UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
  [ X ]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
  For the quarterly period
ended June 30, 2009
 [   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
  Commission
File Number 0-16106
   Clearfield,
Inc.
  (Exact
name of Registrant as specified in its charter)
 Minnesota
                41-1347235(State
      or other jurisdiction of incorporation or organization)
                (I.R.S.
      Employer Identification No.)
 
 5480
Nathan Lane North, Suite 120, Plymouth, Minnesota 55442
 (Address
of principal executive offices and zip code)
 
 (763)
476-6866
 (Registrant’s
telephone number, including area code)
 
 Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
  x
YES       o NO
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
 o
YES       o 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 o   Accelerated
filer o    Non-accelerated
filer o   Smaller
Reporting Company x
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
  o
YES     x No
  Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
  Class:
                Outstanding
      at June 30, 2009Common
      stock, par value $.01
                11,938,131
   
   CLEARFIELD,
INC.
 FORM
10-Q
 TABLE
OF CONTENTS
  PART I.  FINANCIAL
      INFORMATION
                                                            1ITEM 1.  FINANCIAL STATEMENTS
                                                            1ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF
      FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                                            11ITEM 3.    QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET RISK
                                                            16ITEM  4.   CONTROLS AND
      PROCEDURES
                                                            16PART II. OTHER INFORMATION
                                                            17ITEM 1.  LEGAL
      PROCEEDINGS
                                                            17ITEM 1A.  RISK
    FACTORS
                                                            17ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
      AND USE OF PROCEEDS
                                                            18ITEM 3. DEFAULTS UPON SENIOR
      SECURITIES
                                                            18ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
      SECURITY HOLDERS
                                                            18ITEM 5. OTHER INFORMATION
                                                            18ITEM 6. EXHIBITS
                                                            18SIGNATURES
                                                            19
  
 PART I.  FINANCIAL INFORMATION
 ITEM 1.  FINANCIAL STATEMENTS
  CLEARFIELD,
INC.
 CONSOLIDATED
BALANCE SHEETS
 UNAUDITED
 June
      30, 2009
                      
                      
                      September
      30, 2008AssetsCurrent
      AssetsCash
      and cash equivalents
                      
                      $
                      3,769,843
                      
                      
                      $
                      4,333,709Short-term
      investments
                      
                      
                      2,457,663
                      
                      
                      
                      -Accounts
      receivable, net
                      
                      
                      3,075,809
                      
                      
                      
                      2,533,447Inventories
                      
                      
                      1,547,788
                      
                      
                      
                      2,088,769Other
      current assets
                      
                      
                      160,063
                      
                      
                      
                      115,344Total
      current assets
                      
                      
                      11,011,166
                      
                      
                      
                      9,071,269Property,
      plant and equipment, net
                      
                      
                      1,352,372
                      
                      
                      
                      1,604,202Other
      AssetsLong-term
      investments
                      
                      
                      2,566,000
                      
                      
                      
                      3,143,941Goodwill
                      
                      
                      2,570,511
                      
                      
                      
                      2,570,511Other
                      
                      
                      176,368
                      
                      
                      
                      176,368Notes
      receivable
                      
                      
                      402,562
                      
                      
                      
                      432,846Total
      other assets
                      
                      
                      5,715,441
                      
                      
                      
                      6,323,666Total
      Assets
                      
                      $
                      18,078,979
                      
                      
                      $
                      16,999,137Liabilities
      and Shareholders’ EquityCurrent
      LiabilitiesCurrent
      maturities of long-term debt
                      
                      $
                      49,106
                      
                      
                      $
                      62,126Accounts
      payable
                      
                      
                      1,712,155
                      
                      
                      
                      1,849,633Accrued
      compensation
                      
                      
                      1,042,590
                      
                      
                      
                      903,276Accrued
      expenses
                      
                      
                      73,037
                      
                      
                      
                      301,859Total
      current liabilities
                      
                      
                      2,876,888
                      
                      
                      
                      3,116,894Long-term
      debt, net of current maturities
                      
                      
                      -
                      
                      
                      
                      33,081Deferred
      rent
                      
                      
                      89,817
                      
                      
                      
                      89,641Deferred
      income taxes
                      
                      
                      233,897
                      
                      
                      
                      166,904Total
      Liabilities
                      
                      
                      3,200,602
                      
                      
                      
                      3,406,520Shareholders’
      EquityUndesignated
      shares, 4,999,500 authorized shares; no shares issued and
      outstanding
                      
                      
                      -
                      
                      
                      
                      -Preferred
      stock, $.01 par value;  500 shares; no shares
      outstanding
                      
                      
                      -
                      
                      
                      
                      -Common
      stock, authorized 50,000,000, $ .01 par value; 11,938,131 shares issued
      and outstanding at June 30, 2009 and September 30, 2008
                      
                      
                      119,381
                      
                      
                      
                      119,381Additional
      paid-in capital
                      
                      
                      52,252,423
                      
                      
                      
                      52,166,219Accumulated
      deficit
                      
                      
                      (37,493,427
                      )
                      
                      
                      (38,428,983
                      )Accumulated
      other comprehensive loss
                      
                      
                      -
                      
                      
                      
                      (264,000
                      )Total
      shareholders’ equity
                      
                      
                      14,878,377
                      
                      
                      
                      13,592,617Total
      Liabilities and Shareholders’ Equity
                      
                      $
                      18,078,979
                      
                      
                      $
                      16,999,137
 
 SEE
ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
  1
 CLEARFIELD,
INC.
 CONSOLIDATED
CONDENSED STATEMENTS OF OPERATIONS
 UNAUDITED
 Three
      Months Ended
                      
                      
                      Nine
      Months EndedJune
      30,
                      
                      
                      June
      30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Revenues
                      
                      $
                      7,160,039
                      
                      
                      $
                      6,165,379
                      
                      
                      $
                      18,325,930
                      
                      
                      $
                      16,305,312Cost
      of sales
                      
                      
                      4,475,573
                      
                      
                      
                      4,057,560
                      
                      
                      
                      11,809,104
                      
                      
                      
                      10,982,458Gross
      profit
                      
                      
                      2,684,466
                      
                      
                      
                      2,107,819
                      
                      
                      
                      6,516,826
                      
                      
                      
                      5,322,854Operating
      expensesSelling,
      general and administrative
                      
                      
                      2,142,074
                      
                      
                      
                      1,897,625
                      
                      
                      
                      5,637,002
                      
                      
                      
                      5,041,336Income
      from operations
                      
                      
                      542,392
                      
                      
                      
                      210,194
                      
                      
                      
                      879,824
                      
                      
                      
                      281,518Other
      income (expense)Interest
      income
                      
                      
                      34,764
                      
                      
                      
                      49,920
                      
                      
                      
                      83,758
                      
                      
                      
                      217,011Interest
      expense
                      
                      
                      (1,260
                      )
                      
                      
                      (2,530
                      )
                      
                      
                      (4,751
                      )
                      
                      
                      (8,502
                      )Other
      income
                      
                      
                      48,243
                      
                      
                      
                      13,681
                      
                      
                      
                      75,818
                      
                      
                      
                      43,08281,747
                      
                      
                      
                      61,071
                      
                      
                      
                      154,825
                      
                      
                      
                      251,591Income
      before income taxes
                      
                      
                      624,139
                      
                      
                      
                      271,265
                      
                      
                      
                      1,034,649
                      
                      
                      
                      533,109Income
      tax expense
                      
                      
                      37,119
                      
                      
                      
                      22,371
                      
                      
                      
                      99,093
                      
                      
                      
                      70,948Net
      income from continuing operations
                      
                      
                      587,020
                      
                      
                      
                      248,894
                      
                      
                      
                      935,556
                      
                      
                      
                      462,161Net
      income from discontinued operations
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      342,390Net
      loss on disposal of assets of discontinued operations
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (44,951
                      )Total
      income from discontinued operations
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      297,439Net
      income
                      
                      $
                      587,020
                      
                      
                      $
                      248,894
                      
                      
                      $
                      935,556
                      
                      
                      $
                      759,600Net
      income per share:Continuing
      operations
                      
                      $
                      .05
                      
                      
                      $
                      .02
                      
                      
                      $
                      .08
                      
                      
                      $
                      .04Discontinued
      operations
                      
                      $
                      .00
                      
                      
                      $
                      .00
                      
                      
                      $
                      .00
                      
                      
                      $
                      .02Basic
      and diluted
                      
                      $
                      .05
                      
                      
                      $
                      .02
                      
                      
                      $
                      .08
                      
                      
                      $
                      .06Weighted
      average shares outstanding:Basic
                      
                      
                      11,938,131
                      
                      
                      
                      11,872,331
                      
                      
                      
                      11,938,131
                      
                      
                      
                      11,872,331Diluted
                      
                      
                      11,945,419
                      
                      
                      
                      11,872,331
                      
                      
                      
                      11,945,419
                      
                      
                      
                      11,872,331
 
 SEE
ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
  2
 CLEARFIELD, INC.
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
 UNAUDITED
 Additional
                        paid-in
                      
                      
                      Accumulated
                      
                      
                      Accumulated
      other comprehensive
                      
                      
                      Total
      shareholdersShares
                      
                      
                      Amount
                      
                      
                      Capital
                      
                      
                      deficit
                      
                      
                      loss
                      
                      
                      equityBalance
      at September  30, 2008
                      
                      
                      11,938,131
                      
                      
                      $
                      119,381
                      
                      
                      $
                      52,166,219
                      
                      
                      $
                      (38,428,983
                      )
                      
                      $
                      (264,000
                      )
                      
                      $
                      13,592,617Stock
      based compensation expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      29,119
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      29,119Other
      comprehensive income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      264,000
                      
                      
                      
                      264,000Net
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      217,487
                      
                      
                      
                      -
                      
                      
                      
                      217,487Comprehensive
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      481,487Balance
      at December  31, 2008
                      
                      
                      11,938,131
                      
                      
                      $
                      119,381
                      
                      
                      $
                      52,195,338
                      
                      
                      $
                      (38,211,496
                      )
                      
                      $
                      -
                      
                      
                      $
                      14,103,223Stock
      based compensation expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      27,768
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      27,768Net
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      131,049
                      
                      
                      
                      -
                      
                      
                      
                      131,049Balance
      at March 31, 2009
                      
                      
                      11,938,131
                      
                      
                      $
                      119,381
                      
                      
                      $
                      52,223,106
                      
                      
                      $
                      (38,080,447
                      )
                      
                      $
                      -
                      
                      
                      $
                      14,262,040Stock
      based compensation expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      29,317
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      29,317Net
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      587,020
                      
                      
                      
                      -
                      
                      
                      
                      587,020Balance
      at June 30, 2009
                      
                      
                      11,938,131
                      
                      
                      $
                      119,381
                      
                      
                      $
                      52,252,423
                      
                      
                      $
                      (37,493,427
                      )
                      
                      $
                      -
                      
                      
                      $
                      14,878,377
 
 SEE
ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
  3
 CLEARFIELD,
INC.
 CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
 UNAUDITED
 Nine
      Months Ended June 30,2009
                      
                      
                      2008Cash
      flow from operating activitiesNet
      income
                      
                      $
                      935,556
                      
                      
                      $
                      759,600Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                      
                      
                      323,814
                      
                      
                      
                      393,140Deferred
      taxes
                      
                      
                      66,993
                      
                      
                      
                      66,847Loss
      on disposal of assets
                      
                      
                      350
                      
                      
                      
                      55,251Stock
      based compensation
                      
                      
                      86,204
                      
                      
                      
                      39,258Lease
      termination accrual
                      
                      
                      -
                      
                      
                      
                      (362,028
                      )Changes
      in operating assets and liabilities:Accounts
      receivable, net
                      
                      
                      (542,362
                      )
                      
                      
                      12,499Inventories
                      
                      
                      540,981
                      
                      
                      
                      (146,226
                      )Prepaid
      expenses and other
                      
                      
                      (14,435
                      )
                      
                      
                      (72,659
                      )Accounts
      payable and accrued expenses
                      
                      
                      (226,810
                      )
                      
                      
                      118,631Net
      cash provided by operating activities
                      
                      
                      1,170,291
                      
                      
                      
                      867,033Cash
      flow from investing activitiesPurchases
      of property and equipment
                      
                      
                      (72,334
                      )
                      
                      
                      (1,829,353
                      )Proceeds
      from sale of assets
                      
                      
                      -
                      
                      
                      
                      1,451,624Purchase
      of investments
                      
                      
                      (5,650,722
                      )
                      
                      
                      (3,675,000
                      )Sale
      of investments
                      
                      
                      4,035,000
                      
                      
                      
                      3,200,000Net
      cash used in investing activities
                      
                      
                      (1,688,056
                      )
                      
                      
                      (852,279
                      )Cash
      flow from financing activitiesRepayment
      of long-term debt
                      
                      
                      (46,101
                      )
                      
                      
                      (53,484
                      )Net
      cash used in financing activities
                      
                      
                      (46,101
                      )
                      
                      
                      (53,484
                      )Decrease
      in cash and cash equivalents
                      
                      
                      (563,866
                      )
                      
                      
                      (41,900
                      )Cash
      and cash equivalents at beginning of period
                      
                      
                      4,333,709
                      
                      
                      
                      3,304,645Cash
      and cash equivalents at end of period
                      
                      $
                      3,769,843
                      
                      
                      $
                      3,262,745
 
 SEE
ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
  4
  NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
 Note
1.  Basis of Presentation
  The
accompanying condensed consolidated financial statements are unaudited and have
been prepared by the Company in accordance with accounting principles generally
accepted in the United States of America for interim financial information,
pursuant to the rules and regulations of the Securities and Exchange
Commission.  Pursuant to such rules and regulations, certain financial
information and footnote disclosures normally included in the financial
statements have been condensed or omitted.  However, in the opinion of
management, the financial statements include all adjustments, consisting of
normal recurring accruals, necessary for a fair presentation of the financial
position and results of operations and cash flows of the interim periods
presented. Certain reclassifications of previously reported amounts have been
made to conform that presentation to the current period
presentation.  These consolidated condensed financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company’s Annual Report on Form 10-K for the year
ended September 30, 2008.
  In
preparation of the Company’s consolidated financial statements, management is
required to make estimates and assumptions that affect reported amounts of
assets and liabilities and related revenues and expenses during the reporting
periods. As future events and their effects cannot be determined with precision,
actual results could differ significantly from these estimates.
 
 Effective
January 2, 2008 the Company merged its sole subsidiary APA Cables and Networks,
Inc. (APACN) into the Company (the “Parent – Subsidiary Merger”) and changed the
name of the Company from APA Enterprises, Inc. to Clearfield, Inc. Following 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. Significant
intercompany accounts and transactions have been eliminated. The Company's
consolidated financial statements include the accounts of wholly-owned
subsidiaries of Clearfield, Inc.
  Note
2.  Net Income Per Share
  Basic net
income per common share (“EPS”) is computed by dividing net income by the
weighted average number of common shares outstanding for the reporting period.
Diluted EPS equals net income divided by the sum of the weighted average number
of shares of common stock outstanding plus all additional common stock
equivalents, such as stock options, when dilutive.
  Following
is a reconciliation of basic and diluted net income per common
share:
 
 Three
      Months
                                    
                                    
                                    Nine
      MonthsEnded
      June 30
                                    
                                    
                                    Ended
      June 30(in
      thousands, except per-share data)
                                    
                                    2009
                                    
                                    
                                    2008
                                    
                                    
                                    2009
                                    
                                    
                                    2008Net
      income per common share — basic:Net
      income
                                    
                                    $
                                    587
                                    
                                    
                                    $
                                    249
                                    
                                    
                                    $
                                    936
                                    
                                    
                                    $
                                    760Weighted
      average shares outstanding
                                    
                                    
                                    11,938
                                    
                                    
                                    
                                    11,872
                                    
                                    
                                    
                                    11,938
                                    
                                    
                                    
                                    11,872Net
      income per common share — basic
                                    
                                    $
                                    0.05
                                    
                                    
                                    $
                                    0.02
                                    
                                    
                                    $
                                    0.08
                                    
                                    
                                    $
                                    0.06Net
      income per common share — diluted:Net
      income
                                    
                                    $
                                    587
                                    
                                    
                                    $
                                    249
                                    
                                    
                                    $
                                    936
                                    
                                    
                                    $
                                    760Weighted
      average shares outstanding
                                    
                                    
                                    11,938
                                    
                                    
                                    
                                    11,872
                                    
                                    
                                    
                                    11,938
                                    
                                    
                                    
                                    11,872Dilutive
      impact of common stock equivalents outstanding
                                    
                                    
                                    7
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    7
                                    
                                    
                                    
                                    -Adjusted
      weighted average shares outstanding
                                    
                                    
                                    11,945
                                    
                                    
                                    
                                    11,872
                                    
                                    
                                    
                                    11,945
                                    
                                    
                                    
                                    11,872Net
      income per common share — diluted
                                    
                                    $
                                    0.05
                                    
                                    
                                    $
                                    0.02
                                    
                                    
                                    $
                                    0.08
                                    
                                    
                                    $
                                    0.06
   5
  Note
3.  Discontinued Operations
  Blaine
Facility
 
 On October
30, 2007 the Company purchased a building and related real estate in Blaine,
Minnesota for $1,500,000 under the provisions of its option to purchase as
stated in its lease with Jain-Olsen Properties. The Blaine building was the
corporate headquarters prior to the discontinuation of the Optronics segment in
June 2007.  Following the purchase, the Company, as owner of the
building, canceled the related lease. The lease was scheduled to run through
November of 2009. The elimination of the lease resulted in the elimination of
approximately $342,000 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 and was taken into income during the
three months ending December 31, 2007. On the same day, October 30, 2007, the
Company sold the land and building in Blaine, Minnesota to an unrelated third
party for $1,450,000 incurring a loss of $50,000.
 
 Aberdeen
Facility
 
 On October
1, 2007 the Company entered into a lease agreement for its Aberdeen, South
Dakota facility which allows the tenant first opportunity to purchase the
building over the three year term of the lease. 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 result of the lease termination
we have taken into other  income the amount previously recorded as an
accrual which would have resulted in a reduced sale price to the tenant, in the
amount of $45,000.  We are currently negotiating with our former
tenant regarding resolution of our claims under the lease.
  Optronics
 The
Company’s Optronics business was discontinued during the quarter ended June 30,
2007, and since that time, the operations of the Company have consisted solely
of the operations of Clearfield formerly known as APA Cables and Networks,
Inc.  The Company did not have discontinued operations for the nine
month period ended June 30, 2009.   For the nine month period
ended June 30, 2008, the Company incurred income, net of expenses, of
approximately $297,000 from discontinued operations as a result of the purchase
and resale of the Blaine building which resulted in the termination of the lease
and subsequent reversal of accrued rent.
  Note
4.  Severance Agreement
  Effective
June 28, 2007 Anil K. 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 was paid his then-current salary ($190,000 per year) for 24 months after
the date of termination of his employment, payable quarterly.  As a
result, the Company recorded a severance charge of $397,000 in the statement of
operations for the six months ended September 30, 2007.  As of June 30,
2009, the Company had paid all amounts required under this agreement with Dr.
Jain.
  Note  5.
Cash Equivalents and 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 under Statement
of Financial Accounting Standards No. 157, Fair Value Measurements. The maturity
dates of our CD’s at June 30, 2009 are as follows:
  Less
      than one year
                      
                      $
                      2,457,6631-3
      years
                      
                      
                      2,566,000Total
                      
                      $
                      5,023,663
 
  6
  As of
September 2008, Credit Suisse, our broker and financial advisor, settled a
lawsuit with the state of New York related to its Auction Rate Securities (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
October 2008 Credit Suisse bought back all of the securities held by Clearfield
at par value resulting in proceeds of $3.3 million.  The sale of these
assets and the related mark up to par value was reflected in the financial
statements for the fiscal quarter ended December 31, 2008.
  Note
6.  Warrants and Stock Based Compensation
  The
Company accounts for warrant and stock based compensation
under  Statement of Financial Accounting Standard No. 123R, Share-Based Payment (SFAS No.
123R), which requires all share-based payments, including grants of stock
options, to be recognized in the income statement as an operating expense, based
on their fair values over the requisite service period.
  During the
nine-month period ended June 30, 2009 the Company granted 244,000 non-qualified
stock options to employees with a contractual term of 10 years, a three-year
vesting term and an exercise price of $1.03 with a fair value of $0.42 per
share. A second group of employees received 5,000 incentive stock options with a
term of six years, four year vesting and an exercise price of $1.16 with a fair
value of $0.55 per share. Senior executives and officers were granted 392,000
incentive stock options with a contractual term of 10 years, a three year
vesting term and an exercise price of $1.03 with a fair value of $0.42 per
share. Directors were granted 37,500 non-qualified stock options with a
contractual term of six years, a one year vesting term and an exercise price of
$1.16 with a fair value of $0.58 per share.
  The
Company recorded $86,204 and $39,258 of compensation expense related to current
and past option grants for the nine month periods ended June 30, 2009 and 2008,
respectively.  This expense is included in selling, general and
administrative expense.  There was no tax benefit from recording this
non-cash expense.  As of June 30, 2009, $268,685 of total unrecognized
compensation expense related to non-vested awards is expected to be recognized
over a weighted average period of approximately 2.68 years.
  In April
of 2003, 350,000 warrants were issued at an exercise price of $3.00 per share;
on June 30, 2008 they were unexercised and expired.
  Note
7.  Inventories
 Inventories
consist of the following as of:
  June 30, 2009
                      
                      
                      September 30, 2008Raw
      materials
                      
                      $
                      1,075,832
                      
                      
                      $
                      1,815,777Work-in-progress
                      
                      
                      13,843
                      
                      
                      
                      14,481Finished
      goods
                      
                      
                      458,113
                      
                      
                      
                      258,511$
                      1,547,788
                      
                      
                      $
                      2,088,769
   Note
8.  Major Customer Concentration
  Four
customers comprised approximately 51% of total sales for the nine months ended
June 30, 2009 and one customer who was part of the sales concentration comprised
56% of accounts receivable. Five customers comprised 34% of total sales for the
nine months ended June 30, 2008 and four customers accounted for 26% of accounts
receivable, three of which were part of the sales concentration.
  Note
9. Goodwill
  The
Company analyzes its goodwill in accordance with Statement of Financial
Accounting Standard No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142). SFAS No. 142 requires that goodwill be tested 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. We construct a discounted cash flow analysis based on various sales
and cost assumptions to estimate the fair value of Clearfield (which is the only
reporting unit). The fair values are then compared with the corresponding book
value of Clearfield. 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.
  7
  The result
of the analysis performed in quarter ended September 30, 2008 did not indicate
an impairment of goodwill.  During the quarter ended June 30, 2009, no
events or circumstances have occurred that suggest an impairment
exists.
  Note
10. Income Taxes
  We
recorded a provision for income taxes of $99,000 and $71,000, for the nine
months ended June 30, 2009 and 2008.  Our tax provision includes
estimated federal alternative minimum taxes and state franchise taxes, but is
primarily related to deferred tax expense related to book and income tax basis
difference in goodwill on prior asset acquisitions.
 
 The
Company had a federal net operating loss (NOL) carry forward at September 30,
2008 of $32.7 million that expire in fiscal years 2009 to
2027.   At September 30, 2008 the NOL’s translated into deferred
tax asset of $12,977,898. Based upon available evidence, there is uncertainty
regarding our ability to realize these deferred tax assets and we have therefore
recorded a full valuation allowance against the deferred tax assets in our
consolidated financial statements. We believe the uncertainty regarding the
ability to realize our deferred tax assets may diminish to the point where the
recognition of our deferred tax assets may be warranted in the future. If we
determine that it is more likely than not that we will be able to realize our
deferred tax assets in the future, an adjustment to the deferred tax asset
valuation allowance would be recorded as an income tax benefit in the period
when such determination is made.
 
 Effective
April 1, 2007, we adopted the provisions of FASB Interpretation
No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48) as required. The adoption did not
have a material impact on our financial statements. At the adoption date, we
recorded no gross unrecognized tax benefits.  Subsequent to the
adoption date including current quarter ended June 30, 2009 the Company has not
recorded any unrecognized tax benefits.
 
 We
recognize interest and penalties accrued on any unrecognized tax benefits as a
component of income tax expense. At the adoption date of FIN 48, we did not have
any accrued interest or penalties associated with any unrecognized tax benefits,
nor has any interest expense been recognized subsequent to the acquisition
date.
 
 The
Company files a federal income tax return in the United States Federal
jurisdiction and files tax returns in several state jurisdictions.  With
limited exceptions, the company is no longer subject to U.S. Federal and state
income tax examination for fiscal years ending prior to September 30,
2006.
 
 The
Company has recently completed a 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.  Consequently, in the
future if it is determined that all or a portion of the valuation allowance be
removed, a substantial portion of the NOL’s would be available to reduce the
provision for taxes in the statement of operations.
 
 Note
11.  Certain Relationships and Transactions
  India
Facility
 
 Prior to
June 28, 2007, Kul B. Jain, brother of our former chief executive officer, Anil
K. Jain, was a director of our APA Optronics (India) Private Limited subsidiary
that was established in fiscal 2005.  Kul B. Jain was paid
approximately $250 per month in this position. He was not an employee of APA
Optronics (India) or Clearfield, Inc. (formerly APA Enterprises,
Inc.).  On June 28, 2007, we sold all of our interest in our
Indian subsidiary to an entity controlled by Anil K. Jain, our former chief
executive officer, on terms deemed by the independent directors to be fair and
reasonable to the Company.  The purchase price of $500,000 is payable
over five years and is fully secured by pledges of stock and Dr. Jain’s payments
under his separation agreement, as well as by a guarantee from Dr. Jain. The
balance of the outstanding note at June 30, 2008 is $445,891 with accrued
interest of $2,545. The rate of interest charged is 7% and the note is
current.
  8
  Note
12.  Accounting Pronouncements
 New
Accounting Pronouncements
  In May
2008, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 162, The Hierarchy of Generally Accepted
Accounting Principles. SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with Generally Accepted Accounting Principles (GAAP). The current GAAP hierarchy
has been criticized because it is directed to the auditor rather than the
entity, it is complex, and it ranks FASB Statements of Financial Accounting
Concepts, which are subject to the same level of due process as FASB Statements
of Financial Accounting Standards, below industry practices that are widely
recognized as generally accepted but that are not subject to due process. The
Board believes the GAAP hierarchy should be directed to entities because it is
the entity (not its auditors) that is responsible for selecting accounting
principles for financial statements that are presented in conformity with GAAP.
The Company will be adopting this provision on October 1,
2009.  Adoption of SFAS No. 162 will not have a significant effect on
the Company’s financial statements.
  The
Company adopted SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment of FASB Statement No.
115, at the beginning of its 2009 fiscal year. SFAS No. 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value at specified election dates. SFAS No. 159 applies to all
entities, including not-for-profit organizations. Adoption of SFAS No. 159 did
not have a significant effect on the Company’s financial statements because the
Company did not elect the fair value option for any financial assets or
liabilities.
  The
Company adopted SFAS No.157, Fair Value Measurements at
the beginning of its 2009 fiscal year. SFAS No. 157 clarifies the definition of
fair value, describes the method used to appropriately measure fair value in
accordance with generally accepted accounting principles and expands fair value
disclosure requirements. This statement applies whenever other accounting
pronouncements require or permit fair value measurements. The fair value
hierarchy established under SFAS No. 157 prioritizes the inputs used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1 measurement) and
the lowest priority to unobservable inputs (Level 3 measurement). The three
levels of the fair value hierarchy defined by SFAS No. 157 are as follows: Level
1 – Quoted prices are available in active markets for identical assets or
liabilities as of the reporting date. Active markets are those in which
transactions for the asset or liability occur in sufficient frequency and volume
to provide pricing information on an ongoing basis. Level 2 – Pricing inputs are
other than quoted prices in active markets included in level 1, which are either
directly or indirectly observable as of the reporting date. Level 2 includes
those financial instruments that are valued using models or other valuation
methodologies. These models are primarily industry-standard models that consider
various assumptions, including quoted forward prices for commodities, time
value, volatility factors, and current market and contractual prices for the
underlying instruments, as well as other relevant economic measures.
Substantially all of these assumptions are observable in the marketplace
throughout the full term of the instrument, can be derived from observable data
or are supported by observable levels at which transactions are executed in the
marketplace. Level 3 – Pricing inputs include significant inputs that are
generally less observable from objective sources. These inputs may be used with
internally developed methodologies that result in management’s best estimate of
fair value from the perspective of a market participant. The Company determines
fair value measurements on certain assets and liabilities as the result of the
application of accounting guidelines and pronouncements that were relevant prior
to the adoption of SFAS No. 157. In February 2008 the FASB issued FASB Staff
Position 157-2 Effective Date
of FASB statement No. 157, which delayed the effective date of SFAS No.
157 to October 1, 2009 for us for all nonfinancial assets and nonfinancial
liabilities, except for items recognized of disclosed at fair value in the
financial statements on a recurring basis (at least annually). The Company does
not anticipate the adoption of SFAS 157 for nonfinancial assets and liabilities
to have a material impact on the financial statements.
  In April
of 2009, the FASB issued FSP FAS 107-1, APB 28-1, Interim Disclosures About Fair Value
of Financial Instruments (“FSP FAS 107-1, APB 28-1”). FSP FAS 107-1, APB
28-1 requires fair value disclosures in both interim as well as annual financial
statements in order to provide more timely information about the effects of
current market conditions on financial instruments. FSP FAS 107, APB 28-1 is
effective for interim and annual periods ending after June 15, 2009 and was
adopted by the Company during the current period. The adoption did not have a
material impact on the Company’s financial condition or results of operations or
cash flows.
  In
December 2008, the FASB issued FASB Staff Position (FSP) No. 140-4 and FIN
46R-8, Disclosures by Public
Entities (Enterprises) about Transfers of Financial Assets and Interests in
Variable Interest Entities (“FSP 140-4 and FIN 46R-8”). FSP 140-4 and FIN
46R-8 require additional disclosures about transfers of financial assets and
involvement with variable interest entities. The requirements apply to
transferors, sponsors, servicers, primary beneficiaries and holders of
significant variable interests in a variable interest entity or qualifying
special purpose entity. The Company has adopted FSP 140-4 and FIN 46R-8 as of
December 26, 2008 since the disclosures required by FSP 140-4 and FIN 46R-8
became effective for the Company in the fiscal quarter ending December 26, 2008.
FSP 140-4 and FIN 46R-8 affect disclosures only and therefore have no impact on
the Company’s financial condition, results of operations or cash
flows.
  9
  In May
2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS No.
165”).  SFAS No. 165 establishes requirements for subsequent events.
SFAS No. 165 is effective for interim or annual periods ending after June 15,
2009.  The Company is required to adopt this standard in the current
period.  Adoption of SFAS No. 165 did not have a significant effect on
the Company’s financial statements. The Company evaluated its June 30, 2009
financial statements for subsequent events through August 6, 2009, the date the
financial statements were available to be issued. The Company is not aware of
any subsequent events which would require recognition or disclosure in the
financial statements.
  In
June 2009, the FASB issued FASB Statement No. 167, Amendments to FASB Interpretation
No. 46(R) , 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 variable interest entity (“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. SFAS 167 also amends FIN 46(R) to require
ongoing reassessments of the primary beneficiary of a VIE. The provisions of
SFAS 167 are effective for the Company’s fiscal year beginning October 1,
2010. The Company does not expect it to have a material effect on
its  financial statements.
  In June
2009, the FASB issued Statement of Financial Accounting Standard No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles.  SFAS No. 168 replaces SFAS No. 162 and establishes
the FASB Accounting Standards Codification as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with
GAAP.  SFAS No. 168 is effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The Company is
currently evaluating the impact of SFAS No. 157 but does not expect it to have a
material effect on its financial statements.
   10
  ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 The
statements contained in this Report on Form 10-Q that are not purely historical
are “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995.  Forward-looking statements relate to
future events and typically address the Company’s expected future business and
financial performance. Words such as  “plan,” “expect,” “aim,” “believe,”
“project,” “target,” “anticipate,” “intend,” “estimate,” “will,” “should,”
“could” and other words and terms of similar meaning, typically identify such
forward-looking statements.  Forward-looking statements are based on
certain assumptions and expectations of future events and trends that are
subject to risks and uncertainties.  Actual results could differ from
those projected in any forward-looking statements because of the factors
identified in and incorporated by reference from Part II, Item 1A, “Risk
Factors,” of our Annual Report on Form 10-K for the year ended September 30,
2008, as well as in other filings we make with the Securities and Exchange
Commission, which should be considered an integral part of Part I, Item 2,
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”  All forward-looking statements included herein are made
as the date of this Quarterly Report as Form 10-Q and we assume no obligation to
update the forward-looking statements or to update the reasons why actual
results could differ from those projected in the forward-looking
statements.
 
 The
following discussion and analysis of our financial condition and results of
operations as of and for the three and nine-month periods ended June 30, 2009
and 2008 should be read in conjunction with the consolidated financial
statements and related notes in Item 1 of this report and our Annual Report
on Form 10-K for the year ended September 30, 2008.
  On January
2, 2008, Clearfield, Inc., formerly known as APA Enterprises, Inc., consolidated
its sole subsidiary APA Cables & Networks, Inc., (APACN) into the parent
company, Clearfield, Inc. Since the discontinuation of the Optronics business in
June 2007, the operations of the Company consist solely of the operations of
APACN.  In June 2007, we elected to change our fiscal year end from
March 31 to September 30. In view of this change, the quarter ended December 31,
2008 is the first quarter of 2009 and the quarter ended December 31, 2007 is the
first quarter for 2008.
  OVERVIEW
  General
  Clearfield,
Inc. manufacture and sell a broad range of telecommunications equipment and
products.  Our principal products are standard and custom connectivity
products for telecommunications customers, including fiber distribution systems,
optical components, outside plant (“OSP”) cabinets, and fiber and copper cable
assemblies.  Our highly configurable products are used for the cable
management requirements of the Fiber-to-the-Home (“FTTH”) marketplace and in
designing and terminating custom cable assemblies for commercial and industrial
original equipment manufacturers (“OEM’s”).  Over the past four years,
we have expanded our product offerings and broadened our customer base. We
believe our solid reputation of quality service and competitive and innovative
product lines differentiate us from our competitors.
  Given the
impact of the economic downturn and uncertain timing and extent of any recovery
on our customers, we are unable to provide short term guidance regarding our
future results of operations. We closely monitor the trends with in our industry
and our customer base, as well as the impact of legislation and government
initiatives on our customers, in developing our short-term and long-term
strategies.
  RESULTS
OF OPERATIONS
  THREE
MONTHS ENDED JUNE 30, 2009 VS. THREE MONTHS ENDED JUNE 30, 2008
  Revenues
for the third quarter ended June 30, 2009 were $7,160,000 and increased 16% from
revenue of $6,165,000 for the comparable period for fiscal 2008. This increase
is the result of increased product sales of the FieldSmartTM product line
throughout the independent telephone market.  The increase in revenue
was heavily influenced by a single distributor in the eastern region which
accounted for 44% of total revenue for the quarter.
 
 Revenue
from broadband service providers and commercial data networks amounted to
$6,396,000 or 89% of revenue for the third quarter of 2009 compared to
$4,900,000 or 79% of revenue for the third quarter of 2008.  Sales to
OEMs, consisting primarily of fiber optic and copper cable assemblies produced
to customer design specifications, were 11% of revenue or $764,000 for 2009
compared to $1,265,000 or 21% of sales in 2008. We believe our OEM business and
the business of the underlying OEM customers have been negatively impacted by
the significant decline in the U.S. economy, resulting in a higher proportion of
revenue from broadband service providers and commercial data networks that have
also been affected by the economic downturn, however this has been offset by the
strong acceptance of our FieldSmart product line.
  11
  Gross
margin increased from 34% of revenues in the third quarter of fiscal 2008 to 37%
of revenues in the third quarter of fiscal 2009, resulting in a gross profit of
$2,684,000 in the third quarter of 2009 as compared to $2,108,000 in the third
quarter of 2008, an increase of $576,000 or 27%. The 3% increase in gross margin
as a percent of revenues is due to the results of increasing volume as well as
product mix weighted toward the FieldSmart architecture. Manufacturing
efficiencies and sourcing strategies contribute to lower cost of
goods.
 
 Selling,
general and administrative expenses increased 13% or $244,000 from $1,898,000
for the third quarter of 2008 to $2,142,000 for the third quarter of 2009. This
increase is composed of increased sales commissions related to increased sales,
and increased performance-based compensation programs. In addition, the increase
in selling, general and administrative expense reflects our continued investment
in marketing, product management, and product engineering that we believe are
the driving factors for increased sales and profitability. The Company expects
selling, general and administrative expenses in the fourth quarter of fiscal
year 2009 to be impacted by professional fees associated with its annual
evaluation of goodwill for impairment and annual review of the valuation
allowance recorded against its deferred tax assets consisting primarily of net
operating loss carryforwards.
 
 Income
from operations for the quarter ended June 30, 2009 was $542,000 compared to
$210,000 for the same period of 2008, an improvement of $332,000 or
158%.  This improvement is attributable to improved gross margins, net
of increases in selling, general and administrative expenses
 
 Interest
income for the third quarter ended June 30, 2009 was $35,000. This was a 29%
decline from $49,000 for the third quarter of 2008.  This is
attributable to declining interest rates as the Company moved its excess cash
into money markets and certificates of deposit where rates are significantly
less than previous investments in auction rate securities, all of which were
disposed of in October 2008.  In early fiscal 2008 the Company
invested in auction rate securities that were paying rates of approximately 5%
as compared to the current holdings of U.S. Treasuries with rates of
approximately 0.5% and CD’s with rates of 1% to 3%.
 
 Interest
expense decreased from $3,000 in the third quarter of 2008 to $1,000 in the
third quarter of 2009. Interest for both years is attributable to financing
associated with the enterprise information system installed during 2007 and
2008.
 
 Other
income consists of $48,000 and $14,000 for the third quarters of 2009 and 2008,
respectively.  This is attributable to rental income from our
Aberdeen, South Dakota facility beginning in October 2007.  In March
2009, the tenant defaulted on the lease.  We applied the tenant’s
deposit of $3,000 to offset rent due.  Further, we reversed an accrual
of $45,000 that represented a reduction in purchase price should the tenant
elect to purchase the building within the first three years of the lease. We are
currently negotiating with our former tenant regarding resolution of our claims
under the lease.
  Income tax
expense was $37,000 and $22,000 for the third quarter of 2009 and 2008,
respectively.  Tax expenses related to goodwill were $22,000 and
$20,000 for the third quarters of 2009 and 2008, respectively.  The
balance was paid to various states for income, sales and use taxes and
alternative minimum taxes (AMT) of $14,000 for the third quarter of
2009.  In the third quarter of fiscal year 2009, the Company completed
a study relating to its net operating loss carryforwards and determined that
there is no limitation on the use of its net operating loss carryforwards
because of any ownership changes described in Section 382 of the Internal
Revenue Code.  Future income tax expense and provisions against income
tax expense will be determined, in part, by our ability to realize our deferred
tax asset, primarily consisting of net loss carryforwards.  At
September 30, 2008, we have recorded a full valuation allowance against our
deferred tax assets, due to uncertainties related to our ability to utilize our
deferred tax assets.  We review the valuation allowance on an annual
basis and more frequently as circumstances require.
  Net income
for the third quarter of 2009 was $587,000 compared to $249,000 for the third
quarter of 2008 an increase of $338,000 or 136%. Income per basic and diluted
share was $0.05 for the third quarter of 2009 and $.02 for the third quarter of
2008, which reflects higher net income in the third quarter of
2009.
  12
  NINE
MONTHS ENDED JUNE 30, 2009 VS. NINE MONTHS ENDED JUNE 30, 2008
  Revenues
for the nine months ended June 30, 2009 increased 12% to $18,326,000 from
revenue of $16,305,000 for the comparable period for fiscal 2008. This increase
is the result of increased product sales of the FieldSmartTM product line
throughout the independent telephone market.  The increase in revenue
was heavily influenced by sales to a single distributor in the eastern region in
the quarter ended June 30, 2009, which accounted for 37% of total revenue for
the nine months ended June 30, 2009.
 
 Revenue
from broadband service providers and commercial data networks amounted to
$15,584,000 or 85% of revenue for the nine months ended 2009 compared to
$12,519,000 or 77% of revenue for the nine months ended 2008.  Sales
to OEMs, consisting primarily of fiber optic and copper cable assemblies
produced to customer design specifications, were 15% of revenue or $2,742,000
for the nine months ended 2009 compared to $3,786,000 or 23% of revenue in the
comparable period of 2008. We believe our OEM business and the business of the
underlying OEM customers have been negatively impacted by the significant
decline in the U.S. economy, resulting in a higher proportion of revenue coming
from broadband service providers and commercial data networks that have also
been affected by the economic downturn, however this has been offset by the
strong acceptance of our FieldSmart product line.
 
 Gross
margin increased from 33% of revenues for the nine months ended June 30, 2008 to
36% of revenues for the nine months ended June 30, 2009 resulting in a gross
profit of $6,517,000 in the first nine months of 2009 as compared to $5,323,000
in the same period of 2008, an increase of $1,194,000 or 22%. The 3% increase in
gross margin as a percent of revenues is due to the results of on-going programs
to reduce the cost of products through a combination of process improvement,
global sourcing of components and subassembly manufacturing and new product
introduction, specifically our FieldSmart product line that was introduced in
January 2008.
 
 Selling,
general and administrative expenses increased 12% or $596,000 from $5,041,000
for the nine months ended June 30, 2008 to $5,637,000 for the nine months ended
June 30, 2009. This increase is composed of increased sales commissions related
to increased sales, and increased performance-based compensation programs. In
addition, the increase in selling, general and administrative expense reflects
our continued investment in marketing, product management, and product
engineering that we believe are the driving factors for increased sales and
profitability.
 
 Income
from operations for the nine months ended June 30, 2009 was $880,000 compared to
$282,000 for the same period of 2008, an improvement of $598,000 or
212%.  This improvement is attributable to increased revenue and
improved gross margin.
 
 Interest
income in 2009 was $84,000 a 61% decline from $217,000 for the nine months ended
June 30, 2008.  This decrease is attributable to declining interest
rates as the Company moved its excess cash into secure and liquid money markets
composed of 90 day U.S. Treasuries and bank certificates of deposit with yields
ranging from 0% to 3%.  See Note 5. for supplemental
information.
 
 Interest
expense decreased from $9,000 for the nine months ended June 30, 2008 to $5,000
for the nine months ended June 30, 2009. Interest for both years is attributable
to financing associated with the enterprise information system installed during
2007 and 2008.
 
 Other
income consists of $76,000 and $43,000 for the nine months ended June 30, 2009
and 2008, respectively.  This is attributable to rental income from
our Aberdeen, South Dakota facility beginning in October 2007.  In
March 2009, the tenant defaulted on the lease.  We applied the
tenant’s deposit of $3,000 to offset rent due.  Further, we reversed
an accrual of $45,000 that represented a reduction in purchase price should the
tenant elect to purchase the building within the first three years of the lease.
We are currently negotiating with our former tenant regarding resolution of our
claims under the lease.
  Income tax
expense was $99,000 and $71,000 for the nine months ended June 30, 2009 and
2008, respectively.  Tax expenses related to goodwill were $67,000
during each of the nine months ended June 30, 2009 and 2008,
respectively.  For 2009 the balance of expense was paid to various
states for income; sales and use taxes along with $7,000 of alternative minimum
taxes from 2008 expensed and paid in 2009 along with an AMT accrual of $20,000
for 2009. For 2008 all other taxes were for various states for income; sales and
use taxes.
  Net income
from continuing operations for the nine months ended June 30, 2009 is $936,000
or $0.08 per diluted share compared to a $462,000 or $0.04 per basic and diluted
share for the same period of 2008.
 13
  There was
no income from discontinued operations for the nine months ended June 30,
2009.  In the nine months ended June 30, 2008 there was $297,000 of
income from discontinued operations or $0.02 per diluted share. The 2008 income
from discontinued operations consisted of the reversal of a portion of the
Blaine building lease termination accrual, and expenses incurred in the purchase
and resale of the building netting to a gain of $342,000, in addition there was
a loss on the disposal of assets of discontinued operations of totaling
$44,000.
  The
Company’s net income was $936,000 or $0.08 per both basic and diluted share for
the nine months ended June 30, 2009 compared to $760,000 or $0.06 per share for
the comparable period in the prior year.  This is a net increase of
$176,000 or 23%.
  LIQUIDITY AND CAPITAL
RESOURCES
  As of June
30, 2009, our principal source of liquidity was our cash and cash equivalents
and short term investments. Those sources total $6,228,000 at June 30, 2009
compared to $4,334,000 at September 30, 2008. At September 30, 2008 we also held
$3,036,000 of Auction Rate Securities (ARS) that were converted to cash in
October 2008.  Our non-operating cash, long term-investments, is
invested in bank certificates of deposit (CD) that are guaranteed by the Federal
Deposit Insurance Corporation (FDIC) and in bank money market account also
guaranteed by the FDIC. All CDs are purchased with the intent to hold to
maturity, we have built a CD ladder in which they range from three months to
three years in term.   The Company is currently expecting to fund
operations with its working capital which is the combination of cash flow from
operations, accounts receivable and inventory which is managed to meet customer
demand.  The Company also intends on utilizing its cash assets
primarily for its continued organic growth.  Additionally, the Company
may use its available cash for potential future strategic initiatives or
alliances.  We believe our cash and cash equivalents at June 30, 2009,
along with cash flow from future operations, will be sufficient to fund our
working capital and capital resources needs for the next 12 months.
  Operating
Activities
  Net cash
provided by operations for the nine months ended June 30, 2009 totaled
$1,170,000. This was primarily due to net income of $936,000, depreciation of
$324,000, deferred taxes of $67,000, stock based compensation of $86,000 and a
decrease in inventory of $541,000. This was offset by a decrease in accounts
payable of $226,000 and an increase in accounts receivable of
$542,000.
  Net cash
provided by operating activities from both continuing operations and
discontinued operations for the nine month period ended June 30, 2008 was
$867,000. This provision of cash was attributable primarily to operating income
of $760,000, depreciation of $393,000 deferred taxes of $67,000, stock based
compensation of $39,000, and an increase in accounts payable of 119,000. This
was offset by an increase in accounts receivable of $12,000 and the termination
of the lease accrual of $362,000, a non-cash charge associated with the
elimination of the lease obligation for the former corporate headquarters, an
increase in inventory of $146,000 and prepaid expenses of $73,000.
  Investing
Activities
  We invest
our excess cash in money market accounts and bank certificate of deposits (CD)
in denominations across numerous banks so that they are guaranteed under the
FDIC. We believe we obtain a competitive rate of return given the economic
climate along with the security provided by the FDIC. During the nine month
period ended June 30, 2009 we utilized cash to purchase $5,651,000 of securities
and received $4,035,000 on the sale of securities which include auction rate
securities.  Purchases of capital equipment and information technology
equipment consumed $72,000 of cash.
  For the
nine months ended June 30, 2008 we invested our excess cash in money market
accounts and Student Loan-backed auction rate securities (ARS) to obtain a
market rate return on our excess cash. During the period we utilized cash to
purchase $3,675,000 of securities and received $3,200,000 on the sale of like
securities.  During the same period we utilized $1,500,000 to purchase
the Blaine building and subsequently received proceeds on the sale of that
facility of $1,452,000. Purchases of capital equipment, enterprise resource
planning software and implementation services consumed $300,000 of
cash.
  In
the remainder of fiscal 2009, we expect capital expenditures to be approximately
$100,000, primarily reflecting investments in capital equipment, tooling and
information technology.
 14
  Financing
Activities
  For the
nine month period ended June 30, 2009 we used a net of $46,000 and for the
comparable period ended 2008, we used $53,000 for scheduled debt principal
payments principally associated with the financing of our IT
systems.
  15
  CRITICAL ACCOUNTING POLICIES
AND ESTIMATES
  Management
utilizes its technical knowledge, cumulative business experience, judgment and
other factors in the selection and application of the Company’s accounting
policies. The accounting policies considered by management to be the most
critical to the presentation of the consolidated financial statements because
they require the most difficult, subjective and complex judgments include
revenue recognition, stock-based compensation, deferred tax asset valuation
allowances, accruals for uncertain tax positions, and impairment of goodwill and
long-lived assets.
  These
accounting policies are described in Item 7. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” of the Company’s
Annual Report on Form 10-K for the year ended September 30,
2008.  Management made no changes to the Company’s critical accounting
policies during the quarter ended June 30, 2009.
  In
applying its critical accounting policies, management reassesses its estimates
each reporting period based on available information. Changes in such estimates
did not have a significant impact on earnings for the quarter ended June 30,
2009.
  RECENTLY ISSUED ACCOUNTING
STANDARDS
  See Note
12 in the Notes to Consolidated Condensed Financial Statements located in Part
I, Item 1 of this Report.
  ITEM 3.    QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
  Not
applicable.
  ITEM  4.   CONTROLS AND
PROCEDURES
  Evaluation
of Disclosure Controls and Procedures
 
 Under the
supervision and with the participation of our management, including our Chief
Executive Officer  and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934, as of the end of the period covered by this report. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that, as of the end of the period covered by this report, our disclosure
controls and procedures were effective.
 
 Changes
in Internal Control Over Financial Reporting
  There were
no other changes  to the Company’s internal control over financial
reporting that occurred during the quarter ended June 30, 2009 that materially
affected, or are reasonably likely to materially effect the Company’s internal
control over financial reporting.
  16
  PART II. OTHER INFORMATION
 
 ITEM 1.  LEGAL PROCEEDINGS
  None.
  ITEM 1A.  RISK FACTORS
  The most
significant risk factors applicable to the Company are described in Part I,
Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended
September 30, 2008. There have been no material changes from the risk
factors previously disclosed in our Annual Report on Form 10-K except as set
forth below:
  Our
stock price may be volatile and events outside of our control may negatively
affect the market price of our common stock, which may affect the amount of our
goodwill.
  Our stock
price has fluctuated in the past and may continue to fluctuate significantly,
making it difficult for an investor to resell shares or to resell shares at an
attractive price. The market prices for stock of small capitalization companies
like Clearfield have historically been highly volatile. In addition, the stock
market is subject to price and volume fluctuations that affect the market prices
for companies in general, and small-capitalization companies in particular,
which are often unrelated to the operating performance of these
companies.
  Future
events concerning us or our competitors could cause such volatility,
including:
  §
                Government
      programs or incentives that may change demand for our products or those of
      our competitors.
  §
                Actual
      or anticipated variations in our operating
  results.
  §
                Investments
      required in infrastructure and/or personnel to meet long-term strategic
      objectives.
  §
                Technological
      innovations or new commercial products introduced by us or our
      competitors.
  §
                Developments
      concerning proprietary rights.
  §
                Investor
      perception of us and our industry.
  §
                General
      economic and market conditions including market
    uncertainty.
  §
                National
      or global political events.
  §
                Public
      confidence in the securities markets and regulation by or of the
      securities markets.
  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.
  A
significant decline in Clearfield’s stock price is one of the factors management
would consider in analyzing the fair value of Clearfield as a reporting unit and
testing for impairment of its goodwill.  Under Statement of Accounting
Standards (SFAS) No. 142, Accounting for Goodwill and Other Intangibles, if
the carrying value of Clearfield as a reporting unit is in excess of its fair
value, the amount of goodwill is adjusted through an impairment
charge.  SFAS No. 142 requires that goodwill be tested 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 events or circumstances that may result in
goodwill impairment testing at an interim period include reduction in our stock
price, reductions in anticipated cash flows generated by our operations or
negative operating results.
  Our results of operations could be
adversely affected by economic conditions and the effects of these conditions on
our customers’  businesses.
  Unfavorable
changes in economic conditions, including recession, inflation, lack of access
to capital, lack of consumer confidence or other changes have resulted and may
continue to result in decreased sales in our product lines.  These
decreased sales may be caused by longer sales cycles or cancellations of
projects incorporating our products, failure to obtain new customers, pricing
pressure, and reduced volume of business from existing customers or loss of
existing customers.
  17
  Adverse
economic conditions may impact our customers in different ways and to different
degrees depending upon industry.  For example, demand for our products
among customers may be affected by factors such as the timing and amount of
federal reimbursement or spending programs, taxation rates, legislation relating
to telecommunications services, competitive bidding requirements, the rate of
new home construction, and general business conditions.  Therefore,
the factors that negatively affect our customers will also have a negative
impact on our business.  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.
  ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS
  None.
  ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  None.
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
  None.
  ITEM 5. OTHER INFORMATION
  None.
  ITEM 6. EXHIBITS
  Exhibit
31.1 – Certification of Chief Executive Officer pursuant to Rules 13a-14 and
15d-14 of the Exchange Act
  Exhibit
31.2 – Certification of Chief Financial Officer pursuant to Rules 13a-14 and
15d-14 of the Exchange Act
 
 Exhibit
32.1 – Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. §1350
   18
  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
   CLEARFIELD,
      INC.August
      10, 2009
                                                  
                                                  /s/
      Cheryl BeranekBy:
      Cheryl BeranekIts:  President
      and Chief Executive Officer(Principal
      Executive Officer)/s/
      Bruce G. BlackeyBy:  Bruce
      G. BlackeyIts:  Chief
      Financial Officer(Principal
      Financial and Accounting Officer)
          19