used in calculation of net income per share:
Basic
Diluted
CLEARFIELD, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
September 30,
2009
Year Ended
September 30,
2008
$
24,944,837
$
23,493,796
16,073,817
15,641,961
8,871,020
7,851,835
7,628,495
31,144
7,659,639
1,211,381
124,922
(5,676 )
81,810
201,056
1,412,437
(2,372,472 )
3,784,909
-
3,784,909
0.32
0.00
0.32
0.31
$
$
$
$
$
6,799,683
55,251
6,854,934
996,901
268,063
(10,721 )
55,881
313,223
1,310,124
93,303
1,216,821
297,439
1,514,260
0.10
0.03
0.13
0.13
11,941,116
12,046,059
11,873,773
11,873,773
$
$
$
$
$
The accompanying notes are an integral part of these financial statements.
27
CLEARFILD, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Balance at September 30, 2007
Stock based compensation expense
Stock issued as compensation
Other comprehensive loss
Net income
Comprehensive income
Balance at September 30, 2008
Stock based compensation expense
Exercise of stock options
Other comprehensive income
Net income
Comprehensive income
Balance at September 30, 2009
Shares
11,872,331
-
65,800
-
-
-
11,938,131
-
36,500
-
-
-
11,974,631
$
$
Amount
118,723
-
658
-
-
-
119,381
-
365
-
-
-
119,746
$
$
Additional
paid-in
Capital
52,037,207
50,052
78,960
-
-
-
52,166,219
115,218
90,702
-
-
-
52,372,139
$
Accumulated
deficit
(39,943,243 )
-
-
-
1,514,260
-
(38,428,983 )
-
-
-
3,784,909
-
(34,644,074 )
$
$
$
Accumulated
other
comprehensive
loss
Total
shareholders
equity
12,212,687
50,052
79,618
(264,000 )
1,514,260
1,250,260
13,592,617
115,218
91,067
264,000
3,784,909
4,048,909
17,847,811
-
-
-
(264,000 )
-
-
(264,000 )
-
-
264,000
-
-
-
$
$
The accompanying notes are an integral part of these financial statements.
28
CLEARFIELD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization
Deferred income taxes
Loss on sale of assets
Stock-based compensation expense
Lease termination accrual
Changes in operating assets and liabilities:
Accounts receivable, net
Inventories
Prepaid expenses and other assets
Accounts payable and accrued expenses
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Purchase of available for sale securities
Sale of available for sale securities
Proceeds from sale of assets
Net cash used in investing activities
Cash flows from financing activities:
Payment of long-term debt
Proceeds from issuance of common stock
Net cash provided by (used in) financing activities
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental cash flow information:
Cash paid during the year for:
Interest
Income Taxes
Year ended
September 30,
2009
Year ended
September 30,
2008
$
3,784,909
$
1,514,260
434,499
(2,389,982 )
31,144
115,218
-
(189,967 )
934,907
(24,631 )
(605,454 )
2,090,643
(180,933 )
(6,502,625 )
4,962,000
-
(1,721,558 )
(62,126 )
91,067
28,941
398,026
4,333,709
4,731,735
$
498,418
89,203
55,251
129,012
(362,028 )
(114,796 )
(493,487 )
21,241
686,595
2,023,669
(1,903,672 )
(3,675,000 )
3,200,000
1,451,624
(927,048 )
(68,215 )
658
(67,557 )
1,029,064
3,304,645
4,333,709
5,676
17,510
$
10,721
4,100
$
$
The accompanying notes are an integral part of these financial statements.
29
NOTES TO FINANCIAL STATEMENTS
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Clearfield, Inc., (the Company) is a manufacturer of a broad range of standard and custom passive connectivity products to customers throughout the
United States. These products include fiber distribution systems, optical components, Outside Plant (“OSP”) cabinets, and fiber and copper cable assemblies that serve the
communication service provider, including Fiber-to-the-Premises (“FTTP”), large enterprise, and original equipment manufacturers (“OEMs”) markets.
Principles of Consolidation: The consolidated financial statements include the accounts of Clearfield, Inc. and its wholly-owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated in consolidation. Effective January 2, 2008 the Company merged its sole subsidiary APA Cables and Networks, Inc. into the
Company (the “Parent – Subsidiary Merger”) and changed the name of the Company from APA Enterprises, Inc. to Clearfield, Inc. Since the Parent – Subsidiary Merger on January
2, 2008, the Company has no subsidiaries. For periods prior to January 2, 2008 the consolidated financial statements represent all companies of which Clearfield, Inc. directly or
indirectly had majority ownership or otherwise controlled. We have evaluated subsequent events through December 18, 2009, the date this report on Form 10-K was filed with the
U.S. Securities and Exchange Commission.
Revenue Recognition: Revenue is recognized when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed, acceptance by the customer is
reasonably certain and collection is probable. This generally occurs upon shipment of product to the customer, but in some cases occurs when the product is picked up by a
customer’s carriers. The Company records freight revenues billed to customers as revenue and the related shipping and handling cost in cost of sales. Taxes collected from customers
and remitted to governmental authorities are presented on a net basis.
Cash and Cash Equivalents: The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash equivalents at
September 30, 2009 and 2008 respectively consist entirely of short-term money market accounts. Cash equivalents are stated at cost, which approximates fair value.
The Company maintains cash balances at several financial institutions, and at times, such balances exceed insured limits. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk on cash. No cash was in foreign financial institutions as of September 30, 2009.
Investments: The Company currently invests its excess cash in money market accounts and bank certificates of deposit (CD’s) that are fully insured by the FDIC with a term of not
more than three years. CD’s with original maturities of more than three months are reported as held-to-maturity investments. These investments in CD’s are classified as held to
maturity and are valued at cost which approximates fair value. These investments are considered Level 2 investments. The maturity dates of our CD’s at September 30, 2009 are as
follows:
Less than one year
1-3 years
Total
$
$
2,108,566
2,840,000
4,948,566
30
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Fair value is the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. Three levels of inputs that may be used to measure fair value:
•
•
•
Level 1 — quoted prices in active markets for identical assets and liabilities.
Level 2 — observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3 — unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.
At September 30, 2008 our long term investment portfolio consisted of $3.3 million of Auction Rate Securities (ARS), with contractual maturities between 22 and 33 years. The
ARS held were primarily backed by student loans, are over-collateralized and are insured by and guaranteed by the United States Federal Department of Education.
As of September 2008, Credit Suisse, our broker and financial advisor, settled a lawsuit with the state of New York related to its ARS marketing practices. On October 2, 2008,
Credit Suisse offered to buy back at par value the ARS securities from individuals, charities and businesses with accounts valued up to $10 million. We accepted the offer in October
2008. During the month of October of 2008 Credit Suisse bought back all of the securities held by Clearfield at par value resulting in proceeds of $3.3 million which were invested
money market fund composed of 90 day U.S Treasuries. The sale of these assets and the related mark up to par value was reflected in our results for the quarter ended December 31,
2008.
Accounts Receivable: Credit is extended based on the evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts outstanding longer than
the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade receivables are
past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as
whole. The Company writes off accounts receivable when they become uncollectible; payments subsequently received on such receivables are credited to the allowance for doubtful
accounts. The following table illustrates balances and activity for fiscal years 2009 and 2008:
Allowance for
Doubtful Accounts
September 30, 2009
September 30, 2008
Balance at
Beginning of
Period
Charged to
Cost and
Expenses
Charges to
Other
Accounts
Deductions
Balance at
End of
Period
$
69,382
78,973
$
24,000
-
$
$
89
-
2,361
9,591
$
91,110
69,382
Fair Value of Financial Instruments: The financial statements include the following financial instruments: cash and cash equivalents, short term investments, accounts receivable,
notes receivable and accounts payable. Notes receivable is carried at fair value because it is adequately secured by stock in the Company. All other financial instruments approximate
fair value because of the short-term nature of these assets.
31
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Inventories: Inventories consist of finished goods, raw materials and work in process and are stated at the lower of average cost (which approximates the first-in, first-out method)
or market. Inventory is valued using material costs, labor charges, and allocated factory overhead charges and consist of the following:
Raw materials
Work-in-process
Finished Goods
September 30,
2009
September 30,
2008
$
$
873,439 $
23,031
257,392
1,153,862 $
1,815,777
14,481
258,511
2,088,769
Property, Plant and Equipment: Property, plant and equipment are recorded at cost. Significant additions or improvements extending asset lives are capitalized, while repairs and
maintenance are charged to expense when incurred. Depreciation is provided in amounts sufficient to relate the cost of assets to operations over their estimated useful lives. The
straight-line method of depreciation is used for financial reporting purposes and accelerated methods are used for tax purposes. Estimated useful lives of the assets are as follows:
Building
Equipment
Leasehold improvements
Years
20
3 – 7
7-10 or life of lease
Leasehold improvements are amortized over the shorter of the remaining term of the lease or estimated life of the asset.
Property, plant and equipment consist of the following at:
Land
Buildings
Manufacturing Equipment
Office Equipment
Leasehold Improvements
Less accumulated depreciation and amortization
Depreciation expense
September 30,
2009
September 30,
2008
$
$
$
56,195 $
1,679,424
719,167
1,357,811
195,383
4,007,980
2,688,487
1,319,493 $
56,195
1,679,424
685,425
1,405,147
187,977
4,014,168
2,409,966
1,604,202
434,499 $
498,418
32
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Goodwill: The Company analyzes its goodwill testing for impairment annually or at an interim period when events occur or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying amount.
The Company assesses the valuation or potential impairment of its goodwill by utilizing a present value technique to measure fair value by estimating future cash flows. Determining
market values using a discounted cash flow method requires the Company to make significant estimates and assumptions, including long-term projections of cash flows, market
conditions and appropriate discount rates. The Company's judgments are based on historical experience, current market trends, consultations with external valuation specialists and
other information. While the Company believes that the estimates and assumptions underlying the valuation methodology are reasonable, different estimates and assumptions could
result in a different outcome. The Company generally develops these forecasts based on recent sales data for existing products, planned timing of new product launches, and
estimated expansion of the Fiber-To-The-Premise market. Where available and as appropriate comparative market multiples are used to corroborate the results of the present value
method. We consider our net book value and market capitalization when we test for goodwill impairment because we have consolidated our reporting units in prior years into the
parent company, resulting in one reporting unit. If the carrying amount of a reporting unit exceeds its fair value, the Company measures the possible goodwill impairment loss based
on an allocation of the estimate of fair value of the reporting unit to all of the underlying assets and liabilities of the reporting unit, including any previously unrecognized intangible
assets. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized to
the extent that a reporting unit's recorded goodwill exceeds the implied fair value of goodwill. This test for the period ended September 30, 2009 resulted in no change to goodwill
from the prior period.
Impairment of Long-Lived Assets: The Company assesses potential impairments to its long-lived assets or asset groups when there is evidence that events or changes in
circumstances indicate that the carrying amount of an asset or asset group may not be recovered. An impairment loss is recognized when the carrying amount of the long-lived asset
or asset group is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash
flows expected to result from the use and eventual disposition of the asset or asset group. Any required impairment loss is measured as the amount by which the carrying amount of a
long-lived asset or asset group exceeds its fair value and is recorded as a reduction in the carrying value of the related asset or asset group and a charge to operating results.
Intangible assets with indefinite lives are tested annually for impairment and in interim periods if certain events occur indicating that the carrying value of the intangible assets may
be impaired. No impairment of long-lived assets has occurred during any of the periods presented.
33
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Income Taxes: The Company records income taxes in accordance with the liability method of accounting. Deferred taxes are recognized for the estimated taxes ultimately payable
or recoverable based on enacted tax law. The Company establishes a valuation allowance to reduce the deferred tax asset to an amount that is more likely than not to be
realizable. Changes in tax rates are reflected in the tax provision as they occur.
In accounting for uncertainty in income taxes we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely
than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit
that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes interest and penalties accrued on any
unrecognized tax benefits as a component of income tax expense.
Stock-Based Compensation: We measure and recognize compensation expense for all stock-based payments at fair value over the requisite service period. We use the Black-
Scholes option pricing model to determine the weighted average fair value of options. Equity-based compensation expense is included in selling, general and administrative
expenses. The determination of fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as by assumptions
regarding a number of subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected
employee stock option exercise behaviors.
The expected terms of the options are based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury
rates at the date of grant with maturity dates approximately equal to the expected life at grant date. Volatility is based on historical and expected future volatility of the Company’s
stock. The Company has not historically issued any dividends and does not expect to in the future. Forfeitures are estimated at the time of the grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from estimates. The Company uses a forfeiture rate of 10%.
The weighted average fair value of options granted during for the year ended September 30, 2009 and 2008 are $0.44 and $0.45. If factors change and we employ different
assumptions in the determination of the fair value of grants in future periods, the related compensation expense that we record may differ significantly from what we have recorded
in the current periods.
In September 2008, 65,800 shares of stock, with a market price of $1.21 per share, were issued to employees of the Company under the Company’s 2007 Stock Compensation
Plan. This award to employees was part of the annual incentive program, totaled $79,618 and was recorded in selling, general and administrative expense. The awards were issued
without restriction. Recipients of the award included, sales, professional staff and Company management.
34
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Net Income Per Share: Basic and diluted net income per share is computed by dividing net income by the weighted average number of common shares outstanding.
Common stock options and warrants to purchase 999,700 and 386,700 shares of common stock with a weighted average exercise price of $1.08 and $1.37 were outstanding during
the years ended September 30, 2009 and 2008.
At September 30, 2009, there were no stock options with exercise prices greater than the average market price of the common shares of the period.
Weighted average common share outstanding for the years ended September 30, 2009 and 2008 were as follows:
Year ended September 30,
Numerator for basic net income
Denominator for basic net income per share –weighted average shares
Effect of dilutive securities:
Stock options
Denominator for diluted net income per share – adjusted weighted average shares
2009
2008
$
3,784,909
11,941,116
$
104,943
12,046,059
1,514,260
11,873,773
-
11,873,773
Accumulated Other Comprehensive Loss: Comprehensive income consists of net income and other gains and losses affecting shareholders’ equity that, under generally accepted
accounting principles, are excluded from net income. For the Company, such items consist primarily of unrealized gains and losses on marketable equity investments. The changes in
the components of other comprehensive income (loss) are composed of the valuation allowance associated with the Auction Rate Securities (ARS) the company held and was
subsequently able to sell back to the broker, see the investments policy under Note A to the consolidated financial statements.
Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, related revenues and expenses and disclosure about contingent assets and liabilities at the date of
the financial statements. Actual results may differ from these estimates.
Recently Issued Accounting Pronouncements: In June 2009, the Financial Accounting Standards Board (FASB) issued new standards on generally accepted accounting principles
as codified in Accounting Standards Codification (ASC) 105-10. The new standard stipulates the FASB ASC is the source of authoritative U.S. GAAP recognized by the FASB to be
applied by nongovernmental entities. The new standard is effective for financial statements issued for interim and annual periods ending after September 15, 2009. We have adopted
this standard and the adoption did not have a material impact on our consolidated financial statements.
35
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
In September 2006, the FASB issued new standards on fair value measurements as codified in ASC 820-10. This standard establishes a framework for measuring fair value in
generally accepted accounting principles clarifies the definition of fair value within that framework and expands disclosures about the use of fair value measurement. This standard
emphasizes that fair value is a market-based measurement, as opposed to a transaction-specific measurement. We adopted this standard at the beginning of fiscal 2009 for financial
assets and liabilities and the adoption did not have a material impact on our consolidated financial statements. We will adopt this standard at the beginning of fiscal 2010 for non-
financial assets and liabilities and do not expect it to have a material effect on our financial statements..
In April 2009, the FASB issued new standards on financial instruments as codified in ASC 825-10, which requires disclosures about fair value of financial instruments in financial
statements for interim reporting periods and in annual financial statements of publicly-traded companies. The new standard also requires entities to disclose the methods and
significant assumptions used to estimate the fair value of financial instruments in financial statements on an interim and annual basis and to highlight any changes from prior periods.
The new standard is effective for interim and annual periods ending after June 15, 2009. We adopted this standard in 2009. The adoption of this standard did not have a material
impact on our consolidated financial statements.
In May 2009, the FASB issued new standards on subsequent events as codified in ASC 855-10. The new standard establishes general standards for accounting for and disclosure of
events that occur after the balance sheet date but before financial statements are available to be issued. More specifically, the new standard sets forth the period after the balance
sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition in the financial statements, identifies the
circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that should be made
about events or transactions that occur after the balance sheet date. The new standard is effective for fiscal years and interim periods ending after June 15, 2009. We adopted this
standard during 2009. The adoption of this standard did not have a material impact on our consolidated financial statements. We have evaluated subsequent events through
December 18, 2009, the date this report on Form 10-K was filed with the U.S. Securities and Exchange Commission. We made no significant changes to our consolidated financial
statements as a result of our subsequent events evaluation.
In June 2009, the FASB issued new standards on variable interest entities (VIE), as codified in 810-10, which requires an entity to perform a qualitative analysis to determine
whether the enterprise’s variable interest gives it a controlling financial interest in a VIE. This analysis identifies a primary beneficiary of a VIE as the entity that has both of the
following characteristics: i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and ii) the obligation to absorb losses or
receive benefits from the entity that could potentially be significant to the VIE. The Company is required to complete ongoing reassessments of the primary beneficiary of a VIE and
will be required by the Company effective October 1, 2010. The Company does not expect it to have a material effect on its financial statements.
36
NOTE B – LONG-TERM LIABILITIES
The following is a summary of the outstanding debt, which consists of a capital lease, at:
Long-term debt
Less: current maturities
The Company has no outstanding debt other than the capital lease.
NOTE C – COMMITMENTS AND FACILITIES
September 30,
2009
September 30,
2008
$
$
33,081 $
33,081
- $
95,207
62,126
33,081
Blaine Facility: On October 30, 2007 the Company purchased its previous corporate headquarters in Blaine for $1,500,000 under the provisions of its option to purchase as stated in
its lease from Jain-Olsen Properties. The Company as owner of the building canceled the lease to itself. The lease was scheduled to run through November of 2009. The elimination
of the lease resulted in the elimination of approximately $362,000 of accrued obligations related to this lease in conjunction with the discontinuation of the Optronics segment
recorded during the fiscal quarter ended June 30, 2007. The Company, on the same day, then sold the land and building for $1,450,000 incurring a loss of $52,000. Rent expense of
$14,000, was paid to the partnership for the period ended September 30, 2008.
Plymouth Facility: The Company leases office and manufacturing facilities in Plymouth, MN for its ongoing operations. This operating lease expires November 30, 2013. The
Company also leases various office equipment. For the period ended September 30, 2009, rent expense was $327,000. For the period September 30, 2008, rent expense was a
negative $37,000. This was the result of netting the Blaine facility elimination of accrued obligation of $362,000 against the Plymouth facility rent of $325,000.
The following is a schedule of approximate minimum rent payments under the operating lease for its Plymouth Facility:
Year ending September 30
2010
2011
2012
2013
Thereafter
Total minimum lease payments
Operating leases
$
226,977
234,408
241,773
249,480
42,756
995,394
$
Aberdeen Facility: On August 20, 2009 the Company entered into a renegotiated lease agreement for its Aberdeen, South Dakota facility. The lease is month to month. The
Company continues to actively seek additional tenants and is evaluating other uses for the facility.
Information Technology : In February 2007, the Company began implementing a new enterprise system and entered into a contract to pay approximately $266,000 over a 3 year
period for software related to part number configuration and production scheduling. The contract calls for payments of $29,600 for 2010.
37
NOTE D – SHAREHOLDERS’ EQUITY
The Board of Directors may, by resolution, establish from the undesignated shares different classes or series of shares and may fix the relative rights and preferences of shares in any
class or series. The Company is authorized to issue 500 shares of preferred stock and 50,000,000 shares of common stock at $.01 par value. The Company has not issued any shares
of preferred stock.
Stock-Based Compensation. The Company’s stock-based compensation plans are administered by the Compensation Committee of the Board of Directors, which selects persons to
receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures and other provisions of the award.
The Company uses the Black-Scholes option-pricing model to estimate fair value of stock-based awards with the following weighted average assumptions:
Year ended September 30
Expected volatility
Expected life (in years)
Expected dividends
Risk-free interest rate
2009
43%
5 years
0%
2.79%
2008
52%
5 years
0 %
2.98 %
The Company has two stock option plans which are used as an incentive for directors, officers, and other employees. Options are generally granted at fair market values determined
on the date of grant and vesting normally occurs over a three to five-year period. The maximum contractual term is normally six years. However, options granted to directors have a
one year vesting period and a six year contractual term. Shares issued upon exercise of a stock option are new shares as opposed to treasury shares. The director plan has 67,500 and
the employee plan has 510,500 shares available for issue as of September 30, 2009. As of September 30, 2009, $248,474 of total unrecognized compensation expense to non-vested
awards is expected to recognized over a weighted aver period of approximately 2.19 years. The Company recorded related compensation expense for the years ended September 30,
2009 and 2008 of $115,208 and $50,052, respectively.
Option transactions under these plans during the year ended September 30, 2009 and 2008 are summarized as follows:
Outstanding at September 30, 2007
Outstanding at September 30, 2008
Granted
Cancelled or Forfeited
Granted
Cancelled or Forfeited
Exercised
Outstanding at September 30, 2009
Weighted average
exercise price
$1.72
1.13
0.97
1.37
1.04
2.12
2.49
$1.08
Weighted average
fair value
$0.45
$0.44
Number of
shares
236,830
228,700
(78,830)
386,700
678,500
(29,000)
(36,500)
999,700
38
NOTE D – SHAREHOLDERS’ EQUITY - Continued
The number of options exercisable under the Options Plans were:
Year ended
September 30, 2009
September 30, 2008
Exercisable
148,540
122,240
Weighted average exercise price
$1.23
$1.81
The following table summarizes information concerning options currently outstanding at September 30, 2009:
Range of
exercise prices
Number
outstanding
$0.00-$1.09
1.10-1.49
1.50-1.99
860,200
47,500
92,000
999,700
Weighted
average
remaining
contractual life
7.21 years
5.22 years
1.88 years
6.63 years
The following table summarizes information concerning options currently exercisable at September 30, 2009:
Range of
exercise prices
Number
outstanding
$0.00-$1.09
1.10-1.49
1.50-1.99
69,940
1,400
77,200
148,540
Weighted
average
remaining
contractual life
4.17 years
3.57 years
1.85 years
2.99 years
Weighted
average
exercise
price
1.04
1.17
1.40
1.08
Weighted
average
exercise
price
1.04
1.22
1.40
1.23
$
$
$
$
Aggregate
intrinsic
value
896,587
55,399
128,404
1,080,390
Aggregate
intrinsic
value
73,031
1,705
108,389
183,125
$
$
$
$
NOTE E – SHAREHOLDER RIGHTS PLAN
Pursuant to the Shareholder Rights Plan each share of common stock has attached to it a right, and each share of common stock issued in the future will have a right attached until
the rights expire or are redeemed. Upon the occurrence of certain change in control events, each right entitles the holder to purchase one one-hundredth of a share of Series B Junior
Preferred Participating Share, at an exercise price of $80 per share, subject to adjustment. The rights expire on November 10, 2010 and may be redeemed by the Company at a price
of $.001 per right prior to the time they become exercisable.
39
NOTE F – INCOME TAXES
Deferred taxes recognize the impact of temporary differences between the amounts of the assets and liabilities recorded for financial statement purposes and such amount measured
in accordance with tax laws. Realization of net operating loss carry forward and other deferred tax temporary differences are contingent upon future taxable earnings. The
Company’s deferred tax asset was reviewed for expected utilization using a “more likely than not” approach as required by ASC 740 by assessing the available positive and negative
factors surrounding its recoverability. Accordingly, the Company recorded a full valuation allowance at September 30, 2008. For the year ended September 30, 2009, the Company
has reduced the portion of the valuation allowance related to our net operating loss carryforwards (NOL’s) and other deferred tax assets that we believe are more likely than not to be
realized based upon estimates of future taxable income.
During the fourth quarter of fiscal year 2009, the Company reversed a portion of its valuation allowance in consideration of all available positive and negative evidence, including
our historical operating results, current financial condition, and potential future taxable income. Our future potential taxable income was evaluated based primarily on anticipated
operating results for fiscal years 2010 through 2012. We determined that projecting operating results beyond 2012 involves substantial uncertainty and we discounted forecasts
beyond 2010 as a basis to support our deferred tax assets. The reduction in the valuation allowance in the fourth quarter resulted in a non-cash income tax benefit of approximately
$2.5 million. At September 30, 2009 the Company continues to record a valuation allowance of approximately $9.3 million against its remaining deferred tax assets. We will
continue to assess the assumptions used to determine the amount of our valuation allowance and may adjust the valuation allowance in future periods based on changes in
assumptions of estimated future income and other factors. If the valuation allowance is reduced, we would record an income tax benefit in the period the valuation allowance is
reduced. If the valuation allowance is increased, we would record additional income tax expense.
40
NOTE F – INCOME TAXES – continued
Significant components of deferred income tax assets and liabilities are as follows at:
Current deferred income tax assets (liabilities):
Inventories
Accrued expenses and reserves
Prepaid expenses
Valuation allowance
Net current deferred tax assets
Long-term deferred income tax assets (liabilities):
Intangibles
Property and equipment depreciation
Net operating loss carry forwards and credits
Stock based compensation
Accrued expenses and reserves
Goodwill
Valuation allowance
Net long-term deferred income tax assets (liabilities)
September 30,
2009
September 30,
2008
$
$
$
$
118,247
109,392
(42,168 )
185,471
(185,471 )
-
24,901
258,325
11,257,970
15,872
31,624
(232,010 )
11,356,682
(9,124,692 )
2,231,990
$
$
$
$
178,710
239,956
-
418,666
(418,666 )
-
29,607
(65,925 )
12,762,440
-
-
(166,890 )
12,559,232
(12,726,136 )
(166,904 )
As of September 30, 2009, the Company had U.S. federal and state net operating loss (NOL) carry forwards of approximately $31,684,000 and $23,573,000 respectively which
expire in fiscal years 2019 to 2027. The Company has recently completed an Internal Revenue Code Section 382 analysis of the loss carry-forwards and has determined that all of the
company’s loss carry-forwards are utilizable and not restricted under Section 382.
41
NOTE F – INCOME TAXES – continued
The following is a reconciliation of the federal statutory income tax rate to the consolidated effective tax rate as a percent of pre-tax income for the following periods ended:
September 30,
2009
September 30,
2008
Federal statutory rate
State income taxes
Permanent differences
Expiration of net operating loss carryforwards
Change in state tax rate effect on deferreds
Change in valuation allowance
Tax rate
Components of the income tax expense (benefit) are as follows for the periods ended:
Current:
Federal
State
Deferred:
Federal
State
Valuation allowance
Income tax expense (benefit)
34 %
2 %
3 %
-%
55 %
(262 %)
(168 %)
34 %
5 %
2 %
16 %
-%
(51 %)
6 %
September 30, September 30,
2009
2008
$
$
19,598 $
6,824
26,422
(355,833 )
1,791,578
1,435,745
(3,834,639 )
(2,372,472 ) $
-
4,318
4,318
785,197
115,470
900,667
(811,682 )
93,303
The Company is required to recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the
position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater
than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applies the interpretation to all tax positions for which the statute
of limitations remained open. The Company had no liability for unrecognized tax benefits. The Company did not recognize any interest or penalties during the year ended September
30, 2009.
The Company is subject to income taxes in the U.S. federal jurisdiction, and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the
related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local, income tax
examinations by tax authorities for fiscal years ending prior 1993. The Company changed its fiscal year in 2007 to September 30.
42
NOTE G – CONCENTRATIONS
Suppliers. The Company purchases critical components for our products, including injected molded parts and connectors from third parties, some of whom are single- or limited-
source suppliers. If any of our suppliers are unable to ship critical components, we may be unable to manufacture and ship products to our distributors or customers. If the price of
these components increases for any reason, or if these suppliers are unable or unwilling to deliver, we may have to find another source, which could result in interruptions, increased
costs, delays, loss of sales and quality control problems.
Customers . Two customers, Power & Telephone Supply Company and MTS Systems Corporation, comprised approximately 40% and 22% of total sales for the periods ended
September 30, 2009 and September 30, 2008, respectively. Power & Telephone Supply Company is a distributor and it accounted for 32% and 10% of revenue for the corresponding
respective periods. MTS Systems Corporation is an end use customer and it accounted for 8% and 12% of revenues for the corresponding respective periods. MTS Systems
Corporation purchases our product through its standard form of purchase order with pricing established by a schedule that is in effect from July 1, 2008 through June 30,
2011. Power & Telephone Supply Company purchases our product through its standard form of purchase order.
NOTE H – EMPLOYEE BENEFIT PLAN
The Company maintains a contributory 401(k) profit sharing benefit plan covering all employees. The Company matches 50% of the first 6% of the employee’s salary that was
contributed by the employee to the plan. The Company’s contributions under this plan were $170,950 and $114,379 for the periods ended September 30, 2009 and September 30,
2008 .
NOTE I – CERTAIN RELATIONSHIPS AND TRANSACTIONS
India Facility. On June 28, 2007, the Company sold APA Optronics (India) Private Limited ("APA India") to an entity owned by the former chief executive officer of the
Company, Dr. Anil K. Jain. The purchase price of $504,499 was paid by delivery of a five year promissory note. The terms of the note include monthly installment payments of
principal and interest with an annual rate of 7% amortized over a ten year period with a five year balloon payment due November 2012 when the outstanding balance is due. The
note is secured by a pledge of Company stock by Dr. Jain, a pledge by Dr. Jain of payments under his Separation Agreement with the Company, and a personal guaranty by Dr. Jain.
The purchase price was determined by the independent directors to be fair and reasonable to the Company. The current portion of the note receivable is presented within “prepaid
expenses and other” and the long term portion is reflected as note receivable on the balance sheet.
Severance Agreement. Effective June 28, 2007, Dr. Jain ceased to be Chief Executive Officer (principal executive officer), Chief Financial Officer (principal financial and
accounting officer), and Chairman of the Board of Directors of the Company Pursuant to the terms of an Amended and Restated Agreement Regarding Employment/Compensation
Upon Change In Control dated September 15, 2005, Dr. Jain will be paid his current salary ($190,000 per year) for 24 months after the date of termination of his employment,
payable quarterly. As of June 30, 2009, the Company had paid all amounts required under this agreement with Dr. Jain.
43
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
CONTROLS AND PROCEDURES
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 September 30, 2009. 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.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the
Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management concluded that, as of September 30, 2009, our internal control over financial
reporting was effective.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report
was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company
to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
No changes in the Company’s internal control over financial reporting occurred during the fourth quarter of fiscal year 2009 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
None.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Information required by Item 10 concerning the directors and executive officers of the Company and corporate governance is incorporated herein by reference to Company’s proxy
statement for its 2010 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the
close of the fiscal year for which this report is filed.
44
ITEM 11.
EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated herein by reference to Company’s proxy statement for its 2010 Annual Meeting of Shareholders, which will be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required by Item 12 is incorporated herein by reference to Company’s proxy statement for its 2010 Annual Meeting of Shareholders, which will be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 is incorporated herein by reference to Company’s proxy statement for its 2010 Annual Meeting of Shareholders, which will be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 is incorporated herein by reference to Company’s proxy statement for its 2010 Annual Meeting of Shareholders, which will be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed.
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The financial statements of Clearfield, Inc. are filed herewith under Item 8:
Exhibits. See Exhibit Index.
45
EXHIBIT INDEX
Number
3.1
3.1 (a)
3.2
4.1
10.1
Description
Restated Articles of Incorporation, of APA Optics, Inc. (n/k/a
Clearfield, Inc.) dated November 3, 1983 and Articles of Amendment
dated December 9, 1983, July 30, 1987, March 22, 1989, September 14,
1994 and August 17, 2000
Articles of Amendment to Articles of Incorporation dated August 25,
2004
Bylaws, as amended and restated effective February 17, 1999 of
Clearfield, Inc. (f/k/a APA Optics, Inc.)
Share Rights Agreement dated October 23, 2000 by and between the
Registrant and Wells Fargo Bank Minnesota NA as Rights Agent
Stock Option Plan for Non-Employee Directors
*10.2
1997 Stock Compensation Plan
*10.3
Insurance agreement by and between the Registrant and Anil K. Jain
*10.4
10.5
*10.6
Form of Agreement regarding Indemnification of Directors and Officers
with Messrs. Jain, Olsen, Ringstad, Roth, Von Wald and Zuckerman
Lease agreement dated May 31, 2006 between Bass Lake Realty, LLC
and Clearfield, Inc.
2007 Stock Compensation Plan, as amended
46
Incorporated
by Reference to
Exhibit 3.1 to Registrant’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000
Exhibit 3.1 to Registrant’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004
Exhibit 3.2 to Registrant’s Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1999
Exhibit 1 to the Registration Statement on Form 8-A filed November 8,
2000
Exhibit 10.3a to Registrant’s Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1994
Annex 1 to the Definitive Proxy Statement for the Registrant’s Annual
Meeting of Shareholders held on August 15, 2001 as filed on July 19,
2001
Exhibit 10.5 to Registrant’s Annual Report on Form 10-K for the fiscal
year ended March 31, 1990
Exhibit 10.7 to Registrant’s Annual Report on Form 10-K for the fiscal
year ended March 31, 2002
Exhibit 10.14 to Registrant’s Annual Report on Form 10-K for the fiscal
year ended March 31, 2006.
Exhibit 10.15 to Registrant’s Registration Statements on Form S-8 (SEC
File Nos. 333-136828 and 333-151504)
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
23.1
31.1
31.2
32.1
32.2
and
Restated
Agreement
Amended
Regarding
Employment/Compensation Upon Change In Control dated September
15, 2005 by and between APA Enterprises, Inc. and Anil K. Jain
Supplemental Separation Agreement dated June 28, 2007 by and
between APA Enterprises, Inc. and Anil K. Jain
Promissory Note dated June 28, 2007 by Photonics International, Inc. as
maker and APA Enterprises as holder in the principal sum of $500,000
Unconditional and Continuing Guaranty dated June 28, 2007 by Anil K.
Jain in favor of APA Enterprises, Inc.
Stock Pledge Agreement dated June 28, 2007 by Anil K. Jain in favor of
APA Enterprises, Inc.
Separation Payments Pledge Agreement dated June 28, 2007 by and
between Anil K. Jain and APA Enterprises, Inc.
Exhibit 10.16 to Registrant’s Current Report on for 8-K dated June 29,
2007
Exhibit 10.17 to Registrant’s Current Report on for 8-K dated June 29,
2007
Exhibit 10.19 to Registrant’s Current Report on for 8-K dated June 29,
2007
Exhibit 10.20 to Registrant’s Current Report on for 8-K dated June 29,
2007
Exhibit 10.21 to Registrant’s Current Report on for 8-K dated June 29,
2007
Exhibit 10.22 to Registrant’s Current Report on for 8-K dated June 29,
2007
Agreement to Provide Additional Collateral dated June 28, 2007 by and
between Anil K. Jain and APA Enterprises, Inc.
Exhibit 10.23 to Registrant’s Current Report on for 8-K dated June 29,
2007
Non-Compete Agreement dated June 28, 2007 by and among others,
Anil K. Jain, and APA Enterprises, Inc.
Exhibit 10.24 to Registrant’s Current Report on for 8-K dated June 29,
2007
Employment Agreement dated December 16, 2008 by and between
Clearfield, Inc. and Cheryl P. Beranek
Exhibit 10.26 to Registrant’s Current Report on for 8-K dated December
16, 2008
Employment Agreement dated December 16, 2008 by and between
Clearfield, Inc. and John P. Hill
Consent of Grant Thornton LLP
Certification of Chief Executive Officer (principal executive officer)
Pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act
Certification of Chief Financial Officer (principal financial officer)
Pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act
Certification of Chief Executive Officer Pursuant to 18 U.S.C. § 1350
Certification of Principal Financial Officer Pursuant to 18 U.S.C. §
1350
Exhibit 10.27 to Registrant’s Current Report on for 8-K dated December
16, 2008
**
**
**
**
**
* Indicates a management contract or compensatory plan or arrangement.
** Indicates exhibit filed herewith.
47
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date: December 18, 2009
Clearfield, Inc.
By /s/ Cheryl P. Beranek
Cheryl P. Beranek
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
48
Each person whose signature appears below hereby constitutes and appoints Cheryl P. Beranek and Bruce G. Blackey, and each of them, as his true and lawful attorney-in-fact and
agent, with full power of substitution, to sign on his behalf, individually and in each capacity stated below, all amendments to this Form 10-K and to file the same, with all exhibits
thereto and any other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to
do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as each might or could do in
person, hereby ratifying and confirming each act that said attorneys-in-fact and agents may lawfully do or cause to be done by virtue thereof.
Signatures
Title
Date
/s/ Cheryl P. Beranek
Cheryl P. Beranek
/s/ Bruce G. Blackey
Bruce G. Blackey
/s/ Ronald G. Roth
Ronald G. Roth
/s/ John G. Reddan
John G. Reddan
/s/ Stephen L. Zuckerman M.D.
Stephen L. Zuckerman
/s/ Donald R. Hayward
Donald R. Hayward
/s/ Charles N. Hayssen
Charles N. Hayssen
President, Chief Executive Officer and
Director (principal executive officer)
December 18, 2009
Chief Financial Officer (principal financial
and accounting officer)
December 18, 2009
December 18, 2009
December 18, 2009
December 18, 2009
December 18, 2009
December 18, 2009
Director
Director
Director
Director
Director
49
Consent of Independent Registered Public Accounting Firm
We have issued our report dated December 18, 2009, accompanying the consolidated financial statements included in the Annual Report of Clearfield, Inc. on Form 10-K for the
year ended September 30, 2009. We hereby consent to the incorporation by reference of said report in the Registration Statements of Clearfield, Inc. on Forms S-8 (File No. 333-
74214, effective November 30, 2001; File No. 333-44500, effective August 25, 2000; File No. 333-44488, effective August 25, 2000; File No. 333-44486, effective August 25,
2000; File No. 333-136828, effective August 23, 2006 and File No. 333-151504, effective June 6, 2008) and on Forms S-3 (File No. 333-33968, effective April 4, 2004; File No.
333-33966, effective April 4, 2004 and File No. 333-44104, effective August 18, 2000).
Exhibit 23.1
/s/Grant Thornton LLP
Minneapolis, Minnesota
December 18, 2009
50
Exhibit 31.1
I, Cheryl P. Beranek, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Clearfield, Inc.;
Based on my knowledge, this annual 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 annual report;
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly represent 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 annual report;
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 annual 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 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 control over financial
reporting.
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 controls 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 controls over financial
reporting.
December 18, 2009
/s/ Cheryl P. Beranek
Cheryl P. Beranek
Chief Executive Officer
(principal executive officer)
51
Exhibit 31.2
I, Bruce G. Blackey, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Clearfield, Inc.;
Based on my knowledge, this annual 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 annual report;
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly represent 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 annual report;
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 annual 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 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 control over financial
reporting.
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 controls 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 controls over financial
reporting.
December 18, 2009
/s/ Bruce G. Blackey
Bruce G. Blackey
Chief Financial Officer
(principal financial officer)
52
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
Exhibit 32.1
In connection with the Annual Report of Clearfield, Inc. (the “Company”) on Form 10-K for the period ending September 30, 2009, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, Cheryl P. Beranek, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350:
1.
2.
The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Cheryl P. Beranek
Cheryl P. Beranek
Chief Executive Officer
53
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
Exhibit 32.2
In connection with the Annual Report of Clearfield, Inc. (the “Company”) on Form 10-K for the period ending September 30, 2009, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, Bruce G. Blackey, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350:
1.
2.
The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Bruce G. Blackey
Bruce G. Blackey
Chief Financial Officer
54