Clearfield, Inc., (the “Company”) is a manufacturer of a broad range of standard and custom passive connectivity products to customers throughout the United States and internationally. These products include fiber distribution systems, optical components, Outside Plant (“OSP”) cabinets, and fiber and copper cable assemblies that serve the communication service provider, including Fiber-to-the-Premises (“FTTP”), large enterprise, and original equipment manufacturer (“OEM”) markets.

 

Effective we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) - , and all related amendments. ASU - supersedes the revenue recognition requirements in ASC and is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue, cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The adoption of ASU - using the modified retrospective approach, had material impact on our results of operations, cash flows, or financial position. Revenue continues to be recognized at a point in time for our product sales when products are delivered to or picked up by the customer and revenue for shipping and handling charges continues to be recognized when products are delivered to or picked up by the customer. Additional information and disclosures required by this new standard are contained in Note E, “Concentrations.”

 

Our revenue is comprised of the sale of our products to customers and is recognized when the Company satisfies its performance obligations under the contract. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. The majority of our contracts have a single performance obligation and are short term in nature. We recognize revenue by transferring the promised products to the customer, with substantially all revenue recognized at the point in time when the customer obtains control of the products. Shipping and handling costs charged to our customers are included in net sales, while the corresponding shipping expenses are included in cost of goods sold. Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenue) basis.

The Company considers all highly liquid investments with original maturities of months or less to be cash equivalents. Cash equivalents as of and consist entirely of short-term money market accounts.

 

The Company maintains cash balances at several financial institutions, and at times, such balances exceed insured limits. The Company has experienced any losses in such accounts and believes it is exposed to any significant credit risk on cash and cash equivalents.

The Company currently invests its excess cash in bank certificates of deposit (“CDs”) that are fully insured by the Federal Deposit Insurance Corporation (“FDIC”) and Unites States Treasury securities with terms of more than years, as well as money market accounts. CDs and Treasuries with original maturities of more than months are reported as held-to-maturity investments and are recorded at amortized cost, which approximates fair value due to the negligible risk of changes in value due to interest rates. The maturity dates of the Company’s investments are as follows:

 

		September 30, 2019				September 30, 2018
Less than one year		$	13,524,270			$	8,930,225
1-5 years			23,902,000				17,974,000
Total		$	37,426,270			$	26,904,225

The financial statements include the following financial instruments: cash and cash equivalents, short-term investments, long-term investments, accounts receivable, accounts payable and accrued expenses. Other than long-term investments, all financial instruments’ carrying values approximate fair values because of the short-term nature of the instruments. Long-term investments’ carrying value approximates fair value due to the negligible risk of changes in value due to interest rates.

Credit is extended based on the evaluation of a customer’s financial condition and collateral is generally required. Accounts that are outstanding longer than the contractual payment terms are considered past due. The Company does charge interest on past due receivables. The Company determines its allowance by considering a number of factors, including the length of time trade receivables are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as whole. The Company writes off accounts receivable when they become uncollectible; payments subsequently received on such receivables are credited to the allowance for doubtful accounts.

 

The allowance for doubtful accounts activity for the years ended and is as follows:

 

Year Ended		Balance at Beginning of Year				Additions Charged to Costs and Expenses				Less Write-offs				Balance at End of Year
September 30, 2019		$	79,085			$	210,000			$	-			$	289,085
September 30, 2018			79,085				-				-				79,085
September 30, 2017			93,473				-				(14,338	)			79,085

Property, plant and equipment are recorded at cost. Significant additions or improvements extending asset lives are capitalized, while repairs and maintenance are charged to expense when incurred. Depreciation is provided in amounts sufficient to relate the cost of assets to operations over their estimated useful lives. Leasehold improvements are amortized over the shorter of the remaining term of the lease or estimated life of the asset.

Estimated useful lives of the assets are as follows:

 

		Years
Equipment			3	–	7
Leasehold improvements			7	-	10 or life of lease
Vehicles				3

 

Property, plant and equipment consist of the following:

 

		September 30, 2019				September 30, 2018
Manufacturing equipment		$	7,106,041			$	5,202,532
Office equipment			3,996,251				3,809,614
Leasehold improvements			2,436,346				2,417,786
Vehicles			245,903				226,221
Construction in progress			8,921				-
Property, plant and equipment, gross			13,793,462				11,656,153
Less accumulated depreciation			8,380,221				6,911,569
Property, plant and equipment, net		$	5,413,241			$	4,744,584

Depreciation expense for the years ended and were and respectively.

The Company records income taxes in accordance with the liability method of accounting. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax law. The Company establishes a valuation allowance to reduce the deferred tax assets when it is more likely than that a deferred tax asset will be realizable. Changes in tax rates are reflected in the tax provision as they occur.

 

In accounting for uncertainty in income taxes, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than sustain the position following an audit. For tax positions meeting the more likely than threshold, the amount recognized in the financial statements is the largest benefit that has a greater than percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

 

: Research and development costs amounted to and for the years ended and respectively, and are charged to expense when incurred.

 

: Advertising costs amounted to and for the years ended and respectively, and are charged to expense when incurred.

Basic and diluted net income per share is computed by dividing net income by the weighted average number of common shares outstanding and the weighted average number of dilutive shares outstanding, respectively.

 

Weighted average common shares outstanding for the years ended and were as follows:

 

Year ended September 30,		2019				2018				2017
Net income		$	4,566,156			$	4,274,547			$	3,847,839
Weighted average common shares			13,442,871				13,429,232				13,532,375
Dilutive potential common shares			8,343				23,628				128,431
Weighted average dilutive common shares outstanding			13,451,214				13,452,860				13,660,806
Earnings per share:
Basic		$	0.34			$	0.32			$	0.28
Diluted		$	0.34			$	0.32			$	0.28

 

There were and shares for the years ended and respectively, that were excluded from the above calculation as they were considered antidilutive in nature. shares were considered antidilutive for the year ended