UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-QSB





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




For the
quarterly period ended June 30, 2008





[   ]
            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)





Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 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
            x
            
            No
            o




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





Yes
            o
            
            No
            x





State 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, 2008Common
      stock, par value $.01
            11,872,331







1











CLEARFIELD,
INC.


FORM
10-QSB


TABLE
OF CONTENTS











PART I. FINANCIAL INFORMATION
              3ITEM 1. FINANCIAL STATEMENTS UNAUDITED
              3CONSOLIDATED BALANCE SHEETS
              3CONSOLIDATED CONDENSED STATEMENTS OF
      OPERATIONS
              4CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
      EQUITY
              5CONSOLIDATED CONDENSED STATEMENTS OF CASH
      FLOWS
              6NOTES TO CONSOLIDATED CONDENSED FINANCIAL
      STATEMENTS
              7ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION
              11ITEM 3 A (T).  CONTROLS AND
      PROCEDURES
              16PART II. OTHER INFORMATION
              17ITEM 1.  LEGAL PROCEEDINGS
              17ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS
              17ITEM 3. DEFAULTS UPON SENIOR SECURITIES
              17ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
              17ITEM 5. OTHER INFORMATION
              17ITEM 6. Exhibits
              17






2





PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS UNAUDITED


CLEARFIELD,
INC.


CONSOLIDATED BALANCE SHEETS


UNAUDITED


June
      30, 2008
            
            
            September
      30, 2007AssetsCurrent
      AssetsCash
      and cash equivalents
            
            $
            3,262,745
            
            
            $
            3,304,645Available
      for sale securities
            
            
            -
            
            
            
            2,825,000Accounts
      receivable, net
            
            
            2,406,152
            
            
            
            2,418,651Inventories
            
            
            1,741,508
            
            
            
            1,595,282Other
      current assets
            
            
            196,196
            
            
            
            102,473Total  current
      assets
            
            
            7,606,601
            
            
            
            10,246,051Property
      plant and equipment, net
            
            
            1,635,161
            
            
            
            1,773,739Other
      AssetsAvailable
      for sale securities
            
            
            3,036,000
            
            
            
            -Goodwill
            
            
            2,570,511
            
            
            
            2,570,511Other
            
            
            284,309
            
            
            
            281,589Notes
      receivable
            
            
            445,895
            
            
            
            469,678Total
      other assets
            
            
            6,336,715
            
            
            
            3,321,778Total
      Assets
            
            $
            15,578,477
            
            
            $
            15,341,568Liabilities
      and Shareholders’ EquityCurrent
      LiabilitiesCurrent
      maturities of long term debt
            
            $
            60,832
            
            
            $
            68,215Accounts
      payable
            
            
            1,247,419
            
            
            
            1,176,280Accrued
      compensation
            
            
            1,010,085
            
            
            
            958,023Accrued
      expenses
            
            
            229,358
            
            
            
            107,209Current
      liabilities of discontinued operations
            
            
            -
            
            
            
            205,885Total  current
      liabilities
            
            
            2,547,694
            
            
            
            2,515,612Long
      term debt, net of current maturities
            
            
            49,106
            
            
            
            95,207Deferred
      rent
            
            
            89,583
            
            
            
            85,059Deferred
      income taxes
            
            
            144,549
            
            
            
            77,701Other
      long term liabilities
            
            
            -
            
            
            
            150,470Long
      term obligations of discontinued operations
            
            
            -
            
            
            
            204,832Total
      Liabilities
            
            
            2,830,932
            
            
            
            3,128,881Shareholders’
      EquityUndesignated
      shares, 4,999,500 authorized shares: no shares issued and
      outstanding
            
            
            -
            
            
            
            -Preferred
      stock, $.01 par value;  500 shares; no shares
      outstanding
            
            
            -
            
            
            
            -Common
      stock, $ .01 par value; authorized 50,000,000 authorized shares; issued
      11,872,331 shares
            
            
            118,723
            
            
            
            118,723Additional
      paid-in capital
            
            
            52,076,465
            
            
            
            52,037,207Accumulated
      deficit
            
            
            (39,183,643
            )
            
            
            (39,943,243
            )Accumulated
      other comprehensive loss
            
            
            (264,000
            )
            
            
            -Total
      shareholders’ equity
            
            
            12,747,545
            
            
            
            12,212,687Total
      Liabilities and Shareholders’ Equity
            
            $
            15,578,477
            
            
            $
            15,341,568




SEE
ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


3




CLEARFIELD,
INC.


CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS


UNAUDITED


Three
      Months Ended
            
            
            Nine
      Months EndedJune
      30,
            
            
            June
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Revenues
            
            $
            6,165,379
            
            
            $
            4,907,046
            
            
            $
            16,305,312
            
            
            $
            13,307,611Cost
      of sales
            
            
            4,057,560
            
            
            
            3,456,901
            
            
            
            10,982,458
            
            
            
            9,502,128Gross
      profit
            
            
            2,107,819
            
            
            
            1,450,145
            
            
            
            5,322,854
            
            
            
            3,805,483Operating
      expensesSelling,
      general and administrative
            
            
            1,897,625
            
            
            
            1,977,583
            
            
            
            5,041,336
            
            
            
            4,861,733Goodwill
      impairment charge
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            852,000Gain
      on disposal of assets
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (727
            )1,897,625
            
            
            
            1,977,583
            
            
            
            5,041,336
            
            
            
            5,713,006Income
      (loss) from operations
            
            
            210,194
            
            
            
            (527,438
            )
            
            
            281,518
            
            
            
            (1,907,523
            )Interest
      income
            
            
            49,920
            
            
            
            86,588
            
            
            
            217,011
            
            
            
            250,550Interest
      expense
            
            
            (2,530
            )
            
            
            (3,718
            )
            
            
            (8,502
            )
            
            
            (4,306
            )Other
      income (loss)
            
            
            13,681
            
            
            
            (30,754
            )
            
            
            43,082
            
            
            
            (30,565
            )61,071
            
            
            
            52,116
            
            
            
            251,591
            
            
            
            215,679Income
      (loss) before income taxes
            
            
            271,265
            
            
            
            (475,322
            )
            
            
            533,109
            
            
            
            (1,691,844
            )Income
      tax expense (benefit)
            
            
            22,371
            
            
            
            24,370
            
            
            
            70,948
            
            
            
            (256,373
            )Net
      income (loss) from continuing operations
            
            
            248,894
            
            
            
            (499,692
            )
            
            
            462,161
            
            
            
            (1,435,471
            )Net
      income (loss) from discontinued operations
            
            
            -
            
            
            
            (1,066,437
            )
            
            
            342,390
            
            
            
            (1,850,016
            )Net
      gain on disposal of assets of discontinued operations
            
            
            -
            
            
            
            156,190
            
            
            
            (44,951
            )
            
            
            240,689Total
      income (loss) from discontinued operations
            
            
            -
            
            
            
            (910,247
            )
            
            
            297,439
            
            
            
            (1,609,327
            )Net
      income (loss)
            
            $
            248,894
            
            
            $
            (1,409,939
            )
            
            $
            759,600
            
            
            $
            (3,044,798
            )Net
      income (loss) per share:Continuing
      operations
            
            $
            0.02
            
            
            $
            (0.04
            )
            
            $
            0.04
            
            
            $
            (0.12
            )Discontinued
      operations
            
            $
            0.00
            
            
            $
            (0.08
            )
            
            $
            0.03
            
            
            $
            (0.14
            )Basic
      and diluted
            
            $
            0.02
            
            
            $
            (0.12
            )
            
            $
            0.07
            
            
            $
            (0.26
            )Weighted
      average shares outstanding:Basic
      and diluted
            
            
            11,872,331
            
            
            
            11,872,331
            
            
            
            11,872,331
            
            
            
            11,872,331






SEE
ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS





4




CLEARFIELD,
INC.


CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
EQUITY


UNAUDITED


Nine
Months Ended June 30, 2008


Common
      stock
            
            
            Additional
              paid-in
            
            
            Accumulated
      other comprehensive
            
            
            Accumulated
            
            
            Total
      shareholders’Shares
            
            
            Amount
            
            
            Capital
            
            
            loss
            
            
            deficit
            
            
            equityBalance
      at September 30, 2007
            
            
            11,872,331
            
            
            
            118,723
            
            
            
            52,037,207
            
            
            
            -
            
            
            
            (39,943,243
            )
            
            
            12,212,687Stock
      based compensation expense
            
            
            -
            
            
            
            -
            
            
            
            11,814
            
            
            
            -
            
            
            
            -
            
            
            
            11,814Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            395,368
            
            
            
            395,368Balance
      at December 31, 2007
            
            
            11,872,331
            
            
            
            118,723
            
            
            
            52,049,021
            
            
            
            -
            
            
            
            (39,547,875
            )
            
            
            12,619,869Stock
      based compensation expense
            
            
            -
            
            
            
            -
            
            
            
            13,721
            
            
            
            -
            
            
            
            -
            
            
            
            13,721Unrealized
      loss on available for sale securities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (164,000
            )
            
            
            -
            
            
            
            (164,000
            )Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            115,338
            
            
            
            115,338Comprehensive
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (48,662
            )Balance
      at March 31, 2008
            
            
            11,872,331
            
            
            
            118,723
            
            
            
            52,062,742
            
            
            
            (164,000
            )
            
            
            (39,432,537
            )
            
            
            12,584,928Stock
      based compensation expense
            
            
            -
            
            
            
            -
            
            
            
            13,723
            
            
            
            -
            
            
            
            -
            
            
            
            13,723Unrealized
      loss on available for sale securities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (100,000
            )
            
            
            -
            
            
            
            (100,000
            )Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            248,894
            
            
            
            248,894Comprehensive
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            148,894Balance
      at June 30, 2008
            
            
            11,872,331
            
            
            $
            118,723
            
            
            $
            52,076,465
            
            
            
            (264,000
            )
            
            $
            (39,183,643
            )
            
            $
            12,747,545






SEE
ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS






5





CLEARFIELD,
INC.


CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS


UNAUDITED


Nine
      Months Ended June 30,2008
            
            
            2007Cash
      flow from operating activitiesNet
      income (loss)
            
            $
            759,600
            
            
            $
            (3,044,798
            )Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
            
            
            393,140
            
            
            
            478,206Deferred
      taxes
            
            
            66,847
            
            
            
            (259,473
            )Gain
      on disposal of assets
            
            
            55,251
            
            
            
            78,935Stock
      based compensation
            
            
            39,258
            
            
            
            29,018Goodwill
      impairment charge
            
            
            -
            
            
            
            852,000Severance
      accrual
            
            
            -
            
            
            
            397,481Lease
      termination accrual
            
            
            (362,028
            )
            
            
            496,153Changes
      in operating assets and liabilities:Accounts
      receivable, net
            
            
            12,499
            
            
            
            151,502Inventories
            
            
            (146,226
            )
            
            
            194,352Prepaid
      expenses and other
            
            
            (72,659
            )
            
            
            35,051Accounts
      payable and accrued expenses
            
            
            118,631
            
            
            
            63,521Net
      cash provided by (used in) operating activities
            
            
            864,313
            
            
            
            (528,052
            )Cash
      flow from investing activitiesPurchases
      of property and equipment
            
            
            (1,829,353
            )
            
            
            (434,061
            )Proceeds
      from sale of assets
            
            
            1,451,624
            
            
            
            615,381Purchase
      of available for sale securities
            
            
            (3,675,000
            )
            
            
            (8,425,000
            )Sale
      of available for sale securities
            
            
            3,200,000
            
            
            
            8,575,000Net
      cash provided by (used in) investing activities
            
            
            (852,729
            )
            
            
            331,320Cash
      flow from financing activitiesRepayment
      of long-term debt
            
            
            (53,484
            )
            
            
            (19,486
            )Withdrawal
      of bond reserve funds, net
            
            
            -
            
            
            
            40,836Net
      cash provided by (used in) financing activities
            
            
            (53,484
            )
            
            
            21,350Foreign
      currency translation
            
            
            -
            
            
            
            30,153Decrease
      in cash and cash equivalents
            
            
            (41,900
            )
            
            
            (145,229
            )Cash
      and cash equivalents at beginning of period
            
            
            3,304,645
            
            
            
            1,754,335Cash
      and cash equivalents at end of period
            
            $
            3,262,745
            
            
            $
            1,609,106Supplemental
      cash flow information:Cash
      paid during the period for:Interest
            
            $
            8,502
            
            
            $
            45,142Income
      taxes
            
            
            4,101
            
            
            
            3,100








SEE
ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS






6





NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS




Note
1.  Basis of Presentation




The
accompanying unaudited consolidated condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC) for interim financial statements and with the instructions of
Regulation S-K as they apply to smaller reporting companies. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles in the United States of America for complete
financial statements. For further information, refer to the financial statements
and footnotes thereto included in the Company’s transition report on Form 10-KSB
for the period ended September 30, 2007.




In the
opinion of management, all estimates and adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Certain reclassifications of previously reported amounts have been
made to conform that presentation to the current period
presentation.




In the
Transition Report for the period ended September 30, 2007, the Company restated
its previously issued consolidated financial statements as of and for the years
ending March 31, 2007 and 2006. These restatements resulted in a change in the
classification of investments in auction rate securities, previously classified
as cash and cash equivalents, to available for sale securities for each of the
periods presented in the accompanying consolidated balance sheet and statements
of cash flows. The Statement of Cash Flows for the nine months ended June 30,
2008 reflects our investments in conformity with the appropriate classifications
as available for sale securities.




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.  Actual results could differ from the estimates used by
management.





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. 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 (Loss) Per Share




Basic and
diluted income (loss) per common share is computed by dividing net income (loss)
by the weighted-average number of common shares outstanding during each period.
Diluted income (loss) per share is computed by dividing net income (loss) by the
weighted-average number of common shares and common equivalent shares
outstanding during each period.





Common
stock options and warrants to purchase 416,900 and 578,490shares of common stock with
a weighted average exercise price of $1.39 and $2.51 were outstanding at June
30, 2008 and 2007, respectively, but were excluded from calculating diluted net
loss per share because they were antidilutive.







Note
3.  Discontinued Operations




The
Optronics business segment (GaN products) continued to experience lower than
expected demand for its products and services during the year ended March 31,
2007 and continued to record operating losses. This caused management to
critically evaluate the long term viability of the business and after careful
deliberation elected to cease operations and discontinue the business. As a
result of the discontinuation of GaN products and the logistics and time
constraints for APACN’s fiber patch cords, India was no longer a viable sourcing
option and actions were taken to control ongoing costs and recover the
investment in the Company’s Indian subsidiary. In addition, the Company elected
to close its Blaine, Minnesota facility because it was primarily dedicated to
the Optronics segment.





7





Blaine
      Facility





On October
30, 2007 the Company purchased its previous corporate headquarters 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 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 $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 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 upcoming three year period.





Prior
      Year





Discontinued
operations for the nine month period ended June 30, 2008 consisted of income of
approximately $297,000.  For the comparable nine month period ended
June 30, 2007 the Company incurred losses in the operations and asset disposals
of APA India and APA Optics for a total of approximately
$1,609,000.







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 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 being paid his salary as of the date of termination of employment
($190,000 per year) for 24 months after the date of termination of his
employment, payable quarterly.  As a result, the Company has recorded
a severance charge in the statement of operations during the transition period
ended September 30, 2007, the short term portion of the liability is included in
accrued compensation and the long term portion of the liability is included in
other long term liabilities. This severance provision applies notwithstanding
the absence of a "change of control”.






Note  5.
Marketable Securities and Long-Term Investments







Our long
term investment portfolio consists of $3.3 million of Auction Rate Securities
(ARS), with contractual maturities between 22 and 35 years. The ARS held by us
are primarily backed by student loans, are over-collateralized, and are insured
by and guaranteed by the United States Federal Department of Education. In
addition, all ARS held by us are rated by the major independent rating agencies
as either AAA or Aaa. Most of these auction rate securities were scheduled to
reset every 7 to 28 days through a Dutch Auction process. The auctions have
historically provided a liquid market for these securities as investors could
readily sell their investments at auction. As of February 28, 2008, ARS have
experienced failed auctions, due to sell orders exceeding buy orders. These
failures are not believed to be a credit issue, but rather caused by a lack of
liquidity due to pressure in other segments of the securities markets. Under the
contractual terms, the issuer is typically obligated to pay penalty interest
rates should an auction fail. The funds associated with failed auctions are not
expected to be accessible until one of the following occurs: a successful
auction occurs, the issuer redeems the issue, a buyer is found outside of the
auction process or the underlying securities have matured. We determined that no
other-than-temporary impairment losses existed as of June 30, 2008. However, if
the issuer of the ARS is unable to successfully close future auctions or does
not redeem the ARS, or the United States government fails to support its
guaranty of the obligations, we may be required to adjust the carrying value of
the ARS and record other-than-temporary impairment charges in future periods,
which could materially affect our results of operations and financial
condition.




At June
30, 2008 there was insufficient observable ARS market information available to
determine fair value of our investments. Therefore, we estimated fair value by
using a discounted cash flow model with factors including tax status, credit
quality, duration, levels of federal guarantees and likelihood of
redemption.  Based on this analysis we recorded an unrealized loss of
$100,000 during the three months ended June 30, 2008 related to our ARS
investments and have classified the investments as long-term on our balance
sheet as of June 30, 2008.  There was no tax impact due to our net
operating loss position.  We believe this unrealized loss primarily
attributable to the limited liquidity of these investments, and it is our intent
to hold these investments long enough to avoid realizing any significant
loss.  Nonetheless, if uncertainties in the credit and capital market
continue, if these markets further deteriorate, or if we no longer have the
ability to hold these investments, we may be required to recognize
other-than-temporary impairment charges.






8




Note
6.  Warrants and Stock Based Compensation




Commencing
April 1, 2006, the Company adopted Statement of Financial Accounting Standard
No. 123R, “Share-Based Payment” (“SFAS 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, 2008 the Company granted 20,000 stock options
to non-employee directors with a six year term and an exercise price of
$0.96.  The fair value of the options granted was $.54 per
share.




The
Company recorded $13,723 and $9,544 of related compensation expense for the
three month periods ended June 30, 2008 and 2007, respectively.  The
Company recorded $39,258 and $29,018 of related compensation expense for the
nine month period ended June 30, 2008 and 2007, 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,
2008, $109,469 of total unrecognized compensation expense related to non-vested
awards is expected to be recognized over a weighted average period of
approximately 3.67 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, 2008
            
            
            September
      30, 2007Raw
      materials
            
            $
            1,562,531
            
            
            $
            1,422,374Work-in-progress
            
            
            24,794
            
            
            
            50,468Finished
      goods
            
            
            154,183
            
            
            
            122,440$
            1,741,508
            
            
            $
            1,595,282






Note
8.  Major Customer Concentration




Two
customers comprised approximately 22% of total sales for the nine months ended
June 30, 2008 and these same two customers comprised 18% of accounts receivable.
Two customers comprised 23% of total sales for nine months ended June 30, 2007
and two customers accounted for 22% of accounts receivable, of which one was
part of the 23% of total sales.







Note
9.  Accounting Pronouncements






New
Accounting Pronouncements






In May 2008, the 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 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 adoption of FASB 162 is not expected
to have a material impact on the Company's financial position.






9




On
February 15, 2007, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities — Including an Amendment of FASB No. 115. This
standard permits an entity to choose to measure many financial instruments and
certain other items at fair value. The fair value option established by SFAS
No. 159 permits all entities to choose to measure eligible items at fair
value at specified election dates. SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007. The Company is currently
evaluating the impact this pronouncement will have on its consolidated financial
position or results of operations.





In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS
No. 157 defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurement but does not require
any new fair value measurements. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and
interim periods within those fiscal years. However on February 12, 2008, the
FASB issued proposed FSP FAS 157-2 which delayed the effective date of SFAS 157
for all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). This FSP partially defers the effective date of SFAS
157 to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years for items within the scope of this FSP.  We
will adopt SFAS 157, except as it applies to those nonfinancial assets and
nonfinancial liabilities as noted in proposed FSP FAS 157-2, on October 1, 2008
and are evaluating the impact this pronouncement will have on our consolidated
financial position or results of operations, especially as it relates to our
auction rate securities.





On
December 4, 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations.
SFAS  No. 141R will significantly change the accounting for business
combinations. Under SFAS 141R, an acquiring entity will be required to recognize
all the assets acquired and liabilities assumed in a transaction at the
acquisition-date fair value with limited exceptions. SFAS No. 141R will change
the accounting treatment for certain specific items. SFAS No. 141R also includes
a substantial number of new disclosure requirements. SFAS No. 141R applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. Earlier adoption is prohibited. This statement will only have
an impact if we execute applicable transactions after the effective
date.





On
December 4, 2007, the FASB issued FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements – An Amendment of ARB No. 51. Statement
160 establishes new accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No.
160 also includes expanded disclosure requirements regarding the interests of
the parent and its noncontrolling interest. SFAS No. 160 is effective for fiscal
years, and interim periods with those fiscal years, beginning on or after
December 15, 2008. Earlier adoption is prohibited. This statement will only have
an impact if we execute applicable transactions after the effective
date.
















Note
10.  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 secured by pledges of stock
and Dr. Jain’s payments under his separation agreement, as well as by a
guarantee from Dr. Jain.






10





ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION




Statements
in this Report about future sales prospects and other matters to occur in the
future are forward looking statements and are subject to uncertainties due to
many factors, many of which are beyond our control. These factors include, but
are not limited to, the continued development of our products, acceptance of
those products by potential customers, our ability to sell such products at a
profitable price, and our ability to fund our operations. For further discussion
regarding these factors, see “Factors That May Influence Future
Results.”




OVERVIEW




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,
the operations of the Company consist solely of the operations of
APACN.




The
Company focuses on highly configurable products for telecommunications
customers, primarily related to cabling 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 the Company has expanded its
product offerings and broadened its customer base. We continue to see positive
trends in the markets we serve and believe our solid reputation of quality
service and competitive and innovative product line which will permit us achieve
our growth plans.




Management
periodically conducts a critical review of its business
operations.  During the review of the Optronics business segment it
became clear that the scale of the business was not capable of generating a
positive income or cash flow. Therefore, management took the necessary steps to
eliminate any further losses and recommended to the Board of Directors (“BOD”)
to discontinue operations during the three months ended June 30, 2007. The BOD
accepted the recommendations and the Company moved forward to recognize the
costs of closing the Optronics business and the related costs of closing the
Blaine facility.




As a result the discontinuation of GaN
products and due to the logistics and time constraints for fiber patch cords,
the Board of Directors determined that India was no longer a viable sourcing
option and actions were taken to control ongoing costs and recover the
investment in the Company’s India subsidiary. 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.




Dr. Anil K. Jain resigned as Chief
Executive Officer (principal executive officer), Chief Financial Officer
(principal financial officer), and Chairman of the Board of Directors of the
Company effective June 28, 2007. His resignation triggered an agreement that
requires payment of his then current salary ($190,000 per year) for 24 months
after the date of termination of his employment. As a result, the Company has
recorded a severance charge of $397,481 in the statement of operations during
the transition period ended September 30, 2007. The balance of this liability as
of June 30, 2008 is $198,818, is all recorded as short-term and included in
accrued compensation.







11




RESULTS OF
OPERATIONS




THREE
MONTHS ENDED JUNE 30, 2008 VS. THREE MONTHS ENDED JUNE 30, 2007




REVENUE




The
Company had revenues of $6,165,000 for the three months ended June 30, 2008
compared to revenues of $4,907,000 for the comparable period in 2007, an
increase of 26% or $1,258,000. This increase is the result of growth of existing
customer sales. Key
to the continuing positive results is strong acceptance of the Company’s
Fieldsmart product line within broadband service providers deploying Fiber To
The Home (FTTH) networks.




GROSS
PROFIT AND COST OF SALES




Gross
profit increased $658,000, or 45%, to $2,108,000 compared to $1,450,000 for the
same quarter in 2007.  Gross profit as a percent of revenue was 34% in
the current quarter as compared to 30% in the same quarter of
2007.  The increase in margin percentage reflects on the results of
ongoing programs to reduce the cost of products through a combination of product
re-design, process improvement, global sourcing of components, and outside
manufacturing.




The
Company anticipates gross margins and cost of sales for the upcoming quarter
comparable to the three months ended June 30, 2008.




SELLING,
GENERAL, AND ADMINISTRATIVE




Consolidated
selling, general, and administrative (S, G & A) expenses during the three
months ended June 30, 2008 were $1,898,000 or 31% of sales compared to
$1,978,000 or 40% of sales in the same quarter of 2007, a decrease of 4% or
$80,000. This change is the result of changes in staffing, sales commissions and
bonuses.




INCOME
(LOSS) FROM OPERATIONS




The
Company recorded income of $210,000, for the period ended June 30, 2008 compared
to a loss of $527,000 for the comparable quarter for 2007.  The
increase in income is attributable to increased sales, improved gross margins,
and the elimination of unprofitable operations.




OTHER
INCOME AND EXPENSE




Other
income and expense during the three months ended June 30, 2008 were $61,000
compared to $52,000 for the comparable period in 2007. The major component of
income is interest earned on excess cash and long term investments which
decreased by $37,000.The Company leased its Aberdeen building adding income of
approximately $13,000 during the three months ended June 30, 2008. The Company
also wrote down the cash surrender value of a life insurance policy to its
redemption value incurring expense of $30,000 during the three months ended June
30, 2007.




NET
INCOME (LOSS) FROM CONTINUING OPERATIONS




The net
income from continuing operations for the quarter ended June 30, 2008 was
$249,000 or $0.02 per basic and diluted share compared to a loss of $500,000, or
$0.04 per basic and diluted share, in the comparable period in
2007.




INCOME
(LOSS) FROM DISCONTINUED OPERATIONS




There was
no income from discontinued operations for the three months ended June 30, 2008.
In the comparable period for 2007, $910,000 of loses were recorded all related
to the Optronics business of which $156,000 was related to gain on the disposal
of assets.







12




NET
INCOME (LOSS)




The net
income for the quarter ended June 30, 2008 was $249,000 or $0.02 per basic and
diluted share compared to a loss of $1,410,000, or $0.12 per basic and diluted
share, in the comparable period in 2007.









NINE
MONTHS ENDED JUNE 30, 2008 VS. NINE MONTHS ENDED JUNE 30, 2007




REVENUE




The
Company had consolidated revenues of $16,305,000 for the nine months ended June
30, 2008 compared to revenues of $13,308,000 for the comparable nine month
period ended June 30 2007, an increase of 23% or $2,997,000. This increase is
the result of growth of existing customer sales and products.




GROSS
PROFIT AND COST OF SALES




Gross
profit increased $1,518,000, or 40%, to $5,323,000 compared to $3,805,000 for
the comparable period ended June 30, 2007.  Gross profit as a percent
of revenue was 33% in the current quarter as compared to 29% in the same
comparable period of 2007.  The increase in margin percentage reflects
on the results of ongoing programs to reduce the cost of products through a
combination of product re-design, new product introduction at higher margins,
process improvement, global sourcing of components and outside
manufacturing.




SELLING,
GENERAL, AND ADMINISTRATIVE




Consolidated
S, G, & A expenses during the nine months ended June 30, 2008 were
$5,041,000 31% of net sales, compared to $4,862,000, 37% of net sales, for the
same nine months ended June 30, 2007, an increase of approximately $180,000 or
4%.




GOODWILL




For the
nine month period ended June 30, 2008 the Company did not incur any charges to
Goodwill. In the comparable period for 2007 the Company completed its annual
assessment of Goodwill and Other Intangible Assets. As result of the assessment
the Company recognized a non-cash, pre-tax impairment charge of $852,000
($519,717 after tax).  The Company will conduct a similar assessment
in the fourth quarter ended September 30, 2008.




INCOME
(LOSS) FROM OPERATIONS




The
Company recorded income of $282,000, for the period ended June 30, 2008 compared
to a loss of $1,908,000 for the comparable period for 2007.  This is
an increase in income from operations of $2,189,000. The increase in income is
attributable to increased sales, improved gross margins, and the elimination of
unprofitable operations. Adjusting for the goodwill impairment charge, the loss
for 2007 would have been approximately $1,055,000.




OTHER
INCOME AND EXPENSE




Other
income increased $36,000 earning $252,000 for the nine months ended June 30,
2008 compared to $216,000 for the comparable period in 2007. The major component
of income is interest earned on excess cash and long term investments which was
$217,000 for 2008 compared to $251,000 for the same period in 2007. This decline
in interest income is attributable to a decline in interest rates. The balance
of the increase is from rent received from leasing our Aberdeen, South Dakota
facility of approximately $43,000. In June 2007 the Company also wrote down the
cash surrender value of a life insurance policy to its redemption value
incurring expense of $30,000.




NET
INCOME (LOSS) FROM CONTINUING OPERATIONS




The net
income from continuing operations for the nine months ended June 30, 2008 was
$462,000 or $0.04 per basic and diluted share compared to a loss of $1,435,000,
or $0.12 per basic and diluted share, in the comparable period in
2007.







13




INCOME
(LOSS) FROM DISCONTINUED OPERATIONS




Income
from discontinued operations for the nine months ended June 30, 2008 was
$297,000 this was composed of a net loss of $56,000 on the purchase and sale of
the Blaine building and the elimination of future lease obligations for the
building of approximately $353,000. In the comparable period for 2007, The
Company recorded a loss of $1,609,000, all related to the Optronics business of
which $240,000 was related to gain on the disposal of assets.




NET
INCOME (LOSS)




The net
income for the nine months ended June 30, 2008 was $760,000 or $0.06 per basic
and diluted share compared to a loss of $3,045,000, or $0.26 per basic and
diluted share, in the comparable period in 2007.




LIQUIDITY AND CAPITAL
RESOURCES




The
Company’s cash and cash equivalents were $3,263,000 at June 30, 2008, compared
to $3,305,000 at September 30, 2007. The reasons for the decrease are described
below under the captions “Operating Activities”, “Investing Activities” and
“Financing Activities”.




We believe
we have sufficient funds for operations for at least the next twelve
months.




Operating
Activities




Net cash provided by operating
activities from operations for the nine month period ended June 30, 2008 was
$864,000. This cash inflow was attributable primarily to income of $760,000,
depreciation of $393,000 and an increase of accounts payable $119,000 and offset
by increase in inventories of $146,000. In addition the purchase and subsequent
sale of the Blaine building resulted in a reversal of the remaining lease
termination accrual of $362,000




Net cash consumed by operating
activities from operations for the nine month period ended June 30, 2007 was
$528,000. This cash outflow was attributable primarily to a loss of $3,045,000,
increase in deferred taxes of $260,000. This was offset by depreciation of
$478,000, a reduction in inventories of $194,000 and accounts receivable of
$152,000. In addition, the accrual of severance for Anil Jain of $397,000 and
the accrual for the lease termination associated with the Blaine Facility of
$496,000 along with the Goodwill impairment charge of $852,000 also offset the
cash outflow.




Investing
Activities




We invest 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 nine month period ended June
30, 2008 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
$1,829,000 of which $1,500,000 was to purchase the Blaine building and the
balance $329,000 was used to purchase capital equipment, enterprise resource
planning software and implementation services. We received cash of approximately
$1,450,000 as the proceeds on the subsequent sale of the Blaine
building.




In the nine months ended June 30, 2007
we utilized cash to purchase $8,425,000 of securities and received $8,575,000 on
the sale of like securities as part of our excess cash investment program. In
addition we purchased equipment of $434,000 and sold equipment for
$615,000.




Financing
Activities




Net cash
used in financing activities, consisting of long term debt payment for the nine
months ended June 30, 2008 totaled $53,000. For the nine month period ended June
30, 2007 long term debt payment was $19,000 in addition we received a net of
$41,000 from an escrow account these funds were applied to interest expense
associated with the overall reduction of debt for the Aberdeen building during
the nine month.






14





FACTORS THAT MAY INFLUENCE
FUTURE RESULTS




The
statements contained in this Report on Form 10-QSB that are not purely
historical are “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934, including, without
limitation, statements regarding the Company’s expectations, hopes, beliefs,
anticipations, commitments, intentions and strategies regarding the future.
Forward-looking statements include, but are not limited to, statements contained
in Management's Discussion or Plan of Operation. Actual results could differ
from those projected in any forward-looking statements for the reasons, among
others, detailed below. We believe that many of the risks detailed here are part
of doing business in the industry in which we compete and will likely be present
in all periods reported. The fact that certain risks are characteristic to the
industry does not lessen the significance of the risk. The forward-looking
statements are made as of the date of this Report as Form 10-QSB 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. Readers of this Report and prospective investors should also review
the Risk Factors set forth in our Report on Form 10-KSB for the transition
period ended September 30, 2007. The following updates our Risk
Factors:




Marketable Securities and
Long-Term Investments




Due
to lack of liquidity, we may not be able to liquidate our auction rate
securities (ARS) when needed or may not realize the full value of these
investments.





Our long
term investment portfolio consists of $3.3 million of Auction Rate Securities
(ARS), with contractual maturities between 22 and 35 years. The ARS held by us
are primarily backed by student loans and are over-collateralized, and are
insured by and guaranteed by the United States Federal Department of Education.
In addition, all ARS held by us are rated by the major independent rating
agencies as either AAA or Aaa. Most of these auction rate securities were
scheduled to reset every 7 to 28 days through a Dutch Auction process. The
auctions have historically provided a liquid market for these securities as
investors could readily sell their investments at auction. As of February 28,
2008, ARS have experienced failed auctions, due to sell orders exceeding buy
orders. These failures are not believed to be a credit issue, but rather caused
by a lack of liquidity due to pressure in other segments of the securities
markets. Under the contractual terms, the issuer is typically obligated to pay
penalty interest rates should an auction fail. The funds associated with failed
auctions, are not expected to be accessible until one of the following occurs: a
successful auction occurs, the issuer redeems the issue, a buyer is found
outside of the auction process or the underlying securities have matured. We
determined that no other-than-temporary impairment losses existed as of June 30,
2008. However, if the issuer of the ARS is unable to successfully close future
auctions or does not redeem the ARS, or the United States government fails to
support its guaranty of the obligations, we may be required to adjust the
carrying value of the ARS and record other-than-temporary impairment charges in
future periods, which could materially affect our results of operations and
financial condition.









APPLICATION OF CRITICAL
ACCOUNTING POLICIES




Our
significant accounting policies are described in Note A to the Consolidated
Financial Statements in our Transition Report for the transition period ended
September 30, 2007.  The accounting policies used in preparing our
interim 2008 Consolidated Financial Statements are the same as those described
in our Annual Report except for the following policy which has been
added.







The
Company accounts for marketable securities in accordance with SFAS No. 115,
Accounting for Certain
Investments in Debt and Equity Securities.  The Company
determines the appropriate classification of all marketable securities as
held-to-maturity, available-for-sale or trading at the time of purchase, and
re-evaluates such classifications as of each balance sheet date.  At
June 30, 2008 the Company’s investments in auction rate securities (ARS) were
classified as available-for-sale securities. ARS investments are adjusted to an
estimate of fair value.   In the absence of an active market for
its ARS the Company has utilized a financial model to arrive at a representative
valuation. The model takes into consideration, the securities underlying rating,
including that the underlying assets are reinsured by the Department of
Education in accordance with FFELP, term of the investment and interest rates.
These values were adjusted in the model to reflect liquidity and returns from
comparable investment choices that are in an active and liquid market. We make
an assessment regarding balance sheet classification and whether declines in
market value are other-than-temporary based on the credit standing of the issuer
and our intent and ability to hold the securities. The market for ARS is rapidly
changing and the Company continues to monitor the financial markets to ensure
the assets are properly valued.







15




ITEM 3 A (T).  CONTROLS AND PROCEDURES




(a)
            Evaluation of disclosure
      controls and procedures.  The Company’s chief executive
      officer and chief financial officer have evaluated the Company’s
      disclosure controls and procedures (as defined in Exchange Act Rule
      13a-14(e)) as of the end of the period covered by this report and
      determined the controls and procedures were ineffective. We have
      identified certain material weaknesses related to the Company and
      addressed them as follows:




·
            The
      Company did not maintain effective controls over the accounting for
      certain auction rate securities. This oversight was discovered in the
      transition period ended September 30, 2007 and the financial statements
      were restated accordingly.




·
            The
      Company did not maintain effective controls to ensure that it is regularly
      checking for appropriate compliance on all GAAP and SEC reporting matters
      as they change or become updated.







(b)
            Changes in internal
      controls over
      financial reporting  There were no changes in the
      Company’s internal controls over financial reporting that occurred during
      the Company’s last fiscal quarter that materially affected, or are
      reasonably likely to materially affect, the Company’s control over
      financial reporting.





Remediation
Efforts Related to Material Weaknesses





The Company’s Board of Directors (BOD),
in the first quarter of the fiscal year, appointed an Investment Committee,
composed of BOD members, to provide oversight on matters of banking
relationships and investing of cash. In addition the Company has approved a
formal investment policy. Company management is utilizing the expertise of its
professional investment advisor to provide insight into an appropriate
policy.





Management recognizes it cannot be
expert in all of the complex matters of financial reporting as it is a
constantly changing and technical environment. During the third quarter of the
fiscal year we procured subscriptions to publications and services that provide
regular updates regarding SEC and GAAP reporting. These services include
checklists to ensure the internal accounting staff has the necessary tools and
resources to comply with both SEC and GAAP regulations. This service offers
continuing education for the Company’s professional accounting
staff.







16








PART II. OTHER INFORMATION





ITEM
1.  LEGAL PROCEEDINGS






None.




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 Section 302 of the
Sarbanes-Oxley Act of 2002




Exhibit
31.2 – Certification required of Chief Financial Officer by Section 302 of the
Sarbanes Oxley Act of 2002





Exhibit
32.1 – Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002




Exhibit
32.2 – Certification required of Chief Financial Officer by Section 906 of the
Sarbanes Oxley Act of 2002







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
11, 2008











Signature:
/s/ Cheryl Beranek
Podzimek


Print
Name: Cheryl Beranek
Podzimek


Print
Title: Chief Executive
Officer (Principal Executive Officer)








17