Note 9. Income Taxes

For the three and nine months ended December 31, 2020, June 30, 2021, the Company recorded income tax expense of $684,000$1,725,000 and $3,344,000, reflecting an effective tax rate of 17.8%.22.1% and 20.6%, respectively. The differences between the effective tax rate and the statutory tax rate for the three and nine months ended June 30, 2021 were primarily related to excess tax benefits from non-qualified stock options exercised during the quarter as well asperiod, research and development credits. credits, and foreign derived intangibles income deduction (FDII). For the three and nine months ended December 31, 2019, June 30, 2020, the Company recorded a provision for income taxestax expense of $123,000,$763,000 and $1,076,000 reflecting an effective tax rate of 19.7%.20.3% and 20.2%, respectively. The differences between the effective tax rate and the statutory tax rate were related to nondeductible meals and entertainment, nondeductible stock compensation, foreign derived intangibles income deduction (FDII)FDII, and research and development credits.

Deferred taxes recognize the impact of temporary differences between the amounts of the assets and liabilities recorded for financial statement purposes and these amounts measured in accordance with tax laws.  The Company’s realization of deferred tax temporary differences is contingent upon future taxable earnings.  The Company reviewed its deferred tax asset for expected utilization using a “more likely than not” criteria by assessing the available positive and negative factors surrounding its recoverability and determined that as of December 31, 2020 June 30, 2021 and September 30, 2020 a valuation allowance against ourthe deferred tax assets is not required. The Company will continue to assess the need for a valuation allowance based on changes in assumptions of estimated future income and other factors in future periods.

As of December 31, 2020, June 30, 2021, the Company does not have any unrecognized tax benefits. It is the Company’s practice to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not expect any material changes in its unrecognized tax positions over the next 12 months.

June 30, 2020, respectively.

ITEM 2. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are “forward-looking statements”“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’sCompany’s expected future business and financial performance. Words such as “plan, “plan,” “expect,“expect,” “aim,“aim,” “believe,“believe,” “project,“project,” “target,“target,” “anticipate,“anticipate,” “intend,“intend,” “estimate,“estimate,” “will,“will,” “should,“should,” “could”“could” and other words and terms of similar meaning, typically identify these forward-looking statements. Forward-looking statements are based on certain assumptions and expectations of future events and trends that are subject to risks and uncertainties. Actual results could differ from those projected in any forward-looking statements because of the factors identified in and incorporated by reference from PartI, Item 1A, “Risk“Risk Factors,” of our Annual Report on Form 10-K for the year ended September 30, 2020 and Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q, as well as in other filings we make with the Securities and Exchange Commission, which should be considered an integral part of PartI, Item 2, “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All forward-looking statements included herein are made as the date of this Quarterly Report on Form 10-Q and we assume no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

The following discussion and analysis of the Company’s financial condition and results of operations as of and for the three and nine months ended December 31,June 30, 2021 and 2020 and 2019 should be read in conjunction with the financial statements and related notes in Item 1 of this report and our Annual Report on Form 10-K for the year ended September 30, 2020.

OVERVIEW

General

Clearfield, Inc. (“Clearfield” or the “Company”) designs, manufactures, and distributes fiber optic management, protection and delivery products for communications networks. Our “fiber to the anywhere” platform serves the unique requirements of leading Broadband Service Providers in the United States (“U.S.”), which include Community Broadband, MSO’s, and National Carriers, and MSO’s, while also serving the broadband needs of the International markets, primarily countries in the Caribbean, Canada, and Central and South America. These customers are collectively included in Broadband Service Providers. The Company also provides contract manufacturing services for its Legacy customers which include original equipment manufacturers (OEM) requiring copper and fiber cable assemblies built to their specifications.  

The Company has historically focused on the unserved or underserved rural communities that receive voice, video and data services from independent telephone companies. By aligning its in-house engineering and technical knowledge alongside its customers, the Company has been able to develop, customize and enhance products from design through production. Final build and assembly of the Company’s products is completed at Clearfield’s manufacturing facilities in Brooklyn Park, Minnesota, and Tijuana, Mexico, with manufacturing support from a network of domestic and global manufacturing partners. Clearfield specializes in producing these products on both a quick-turn and scheduled delivery basis. The Company deploys a hybrid sales model with some sales made directly to customers, some made through two-tier distribution (channel) partners, sales agents and manufacturing representatives, and sales through original equipment suppliers who private label their products.

Under U.S. federal and state guidance in response to the COVID-19 pandemic, Clearfield’s operations are classified as part of the Cybersecurity and Infrastructure Security Agency (“CISA”) critical infrastructure sector and similar categorization in Minnesota. In March 2020, we transitioned our corporate employees at our Brooklyn Park headquarters to remote work arrangements and they currently continue remote work.primarily working remote. In accordance with the Centers for Disease Control and Prevention (“CDC”) and World Health Organization (“WHO”) guidelines, we implemented and have continued health and safety measures for the production staff that remain onsite at our Brooklyn Park facility. We have maintained our manufacturing capacity in Brooklyn Park with these personnel at near historic levels. Similarly, we have implemented the recommended health and safety measures for the production staff that remains onsite at our Tijuana, Mexico manufacturing facilities. Throughout the COVID-19 pandemic, the Company has closely monitored the operations and staffing levels at its Brooklyn Park facility and its two manufacturing facilities in Tijuana, Mexico.

Due to the risks to timely supply of materials to our facilities, we have taken multiple actions to ensure sufficient safety stock inventory levels at both our Minnesota and Mexico facilities. Additionally, we made the decision to maximize the availability of all product lines at all three of our plants by assuring that each location can manufacture across our broad product portfolio. These actions, combined with our historic practice of dual sourcing most of our components, has positioned us to meet our obligations to customers and to fulfill our order backlog going forward.backlog. However, in the event of serious border restrictions or border delays, continuing or worsening component material shortages, supply chain transportation delays, or other serious disruption in our supply chain, we may experience diminished or temporarily suspended operations, longer lead times than typical for product deliveries, or temporarily suspended product deliveries, which would result in delayed or reduced revenue from the affected orders in production and higher operating costs. In addition, due to the unprecedented lead-times and challenges in the global supply chain, we are working with our customers to place longer lead-time purchase orders to ensure availability of components and materials from our supply chain. Based on current supply chain dynamics, lead times have stretched to 8 to 10 weeks for certain product categories. Over calendar 2021, the Company expects to work to normalize lead times to more historic levels of 4 to 6 weeks from receipt of purchase order.

RESULTS OF OPERATIONS

Three months ended December 31,THREE MONTHS ENDED JUNE 30, 2021 VS. THREE MONTHS ENDED JUNE 30, 2020 vS. three months ended December 30, 2019

Net sales for the firstthird quarter of fiscal 2021 ended December 31, 2020June 30, 2021 were $27,092,000,$38,735,000, an increase of approximately 40%49% or $7,714,000,$12,765,000, from net sales of $19,378,000$25,970,000 for the firstthird quarter of fiscal 2020. Net sales to Broadband Service Providers were $26,570,000$38,098,000 in the firstthird quarter of fiscal 2021 versus $18,155,000$25,293,000 in the same period of fiscal 2020. Among this group, the Company recorded $1,060,000$2,925,000 in internationalInternational sales for the firstthird quarter of fiscal 2021 versus $1,137,000$879,000 in the same period of fiscal 2020. Net sales to Legacy customers decreased $711,000 to $515,000were $637,000 in the firstthird quarter of fiscal 2021 from $1,223,000versus $678,000 in the same period of fiscal 2020. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Accordingly, internationalInternational sales represented 4%8% and 6%3% of total net sales for the firstthird quarter of fiscal 2021 and 2020, respectively.

The increase in net sales for the quarter ended December 31, 2020June 30, 2021 of $7,714,000$12,765,000 compared to the quarter ended December 31, 2019June 30, 2020 was driven primarily by increased sales to Community Broadband Service Providers, International and MSO customers of $8,198,000,$10,631,000, $2,046,000, and $701,000,$704,000, respectively. Offsetting this was decreased sales to Legacy and Tier 1 customers of $711,000$564,000. Net sales to Legacy customers remained relatively consistent over this period. The increase to Community Broadband and $379,000,MSO customers was due to continuing increased demand for fiber connectivity products in response to COVID-19 driven by customers accelerating their purchasing decisions and deployment schedules of our fiber optic solutions and the need for high-speed broadband required in the work from anywhere environment. The increase in International sales is a result of an increase in demand as purchases in the prior year were negatively affected by COVID-19. The decrease in sales to Tier 1 customers is due to a reduction in capital spending in the consumer markets for fiber to the home at one of our Tier 1 customers resulting in a slower pace of their spend with us. In addition, the global pandemic has stalled the introduction and training of our new technologies into the Tier 1 market.

Revenue from customers is obtained from purchase orders submitted from time to time, with a limited number of customers recently issuing purchase orders for longer time frames. Accordingly, the Company’s ability to predict orders in future periods or trends affecting orders in future periods is limited. The Company’s ability to predict revenue has become further limited by potential disruption to its supply chains or changes in customer ordering patterns due to COVID-19, global supply chain issues and the impact of government programs. The Company’s ability to recognize revenue in the future for customer orders will depend on the Company’s ability to manufacture and deliver products to the customers and fulfill its other contractual obligations.

Cost of sales for the third quarter of fiscal 2021 was $21,598,000, an increase of $6,418,000, or 42%, from $15,180,000 in the comparable period of fiscal 2020. Gross profit percent was 44.2% of net sales in the third quarter of fiscal 2021, an increase from 41.5% of net sales for the third quarter of fiscal 2020. Gross profit increased $6,348,000 or 59%, to $17,138,000 for the three months ended June 30, 2021 from $10,790,000 in the comparable period in fiscal 2020. The increase in gross profit in the third quarter of fiscal 2021 was due to increased volume of net sales described above while the increase in gross profit percent was primarily due to a favorable product mix and cost reduction efforts across the Company’s product lines, including greater use of its Mexico manufacturing plants and efficiencies realized from higher sales volumes.

Selling, general and administrative expenses increased $2,229,000 or 31%, to $9,436,000 in the third quarter fiscal 2021 from $7,207,000 for the fiscal 2020 third quarter.  The increase in expense in the third quarter of fiscal 2021 consists primarily of increases of $1,666,000 in compensation expense due to additional headcount and increased wages and performance compensation accruals driven by higher net sales, increased  travel and entertainment expenses of $181,000 due to fewer COVID-19 travel restrictions, and increased stock compensation expense of $121,000, offset by decreased development costs of $173,000.

Income from operations for the quarter ended June 30, 2021 was $7,702,000 compared to $3,583,000 for the comparable quarter of fiscal 2020, an increase of approximately 115%. This increase is attributable to increased gross profit driven by higher sales in the Company’s Community Broadband market, offset by higher selling, general and administrative expenses.

Interest income for the quarter ended June 30, 2021 was $121,000 compared to $175,000 for the comparable quarter for fiscal 2020.  The decrease is due to lower interest rates earned on investments in the third quarter of fiscal 2021.  We expect interest income may decline due to the prevailing lower interest rates in the current economic environment.

We recorded a provision for income taxes of $1,725,000 and $763,000 for the three months ended June 30, 2021 and 2020, respectively.  We record our quarterly provision for income taxes based on our estimated annual effective tax rate for the year.  The increase in tax expense of $962,000 from the third quarter for fiscal 2020 is primarily due to increased income from operations.  The income tax expense rate for the third quarter of fiscal 2021 increased to 22.1%, from 20.3% recorded in the third quarter of fiscal 2020, due to increased income from operations.

The Company’s net income for the three months ended June 30, 2021 was $6,098,000, or $0.44 per basic and diluted share. The Company’s net income for the three months ended June 30, 2020 was $2,995,000, or $0.22 per basic and diluted share.

NINE MONTHS ENDED JUNE 30, 2021 VS. NINE MONTHS ENDED JUNE 30, 2020

Net sales for the nine months ended June 30, 2021 were $95,519,000, an increase of 45%, or approximately $29,763,000, from net sales of $65,757,000 for the first nine months of fiscal 2020. Net sales to Broadband Service providers were $93,569,000 for the first nine months of fiscal 2021, versus $63,102,000 in the same period of fiscal 2020. Among this group, the Company recorded $5,933,000 in International sales versus $2,991,000 in the same period of fiscal 2020. Net sales to Legacy customers were $1,951,000 in the first nine months of fiscal 2021 versus $2,655,000 in the same period of fiscal 2020. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Accordingly, International sales represented 6% and 5% of total net sales for the first nine months of fiscal 2021 and 2020, respectively.

The increase in net sales for the nine months ended June 30, 2021 of $29,763,000 compared to the nine months ended June 30, 2020 is primarily attributable to an increase in sales to Community Broadband, MSO and International customers of $27,122,000, $2,986,000 and $2,942,000, respectively. This was offset by decreased sales to Tier 1 and Legacy customers of $2,562,000, and $738,000, respectively.  The increase to Community Broadband and MSO customers was due to increased demand in response to COVID-19 driven by customers accelerating their purchasing decisions and deployment schedules of our fiber optic solutions and the need for high-speed broadband required in the work from anywhere environment.

Revenue from all The increase in International sales is a result increased demand as purchases in the prior year were negatively affected by COVID-19. The decrease in sales to Tier 1 customers is obtained from purchase orders submitted from time to time. Accordingly, the Company’s ability to predict orders in future periods or trends affecting orders in future periods is limited. The Company’s ability to predict revenue has become further limited by potential disruption to its supply chains or changes in customer ordering patterns due to COVID-19. The Company’s ability to recognize revenuea reduction in capital spending in the futureconsumer markets for its backlog of customer orders will depend on the Company’s ability to manufacture and deliver productsfiber to the home at one of our Tier 1 customers resulting in a slower pace of their spend with us. In addition, the global pandemic has stalled the introduction and fulfill its other contractual obligations.training of our new technologies into the Tier 1 market.  

Cost of sales for the first quarter of fiscalnine months ended June 30, 2021 was $15,723,000,$54,071,000, an increase of $4,072,000,$14,983,000, or 35%38%, from $11,650,000$39,087,000 in the comparable period of fiscal 2020. Gross profit percent was 42.0%43.4% of net sales in the first quarter of fiscal 2021 an increasefirst nine months, up from 39.9% of net sales40.6% for the first quarter ofcomparable nine months in fiscal 2020. Gross profit increased $3,642,000,$14,779,000, or 47%55%, to $11,369,000$41,449,000 for the threenine months ended December 31, 2020June 30, 2021 from $7,728,000$26,669,000 in the comparable period in fiscal 2020. The increase in gross profit in the first quarter of fiscalnine months ended June 30, 2021 was due to increased volume of net sales while thedescribed above and a higher gross profit percent. The increase in gross profit percent was primarily due to a favorable product mix and cost reduction efforts across the Company’s product lines, including greater use of its Mexico manufacturing plants and efficiencies realized from supply chain programs. Gross profit was negatively impacted by tariff costs of approximately $113,000 forhigher sales volumes. In the threenine months ended December 31, 2020 and $100,000 in the comparable period in fiscal 2020. In the first quarter of fiscalJune 30, 2021, the Company did not experience any significant impacts on cost of sales due to COVID-19.

Selling, general and administrative expenses increased $329,000,16%, or 4%,$3,616,000, from $21,965,000 for the first nine months of fiscal 2020 to $7,656,000$25,582,000 for the first nine months of fiscal 2021. The increase in the first quarter fiscal 2021 from $7,327,000 for the fiscal 2020 first quarter. The increase in expense in the first quarternine months of fiscal 2021 consists primarily of increases of $809,000$3,780,000 in compensation expense due to additional personnel along with increased wages and performance compensation accruals driven by higher net sales, partiallyand increased stock compensation expense of $397,000, offset by lowerdecreases in travel, entertainment and entertainmenttrade show expenses of $373,000$611,000 due to COVID-19 restrictions.restrictions, and a recovery of bad debt expense of $210,000. In the first quarter of fiscalnine months ended June 30, 2021, other than the travel, entertainment and entertainmenttrade show costs mentioned above, the Company did not experience any significant impacts on selling, general and administrative expense due to COVID-19.

Income from operations for the quarternine months ended December 31, 2020June 30, 2021 was $3,714,000$15,867,000 compared to $401,000income from operations of $4,704,000 for the comparable quarterfirst nine months of fiscal 2020, an increase of approximately 826%$11,163,000, or 237%. This increase is primarily attributable to increased gross profit fromdriven by higher sales, offset by higherincreased selling, general and administrative expenses.

Interest income for the quarternine months ended December 31, 2020June 30, 2021 was $134,000$378,000 compared to $223,000$616,000 for the comparable quarterperiod for fiscal 2020. The decrease is due to lower interest rates earned on investments in the firstthird quarter of fiscal 2020.2021. We expect interest income to decline due to the prevailing lower interest rates and the potential for further decreases in rates in the current economic environment. The Company invests its excess cash in FDIC-backed bank certificates of deposit, and money market accounts.

We recorded a provision for income taxes of $684,000$3,344,000 and $123,000$1,076,000 for the threenine months ended December 31,June 30, 2021 and 2020, and 2019, respectively. We record our quarterly provision for income taxes based on our estimated annual effective tax rate for the year. The increase in tax expense of $561,000$2,268,000 from the first quarter for fiscalnine months ended June 30, 2020 is primarily due to increased income from operations. The decreaseincrease in the income tax expense rate to 17.8%20.6% for the first quarter of fiscalnine months ended June 30, 2021 from 19.7%20.2% for the first quarter of fiscalnine months ended June 30, 2020 is primarily due to excess tax benefitsincreased income from non-qualified stock options exercised during the quarter.operations.

The Company’s net income for the threefirst nine months of fiscal 2021 ended December 31, 2020June 30, 2021 was $3,163,000,$12,901,000, or $0.23$0.94 per basic and diluted share. The Company’s net income for the threefirst nine months of fiscal 2020 ended December 31, 2019June 30, 2020 was $501,000,$4,244,000, or $0.04$0.31 per basic and diluted share.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2020,June 30, 2021, our principal source of liquidity was our cash, cash equivalents and short-term investments. Those sources total $28,277,000$32,170,000 as of December 31, 2020June 30, 2021 compared to $27,032,000 as of September 30, 2020. Our excess cash is invested mainly in certificates of deposit backed by the FDIC, U.S. treasuryTreasury securities and money market accounts. Substantially all of our funds are insured by the FDIC. Investments considered long-term were $26,142,000$26,721,000 as of December 31, 2020,June 30, 2021, compared to $25,143,000 as of September 30, 2020. We believe the combined balances of short-term cash and investments along with long-term investments provide a more accurate indication of our available liquidity. At the end of the firstthird quarter of fiscal 2021, our cash, cash equivalents and short-term and long-term investments increased to $54.4$58.9 million compared to $52.2$57.9 million as of the prior quarter end. We had no long-term debt obligations as of December 31, 2020June 30, 2021 or September 30, 2020.

We believe our existing cash equivalents and short-term investments, along with cash flow from operations, will be sufficient to meet our working capital and investment requirements for beyond the next 12 months. The Company intends on utilizing its available cash and assets primarily for its continued organic growth and potential future strategic transactions, as well as to mitigate the potential impacts of COVID-19 on the Company’s business.

Duebusiness due to the economic crisis resulting from the COVID-19 pandemic, our future cash flow from operating and investing activities may be negatively impacted. Our uses of cash may also be materially impacted by increased operating expense associated with mitigatingor supply chain, logistics, and customer fulfillment risks caused by COVID-19.risks.

Operating Activities

Net cash provided by operating activities totaled $2,717,000$8,117,000 for the threenine months ended December 31, 2020.June 30, 2021. This was primarily due to net income of $3,163,000,$12,901,000, non-cash expenses for depreciation and amortization of $568,000,$1,726,000, and stock-based compensation of $289,000$966,000 in addition to changes in operating assets and liabilities providing cash. ChangesThe primary changes in operating assets and liabilities using cash include a decreasean increase in inventory of $6,571,000, and accounts receivable of $5,896,000, offset by increases in accounts payable and accrued expenses of $2,860,000, offset by decreases$5,043,000. The increase in inventory of $721,000 and accounts receivable of $699,000. The decrease in accounts payable and accrued expenses is due to increased sales during the most recent quarter and the timing of payments to vendors in the quarter and $2,373,000 of fiscal 2020 accrued bonus compensation accruals paid in the first quarter of fiscal 2021. The decrease in inventory is a result of higher utilization of inventory components due to increased net sales. from customers. Accounts receivable balances can be influenced by the timing of shipments for customer projects and payment terms. Days sales outstanding, which measures how quickly receivables are collected, decreased twoincreased five days to 3338 days from September 30, 2020 to December 31, 2020.June 30, 2021. The increase in accounts payable and accrued expenses is due to the timing of payments to vendors in the quarter and $4,500,000 of fiscal 2021 incentive compensation accruals.

Net cash used inprovided by operating activities totaled $100,000$2,440,000 for the threenine months ended December 31, 2019.June 30, 2020. This was primarily due to net income of $501,000,$4,244,000, non-cash expenses for depreciation and amortization of $607,000,$1,825,000, and stock-based compensation of $241,000$542,000 in addition to changes in operating assets and liabilities providing cash. Changes in operating assets and liabilities using cash include increasesan increase in inventory of $1,617,000, decreases$5,869,000, offset by increases in accounts payable, accrued expenses and deferred rent of $1,816,000, offset by decreases$1,554,000. The increase in accounts receivableinventory is a result of $2,093,000.additional stocking levels to support the Company’s increased backlog and higher demand, and additional safety stock across the Company’s multiple locations due to the uncertainty of COVID-19 on the Company’s supply chain and manufacturing locations. Accounts receivable balances can be influenced by the timing of shipments for customer projects and payment terms. DaysDay’s sales outstanding, which measures how quickly receivables are collected, decreased two daysone day to 3332 days from September 30, 2019 to December 31, 2019. The increase in inventory represents an adjustment for seasonal demand along with changes in stocking levels. Changes in working capital reflects items using cash, including a decrease in accounts payable and accrued expenses of $1,848,000 which primarily reflects fiscal 2019 accrued bonus compensation accruals and accounts payable paid in the first quarter of fiscalJune 30, 2020.

Investing Activities

We invest our excess cash in money market accounts, U.S. Treasury securities and bank CDs in denominations across numerous banks. We believe we obtain a competitive rate of return given the economic climate along with the security provided by the FDIC on these investments. During the threenine months ended December 31, 2020,June 30, 2021, we used cash to purchase $3,968,000$11,904,000 of U.S. Treasury and FDIC-backed securities and received $4,426,000$10,044,000 on CDs that matured. Purchases of property, plant and equipment, mainly related to manufacturing equipment, consumed $379,000$1,275,000 of cash during the threenine months ended December 31, 2020.June 30, 2021.

During the threenine months ended December 31, 2019,June 30, 2020, we used cash to purchase $3,211,000$31,838,000 of both FDIC-backed and treasury securities and received $4,438,000$30,163,000 on CDs and treasuries that matured. Purchases of property, plant and equipment, mainly related to manufacturing equipment, consumed $788,000$1,493,000 of cash during the threenine months ended December 31, 2019.June 30, 2020.

Financing Activities

For the threenine months ended December 31, 2020,June 30, 2021, we received $179,000$384,000 from employees’ participation and purchase of stock through our ESPP, we used $262,000$456,000 related to share withholding for taxes associated with the issuance of common stock upon cashless exercise of stock options and used $11,000$54,000 to pay for taxes as a result of employees’ vesting of restricted shares using share withholding. We did not repurchase common stock under our share repurchase program in the nine months ended June 30, 2021.

For the threenine months ended December 31, 2019,June 30, 2020, we received $170,000$349,000 from employees’ participation and purchase of stock through our ESPP and used $6,000 to pay for taxes as a result of employees’ vesting of restricted shares using share withholding. We used $429,000 to repurchase 41,796 shares of our common stock under the share repurchase program in the nine months ended June 30, 2020.

As of June 30, 2021 and June 30, 2020, we had the authority to purchase approximately $4,981,000 in additional shares under the repurchase program announced on November 13, 2014 that was subsequently increased on April 25, 2017. In April 2020, the Board of Directors suspended the share repurchase plan due to uncertainties caused by COVID-19 and the Company’s desire to maintain capital flexibility.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management utilizes its technical knowledge, cumulative business experience, judgment and other factors in the selection and application of the Company’s accounting policies. The accounting policies considered by management to be the most critical to the presentation of the financial statements because they require the most difficult, subjective and complex judgments include revenue recognition, stock-based compensation, and valuation of inventory, long-lived assets, finite lived intangible assets and goodwill.

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, 2020. Management made no changes to the Company’s critical accounting policies during the quarter ended December 31, 2020.June 30, 2021.

In applying its critical accounting policies, management reassesses its estimates each reporting period based on available information. Changes in these estimates did not have a significant impact on earnings for the quarter ended December 31, 2020.June 30, 2021.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2020.June 30, 2021. Based upon that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes to the Company’s internal control over financial reporting, as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, that occurred during the quarter ended December 31, 2020 June 30, 2021 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no pending legal proceedings against or involving the Company for which the outcome is likely to have a material adverse effect upon its financial position or results of operations.

ITEM 1A. RISK FACTORS

The most significant risk factors applicable to the Company are described in Part I,II, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended September 30, 2020.2020 and the supplemental risk factor under Part II, Item 1A ”Risk Factors” of our Quarterly Report on Form 10-Q for the three months ended March 31, 2021.  There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K.

10-K as supplemented in our Quarterly Report on Form 10-Q for the three months ended March 31, 2021.