SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
FORM 10-K
(Mark one)
_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended_______September 30, 2005_____________________________2006_____________________________
OR
__TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from____________to___________________________________
Commission file number__________________0-10976________________________________
______________________Microwave Filter Company, Inc____________________________
(Exact name of registrant as specified in its charter)
__________New York__________________________16-0928443_________________________
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
_____6743 Kinne Street, East Syracuse, NY________13057________________________
(Address of principal executive offices) (Zip code)
Registrant's telephone number including area code____(315) 438-4700_____________
Securities registered pursuant to Section 12(b) of the Act:_____None____________
Securities registered pursuant to Section 12(g) of the Act:
____________________Common stock, par value $.10 per share_________________
Title of class
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
YES ______ NO ___X___
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
YES ______ NO ___X___
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days.
YES __X__ NO____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. __
1
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
YES ____ NO__X__Large accelerated filer ______
Accelerated filer ______
Non-accelerated filer ___X___.
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
YES ____ NO__X__
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the closing price of the common stock on December 1,
2005,2006, was approximately $4,289,340.$3,266,382.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares of common stock outstanding at December 1, 2005: 2,909,141
Documents2006: 2,902,352
DOCUMENTS INCORPORATED BY REFERENCE
Part III: Portions of the Definitive Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the solicitation of
proxies for the Company's 2007 Annual Meeting of Shareholders are
incorporated by reference: None.reference into Part III. (With the exception of those portions
which are specifically incorporated by reference in this Form 10-K, the Proxy
Statement is not deemed to be filed or incorporated by reference as part of
this report.)
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PART I
ITEM 1. BUSINESS.
FORWARD-LOOKING CAUTIONARY STATEMENT
- ------------------------------------
In an effort to provide investors a balanced view of the Company's current
condition and future growth opportunities, this Annual Report on Form 10-K may
include comments by the Company's management about future performance. These
statements which are not historical information are "forward-looking
statements" pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These, and other forward-looking statements,
are subject to business and economic risks and uncertainties that could cause
actual results to differ materially from those discussed. These risks and
uncertainties include, but are not limited to: risks associated with demand
for and market acceptance of existing and newly developed products as to which
the Company has made significant investments; general economic and industry
conditions; slower than anticipated penetration into the satellite
communications, mobile radio and commercial and defense electronics markets;
competitive products and pricing pressures; increased pricing pressure from
our customers; risks relating to governmental regulatory actions in broadcast,
communications and defense programs; as well as other risks and uncertainties,
including but not limited to those detailed from time to time in the Company's
Securities and Exchange Commission filings. These forward-looking statements
are made only as of the date hereof, and the Company undertakes no obligation
to update or revise the forward-looking statements, whether as a result of new
information, future events or otherwise. You are encouraged to review
Microwave Filter Company's 20052006 Annual Report and Form 10-K for the fiscal
year ended September 30, 20052006 and other Securities and Exchange Commission
filings. Forward-looking statements may be made directly in this document or
"incorporated by reference" from other documents. You can find many of these
statements by looking for words like "believes," "expects," "anticipates,"
"estimates," or similar expressions.
GENERAL DEVELOPMENT OF BUSINESS
- -------------------------------
Microwave Filter Company, Inc. (hereinafter referred to as MFC) was
incorporated in New York State on September 26, 1967. MFC is the successor of
Microwave Filter Company which was founded in April of 1967.
On July 1, 1990, MFC acquired Niagara Scientific, Inc. (hereinafter referred
to as NSI.)
MFC and its subsidiaries are sometimes referred to collectively as the
"Company."
3
NARRATIVE DESCRIPTION OF BUSINESS
- ----------------------------------
Microwave Filter Company, Inc. (MFC)
Established in 1967 in East Syracuse, New York, MFC occupies a modern 40,000
square foot facility with an impressive complement of analytical and design
software, test instrumentation, prototype and manufacturing equipment to create
passive filters, components and sub systems in the frequency range of 10 MHz to
50 GHz.
MFC manufactures RF filters and related components for eliminating
interference and facilitating signal processing for such markets as Cable
Television, Broadcast, Commercial and Military Communications, Avionics,
Radar, Navigation and Defense. The Company designs waveguide, stripline/
microstrip, transmission line, miniature/subminiature and lumped constant
filters. Configurations include bandpass, highpass, lowpass, bandstop,
multiplexers, tunable notch, tunable bandpass, high power filters, amplitude
equalized, delay equalized and filter networks. The Company actively produces
over 1,700 standard products and has designed more than 5,000 custom products
for specialized applications.
The manufacturing facility includes a state-of-the-art CAD-CAMmodern CAD system, a test department
with automated network analyzers to 50 GHz, a high capacity conveyor soldering
oven, a fully compliant finishing operation and a TQM/ISO9000 based quality
assurance program to insure the intrinsic quality of the products produced.
Efficient computer simulation, design and analysis software enhanced by
proprietary MFC developed software, allow rapid and accurate filter
development at reasonable cost. Automated network analyzers provide rigorous
product testing and performance data storage on a serial number basis in most
cases.
A network based CAD-CAMCAD system allows the transfer of data and programs to the
CNC turning and milling centers for fabrication of machined parts. Prototype
PC boards are similarly produced by computer controlled PC board mills.
A Grieve high capacity conveyor soldering oven is used for production of
large quantity assemblies while smaller production quantities are assembled at
hand soldering or brazing stations.
ISO-9000 contract and design review procedures coupled with a QA department
that is compliant with MIL-I-45208 inspection systems and MIL-STD-45622
calibration system standards assures process and product integrity. A
certified staff instructor regularly trains associates to MIL-STD-2000A (now
superceded by J-STD-001.)
Other in-house testing facilities include three environmental chambers
capable of testing products for temperatures of -0 to 200 degrees Celsius and
humidity up to 100 percent. Several high power amplifiers are available for
power tests up to 2500 watts at 220 MHz and 100 watts at 1,000 MHz. An
automated in-house anechoic chamber provides antenna pattern measurement
capability in the 2 to 8 GHz frequency range. Facilities are also available
for salt spray, sand and dust, shock and vibration, RFI leakage and altitude
testing.
4
Niagara Scientific, Inc. (NSI)
- ------------------------------
NSI manufactures material handling equipment for suppliers of consumer
goods. Such suppliers would include food processors or any other manufacturer
of packaged consumer products that need to be moved into a corrugated shipping
case at a constant rate of speed.
The Schroeder Machines Division (SMD), in existence for over 50 years, is a
division of Niagara Scientific. SMD manufactures a number of case packing
solutions but is most noted for its Quadnumatic. The Quadnumatic is an
automatic case packing machine that performs all the functions of collating,
case forming, loading and sealing products into their shipping cartons at
packing speeds ranging from 12 to 30 cases per minute depending upon model.
Other products offered by Schroeder include a servo pick-and-place machine
for top loading packaging applications and a case erector/bottom taping
machine for customers who still hand pack or need to add a case former to an
existing case packing machine. Most revenue for NSI is derived from spare parts
and services for an installed base of Quadnumatic case packers throughout the
United States and Canada.
MARKETS
- -------
Microwave Filter Company, Inc. (MFC)
- ------------------------------------
Cable Television (CATV) - MFC serves this market principally with three
product groups. One popular area includes standard and custom filters used at
the headend to process signals and remove interference. A very popular
application involves removing or re-routing analog channels to organize
programming line-ups.
A family of trap filters, "Fastrap," is used by cable operators to restrict
or permit the viewing of pay per view or other premium programming. The traps
can be ordered in small and large quantities, are 100% inspected and delivered
overnight.
Since all operators initially receive programming via satellite, products
from our satellite market cross over into the cable television market. C-band
satellite receive systems are prone to various types of terrestrial
interference which are curable in many cases by applying MFC bandpass filters.
5
The CATV marketplace is changing due to the transition from analog to
digital television. Digital Televison (DTV) is a new type of broadcasting
technology that will transform television viewing. DTV enables broadcasters to
offer television with movie-quality picture and sound. It also offers greater
multicasting and interactive capabilities. DTV is a more flexible and
efficient technology than the current NTSC "analog" broadcast system. Rather
than being limited to providing one analog programming channel, a broadcaster
will be able to provide a super sharp "high definition" (HDTV) program or
multiple "standard definition" DTV programs simultaneously using the RF
spectrum more efficiently. Providing several program streams on one broadcast
channel is called "multicasting." The number of programs a station can send on
one digital channel depends on the level of picture detail, also known as
"resolution." DTV can provide interactive video and data services that are not
possible with "analog" technology. Converting to DTV will eventually free up
parts of the scarce and valuable broadcast airwaves. Those portions of the
spectrum can then be used for other important services, such as advanced
wireless and public safety services (police, fire, rescue squads, etc.).
Televison stations serving all markets in the United States are currently
airing digital television programming, although they still must provide analog
programming until the target date set by Congress for completion of the
transition to DTV - April 7, 2009. That date may be extended, however, until
most homes (85%) in an area are able to watch the DTV programming. At that
point, broadcasting on the current (analog) channels will end and that
spectrum will be put to other uses reducing the need for analog filters which
MFC currently supplies. Until the transition to DTV is complete, television
stations will continue broadcasting on both their digital and analog channels.
MFC has developed and is supplying filters for digital television; however,
the demand for these filters is unknown at this time.
Broadcast - Several areas of broadcast are served by Microwave Filter
Company with the most active being in the MDS/MMDS and UHF bands.
Formally used for Wireless Cable, the MDS/MMDS bands are now becoming
popular for use by Internet Service Providers (ISP). Wireless Cable was a
video delivery service that attempted to compete with cable television with
limited success. This service delivered programming over-the-air using
microwave frequencies. Television programming is received via a small rooftop
antenna. The signals are then down converted for reception by the television
set. At the home, the equipment looks the same as that supplied by a cable
television company with the exception of the rooftop antenna. Currently the
trend is to use the same concept to provide internet service to the home
(receive only).
The most significant product sold to this market is our channel combiner
used at the broadcast site to reduce tower costs. By combining channels at
the transmitter site, additional expensive coaxial or waveguide runs up the
tower become unnecessary. It remains to be seen whether activity will be
popular in these bands.
MFC offers the widest selection of channel combiners to meet a variety of
system specifications. Combiners in different configurations and constructed
of different materials offer the operator better or best options depending on
budget or other system requirements.
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Radio and Television Broadcast - MFC primarily serves these broadcast areas
with interference filters to reduce equipment harmonics and combiners for low
power UHF applications. Other broadcast areas served also include AML,
telemetry and STL/ENG relays.
Similar to cable television, the broadcast industry is also moving towards
the digital delivery of both audio and video broadcast.
Satellite - Microwave filters and IF filters for removing interference are
provided to both commercial and home C-band TVRO antennas. A variety of
products are available that offer protection and or solutions to interference
that affects the feedhorn, downconverter, and receiver. A variety of filters
are also available for satellite services utilizing higher frequency bands
such as 12, 13 and 18 GHz.
Mobile Radio and Data Links - MFC provides filters to a variety of mobile
radio services such as cellular telephone, two way radio and paging to
eliminate interference in transmit or receive equipment. More recently there
has been demand for filters and diplexers for broadband microwave applications
for Voice Over Internet Protocol ("VOIP") With the number of services
increasing and ISP use. The advent of license exempt applications has
increased the need for interference filtering. With the number of services
increasing and our air waves becoming more congested, filters are increasingly
important to many transmit operations.
RF and Microwave - This market encompasses both commercial and military
applications. Filters in defense applications are used for such purposes as
air to ground communications, radar and land communications. In commercial
areas, filters are used to protect such equipment as receivers, transmitters,
transceivers and any other electronics used for signal processing. In addition
to filters, this market is also served with MFC's Ferrosorb product line.
Ferrosorb is a microwave absorbing material available in sheets, loads and a
variety of other shapes. The product is used to offer protection by shielding
signals or absorbing selective bands.
In 1992, MFC's acquisition of certain assets of Chesterfield Products added
an expanded line of products to enhance the RF filter line. Many of MFC's
traditional filters are components added onto a system. Chesterfield provided
MFC with the capability to manufacture miniature and subminiature filters
which are components built into electronic systems. Another Chesterfield
capability has provided us with the resources to expand our filter design
range down to 5 KHz.
There has been an increased demand for filters in the OEM (Original Equipment
Manufacturer) market. In response to this demand, MFC has purchased new design,
fabrication and test equipment to design filters up to 50 GHz. OEM orders are
larger than those received for other markets and facilities such as a soldering
oven have been added in the manufacturing area for large volume production.
7
Niagara Scientific, Inc. (NSI)
- ------------------------------
NSI - Like MFC, NSI and its divisions seek niche markets arising from
certain demographic changes in the industrial work force which promotes
acceptance of automation in both large and small factories. NSI's typical
product is customized to the purchaser's operation and is the result of system
engineering. The product makes tactical use of precision mechanical movements
or sensors of physical characteristics under microprocessor control. These
smart machines reduce labor costs through faster operation and increased
quality.
Typical customers for case packing machines are food processors or makers of
cosmetics, pharmaceuticals, candies or hardware whose product must be cased
for shipping and storage.
Other custom equipment is designed for inspection-rejection, counting,
analyzing or otherwise monitoring, reporting or controlling a continuous
manufacturing or industrial process.
Typical customers are commodity mass producers in the food, drug and paint
industries.
WORLD TRADE
- -----------
Management believes that world marketing is a route to substantial expansion
of sales for MFC/NSI. Export opportunities for MFC's communication related
products are many - especially in areas of the world such as China, the
Pacific Rim and South America. Marketing research reveals that the Company's
products are in high demand in these areas of the world. Significant efforts
have been made over the last year to identify key international markets and to
establish distributors with appropriate technical backgrounds to represent our
interests in those regions.
NSI products are less suitable for export for a number of reasons, including
their large size and complexity, less demand in underdeveloped areas for
automation and significant local competition. However, NSI is well qualified
to produce and or distribute complementary products under license.
SUPPLIERS
- ---------
The Company depends on outside suppliers for raw materials, components and
parts, and services. Although items are generally available from a number of
suppliers, the Company purchases certain raw materials and components from a
single supplier. If such a supplier should cease to supply an item, the
Company believes that new sources could be found to provide the raw materials
and components. However, manufacturing delays and added costs could result.
The Company has not experienced significant delays of this nature in the past,
but there can be no assurance that delays in delivery due to supply shortages
will not occur in the future. Substantial periods of lead time for delivery of
certain materials are sometimes experienced by the Company, making it
necessary to inventory varied quantities of materials.
8
PATENTS AND LICENSES
- --------------------
The Company has no patents, trademarks, copyrights, licenses or franchises of
material importance.
SEASONAL FLUCTUATIONS
- ---------------------
There are no significant seasonal fluctuations in the Company's business.
GOVERNMENT CONTRACTS
- --------------------
The Company is not dependent in any material respect on government contracts.
BACKLOG
- -------
At September 30, 2005,2006, the Company's total backlog of orders, which
represents firm orders from customers, was $692,595$731,941 compared to $805,244$692,595 at
September 30, 2004. At September 30, 2005, MFC's backlog2005. Approximately 76% of orders was
$692,595 compared to $661,109 at September 30, 2004. At September 30, 2005,
NSI's backlog of orders was $0 compared to $144,135 at September 30, 2004. Thethe total Company backlog at
September 30, 20052006 is scheduled to ship during fiscal 2006.2007. However, backlog
is not necessarily indicative of future sales. Accordingly, the Company does
not believe that its backlog as of any particular date is representative of
actual sales for any succeeding period.
EMPLOYEES
- ---------
At September 30, 2005,2006, the Company employed 5657 full-time employees.
RESEARCH AND DEVELOPMENT
- ------------------------
The Company maintains and expects to continue to maintain an active research
and development program. The Company believes that such a program is needed
to maintain its competitive position in existing markets and to provide
products for emerging markets. Costs in connection with research and
development were $420,570, $373,080 $312,189 and $349,203$312,189 for the fiscal years 2006,
2005 2004 and 2003,2004, respectively. Research and development costs are charged to
operations as incurred.
COMPETITION
- -----------
The principal competitive factors facing both MFC and NSI are price,
technical performance, service and the ability to produce in quantity to
specific delivery schedules. Based on these factors, the Company believes it
competes favorably in its markets.
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RISKS RELATED TO OUR BUSINESS
- -----------------------------ITEM 1A. RISK FACTORS
An investment in our common stock involves a high degree of risk. The risks
and uncertainties described below are not the only ones we face. Additional
risks and uncertainties that we are unaware of, or that we may currently deem
immaterial, may become important factors that harm our business, financial
condition or results of operations. If any of the following risks actually
occurs, our business, financial condition or results of operations could
suffer. In that case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
Demand for existing products may decline.
Demand for our products depends upon, among other factors, the level of
capital expenditures by current and prospective customers, the rate of
economic growth in the markets in which we compete and the competitiveness of
our products. Changes in any of these factors could have an adverse effect on
our financial condition or results of operations.
We must continue to assess and predict customer needs and evolving
technologies. We must develop new products, including enhancements to existing
products, and successfully manufacture, market and sell these products. If we
are unsuccessful in these areas, our financial condition or results of
operations could be adversely affected.
Our inability to introduce new and enhanced products on a timely basis.
Delays in development, testing, manufacture and/or release of new products
could adversely affect our sales and results of operations. In addition, there
can be no assurance that we will successfully identify new product
opportunities, develop and bring new products to market in a timely manner and
achieve market acceptance of our products, or that products and technologies
developed by others will not render our products or technologies obsolete or
noncompetitive.
Market acceptance of newly developed products may be slower than anticipated.
The markets for our products are competitive and may be characterized by
rapid technological change, new product development and evolving industry
standards. If technologies supported by our products become obsolete or fail
to gain widespread acceptance, our business could be harmed. Current and
potential competitors may have substantially greater financial, technical,
marketing, distribution and other resources than us, and have greater name
recognition and market acceptance of their products and technologies. Our
competitors may develop new technologies or products that may offer superior
price or performance features and may render our products and technologies
obsolete and noncompetitive.
10
Pricing pressures from our customers and/or market pressure from competitors
may reduce selling prices.
Many of customers are under continuous pressure to reduce costs and,
therefore, we expect to continue to experience pressure from these customers
to reduce the prices of the products that we sell to them. To offset declining
average sales prices, we believe that we must achieve manufacturing cost
reductions and increase our sales volumes. If we are unable to offset
declining average selling prices, our gross margins will decline, and this
decline could materially harm our business, financial condition and operating
results. We also compete with companies which have substantially larger
operations and greater financial, engineering, marketing, production and other
resources than we have. These competitors may develop their products more
quickly, devote greater marketing and sales resources, or offer more
aggressive pricing, than we can. As a result, this could cause us to lose
orders or customers or force reductions in selling prices, all of which would
have a material adverse impact on our financial position and results of
operations.
Difficulty in obtaining an adequate supply of raw materials or components at
reasonable prices.
The Company depends on outside suppliers for raw materials, components and
parts, and services. Although items are generally available from a number of
suppliers, the Company purchases certain raw materials and components from a
single supplier. If such a supplier should cease to supply an item, the
Company believes that new sources could be found to provide the raw materials
and components. However, manufacturing delays and added costs could result.
The Company has not experienced significant delays of this nature in the past,
but there can be no assurance that delays in delivery due to supply shortages
will not occur in the future. Substantial periods of lead time for delivery of
certain materials are sometimes experienced by the Company, making it
necessary to inventory varied quantities of materials.
Loss of key personnel or the inability to attract new employees.
Governmental regulatory actionsOur success depends in large part on the continued service of our key
technical and management personnel, and on our ability to attract and retain
qualified employees, particularly those involved in the development of new
products and processes and the manufacture of existing products. The
competition for these individuals is significant, and the loss of key
employees could adversely affectharm our business.
11
AVAILABLE INFORMATION
- ---------------------
Our Internet address is www.microwavefilter.com. There we make available,
free of charge, our annual report on Form 10-K, quarterly reports on Form 10-
Q, current reports on Form 8-K and any amendments to those reports, as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the Securities and Exchange Commission (SEC). Our SEC reports
can be accessed through the investor relations link of our Web site. The
information found on our Web site is not part of this or any other report we
file with or furnish to the SEC.
The public may read and copy any materials that we file with the SEC at
the SEC's Public Reference Room located at 450 Fifth Street NW, Washington, DC
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains
electronic versions of our reports on its website at www.sec.gov.
10
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES.
MFC's office and manufacturing facility is located at 6743 Kinne Street,
East Syracuse, New York. This facility, which is owned by MFC, consists of
40,000 square feet of office and manufacturing space located on 3.7 acres.
MFC presently occupies approximately 35,000 square feet with the balance
(approximately 5,000 square feet) occupied by NSI.
ITEM 3. LEGAL PROCEEDINGS.
There are currently no material pending legal proceedings against the Company
or its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the fiscal year covered by this Form 10-K, there
were no matters submitted to a vote of security holders.
1112
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
MFC's common stock is traded on the NASDAQ over-the-counter market under the
symbol MFCO. The information set forth was obtained from statements provided
by the NASD. The following table shows the high and low sales prices for MFC's
common stock for each full quarterly period within the two most recent fiscal
years. The quotations represent prices in the over-the-counter market between
dealers in securities. They do not include retail mark-ups, mark-downs or
commissions.
Fiscal 2006 High Low
Oct. 1, 2005 to Dec. 31, 2005 $ 2.26 $ 1.30
Jan. 1, 2006 to Mar. 31, 2006 1.95 1.51
Apr. 1, 2006 to June 30, 2006 1.84 1.29
July 1, 2006 to Sept. 30, 2006 1.59 1.20
Fiscal 2005 High Low
Oct. 1, 2004 to Dec. 31, 2004 $ 2.47 $ 1.10
Jan. 1, 2005 to Mar. 31, 2005 3.30 1.31
Apr. 1, 2005 to June 30, 2005 2.24 1.21
July 1, 2005 to Sept. 30, 2005 2.05 1.33
Fiscal 2004 High Low
Oct. 1, 2003 to Dec. 31, 2003 $ 1.36 $ 1.04
Jan. 1, 2004 to Mar. 31, 2004 5.75 1.10
Apr. 1, 2004 to June 30, 2004 3.65 1.34
July 1, 2004 to Sept. 30, 2004 1.96 1.13
The Company had approximately 650 holders of record of its common stock at
September 30, 2005.2006.
On November 9, 2005, the Board of Directors declared a ten cents per share
cash dividend to shareholders of record on December 9, 2005 to be distributed
on January 9, 2006.
On December 18, 2002, the Board of Directors declared a ten cents per share
cash dividend to shareholders of record on January 17, 2003 to be distributed
on January 31, 2003.
On February 13, 2002, the Board of Directors declared a seven cents per
share cash dividend to shareholders of record on February 27, 2002 to be
distributed on March 13, 2002.
Payment of future dividends, if any, will be at the discretion of the Board
of Directors after taking into consideration various factors, including the
Company's financial condition, operating results and current and anticipated
cash needs.
1213
On April 9, 1998, the Board of Directors and Shareholders of Microwave
Filter Company, Inc. approved the 1998 Microwave Filter Company, Inc.
Incentive Stock Plan (the "1998 Plan"). Under the 1998 Plan, the Company may
grant incentive stock options ("ISOs"), non-qualified stock options ("NQSOs")
and stock appreciation rights to directors, officers and employees of the
Company and its affiliates. The 1998 Plan reserves 150,000 shares for
issuance. The exercise price of the ISOs and NQSOs will be 100% of the fair
market value of the Common Stock on the date the ISOs and NQSOs are granted.
The 1998 Plan will terminate on April 10, 2008. On June 21, 2004, the Board of
Directors granted ISOs totaling 115,000 shares and NQSOs totaling 35,000
shares at an exercise price of $1.47. All options were 100% vested.
Additional information regarding our stock option plan and plan activity for
20052006 is provided in our consolidated financial statements. See "Notes to
Consolidated Financial Statements, Note 9 - Stock options."
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial information is derived from and should be
read in conjunction with the financial statements, including the notes
thereto, appearing in Item 8. - "Financial Statements and Supplemental Data."
Five Year Summary of Financial Data
September 30
2006 2005 2004 2003 2002 2001
Net Sales $ 4,536,715 $ 5,533,398 $ 4,876,219 $ 5,059,520 $ 7,251,732
Net (Loss) Income $ 6,848,191
Net Income (Loss)(411,349) $ 312,211 $ (176,317) $ (282,400) $ 434,287
$ 128,752
Total Assets $ 3,126,373 $ 3,983,652 $ 3,626,605 $ 3,901,545 $ 4,865,885 $ 4,270,151
Long Term Debt $ 0 $ 0 $ 0 $ 0 $ 0
Basic Earnings (Loss)
Per Share $ (.14) $ .11 $ (.06) $ (.10) $ .15
$ .04
Diluted Earnings (Loss)
Per Share $ (.13) $ .10 $ (.06) $ (.10) $ .15 $ .04
Shares Used In Computing Net
(Loss) Earnings Per Share:
Basic 2,905,355 2,908,503 2,904,669 2,904,781 2,904,781
2,946,284
Diluted 3,043,903 3,049,115 2,946,482 2,904,781 2,904,781 2,946,284
Cash ($) Dividends Paid Per
Share $ .10 $ .00 $ .00 $ .10 $ .07
$ .03
Net (loss) income (loss) as a percentage of: 2006 2005 2004 2003 2002
2001
Net Sales.......................... (9.1%) 5.6% (3.6%) (5.6%) 6.0%
1.9%
Assets .......................... (13.2%) 7.8% (4.9%) (7.2%) 8.9%
3.0%
Equity............................. 9.4% (5.9%(15.7%) (8.9%9.4% (5.9%) (8.9%) 11.5% 3.6%
1314
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Microwave Filter Company, Inc. operates primarily in the United States and
principally in two industries. The Company extends credit to business
customers, including original equipment manufacturers (OEMs), distributors and
other end users, based upon ongoing credit evaluations. Microwave Filter
Company, Inc. designs, develops, manufactures and sells electronic filters,
both for radio and microwave frequencies, to help process signal distribution
and to prevent unwanted signals from disrupting transmit or receive
operations. Markets served include cable television, television and radio
broadcast, satellite broadcast, mobile radio, commercial and defense
electronics. Niagara Scientific, Inc., a wholly owned subsidiary, custom
designs case packing machines to automatically pack products into shipping
cases. Customers are processors of food and other commodity products with a
need to reduce labor cost with a modest investment and quick payback.
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth the Company's net sales by major product
groups for each of the fiscal years in the three year period ended September
30, 2005.2006.
Product group (in thousands) Fiscal 2006 Fiscal 2005 Fiscal 2004 Fiscal 2003
Niagara Scientific $ 188 $ 231 $ 704
Microwave Filter:
Cable TV 2,598 2,179 2,207$1,882 $2,598 $2,179
RF/Microwave 1,624 1,561 1,149
Satellite 893 1,020 1,082
931
RF/Microwave 1,561 1,149 1,015
Broadcast TV 116 166 235
202Niagara Scientific 21 188 231
------ ------ ------
Total $4,536 $5,533 $4,876 $5,059
====== ====== ======
Sales backlog at 9/30 $ 732 $ 693 $ 805
$ 453
====== ====== ======
Fiscal 2006 compared to fiscal 2005
Consolidated net sales for the fiscal year ended September 30, 2006 equaled
$4,536,715, a decrease of $996,683 or 18%, when compared to consolidated net
sales of $5,533,398 during the fiscal year ended September 30, 2005.
Microwave Filter Company, Inc. (MFC) sales decreased $829,927 or 15.5% to
$4,515,502 during the fiscal year ended September 30, 2006 when compared to
sales of $5,345,429 during the fiscal year ended September 30, 2005.
The decrease in MFC sales can primarily be attributed to the decrease in the
sales of the Company's standard Cable TV products.
15
MFC's Cable TV product sales decreased $715,890 or 27.6% to $1,881,866
during the fiscal year ended September 30, 2006 when compared to Cable TV
product sales of $2,597,756 during the fiscal year ended September 30, 2005.
The decrease in sales can be attributed to the transition from analog to
digital television. Digital Televison (DTV) is a new type of broadcasting
technology that will transform television viewing. DTV enables broadcasters to
offer television with movie-quality picture and sound. It also offers greater
multicasting and interactive capabilities. DTV is a more flexible and
efficient technology than the current NTSC "analog" broadcast system. Rather
than being limited to providing one analog programming channel, a broadcaster
will be able to provide a super sharp "high definition" (HDTV) program or
multiple "standard definition" DTV programs simultaneously using the RF
spectrum more efficiently. Providing several program streams on one broadcast
channel is called "multicasting." The number of programs a station can send on
one digital channel depends on the level of picture detail, also known as
"resolution." DTV can provide interactive video and data services that are not
possible with "analog" technology. Converting to DTV will eventually free up
parts of the scarce and valuable broadcast airwaves. Those portions of the
spectrum can then be used for other important services, such as advanced
wireless and public safety services (police, fire, rescue squads, etc.).
Televison stations serving all markets in the United States are currently
airing digital television programming, although they still must provide analog
programming until the target date set by Congress for completion of the
transition to DTV - April 7, 2009. That date may be extended, however, until
most homes (85%) in an area are able to watch the DTV programming. At that
point, broadcasting on the current (analog) channels will end and that
spectrum will be put to other uses reducing the need for analog filters which
MFC currently supplies. Until the transition to DTV is complete, television
stations will continue broadcasting on both their digital and analog channels.
MFC has developed and is supplying filters for digital television; however,
the demand for these filters is unknown at this time.
MFC's RF/Microwave product sales increased $62,794 or 4% to $1,624,435
during the fiscal year ended September 30, 2006 when compared to sales of
$1,561,641 during the fiscal year ended September 30, 2005. These products are
primarily sold to original equipment manufacturers (OEMs) that serve the
mobile radio and commercial and defense electronics markets. Typical customers
include the U.S. Government, General Dynamics, Motorola, Rockwell Collins,
Lockheed Martin, Northrup Gruman and Raytheon. The Company continues to invest
in production engineering and infrastructure development to penetrate OEM
market segments as they become popular. MFC is concentrating its technical
resources and product development efforts toward potential high volume
customers as part of a concentrated effort to provide substantial long-term
growth.
MFC's Satellite product sales decreased $127,729 or 12.5% to $892,717 during
the fiscal year ended September 30, 2006 when compared to $1,020,446 during
the fiscal year ended September 30, 2005. The decrease can be attributed to a
decrease in demand for the Company's filters which suppress strong out-of-band
interference caused by military and civilian radar systems and other sources.
Despite the decrease in sales, management expects demand for these types of
filters to continue with the proliferation of earth stations world wide and
increased sources of interference.
MFC's BTV/Wireless cable sales decreased $49,102 or 29.7% to $116,484 for
the fiscal year ended September 30,2006 when compared to sales of $165,586 for
the fiscal year ended September 30, 2005 primarily due to a decrease in demand
for UHF Broadcast products.
16
Niagara Scientific, Inc. (NSI) sales decreased $166,756 or 88.7% to $21,213
for the fiscal year ended September 30, 2006 when compared to sales of
$187,969 for the fiscal year ended September 30, 2005. NSI sales consisted
primarily of spare part orders during fiscal 2006. NSI has been concentrating
on quoting low risk jobs in an effort to maintain targeted profit margins.
Although this may impact sales levels, it should improve profit margins and
also allow engineering resources to focus on higher priorities. Based on
backlog, recent quote activity and the general economic climate, management is
expecting little, if any, growth in sales for NSI for fiscal 2007.
At September 30, 2006, the Company's total backlog of orders, which
represents firm orders from customers, equaled $731,941 compared to $692,595
at September 30, 2005. Approximately 76% of the total Company backlog at
September 30, 2006 is scheduled to ship during fiscal 2007. However, backlog
is not necessarily indicative of future sales. Accordingly, the Company does
not believe that its backlog as of any particular date is representative of
actual sales for any succeeding period.
Gross profit decreased $702,192 or 32% to $1,492,995 during the fiscal year
ended September 30, 2006 when compared to gross profit of $2,195,187 during
the fiscal year ended September 30, 2005. The dollar decrease can primarily be
attributed to the lower sales volume. As a percentage of sales, gross profit
decreased to 32.9% during the fiscal year ended September 30, 2006 compared to
39.7% during the fiscal year ended September 30, 2005. The decrease in gross
profit as a percentage of sales can also be attributed to the lower sales
volume, resulting in a lower base to absorb fixed expenses.
Selling, general and administrative (SG&A) expenses increased $111,534 or
5.8% to $2,022,485 during the fiscal year ended September 30, 2006 when
compared to SG&A expenses of $1,910,951 during the fiscal year ended September
30, 2005. The increase is primarily due to planned increases in promotional
expenses and higher payroll and payroll related expenses when compared to last
year.
Income from operations decreased $813,726 to a loss of $529,490 during the
fiscal year ended September 30, 2006 when compared to income from operations
of $284,236 during the fiscal year ended September 30, 2005. The decrease can
primarily be attributed to the lower sales volume this year when compared to
last year.
Other income increased $12,879 to $80,609 for the twelve months ended
September 30, 2006 compared to other income of $67,730 for the twelve months
ended September 30, 2005. Other income is primarily interest income earned on
invested cash balances. The increase in other income can primarily be
attributed to the rise in market interest rates during this fiscal year when
compared to the same period last year. Other income may fluctuate based on
market interest rates and levels of invested cash balances.
The Company recorded a benefit for income taxes of $37,532, an effective
rate of (8.4%), for the fiscal year ended September 30, 2006 compared to a
provision for income taxes of $39,755, or an effective rate of 11.3%, for the
fiscal year ended September 30, 2005. The benefit for the current year is
primarily due to the Company's ability to carry back it's operating loss to
fiscal 2005 and an increase in deferred tax assets offset by an increase in
the valuation allowance since the realization of the deferred tax benefit is
not considered more likely than not.
17
Fiscal 2005 compared to fiscal 2004
Consolidated net sales for the fiscal year ended September 30, 2005 equaled
$5,533,398, an increase of $657,179 or 13.5% when compared to consolidated net
sales of $4,876,219 during the fiscal year ended September 30, 2004.
Microwave Filter Company, Inc. (MFC) sales increased $700,073 or 15.1% to
$5,345,429 during the fiscal year ended September 30, 2005 when compared to
sales of $4,645,356 during the fiscal year ended September 30, 2004.
The increase in MFC sales can primarily be attributed to an increase in the
sales of the Company's standard Cable TV product sales and an increase in the
sales of the Company's RF/Microwave product sales when compared to last year.
14
MFC's Cable TV product sales increased $418,976 or 19.2% to $2,597,756
during the fiscal year ended September 30, 2005 when compared to Cable TV
product sales of $2,178,780 during the fiscal year ended September 30, 2004.
The increase in sales can be attributed to the improved economy mitigating any
drop off in demand due to the transition from analog to digital television.
Digital Televison (DTV) is a new type of broadcasting technology that will
transform television viewing. DTV enables broadcasters to offer television
with movie-quality picture and sound. It also offers greater multicastingulticasting and
interactive capabilities. DTV is a more flexible and efficient technology than
the current NTSC "analog" broadcast system. Rather than being limited to
providing one analog programming channel, a broadcaster will be able to
provide a super sharp "high definition" (HDTV) program or multiple "standard
definition" DTV programs simultaneously using the RF spectrum more
efficiently. Providing several program streams on one broadcast channel is
called "multicasting." The number of programs a station can send on one
digital channel depends on the level of picture detail, also known as
"resolution." DTV can provide interactive video and data services that are not
possible with "analog" technology. Converting to DTV will eventually free up
parts of the scarce and valuable broadcast airwaves. Those portions of the
spectrum can then be used for other important services, such as advanced
wireless and public safety services (police, fire, rescue squads, etc.).
Televison stations serving all markets in the United States are currently
airing digital television programming, although they still must provide analog
programming until the target date set by Congress for completion of the
transition to DTV - April 7, 2009. That date may be extended, however, until
most homes (85%) in an area are able to watch the DTV programming. At that
point, broadcasting on the current (analog) channels will end and that
spectrum will be put to other uses reducing the need for analog filters which
MFC currently supplies. Until the transition to DTV is complete, television
stations will continue broadcasting on both their digital and analog channels.
MFC has developed and is supplying filters for digital television; however,
the demand for these filters is unknown at this time.
MFC's RF/Microwave product sales increased $412,951 or 35.9% to $1,561,641
during the fiscal year ended September 30, 2005 when compared to sales of
$1,148,690 during the fiscal year ended September 30, 2004. These products are
primarily sold to original equipment manufacturers (OEMs) that serve the
mobile radio and commercial and defense electronics markets. Typical customers
include the U.S. Government, General Dynamics, Motorola, Rockwell Collins,
Lockheed Martin, Northrup Gruman and Raytheon. The Company continues to invest
in production engineering and infrastructure development to penetrate OEM
market segments as they become popular. MFC is concentrating its technical
resources and product development efforts toward potential high volume
customers as part of a concentrated effort to provide substantial long-term
growth.
18
MFC's Satellite product sales decreased $61,940 or 5.7% to $1,020,446 during
the fiscal year ended September 30, 2005 when compared to $1,082,386 during
the fiscal year ended September 30, 2004. The decrease can be attributed to a
decrease in demand for the Company's filters which suppress strong out-of-band
interference caused by military and civilian radar systems and other sources.
Despite the slight decrease in sales, management expects demand for these
types of filters to continue with the proliferation of earth stations world
wide and increased sources of interference.
MFC's BTV/Wireless cable sales decreased $69,914 or 29.7% to $165,586 for
the fiscal year ended September 30,2005 when compared to sales of $235,500 for
the fiscal year ended September 30, 2004 primarily due to a decrease in demand
for UHF Broadcast products.
15
Niagara Scientific, Inc. (NSI) sales decreased $42,894 or 18.6% to $187,969
for the fiscal year ended September 30, 2005 when compared to sales of
$230,863 for the fiscal year ended September 30, 2004. Sales of NSI related
equipment can be impacted by the timing of the shipment of the custom designed
equipment and the customer's scheduled delivery dates. NSI has been
concentrating on quoting low risk jobs in an effort to maintain targeted
profit margins. Although this may impact sales levels, it should improve
profit margins and also allow engineering resources to focus on higher
priorities. Based on backlog, recent quote activity and the general economic
climate, management is expecting little, if any, growth in sales for NSI for
fiscal 2006.
At September 30, 2005, the Company's total backlog of orders, which
represents firm orders from customers, equaled $692,595 compared to $805,244
at September 30, 2004. At September 30, 2005, MFC's backlog of orders equaled
$692,595 compared to $661,109 at September 30, 2004. At September 30, 2005,
NSI's backlog of orders equaled $0 compared to $144,135 at September 30, 2004.
The total Company backlog at September 30, 2005 is scheduled to ship during
fiscal 2006. However, backlog is not necessarily indicative of future sales.
Accordingly, the Company does not believe that its backlog as of any
particular date is representative of actual sales for any succeeding period.
Gross profit increased $515,745 or 30.7% to $2,195,187 during the fiscal
year ended September 30, 2005 when compared to gross profit of $1,679,442
during the fiscal year ended September 30, 2004. As a percentage of sales,
gross profit increased to 39.7% during the fiscal year ended September 30,
2005 compared to 34.4% during the fiscal year ended September 30, 2004. The
increases in gross profit can primarily be attributed to the higher sales
volume and a favorable product sales mix this year when compared to last year.
Typically, CATV products generate a higher gross margin than other product
groups and; this year, the increase in the RF/Microwave product sales were
from higher margin products.
Selling, general and administrative (SG&A) expenses increased $167,330 or
9.6% to $1,910,951, or 34.5% of sales, during the fiscal year ended September
30, 2005 when compared to SG&A expenses of $1,743,621, or 35.8% of sales,
during the fiscal year ended September 30, 2004. The dollar increase is
primarily related to increases in payroll and payroll related expenses.
19
Income from operations increased $348,415 to $284,236 during the fiscal year
ended September 30, 2005 when compared to a loss from operations of $64,179
during the fiscal year ended September 30, 2004. The improvement can primarily
be attributed to the higher sales volume and improved margins this year when
compared to last year. MFC's income from operations increased $265,017 to
$297,337 for the fiscal year ended September 30, 2005 compared to income from
operations of $32,320 for the fiscal year ended September 30, 2004, due
primarily to MFC's higher sales volume and improved margins. NSI recorded a
loss from operations of $13,101 for the fiscal year ended September 30, 2005
compared to a loss from operations of $96,499 for the fiscal year ended
September 30, 2004. NSI's improvement can be attributed to improved margins
and planned reductions in SG&A expenses.
The Company recorded a provision for income taxes of $39,755, or an
effective rate of 11.3%, for the fiscal year ended September 30, 2005 which
reflects the U.S. Federal Alternative Minimum Tax and State income taxes that
are due based on certain statutory limitations on the use of the Company's net
operating loss carryforwards. The Company recorded a provison for income taxes
of $145,889 for the fiscal year ended September 30, 2004 due primarily to the
Company providing a full valuation allowance on its deferred tax assets.
16
Fiscal 2004 compared to fiscal 2003
Consolidated net sales for the fiscal year ended September 30, 2004 equaled
$4,876,219, a decrease of $183,301 or 3.6% when compared to consolidated net
sales of $5,059,520 during the fiscal year ended September 30, 2003.
Microwave Filter Company, Inc. (MFC) sales increased $290,133 or 6.7% to
$4,645,356 during the fiscal year ended September 30, 2004 when compared to
sales of $4,355,223 during the fiscal year ended September 30, 2003.
The increase in MFC sales can primarily be attributed to an increase in the
sales of the Company's standard Satellite product sales and an increase in the
sales of the Company's RF/Microwave product sales.
MFC's Satellite product sales increased $151,114 or 16.2% to $1,082,386
during the fiscal year ended September 30, 2004 when compared to $931,272
during the fiscal year ended September 30, 2003. The increase can be
attributed to an increase in demand for the Company's filters which suppress
strong out-of-band interference caused by military and civilian radar systems
and other sources. With the proliferation of earth stations world wide and
increased sources of interference, management expects demand for these types
of filters to grow.
MFC's Cable TV product sales decreased $27,705 or 1.3% to $2,178,780 during
the fiscal year ended September 30, 2004 when compared to sales of $2,206,485
for the fiscal year ended September 30, 2003. The decrease in MFC's Cable TV
product sales can be attributed to both the downturn in the telecommunications
marketplace and the transition from analog to digital television. Digital
Televison (DTV) is a new type of broadcasting technology that will transform
television viewing. DTV enables broadcasters to offer television with movie-
quality picture and sound. It also offers greater multicasting and interactive
capabilities. DTV is a more flexible and efficient technology than the current
NTSC "analog" broadcast system. Rather than being limited to providing one
analog programming channel, a broadcaster will be able to provide a super
sharp "high definition" (HDTV) program or multiple "standard definition" DTV
programs simultaneously using the RF spectrum more efficiently. Providing
several program streams on one broadcast channel is called "multicasting." The
number of programs a station can send on one digital channel depends on the
level of picture detail, also known as "resolution." DTV can provide
interactive video and data services that are not possible with "analog"
technology. Converting to DTV will eventually free up parts of the scarce and
valuable broadcast airwaves. Those portions of the spectrum can then be used
for other important services, such as advanced wireless and public safety
services (police, fire, rescue squads, etc.). Televison stations serving all
markets in the United States are currently airing digital television
programming, although they still must provide analog programming until the
target date set by Congress for completion of the transition to DTV - December
31, 2006. That date may be extended, however, until most homes (85%) in an
area are able to watch the DTV programming. At that point, broadcasting on the
current (analog) channels will end and that spectrum will be put to other uses
reducing the need for analog filters which MFC currently supplies. Until the
transition to DTV is complete, television stations will continue broadcasting
on both their digital and analog channels.
17
MFC's RF/Microwave product sales increased $133,457 or 13.1% to $1,148,690
during the fiscal year ended September 30, 2004 when compared to sales of
$1,015,233 during the fiscal year ended September 30, 2003. These products are
primarily sold to original equipment manufacturers (OEMs) that serve the
mobile radio and commercial and defense electronics markets. Typical customers
include the U.S. Government, General Dynamics, Motorola, Rockwell Collins,
Lockheed Martin, Northrup Gruman and Raytheon. The Company continues to invest
in production engineering and infrastructure development to penetrate OEM
market segments as they become popular. MFC is concentrating its technical
resources and product development efforts toward potential high volume
customers as part of a concentrated effort to provide substantial long-term
growth.
MFC's BTV/Wireless cable sales increased $33,267 or 16.5% to $235,500 for
the fiscal year ended September 30,2004 when compared to sales of $202,233 for
the fiscal year ended September 30, 2003 primarily due to an increase in
demand for UHF Broadcast products.
Niagara Scientific, Inc. (NSI) sales decreased $473,434 or 67.2% to $230,863
for the fiscal year ended September 30, 2004 when compared to sales of
$704,297 for the fiscal year ended September 30, 2003. Sales of NSI related
equipment can be impacted by the timing of the shipment of the custom designed
equipment and the customer's scheduled delivery dates. NSI's sales order
levels have been negatively impacted by the sluggish economy and reduced
capital spending. Based on backlog, recent quote activity and the general
economic climate, management is expecting little, if any, growth in sales for
NSI for fiscal 2005.
At September 30, 2004, the Company's total backlog of orders, which
represents firm orders from customers, equaled $805,244 compared to $452,789
at September 30, 2003. At September 30, 2004, MFC's backlog of orders equaled
$661,109 compared to $328,809 at September 30, 2003. At September 30, 2004,
NSI's backlog of orders equaled $144,135 compared to $123,980 at September 30,
2003. The total Company backlog at September 30, 2004 is scheduled to ship
during fiscal 2005. However, backlog is not necessarily indicative of future
sales. Accordingly, the Company does not believe that its backlog as of any
particular date is representative of actual sales for any succeeding period.
Gross profit increased $189,276 or 12.7% to $1,679,442 during the fiscal
year ended September 30, 2004 when compared to gross profit of $1,490,166
during the fiscal year ended September 30, 2003. As a percentage of sales,
gross profit increased to 34.4% during the fiscal year ended September 30,
2004 compared to 29.5% during the fiscal year ended September 30, 2003. The
increase in gross profit as a percentage of sales, when compared to the same
period last year, can primarily be attributed to favorable product sales mix
and planned reductions in manufacturing overhead costs. MFC's sales, whose
targeted gross profits are higher than NSI's, represented 95% of total net
sales this year compared to 86% of total net sales for fiscal 2003.
Selling, general and administrative (SG&A) expenses decreased $218,909 or
11.2% to $1,743,621, or 35.8% of sales, during the fiscal year ended September
30, 2004 when compared to SG&A expenses of $1,962,530, or 38.8% of sales,
during the fiscal year ended September 30, 2003. The reductions were primarily
related to decreases in payroll and payroll related expenses. Due to the
uncertain economic climate, the Company has been emphasizing cost controls and
cost cutting measures to minimize operating expenses.
18
Income from operations increased $408,185 to a loss from operations of
$64,179 during the fiscal year ended September 30, 2004 when compared to a
loss from operations of $472,364 during the fiscal year ended September 30,
2003. The improvement can primarily be attributed to the improved gross
margins and the reductions in SG&A expenses this year when compared to the
same period last year. On an industry segment basis, MFC's income from
operations increased $298,858 to income from operations of $32,320 for the
fiscal year ended September 30, 2004 compared to a loss from operations of
$267,886 for the fiscal year ended September 30, 2003 due primarily to the
MFC's higher sales volume and reduced operating expenses. NSI recorded a loss
from operations of $96,499 for the fiscal year ended September 30, 2004
compared to a loss from operations of $204,478 for the fiscal year ended
September 30, 2003. NSI's improvement can primarily be attributed to planned
reductions in operating expenses. NSI's losses from operations can partly be
attributed to the absorption of fixed overhead expenses.
As a result of the Company's cumulative losses, the Company recorded a non-
cash charge to establish a valuation allowance of $288,293 against net
deferred tax assets for the fiscal year ended September 30, 2004. The charge
was calculated in accordance with the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109), which
requires an assessment of both positive and negative evidence when measuring
the need for a valuation allowance. Evidence, such as operating results during
the most recent three-year period, is given more weight when due to our
current lack of visibility, there is a greater degree of uncertainty that the
level of future profitability needed to record the deferred tax assets will be
achieved. Our results over the most recent three-year period have been
negatively affected by the downturn in the telecommunications marketplace, the
sluggish economy and reduced capital spending. The Company's losses in the
most recent three-year period, inclusive of the loss for the fiscal year ended
September 30, 2004, represented sufficient negative evidence to require a
valuation allowance under the provisions of SFAS 109. The Company will
maintain a valuation allowance until sufficient positive evidence exists to
support its reduction or reversal.
The Company recorded a provision for income taxes of $145,889 for the fiscal
year ended September 30, 2004 compared to a benefit for income taxes of
$163,928 for the fiscal year ended September 30, 2003. The change can
primarily be attributed to the Company providing a full valuation allowance on
its deferred tax assets and the lower pre-tax loss this year when compared to
the same period last year. In addition, the Company assessed its net current
taxes payable and recorded an adjustment of approximately $93,000 to reflect a
revision of estimated taxes payable.
19
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
MFC defines liquidity as the ability to generate adequate funds to meet its
operating and capital needs. The Company's primary source of liquidity has
been funds provided by operations.
September 30
2006 2005 2004 2003
Cash & cash equivalents $705,646 $1,251,594 $817,338
$646,886
Investments $798,544 $822,651 $851,157
$875,671
Working capital $2,063,269 $2,622,768 $2,213,155
$2,203,072
Current ratio 5.05 to 1 5.02 to 1 4.60 to 1 4.09 to 1
Long-term debt $ 0 $ 0 $ 0
Cash and cash equivalents increased $434,256decreased $545,948 to $705,646 at September 30,
2006 when compared to $1,251,594 at September 30, 2005 when compared to $817,338 at September 30, 2004.2005. The increasedecrease was a
result of $457,577$209,258 in net cash provided byused in operating activities, $30,394$34,497 in net
cash used in investing activities and $7,073$302,193 in net cash provided byused in financing
activities.
The positive cash flow from operations was primarily due to income before
depreciation.
The net increasedecrease of $41,338$151,048 in accounts receivable at September 30, 2005,2006,
when compared to September 30, 2004,2005, can primarily be attributed to the
increasedecrease in shipments during the month ended September 30, 20052006 when compared
to the month ended September 30, 2004.2005.
20
The net decrease of $82,280$64,755 in inventories at September 30, 2005,2006, when
compared to September 30, 2004,2005, can primarily be attributed to a decrease in
purchases due to the lower sales volume this year compared to last year, our
customers scheduled delivery of NSI's sales order backlog of September 30, 2004 duringdates and an increase in the quarter
ended December 31, 2004.reserve for
obsolescence. The Company provides for a valuation reserve for certain
inventory that is deemed to be obsolete, of excess quantity or otherwise
impaired. The Company's inventory valuation reserves equaled $389,200 at
September 30, 2006 compared to $362,139 at September 30, 2005 compared to $386,749 at September 30, 2004.2005. The decreaseincrease of
$24,610$27,061 in inventory reserves at September 30, 2005,2006, when compared to
September 30, 2004,2005, can primarily be attributed to the disposalobsolescence of
specific inventory items due to obsolescence.product enhancements or the slow movement of
certain inventory items due to a decrease in demand. Based on current and
expected inventory levels, management believes any change to the inventory
valuation reserves will not have a material impact on future results of
operations, capital resources or liquidity. All such inventory items are
written down to their estimated net realizable value.
The net increasedecrease in other current assets of $82,568$55,364 at September 30, 2005,2006,
when compared to September 30, 2004,2005, can primarily be attributed to an
increasea decrease
in prepaid expenses due primarily to increased costs and the timing of the payments when compared
to last year.
The net decrease of $56,808 in customer deposits at September 30, 2005, when
compared to September 30, 2004, can primarily be attributed to the shipment of
NSI's sales order backlog of September 30, 2004 during the quarter ended
December 31, 2004.
20
The net increase of $109,083$88,342 in other current liabilities at September 30,
2005,2006, when compared to September 30, 2004,2005, can primarily be attributed to the
Company'sa
discretionary profit sharing contribution of $62,000 accrued at September 30,
2005 compared to $02005. No discretionary profit sharing contribution was accrued at September
30, 2004 and an increase in
accrued sales commissions payable at September 30, 2005 due to the higher
commissionable sales during the quarter ended September 30, 2005 when compared
to last year.2006.
Cash used in investing activities during fiscal 20052006 consisted of funds
provided by the sale of investments of $28,506$24,107 and funds used for capital
expenditures of $58,900.$58,604.
Cash provided byused in financing activities during fiscal 20052006 consisted of funds provided by the exerciseused
to pay a cash dividend of stock options of $9,484$290,916 and fundscash used to purchase treasury stock of
$2,411.$11,277.
At September 30, 2005,2006, the Company had unused aggregate lines of credit
totaling $750,000 collateralized by all inventory, equipment and accounts
receivable.
Management believes that its working capital requirements for the foreseeable
future will be met by its existing cash balances, future cash flows from
operations and its current credit arrangements.
21
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS,
FINANCIAL CONDITON OR BUSINESS
- ----------------------------------------------------------------------------------------------------------------------------------------------------------
An investment in our common stock involves a high degree of risk. The
risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties that we are unaware of, or that we may
currently deem immaterial, may become important factors that harm our
business, financial condition or results of operations. If any of the
following risks actually occurs, our business, financial condition or results
of operations could suffer. In that case, the trading price of our common
stock could decline, and you may lose all or part of your investment.
Demand for existing products may decline.
Demand for our products depends upon, among other factors, the level of
capital expenditures by current and prospective customers, the rate of
economic growth in the markets in which we compete and the competitiveness of
our products. Changes in any of these factors could have an adverse effect on
our financial condition or results of operations.
We must continue to assess and predict customer needs and evolving
technologies. We must develop new products, including enhancements to existing
products, and successfully manufacture, market and sell these products. If we
are unsuccessful in these areas, our financial condition or results of
operations could be adversely affected.
Our inability to introduce new and enhanced products on a timely basis.
Delays in development, testing, manufacture and/or release of new products
could adversely affect our sales and results of operations. In addition, there
can be no assurance that we will successfully identify new product
opportunities, develop and bring new products to market in a timely manner and
achieve market acceptance of our products, or that products and technologies
developed by others will not render our products or technologies obsolete or
noncompetitive.
Market acceptance of newly developed products may be slower than anticipated.
The markets for our products are competitive and may be characterized by
rapid technological change, new product development and evolving industry
standards. If technologies supported by our products become obsolete or fail
to gain widespread acceptance, our business could be harmed. Current and
potential competitors may have substantially greater financial, technical,
marketing, distribution and other resources than us, and have greater name
recognition and market acceptance of their products and technologies. Our
competitors may develop new technologies or products that may offer superior
price or performance features and may render our products and technologies
obsolete and noncompetitive.
22
Pricing pressures from our customers and/or market pressure from competitors
may reduce selling prices.
Many of customers are under continuous pressure to reduce costs and,
therefore, we expect to continue to experience pressure from these customers
to reduce the prices of the products that we sell to them. To offset declining
average sales prices, we believe that we must achieve manufacturing cost
reductions and increase our sales volumes. If we are unable to offset
declining average selling prices, our gross margins will decline, and this
decline could materially harm our business, financial condition and operating
results. We also compete with companies which have substantially larger
operations and greater financial, engineering, marketing, production and other
resources than we have. These competitors may develop their products more
quickly, devote greater marketing and sales resources, or offer more
aggressive pricing, than we can. As a result, this could cause us to lose
orders or customers or force reductions in selling prices, all of which would
have a material adverse impact on our financial position and results of
operations.
Difficulty in obtaining an adequate supply of raw materials or components at
reasonable prices.
The Company depends on outside suppliers for raw materials, components and
parts, and services. Although items are generally available from a number of
suppliers, the Company purchases certain raw materials and components from a
single supplier. If such a supplier should cease to supply an item, the
Company believes that new sources could be found to provide the raw materials
and components. However, manufacturing delays and added costs could result.
The Company has not experienced significant delays of this nature in the past,
but there can be no assurance that delays in delivery due to supply shortages
will not occur in the future. Substantial periods of lead time for delivery of
certain materials are sometimes experienced by the Company, making it
necessary to inventory varied quantities of materials.
Loss of key personnel or the inability to attract new employees.
Governmental regulatory actionsOur success depends in large part on the continued service of our key
technical and management personnel, and on our ability to attract and retain
qualified employees, particularly those involved in the development of new
products and processes and the manufacture of existing products. The
competition for these individuals is significant, and the loss of key
employees could adversely affectharm our business.
21
Off-Balance Sheet Arrangements
At September 30, 20052006 and 2004,2005, the Company did not have any unconsolidated
entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities, which might have been
established for the purpose of facilitating off-balance sheet arrangements.
23
Critical Accounting Policies
The Company's consolidated financial statements are based on the application
of accounting principles generally accepted in the United States of America
(GAAP). GAAP requires the use of estimates, assumptions, judgments and
subjective interpretations of accounting principles that have an impact on
the assets, liabilities, revenue and expense amounts reported. The Company
believes its use of estimates and underlying accounting assumptions adhere to
GAAP and are consistently applied. Valuations based on estimates are reviewed
for reasonableness and adequacy on a consistent basis throughout the
Company. Primary areas where financial information of the Company is subject
to the use of estimates, assumptions and the application of judgment include
revenues, receivables, inventories, and taxes.
Revenues from product sales are recorded as the products are shipped and
title and risk of loss have passed to the customer, provided that no
significant vendor or post-contract support obligations remain and the
collection of the related receivable is probable. Billings in advance of the
Company's performance of such work are reflected as customer deposits in the
accompanying consolidated balance sheet.
Allowances for doubtful accounts are based on estimates of losses related to
customer receivable balances. The establishment of reserves requires the use
of judgment and assumptions regarding the potential for losses on receivable
balances.
The Company's inventories are valued at the lower of cost or market. The
Company uses certain estimates and judgments and considers several factors
including product demand and changes in technology to provide for excess and
obsolescence reserves to properly value inventory.
The Company established a warranty reserve which provides for the estimated
cost of product returns based upon historical experience and any known
conditions or circumstances. Our warranty obligation is affected by product
that does not meet specifications and performance requirements and any related
costs of addressing such matters.
The Company has deferred tax assets that are reviewed for recoverability and
valued accordingly. These assets are evaluated by using estimates of future
taxable income streams and the impact of tax planning strategies. Valuations
related to tax accruals and assets can be impacted by changes to tax codes,
changes in statutory tax rates and the Company's future taxable income levels.
22The Company has provided a full valuation allowance against its deferred tax
assets.
24
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------------
FASB Interpretation 48 was issued in July 2006 to clarify the criteria for
recognizing tax benefits under FASB Statement No. 109, Accounting for Income
Taxes. The Interpretation defines the threshold for recognizing the benefits
of tax-return positions in the financial statements as "more-likely-than-not"
to be sustained by the taxing authority and will affect many companies'
reported results and their disclosures of uncertain tax positions. The
Interpretation does not prescribe the type of evidence required to support
meeting the more-likely-than-not threshold, stating that it depends on the
individual facts and circumstances. The benefit recognized for a tax position
meeting the more-likely-than-not criterion is measured based on the largest
benefit that is more than 50 percent likely to be realized. The measurement of
the related benefit is determined by considering the probabilities of the
amounts that could be realized upon ultimate settlement, assuming the taxing
authority has full knowledge of all relevant facts and including expected
negotiated settlements with the taxing authority. Interpretation 48 is
effective as of the beginning of the first fiscal year beginning after
December 15, 2006 (the Company's 2008 fiscal year). The company is currently
analyzing the financial statement impact of adopting this pronouncement.
Accounting for Pension and Other Postretirement Benefits -- In November 2004,September
2006, the Financial Accounting Standards Board (FASB)FASB published Statement of Financial Accounting Standards No. 151, Inventory Costs,158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans. This
statement requires companies to report on their balance sheets the funded
status of pension and other post retirement benefit plans. The proposal would
also require companies to measure plan assets and obligations as of the
employer's balance-sheet date. As a result, companies would recognize on their
balance sheets actuarial gains and losses and prior service cost that have not
yet been included in income. This could significantly increase reported
liabilities for many companies with a corresponding reduction in equity
reported as accumulated other comprehensive income. The provisions for the
statement are effective for fiscal years ending after December 15, 2006, (the
Company's 2007 fiscal year) with earlier application encouraged. The Company
does not expect the adoption of SFAS No. 158 in fiscal 2008 to have an amendmentimpact
on its results of ARBoperations or financial position.
In September 2006, SEC Staff Accounting Bulletin No. 43, Chapter 4.108 was issued to
provide guidance on Quantifying Financial Statement 151 amendsMisstatements. Staff
Accounting Bulletin No. 108 addresses how the effects of prior-year
uncorrected misstatements should be considered when quantifying misstatements
in current-year financial statements. The SAB requires registrants to quantify
misstatements using both the balance sheet and income-statement approaches and
to evaluate whether either approach results in quantifying an error that is
material in light of relevant quantitative and qualitative factors. The SAB
does not change the staff's previous guidance in Chapter 4, "Inventory Pricing"SAB 99 on evaluating the
materiality of ARBmisstatements. When the effect of initial adoption is
determined to be material, the SAB allows registrants to record that effect as
a cumulative-effect adjustment to beginning-of-year retained earnings. The
requirements are effective for annual financial statements covering the first
fiscal year ending after November 15, 2006 (the Company's fiscal 2007).
25
Fair Value Measurements. In September 2006, the FASB published Statement of
Financial Accounting No. 43157, Fair Value Measurements. This Statement
establishes a single authoritative definition of fair value, sets out a
framework for measuring fair value, and clarifiesrequires additional disclosures about
fair-value measurements. The Statement applies only to fair-value measurements
that are already required or permitted by other accounting standards and is
expected to increase the accounting for
abnormal amountsconsistency of idle facility expense, freight, handling costs,those measurements. It will also
affect current practices by nullifying the Emerging Issues Task Force (EITF)
guidance that prohibited recognition of gains or losses at the inception of
derivative transactions whose fair value is estimated by applying a model and
wasted
material (spoilage).by eliminating the use of "blockage" factors by brokers, dealers, and
investment companies that have been applying AICPA Guides. The Statement 151 requires that those items be recognized as
current-period charges. Statement 151 also requires that allocation of fixed
production overheads to the costs of conversion be based on the normal
capacity of the production facilities. Statement 151 is
effective for inventory costs incurred duringfair-value measures already required or permitted by other
standards for financial statements issued for fiscal years beginning after
JuneNovember 15, 2005.
Statement 1512007 (the Company's fiscal 2009) and interim periods within those
fiscal years. Early application is effectivepermissible only if no annual or interim
financial statements have been issued for the Company's 2006 fiscal year and is not
expected to have a material impact onearlier periods. The
requirements of the Company's financial statements.
In December 2004, the Financial Accounting Standards Board (FASB) issued
FASB Statement No. 123R, "Share-Based Payment" (FAS 123R), a revision of FASB
Statement No. 123, "Accountingare applied prospectively, except for Stock-Based Compensation", which addresses
financial accounting and reporting for costs associated with stock-based
compensation. FAS 123R addresses all forms of share-based payment ("SBP")
awards, including shares issued under employee stock purchase plans, stock
options, restricted stock and stock appreciation rights. FAS 123R requires
Microwave Filter Company, Inc. to adopt the new accounting provisions
beginning in our first quarter of 2006. Under the Modified Prospective Method,
we do not anticipate recording any compensation expense at time of adoption
since all options granted were fully vested.
The American Jobs Creation Act of 2004, signed into law in October 2004,
provides for a variety of changes in
the tax law including incentivesfair value related to repatriate undistributed earningsestimating he fair value of foreign subsidiaries, phased elimination
of the Foreign Sales Corporation/Extraterritorial Income benefita large block position and
a
domestic manufacturing benefit. We are currently evaluating the potential
impact of this legislation and assessing the domestic manufacturing benefit.
We do not believe this Act will have a significant impactinstruments measured at fair value at initial recognition based on the Company's
financial positiontransaction
price in accordance with EITF 02-3 or results of operations in the future.
23
Statement 155.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- --------------------------------------------------------------------------------
In an effort to provide investors a balanced view of the Company's current
condition and future growth opportunities, this Annual Report on Form 10-K may
include comments by the Company's management about future performance. These
statements which are not historical information are "forward-looking
statements" pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These, and other forward-looking statements,
are subject to business and economic risks and uncertainties that could cause
actual results to differ materially from those discussed. These risks and
uncertainties include, but are not limited to: risks associated with demand
for and market acceptance of existing and newly developed products as to which
the Company has made significant investments; general economic and industry
conditions; slower than anticipated penetration into the satellite
communications, mobile radio and commercial and defense electronics markets;
competitive products and pricing pressures; increased pricing pressure from
our customers; risks relating to governmental regulatory actions in broadcast,
communications and defense programs; as well as other risks and uncertainties,
including but not limited to those detailed from time to time in the Company's
Securities and Exchange Commission filings. These forward-looking statements
are made only as of the date hereof, and the Company undertakes no obligation
to update or revise the forward-looking statements, whether as a result of new
information, future events or otherwise. You are encouraged to review
Microwave Filter Company's 20052006 Annual Report and Form 10-K for the fiscal
year ended September 30, 20052006 and other Securities and Exchange Commission
filings. Forward looking statements may be made directly in this document or
"incorporated by reference" from other documents. You can find many of these
statements by looking for words like "believes," "expects," "anticipates,"
"estimates," or similar expressions.
26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has limited exposure to market risk as the Company has no long
term debt as of September 30, 2005.2006. The Company's available line of credit is
based on a factor of the prime rate; however, there are no outstanding
borrowings under the line of credit. The Company does not trade in derivative
financial instruments. Investments generally consist of commercial paper,
government backed obligations and other guaranteed commercial debt that have
an original maturity of more than three months and a remaining maturity of
less than one year. Investments are carried at cost which approximates market.
The Company's policy is to hold investments until maturity. The Company's
practice is to invest cash with financial institutions that have acceptable
credit ratings.
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements and Financial Statement Schedule called for by this
item are submitted as a separate section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
1. On January 31, 2005, PricewaterhouseCoopers LLP ("PwC") resigned as the
independent registered public accounting firm for Microwave Filter Company,
Inc. (the "Company"). The reports of PwC on the Company's financial statements
as of and for the years ended September 30, 2004 and 2003 did not contain an
adverse opinion, a disclaimer of opinion, nor were the reports qualified or
modified as to uncertainty, audit scope or accounting principle. During the
years ended September 30, 2004 and 2003 and through January 31, 2005, there
were no disagreements with PWC on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved, to PwC's satisfaction, would have
caused them to make reference thereto in their reports on the financial
statements for such years.
2. On March 8, 2005, the Audit Committee of the Board of Directors of
Microwave Filter Company, Inc. engaged the services of Rotenberg & Co. LLP as
its new independent accountants to audit its financial statements for the
fiscal year ended September 30, 2005.
27
ITEM 9A. CONTROLS AND PROCEDURES
1. Evaluation of disclosure controls and procedures. Based on their
evaluation of the Company's disclosure controls and procedures (as
defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this
Annual Report on Form 10-K, the Company's chief executive officer
and chief financial officer have concluded that the Company's
disclosure controls and procedures are effective.
2. Changes in internal control over financial reporting. During the
quarter ended September 30, 2005,2006, there were no changes in the
Company's internal control over financial reporting (as defined
in Rule 13a-15(f)) that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
None.
2528
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The names of, and certain information with respect to, the directors of MFC
is set forth below:
Common Shares
Actually or Percent
Beneficially of
Director Principal occupation Owned 12/1/0506 Class
TRUDI B. ARTINI Mrs. Artini is an independent 32,435 1.1%
(a)(b)(d) investor in MFC and various other
Age 83 business enterprises in Syracuse,
Director since 1974 New York.
DAVID B. ROBINSON MD Dr. Robinson is Emeritus Professor 58,571 2.0%
(a)(b)(d) of Psychiatry at Upstate Medical
Age 81 University, State University of New
Director since 1977 York at Syracuse. He was a faculty
member from 1958 until his retirement
in 1985 and served as Acting Chairman
of the Dept. of Psychiatry for six
of those years. He was elected to
serve as a Skaneateles Town Councilman
from 1990 to 1998. In 1980, he was a
founding member of the Skaneateles
Festival of Chamber Music.
ROBERT R. ANDREWS Mr. Andrews is the President and 1,214 *
(a)(c) Principal shareholder of Morse
Age 6465 Manufacturing Co., Inc., East
Director since 1992 Syracuse, N.Y. which produces
specialized material handling
equipment and has served in that
capacity since prior to 1985. He
received a B.A degree from
Arkansas University and has
served as Vice President and a
director of the Manufacturers'
Association of Central New York,
President of the Citizens
Foundation, a Trustee of Dewitt
Community Church, director of the
Salvation Army and Chairman of
the Business and Industry
Council of Onondaga Community
College. Mr. Andrews was elected
Chairman of the Board of Directors
of Microwave Filter Company, Inc. on
November 17, 2004.
26TRUDI B. ARTINI Mrs. Artini is an independent 32,435 1.1%
(a)(b)(d) investor in MFC and various other
Age 84 business enterprises in Syracuse,
Director since 1974 New York.
SIDNEY CHONG Mr. Chong is a corporate 335 *
(a)(b)(c) accountant for Carrols Corp. in
Age 65 Syracuse. Prior to joining Carrols
Director since 1995 Corp., he was a Senior Accountant
with Price Waterhouse and Co. in
New York City. Mr. Chong has a
Bachelor of Science degree in
accounting from California State
University.
29
Common Shares
Actually or Percent
Beneficially of
Director Principal occupation Owned 12/1/0506 Class
CARL F. FAHRENKRUG PE Mr. Fahrenkrug was appointed 72,298 2.5%
(a) President and Chief Executive
Age 6364 Officer of MFC on October 7,
Director since 1984 1992. He has also served as
President and Chief Executive
Officer of NSI since prior to
1986. He served as Vice
President of Engineering at
Microwave Systems, Inc.,
Syracuse, N.Y. from 1972-1976.
Mr. Fahrenkrug has a B.S. and
M.S. in Engineering and an MBA
from Syracuse University.
MILO PETERSON Mr. Peterson has served as 42,250 1.5%
(a) Executive Vice President and
Age 65 Corporate Secretary of NSI since
Director since 1990 January 1, 1992. Mr. Peterson
graduated from programs at Yale
University and Syracuse
University. He served as Vice
President of Manufacturing of
Microwave Systems, Inc.,
Syracuse, N.Y. from 1970-1976.
He was elected Vice President
And Corporate Secretary of MFC
On March 27, 1993.
FRANK S. MARKOVICH Mr. Markovich is a consultant in 4,340 *
(c)(d) the manufacturing operations
Age 60 and training field. Prior to that
Director since 1992 he was the Director of the
Manufacturing Extension
Partnership at UNIPEG Binghamton.
He held various high level
positions in operations, quality
and product management in a 20
year career with BF Goodrich
Aerospace, Simmonds Precision
Engine Systems of Norwich, New
York. He completed US Navy
Electronics and Communications
Schools and received an MBA from
Syracuse University.
27
Common Shares
Actually or Percent
Beneficially of
Director Principal occupation Owned 12/1/05 Class
SIDNEY CHONG Mr. Chong is a corporate 335 *
(a)(b)(c) accountant for Carrols Corp. in
Age 64 Syracuse. Prior to joining Carrols
Director since 1995 Corp., he was a Senior Accountant
with Price Waterhouse and Co. in
New York City. Mr. Chong has a
Bachelor of Science degree in
accounting from California State
University.
Daniel GalballyDANIEL GALBALLY Mr. Galbally is an accountant 0
(b)(c)(d) for Nucor Steel Auburn, Inc.
Age 5859 in Auburn, New York. Prior to
Director since 1995 joining Nucor Steel Auburn, he
was the controller of Diamond Card
Exchange, Inc. in Syracuse, New
York. He was the controller of
Evaporated Metal Films (EMF) in
Ithaca, N.Y. Before joining EMF,
he worked as controller and acting
vice president of finance at
Philips Display Components Co.
He has a bachelor's degree in
accounting and an MBA from
Syracuse University.
RichardRICHARD L. JonesJONES Mr. Jones was appointed a Director 0
Age 5758 of Microwave Filter Company, Inc. on
Director since 2004 September 7, 2004. Mr. Jones has
served as a Vice President and the
Chief Financial Officer of Microwave
Filter Company, Inc. since October 7,
1992. He has a Bachelor of Science
degree in accounting from Syracuse
University.
30
Common Shares
Actually or Percent
Beneficially of
Director Principal occupation Owned 12/1/06 Class
FRANK S. MARKOVICH Mr. Markovich is a consultant in 4,340 *
(c)(d) the manufacturing operations
Age 61 and training field. Prior to that
Director since 1992 he was the Director of the
Manufacturing Extension
Partnership at UNIPEG Binghamton.
He held various high level
positions in operations, quality
and product management in a 20
year career with BF Goodrich
Aerospace, Simmonds Precision
Engine Systems of Norwich, New
York. He completed US Navy
Electronics and Communications
Schools and received an MBA from
Syracuse University.
MILO PETERSON Mr. Peterson has served as 42,250 1.5%
(a) Executive Vice President and
Age 66 Corporate Secretary of NSI since
Director since 1990 January 1, 1992. Mr. Peterson
graduated from programs at Yale
University and Syracuse
University. He served as Vice
President of Manufacturing of
Microwave Systems, Inc.,
Syracuse, N.Y. from 1970-1976.
He was elected Vice President
And Corporate Secretary of MFC
On March 27, 1993.
ARNOLD POLTENSON Mr. Poltenson retired in 1989 as 0
Age 70 president and owner of Salina Press,
Director since 2006 Inc., a commercial printing company.
He holds a BA from Amherst College
and a MBA from Syracuse University.
After his retirement, Mr. Poltenson
spent several years teaching at the
Business School at Syracuse University
in the department of Law and Public
Policy. He has worked for the Hospice
of Central New York and the Central
New York Community Foundation. He has
been active on many non-profit boards
in the area and currently serves on the
executive committee of the Onondaga
Historical Association.
31
(a)Member of Executive Committee
(b)Member of Compensation Committee
(c)Member of Finance and Audit Committee
(d)Member of Nominating Committee
* Denotes less than one percent of class.
28
The Directors listed above and executive officers as a group own 211,443152,872
shares or approximately 7%5% of the outstanding common shares of the Company.
The Board of Directors of Microwave Filter Company, Inc. has determined that
Mr. Chong and Mr. Galbally, both members of the Audit Committee, are "audit
committee financial experts" as defined by the SEC's regulations.
IDENTIFICATION OF EXECUTIVE OFFICERS
Name Age Position
Carl F. Fahrenkrug 6364 President and Chief Executive Officer
Richard L. Jones 5758 Vice President and Chief Financial
Officer
Milo J. Peterson 6566 Vice President and Corporate Secretary
Paul W. Mears 4647 Vice President of Engineering
All of the officers serve at the pleasure of the Board of Directors.
Carl F. Fahrenkrug was elected President and Chief Executive Officer of MFC on
October 7, 1992. Prior to that date, he had been Executive Vice President and
Chief Operating Officer of MFC. Prior to January 1, 1992, he was President and
CEO of NSI and Vice President of Corporate Development for MFC.
Richard L. Jones joined MFC in August 1983 as controller. In February 1985, he
was appointed Vice President and Treasurer of MFC. On October 7, 1992, he was
appointed Vice President and Chief Financial Officer.
Milo J. Peterson was elected Vice President and Corporate Secretary of MFC on
March 27, 1993. Mr. Peterson has served as Executive Vice President and
Corporate Secretary of NSI. He served as Vice President of Manufacturing of
Microwave Systems, Inc., Syracuse, NY, from 1970 - 1976.
Paul W. Mears began his association with MFC as a Co-op while attending RIT in
1981. He became a full time employee in 1984 when he began his duties as an
Electrical Engineer in Research and Development. In 1988 he became a Senior
Design and Quotation Engineer and in 1989, he was promoted to Assistant Chief
Engineer, Manager of Engineering of the Filter Division and in April of 1998,
Was appointed Vice President of Engineering.
32
The Company has adopted a Code of Ethics and Business Conduct for all of our
employees and directors, including our Chief Executive Officer and Chief
Financial Officer. A copy of our Code of Ethics and Business Conduct is
available free of charge on our Company web site at www.microwavefilter.com.
29
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth for the fiscal years ended September 30, 2006,
2005 2004 and 2003,2004, compensation paid by MFC to the named executive officers in all
capacities in which they served.
SUMMARY COMPENSATION TABLE
Annual Compensation
Salary Bonus
Name and principal position Year ___$___ ___$___
Carl F. Fahrenkrug 2005 122,6872006 116,188 -
President and CEO 2005 122,687 -
2004 117,869 -
2003 119,019 -
PROFIT SHARING
- --------------
MFC has a profit sharing plan for all employees over the age of 21 with one
year of service. Annual contributions are determined by the Board of Directors
and are made from current or accumulated net income. Allocation of
contributions to plan participants are based upon annual compensation.
Participants vest on the basis of 20% after 3 years of service, 40% at 4
years, 60% at 5 years, 80% at 6 years and 100% at 7 years.
MFC also has a voluntary 401-K plan. Eligibility is the same as the Profit
Sharing Plan. Contributions to the 401-K plan were matched at a rate of 100%
of an employee's first 3% of contributions and 50% of an employee's next 2%6% of contributions during fiscal 2005.2006. The maximum
corporate match was 4%6% of an employee's compensation during fiscal 2005.2006.
MFC's contributions to the plans for the years ended September 30, 2006,
2005 2004 and 20032004 amounted to $97,748, $134,126 $67,675 and $80,017,$67,675, respectively.
STOCK OPTIONS
- -------------
On April 9, 1998, the Board of Directors and Shareholders of Microwave
Filter Company, Inc. approved the 1998 Microwave Filter Company, Inc.
Incentive Stock Plan (the "1998 Plan"). Under the 1998 Plan, the Company may
grant incentive stock options ("ISOs"), non-qualified stock options ("NQSOs")
and stock appreciation rights to directors, officers and employees of the
Company and its affiliates. The 1998 Plan reserves 150,000 shares for
issuance. The exercise price of the ISOs and NQSOs will be 100% of the fair
market value of the Common Stock on the date the ISOs and NQSOs are granted.
The 1998 Plan will terminate on April 10, 2008. On June 21, 2004, the Board of
Directors granted ISOs totaling 115,000 shares and NQSOs totaling 35,000
shares at an exercise price of $1.47. All options were 100% vested.
3033
A summary of all stock option activity and information related to all options
outstanding follows:
2006
--------
ISOs NQSOs
-------- --------
Exercise Shares Exercise Shares
Price Price
-------- -------- -------- --------
Outstanding at
beginning of year $1.47 108,548 $1.47 30,000
Granted - 0 - 0
Exercised - 0 - 0
Cancelled - 0 - 0
------ -------- ------ --------
Outstanding at
end of year $1.47 108,548 $1.47 30,000
------ -------- ------ --------
Exercisable at
end of year $1.47 108,548 $1.47 30,000
------ -------- ------- --------
2005
--------
ISOs NQSOs
-------- --------
Exercise Shares Exercise Shares
Price Price
-------- -------- -------- --------
Outstanding at
beginning of year $1.47 115,000 $1.47 35,000
Granted - -0 - 0
Exercised $1.47 6,452 - 0
Cancelled - 0 $1.47 5,000
------ -------- ------ --------
Outstanding at
end of year $1.47 108,548 $1.47 30,000
------ -------- ------ --------
Exercisable at
end of year $1.47 108,548 $1.47 30,000
------ -------- ------ --------
Exercisable at
end of year $1.47 108,548 $1.47 30,000
------ -------- ------- --------
2004
--------
ISOs NQSOs
-------- --------
Exercise Shares Exercise Shares
Price Price
-------- -------- -------- --------
Outstanding at
beginning of year - 0 - 0
Granted $1.47 115,000 $1.47 35,000
Exercised - 0 - 0
Cancelled - 0 - 0
------ -------- ------ --------
Outstanding at
end of year $1.47 115,000 $1.47 35,000
------ -------- ------ --------
Exercisable at
end of year $1.47 115,000 $1.47 35,000
------ -------- ------- --------
3134
COMPENSATION OF DIRECTORS
- -------------------------
Non-officer directors currently receive fees of $300.00 per board and
committee meetings. MFC also reimburses directors for reasonable expenses
incurred in attending meetings. The Chairman of the Board receives $500.00 per
board and committee meetings. Officer members receive no compensation for
their attendance at meetings.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The following table sets forth information as to the only persons known by
the Company to own beneficially more than 5% of the Common Stock of the Company
on December 1, 2005.2006.
% of
Outstanding
Number of shares
Common
Name of Beneficial Owner Address Beneficially Owned ____Stock____
Frederick A. Dix & 209 Watson Rd. 244,007 8.4%
Marjorie Dix N. Syracuse, NY 13212
The information relating to the ownership of common stock held by the
directors and executive officers of the corporation is set forth in item 10 of
this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by this Item is contained in the Company's proxy
statement filed with respect to the 20062007 Annual Meeting of Shareholders and is
incorporated by reference herein.
3235
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. and 2. Financial Statements and Schedule:
Reference is made to the list of Financial Statements and
the Financial Statement Schedule submitted as a separate
section of this report.
(b) Reports On Form 8-K:
None
(C) Exhibits:
Reference is made to the List of Exhibits submitted as a separate
section of this report.
3336
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Microwave Filter Company, Inc. has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MICROWAVE FILTER COMPANY, INC.
|S| Carl F. Fahrenkrug
- --------------------------
By: Carl F. Fahrenkrug
(President and Chief Executive Officer)
|S| Richard Jones
- ---------------------
By: Richard Jones
(Vice President and Chief Financial Officer)
Dated: December 22, 200521, 2006
Pursuant to the requirements Of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
|S| Robert R. Andrews |S| Carl F. Fahrenkrug
- ------------------------ --------------------------
Robert R. Andrews Carl F. Fahrenkrug
(Director) (Director)
|S| Milo J. Peterson |S| Richard L. Jones
- ------------------------ -----------------------
Milo J. Peterson Richard L. Jones
(Director) (Director)
|S| Sidney Chong
- --------------------
Sidney Chong
(Director)
Dated: December 22, 2005
3421, 2006
37
ANNUAL REPORT ON FORM 10-K
MICROWAVE FILTER COMPANY, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
ITEM 8, ITEM 15(a)(1) and (2)
CONSOLIDATED FINANCIAL STATEMENTS: Page
Reports of Independent Registered Public Accounting Firms........36-37Firms........39-40
Consolidated Balance Sheets as of September 30, 20052006 and 2004....382005....41
Consolidated Statements of Operations for the Years
Ended September 30, 2006, 2005 and 2004 and 2003 .......................39.......................42
Consolidated Statements of Stockholders' Equity for the Years
Ended September 30, 2006, 2005 and 2004 and 2003 .......................40.......................43
Consolidated Statements of Cash Flows for the Years
Ended September 30, 2006, 2005 and 2004 and 2003 .......................41.......................44
Notes to Consolidated Financial Statements.......................42-53Statements.......................45-56
SCHEDULE FOR THE YEARS ENDED SEPTEMBER 30, 2006, 2005 2004 AND 2003:2004:
II-Valuation and Qualifying Accounts.............................55Accounts.............................58
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
3538
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and Stockholders
Microwave Filter Company, Inc. and Subsidiary
East Syracuse, New York
We have audited the accompanying consolidated balance sheetsheets of Microwave
Filter Company, Inc. and Subsidiary as of September 30, 2006 and 2005, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for each of the year then ended.two years in the period ended
September 30, 2006 and 2005. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.audits.
We conducted our auditaudits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the auditaudits to obtain reasonable assurance about
whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audit providesaudits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company as of September 30, 2006 and 2005, and the results of its operations
and its cash flows for each of the year thentwo years in the period ended September 30,
2006 and 2005, in conformity with accounting principles generally accepted in
the United States of America.
Rotenberg & Co., LLP
Rochester, New York
November 18, 2005
3617, 2006
39
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
of Microwave Filter Company, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index appearing under Item 15(a) (1) present fairly, in all
material respects, the financial positionresults of operations and cash flows of Microwave
Filter Company, Inc. and its subsidiaries at September 30, 2004, and the results of their
operations and their cash flows for the yearsyear ended September 30,
2004 and
2003 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement
schedules listed in the accompanying index appearing under Item 15(a) (2)
present fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules
based on our audits. We conducted our audits of these statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Syracuse, New York
December 10, 2004
3740
Microwave Filter Company and Subsidiaries
Consolidated Balance Sheets
September 30
Assets 2006 2005 2004
- ------ ---- ----
Current assets:
Cash and cash equivalents $ 705,646 $1,251,594
$ 817,338
Investments 798,544 822,651 851,157
Accounts receivable-trade, net of allowance for
doubtful accounts of $12,000 and $16,000 344,134 495,182
Accrued federal and $25,000 495,182 453,844state income tax recoverable 137,986 0
Inventories 491,135 555,890 638,170
Prepaid expenses and other current assets 94,826 150,190 67,622
--------- ---------
Total current assets 2,572,271 3,275,507 2,828,131
Property, plant and equipment, net 554,102 658,898 798,474
Deferred tax asset - noncurrent 0 49,247 0
---------- ----------
Total Assets $3,126,373 $3,983,652 $3,626,605
========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 190,372179,800 $ 180,032190,372
Customer deposits 20,298 9,874 66,682
Accrued federal and state income taxes 0 23,099 425
Accrued payroll and related expenses 61,028 59,432 82,324
Accrued compensated absences 210,825 227,717 252,351
Other current liabilities 37,051 142,245 33,162
--------- ---------
Total current liabilities 509,002 652,739 614,976
--------- ---------
Total liabilities 509,002 652,739 614,976
--------- ---------
Commitments (Note 6)
Stockholders' equity:
Common stock, $.10 par value. Authorized 5,000,000 shares
Issued 4,324,140 in 2006 and 2005 and 4,317,688 in 2004 432,414 431,769432,414
Additional paid-in capital 3,248,706 3,239,8673,248,706
Retained earnings 456,183 1,158,448 846,237
Common stock in treasury, at cost, 1,421,788
shares in 2006 and 1,414,840 shares in 2005 and 1,413,260 shares in 2004(1,519,932) (1,508,655) (1,506,244)
--------- ---------
Total stockholders' equity 2,617,371 3,330,913 3,011,629
--------- ---------
Total Liabilities and Stockholders' Equity $3,126,373 $3,983,652 $3,626,605
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
3841
Microwave Filter Company and Subsidiaries
Consolidated Statements of Operations
For the Years Ended September 30
2006 2005 2004 2003
---- ---- ----
Net sales $4,536,715 $5,533,398 $4,876,219 $5,059,520
Cost of goods sold 3,043,720 3,338,211 3,196,777 3,569,354
--------- --------- ---------
Gross profit 1,492,995 2,195,187 1,679,442 1,490,166
Selling, general
and administrative expenses 2,022,485 1,910,951 1,743,621 1,962,530
--------- --------- ---------
Income (loss)(Loss) income from operations (529,490) 284,236 (64,179) (472,364)
Non-operating Income
Interest income 71,297 41,862 14,734
24,634
Miscellaneous 9,312 25,868 19,017 1,402
------- ------- -------
Income (loss)(Loss) income before
income taxes (448,881) 351,966 (30,428)
(446,328)
Provision (benefit)(Benefit) provision for
income taxes (37,532) 39,755 145,889 (163,928)
-------- --------- ---------
NET (LOSS) INCOME (LOSS)($411,349) $312,211 ($176,317) ($282,400)
======== ========= =========
Per share data:
Basic (Loss) Earnings (Loss) Per
Common Share $.11($0.14) $0.11 ($0.06) ($0.10)
========= ========= =========
Diluted (Loss) Earnings (Loss) per
Common Share $.10($0.13) $0.10 ($0.06) ($0.10)
========= ========= =========
Shares used in computing net
(loss) earnings (loss) per common share:
Basic 2,905,355 2,908,503 2,904,669
2,904,781
Diluted 3,043,903 3,049,115 2,946,482 2,904,781
The accompanying notes are an integral part of the consolidated financial
statements.
3942
Microwave Filter Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended September 30, 2006, 2005 2004 and 20032004
-----------------------------------------------------
Additional Total
Common Stock Paid-in Retained Treasury Stock Stockholders'
Shares Amt Capital Earnings Shares Amt Equity
------ --- ------- -------- ------ --- ------
Balance,
September 30, 20022003 4,317,688 $431,769 $3,239,867 $1,595,432$1,022,554 1,412,907 ($1,505,714) $3,761,354
Net (loss) (282,400) (282,400)
Cash dividend paid
($.10 per share) (290,478) (290,478)
--------- -------- ---------- -------- ------- ---------- ----------
Balance,
September 30, 2003 4,317,688 431,769 3,239,867 1,022,554 1,412,907 (1,505,714) 3,188,476$3,188,476
Net (loss) (176,317) (176,317)
Purchase of treasury stock 343 (530) (530)
Donated capital 10
--------- -------- ---------- -------- ------- --------- ---------- ---------- ------- ---------- -------------------
Balance,
September 30, 2004 4,317,688 431,769 3,239,867 846,237 1,413,260 (1,506,244) 3,011,629
Net income 312,211 312,211
Stock options exercised 6,452 645 8,839 9,484
Purchase of treasury stock 1,580 (2,411) (2,411)
---------- --------- ---------- ---------- ------- ---------- ------------------- ---------
Balance
September 30, 2005 4,324,140 432,414 3,248,706 1,158,448 1,414,840 (1,508,655) 3,330,913
Net (loss) (411,349) (411,349)
Purchase of treasury stock 6,948 (11,277) (11,277)
Cash dividend paid
($.10) per share (290,916) (290,916)
---------- --------- ---------- ---------- ------- --------- ---------
Balance
September 30, 2006 4,324,140 $432,414 $3,248,706 $1,158,448 1,414,840$456,183 1,421,788 ($1,508,655) $3,330,9131,519,932) $2,617,371
========== ======== ========== ========== ========= ===================== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
4043
Microwave Filter Company and Subsidiaries
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
------------------------------------------------
For the Years Ended September 30
--------------------------------
2006 2005 2004 2003
---- ---- ----
Cash flows from operating activities:
Net (loss) income ($411,349) $312,211 ($176,317) ($282,400)
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating
activities:
Depreciation 163,400 198,476 222,799 269,155
Provision for doubtful accounts (4,853) (8,473) (40,137) 15,675
Inventory obsolescence provision (27,061) (24,610) (15,225) 56,813
Deferred income taxes 32,395 (32,395) 246,377 (96,597)
Changes in assets and liabilities:
Accounts receivable-trade 155,901 (32,865) (95,356) 44,610
Federal and state income taxes (161,085) 22,673 39,910
(273,331)
Inventories 91,816 106,890 84,645
198,764
Other assets 55,364 (82,568) 25,044 27,913
Accounts payable and customer deposits (148) (46,468) (69,513) (2,925)
Accrued payroll, compensated absences and
related expenses (15,296) (47,526) (16,695) (23,849)
Other current liabilities (88,342) 92,232 (12,310) (100,843)
--------- -------- -------
Net cash (used in) provided by
(used in)
operating activities (209,258) 457,577 193,222 (167,015)
--------- -------- ---------
Cash flows from investing activities:
Investments 24,107 28,506 24,514
502,094
Capital expenditures (58,604) (58,900) (46,754) (46,911)
-------- -------- --------
Net cash (used in) provided byused in investing activities (34,497) (30,394) (22,240) 455,183
-------- -------- --------
Cash flows from financing activities:
Purchase of treasury stock (11,277) (2,411) (530) 0
Stock options exercised 0 9,484 0 0
Cash dividend paid (290,916) 0 0 (290,478)
-------- -------- --------
Net cash used in(used in) provided by
financing activities (302,193) 7,073 (530) (290,478)
-------- -------- --------
Net (decrease) increase (decrease)
in cash and cash equivalents (545,948) 434,256 170,452 (2,310)
Cash and cash equivalents at
beginning of year 1,251,594 817,338 646,886
649,196
-------- --------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $705,646 $1,251,594 $817,338
$646,886========= ========== ======== ========
Supplemental disclosures of cash flows:
Cash paid (refunded) during the year
for (approximately):
Interest $0 $0 $0
Income taxes $91,000 $50,000 ($116,000) $206,000
The accompanying notes are an integral part of the consolidated financial
statements.
4144
Microwave Filter Company and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Nature of Business
Microwave Filter Company, Inc. operates primarily in the United States and
principally in two industries. The Company extends credit to business
customers, including original equipment manufacturers (OEMs), distributors
and other end users, based upon ongoing credit evaluations. Microwave Filter
Company, Inc. designs, develops, manufactures and sells electronic filters,
both for radio and microwave frequencies, to help process signal distribution
and to prevent unwanted signals from disrupting transmit or receive operations.
Markets served include cable television, television and radio broadcast,
satellite broadcast, mobile radio, commercial and defense electronics. Niagara
Scientific, Inc. custom designs case packing machines to automatically pack
products into shipping cases. Customers are processors of food and other
commodity products with a need to reduce labor cost with a modest investment
and quick payback.
b. Basis of Consolidation
The consolidated financial statements include the accounts of Microwave
Filter Company, Inc. (MFC) and its wholly-owned subsidiaries, Niagara
Scientific, Inc. (NSI) and Microwave Filter International, LTD. (MFI)
(dormant); located in Syracuse, New York. All significant intercompany
balances and transactions have been eliminated in consolidation.
c. Revenue Recognition
The Company recognizes revenue at the time products are shipped to customers
and title and risk of loss have passed to the customer. The Company is not
required to install any of its products. Payments received from customers in
advance of products shipped are recorded as customer advance payments until
earned.
d. Cash and Cash Equivalents
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and accounts receivable. The Company's
cash is held at federally insured institutions and balances may periodically
exceed insured limits. The Company considers all highly liquid investments purchasedhas not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk with
an
original maturityrespect to cash. The Company also routinely assesses the financial strength
of 90 days or less to be cash equivalents. The carrying
value at September 30, 2005its customers and, September 30, 2004 approximates fair value.
Substantially all cash balances were invested at one financial institution at
September 30, 2005 and 2004.as a consequence, believes that its trade accounts
receivable credit risk exposure is limited.
e. Investments
Investments generally consist of commercial paper, government backed
obligations and other guaranteed commercial debt that have an original maturity
of more than three months and a remaining maturity of less than one year.
Investments are carried at cost which approximates market. The Company's policy
is to hold investments until maturity. The Company's practice is to invest cash
with financial institutions that have acceptable credit ratings.
4245
f. Trade Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and do not
bear interest. The allowance for doubtful accounts is the Company's best
estimate of the amount of probable credit losses in the Company's existing
accounts receivable. The Company reviews its allowance for doubtful accounts
monthly. Past due balances over 90 days are reviewed individually for
collectibility. Account balances are charged off against the allowance after
all means of collection have been exhausted and the potential for recovery is
considered remote. The Company does not have any off-balance-sheet credit
exposure related to its customers.
g. Inventories and Reserve for Obsolescence
Inventories are stated at the lower of cost determined on the first-in, first-outfirst-
out method or market.
The Company records a reserve for obsolete or excess inventory. The Company
considers inventory quantities greater than a one-year supply based on current
year activity as well as any additional specifically identified inventory to
be excess. The Company also provides for the total value of inventories that
are determined to be obsolete based on criteria such as customer demand and
changing technologies.
h. Research and Development
Costs in connection with research and development, which amount to $420,570,
$373,080 $312,189 and $349,203$312,189 for the fiscal years 2006, 2005 2004 and 2003,2004, respectively,
are charged to operations as incurred.
i. Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the
respective assets. Buildings and building improvements are depreciated over an
estimated service life of 20 to 30 years. Machinery and equipment are
depreciated over an estimated useful life of 3 to 10 years. Office equipment
and fixtures are depreciated over an estimated useful life of 3 to 10 years.
At the time of sale or retirement, the cost and accumulated depreciation are
removed from the respective accounts and the resulting gain or loss is
recognized in income.
j. Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards (SFAS) No. 109. Deferred tax assets and liabilities are based on
the difference between the financial statement and tax basis of assets and
liabilities as measured by the enacted tax rates which are anticipated to be
in effect when these differences reverse. The deferred tax provision is the
result of the net change in the deferred tax assets and liabilities. A
valuation allowance is established when it is necessary to reduce deferred
tax assets to amounts expected to be realized. AsThe Company has provided a result of
the Company's losses, the Company recorded a non-cash charge to establish afull
valuation allowance of $288,293 against netits deferred tax assets for the fiscal
year ended September 30, 2004. The charge was calculated in accordance with
the provisions of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109), which requires an assessment of both
positive and negative evidence
43assets.
46
when measuring the need for a valuation allowance. Evidence, such as operating
results during the most recent three-year period, is given more weight when
due to our current lack of visibility, there is a greater degree of
uncertainty that the level of future profitability needed to record the
deferred tax assets will be achieved. The Company's losses for that three-year
period represented sufficient negative evidence to require a valuation
allowance under the provisions of SFAS 109. The Company will maintain a
valuation allowance until sufficient positive evidence exists to support its
reduction or reversal.
k. Earnings Per Share
The Company presents basic earnings per share ("EPS"), computed based on the
weighted average number of common shares outstanding for the period, and when
applicable diluted EPS, which gives the effect to all dilutive potential
shares outstanding (i.e. options) during the period after restatement for any
stock dividends. Income used in the EPS calculation is net income for each
year.
l. Fair Value of Financial Instruments
The carrying values of the Company cash and cash equivalents, accounts
receivable and accounts payable approximate fair value because of the short
maturity of those instruments.
The Company currently does not trade in or utilize derivative financial
instruments.
m. Miscellaneous Non-operating Income
Miscellaneous non-operating income generally consists of sales of scrap
material, stock transfer fees, the forfeiture of non-refundable deposits and
other incidental items.
n. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
o. Warranty Costs
The Company established a warranty reserve which provides for the estimated
cost of product returns based upon historical experience and any known
conditions or circumstances. Our warranty obligation is affected by product
that does not meet specifications and performance requirements and any related
costs of addressing such matters. Warranty costs were approximately $3,000,
$7,000 $6,000 and $10,000$6,000 for the fiscal years 2006, 2005 2004 and 2003,2004, respectively.
p. Impairment of Long-Lived Assets
The carrying values of long-lived assets other than goodwill are generally
evaluated for impairment only if events or changes in facts and circumstances
indicate that carrying values may not be recoverable. Any impairment
determined would be recorded in the current 44
period and would be measured by
comparing the fair value of the related asset to its carrying value. Fair
value is generally determined by identifying estimated undiscounted cash flows
to be generated by those assets. No impairments have been recorded for the
years ended September 30, 2006, 2005, 2004,
and 2003.2004.
47
q. Stock-Based CompensationNew Accounting Pronouncements
FASB Interpretation 48 was issued in July 2006 to clarify the criteria for
recognizing tax benefits under FASB Statement No. 109, Accounting for Income
Taxes. The Interpretation defines the threshold for recognizing the benefits
of tax-return positions in the financial statements as "more-likely-than-not"
to be sustained by the taxing authority and will affect many companies'
reported results and their disclosures of uncertain tax positions. The
Interpretation does not prescribe the type of evidence required to support
meeting the more-likely-than-not threshold, stating that it depends on the
individual facts and circumstances. The benefit recognized for a tax position
meeting the more-likely-than-not criterion is measured based on the largest
benefit that is more than 50 percent likely to be realized. The measurement of
the related benefit is determined by considering the probabilities of the
amounts that could be realized upon ultimate settlement, assuming the taxing
authority has full knowledge of all relevant facts and including expected
negotiated settlements with the taxing authority. Interpretation 48 is
effective as of the beginning of the first fiscal year beginning after
December 15, 2006 (the Company's 2008 fiscal year). The company is currently
analyzing the financial statement impact of adopting this pronouncement.
Accounting for Pension and Other Postretirement Benefits -- In September
2006, the FASB published Statement of Financial Accounting No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans. This
statement requires companies to report on their balance sheets the funded
status of pension and other post retirement benefit plans. The proposal would
also require companies to measure plan assets and obligations as of the
employer's balance-sheet date. As a result, companies would recognize on their
balance sheets actuarial gains and losses and prior service cost that have not
yet been included in income. This could significantly increase reported
liabilities for many companies with a corresponding reduction in equity
reported as accumulated other comprehensive income. The provisions for the
statement are effective for fiscal years ending after December 15, 2006, (the
Company's 2007 fiscal year) with earlier application encouraged. The Company
measures compensation expense fordoes not expect the adoption of SFAS No. 158 in fiscal 2008 to have an impact
on its stock-option based
employee compensation plansresults of operations or financial position.
In September 2006, SEC Staff Accounting Bulletin No. 108 was issued to
provide guidance on Quantifying Financial Statement Misstatements. Staff
Accounting Bulletin No. 108 addresses how the effects of prior-year
uncorrected misstatements should be considered when quantifying misstatements
in current-year financial statements. The SAB requires registrants to quantify
misstatements using both the intrinsic value method.balance sheet and income-statement approaches and
to evaluate whether either approach results in quantifying an error that is
material in light of relevant quantitative and qualitative factors. The following
table sets forthSAB
does not change the pro formastaff's previous guidance in SAB 99 on evaluating the
materiality of misstatements. When the effect of these plansinitial adoption is
determined to be material, the SAB allows registrants to record that effect as
ifa cumulative-effect adjustment to beginning-of-year retained earnings. The
requirements are effective for annual financial statements covering the fair value-
based method had been used to measure compensation expense.
Year ended
September 30
2005 2004
-------- --------
(thousands of dollars, except
per share data)
Net earnings (loss), as
reported $312 ($176)
Fair value based stock
compensation cost, net
of tax 0 (156)
---- ----
Pro forma earnings (loss) $312 ($332)
==== =====
Earnings (loss) per share:
Basic $0.11 ($0.06)
Diluted $0.10 ($0.06)
Pro forma earnings (loss) per share:
Pro forma basic $0.11 ($0.11)
Pro forma diluted $0.10 ($0.11)
Shares used in computing net (loss)
earnings per common share
Basic 2,909 2,905
Diluted 3,049 2,946
For thefirst
fiscal year endedending after November 15, 2006 (the Company's fiscal 2007).
48
Fair Value Measurements. In September 30, 2004,2006, the FASB published Statement of
Financial Accounting No. 157, Fair Value Measurements. This Statement
establishes a single authoritative definition of fair value, sets out a
framework for measuring fair value, and requires additional disclosures about
fair-value measurements. The Statement applies only to fair-value measurements
that are already required or permitted by other accounting standards and is
expected to increase the consistency of those measurements. It will also affect
current practices by nullifying the Emerging Issues Task Force (EITF) guidance
that prohibited recognition of gains or losses at the inception of derivative
transactions whose fair value is estimated by applying a model and by
eliminating the use of "blockage" factors by brokers, dealers, and investment
companies that have been applying AICPA Guides. The Statement is effective for
fair-value measures already required or permitted by other standards for
financial statements issued for fiscal years beginning after November 15, 2007
(the Company's fiscal 2009) and interim periods within those fiscal years. Early
application is permissible only if no annual or interim financial statements
have been issued for the earlier periods. The requirements of the Statement are
applied prospectively, except for changes in fair value related to estimating
the fair value of optionsa large block position and instruments measured at the date of grant was estimated using the Black-Scholes modelfair value
at initial recognition based on transaction price in accordance with the
following assumptions:
Expected option life 5 years
Risk-free interest rate 4.24%
Expected dividend yield 0.00%
Expected volatility 101.00%
45
EITF 02-3
or Statement 155.
2. INVENTORIES
Inventories net of provision for obsolescence
consisted of the following: September 30
2006 2005 2004
---- ----
Raw materials and stock parts $411,885 $448,176
$428,424
Work-in-process 20,437 42,250 125,811
Finished goods 58,813 65,464 83,935
-------- ---------
$491,135 $555,890 $638,170
======== ==========
The Company's reserve for obsolescence equaled $389,200 at September 30,
2006 and $362,139 at September 30, 2005 and $386,749 at September 30, 2004.2005.
49
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
September 30
2006 2005 2004
---- ----
Land $143,000 $143,000
Building and improvements 1,818,633 1,818,633
Machinery and equipment 3,106,412 3,094,390 3,068,237
Office equipment and fixtures 1,644,200 1,597,618 1,564,871
--------- ---------
6,712,245 6,653,641 6,594,741
Less: Accumulated depreciation 6,158,143 5,994,743 5,796,267
--------- ---------
$554,102 $658,898 $798,474
========== ==========
4. CREDIT FACILITIES
The Company has unused aggregate lines of credit totaling $750,000
collateralized by inventory, equipment and accounts receivable.
5. PROFIT SHARING AND 401-K PLANS
The Company maintains both a non-contributory profit sharing plan and a
contributory 401-K plan for all employees over the age of 21 with one year of
service. Annual contributions to the profit sharing plan are determined by
the Board of Directors and are made from current or accumulated earnings,
while contributions to the 401-K plan were matched at a rate of 100% of an
employee's first 3% of contributions and 50% of an employee's next 2%6% of contributions during fiscal 2005.2006. The maximum corporate
match was 4%6% of an employee's compensation during fiscal 2005.
46
2006.
The Company's matching contributions to the 401-K plan for the years ended
September 30, 2006, 2005 and 2004 were $97,748, $72,126 and 2003 were $72,126, $67,675, and $80,017,
respectively. Additionally, the Company may make discretionary contributions
to the non-contributory profit sharing plan. These contributions were $0,
$62,000
$0 and $0 in 2006, 2005 and 2004, and 2003, respectively.
50
6. OBLIGATIONS UNDER OPERATING LEASES
The Company leases equipment under operating lease agreements expiring at
various dates through September 30, 2009. Rental expense under these leases
for the years ended September 30, 2006, 2005 2004 and 20032004 amounted to $11,159,
$11,180 $11,074 and $13,711,$11,074, respectively.
Minimum rental commitments at September 30, 20052006 for these leases are:
Year Ended Lease
September 30 Payments
------------ --------
2006 10,754
2007 10,75411,159
2008 9,1949,587
2009 2,2562,436
2010 0
2011 0
-------
$32,958$23,182
=======
7. INCOME TAXES
The provision for income taxes consisted of the following:
Year Ended September 30
2006 2005 2004 2003
Currently payable:
Federal ($128,967) $71,500 ($100,913)
($70,831)
State 650 650 425 3,500
Deferred (credit) 90,785 (32,395) 246,377 (96,597)
------- ------- -------
($37,532) $39,755 $145,889
($163,928)
======= =============== ========
A reconciliation of the statutory federal income tax rate and the Company's
effective income tax rate is as follows:
47
Year ended September 30
______2006______ ______2005______ ______2004______ ______2003______
Amount % Amount % Amount %
Statutory tax rate ($152,620)(34.0%) $119,668 34.034.0% ($10,346) (34.0%)($151,752) (34.0%)
Surtax exemption
State income tax net of:
Federal benefit 429 0.1% 429 0.1% 0 .0% 2,310 0.5%0.0%
Research and experimentation
tax credits 0 0.0% (26,431) (7.5%) 0 .0% 0 .0%0.0%
Valuation allowance 90,785 20.2% 0 .0%0.0% 246,377 809.7% 0 .0%
Revision of estimated
taxes payable 0 .0%0.0% 0 0.0% (92,907)(305.3%) 0 .0%
Federal AMT rate
differential 0 0.0% (54,255)(15.4%) 0 0.0%
Other 23,874 5.3% 344 0.1% 2,765 9.1%
(14,486) (3.2%)------- ---- ------- ---- -------- -----
-------- -----($37,532) (8.4%) $39,755 11.3% $145,889 479.5%
($163,928) (36.7%)======= ==== ======= ==== ======== =====
======== =====51
The temporary differences which give rise to deferred tax assets and
(liabilities) at September 30 are as follows:
2006 2005 2004
---- ----
Inventory $138,789 $129,527 $138,235
Accrued warranty 4,250 4,250
Accrued vacation 61,242 64,300 69,564
Accounts receivable 3,923 5,573 8,453
Valuation allowance (220,502)(208,204) (220,502)
------- -------
Net deferred tax assets
(liabilities) - current $0 ($16,852) $0
-------- -------
Accelerated depreciation ($11,983) ($38,482) ($66,350)
Research and experimentation
tax credit carry forward 143,458 116,121 94,400
AMT credit carry forward 39,399 39,399
State net operating loss
carry forward 0 342
Valuation allowance (67,791)(170,874) (67,791)
------- -------
Net deferred tax assets
(liabilities) - noncurrent $0 $49,247 $0
------- -------
Net deferred tax assets $0 $32,395
$0
======== ========
48
=======
As required by Statement of Financial Accounting Standards No. 109, the
Company has evaluated the positive and negative evidence bearing upon the
realization of its deferred tax assets. The Company has determined that, at
this time, it is more likely than not that the Company will not realize all of
the benefits of federal and state deferred tax assets, and, as a result, a
valuation allowance was established. The research and experimentation tax
credit carry forwards expire in 2024.2025. At September 30, 2005,2006, the Company's
federal AMT credit can be carried forward indefinitely.
52
8. INDUSTRY SEGMENT DATA
The Company's primary business segments involve (1) operations of Microwave
Filter Company, Inc. (MFC) which manufactures electronic filters used for
preventing interference or signal processing in cable television, satellite,
broadcast, aerospace and government markets; and (2) operations of Niagara
Scientific, Inc. (NSI) which manufactures industrial automation equipment.
Information by industry segment is as follows: (thousands of dollars)
2006 2005 2004 2003
Net Sales (Unaffiliated):
MFC $4,516 $5,345 $4,645
$4,356
NSI 21 188 231
704
Total $4,537 $5,533 $4,876 $5,060
Operating Profit (Loss): (a)
MFC ($476) $297 $32
($268)
NSI (53) (13) (96)
(204)
Total ($529) $284 ($64) ($472)
Identifiable Assets: (b)
MFC $2,386 $2,680 $2,671
$3,033
NSI 35 52 139
222
Subtotal 2,421 2,732 2,810 3,255
Corporate Assets-Cash and
Cash Equivalents 706 1,252 817
647
Total $3,127 $3,984 $3,627 $3,902
Depreciation Expense:
MFC $163 $196 $219
$264
NSI 0 2 4
5
Total $163 $198 $223 $269
Capital Expenditures:
MFC $ 59 $ 4759 $ 47
NSI 0 0 0
Total $ 59 $ 4759 $ 47
Significant Export Sales:
MFC $279 $355 $309 $366
Customers:
In 2005, sales to one MFC customer totaled approximately $624,000 and
exceeded 10% of consolidated net sales.
49
(a) Operating profit (loss) is total revenue less operating expenses. In
computing operating profit, none of the following items have been added or
deducted: interest income, interest expense, income taxes and
miscellaneous income. Expenses incurred on behalf of both Companies are
allocated based upon estimates of their relationship to each entity.
(b) Identifiable assets by industry are those assets that are used in the
Company's operations in each industry.
53
9. STOCK OPTIONS
On April 9, 1998, the Board of Directors and Shareholders of Microwave
Filter Company, Inc. approved the 1998 Microwave Filter Company, Inc.
Incentive Stock Plan (the "1998 Plan"). Under the 1998 Plan, the Company may
grant incentive stock options ("ISOs"), non-qualified stock options ("NQSOs")
and stock appreciation rights to directors, officers and employees of the
Company and its affiliates. The 1998 Plan reserves 150,000 shares for
issuance. The exercise price of the ISOs and NQSOs will be 100% of the fair
market value of the Common Stock on the date the ISOs and NQSOs are granted.
The 1998 Plan will terminate on April 10, 2008. On June 21, 2004, the Board of
Directors granted ISOs totaling 115,000 shares and NQSOs totaling 35,000
shares at an exercise price of $1.47. All options granted were 100% vested.
A summary of all stock option activity and information related to all options
outstanding follows:
2006
--------
ISOs NQSOs
-------- --------
Exercise Shares Exercise Shares
Price Price
-------- -------- -------- --------
Outstanding at
beginning of year $1.47 108,548 $1.47 30,000
Granted - 0 - 0
Exercised - 0 - 0
Cancelled - 0 - 0
------ -------- ------ --------
Outstanding at
end of year $1.47 108,548 $1.47 30,000
------ -------- ------ --------
Exercisable at
end of year $1.47 108,548 $1.47 30,000
------ -------- ------- --------
54
2005
--------
ISOs NQSOs
-------- --------
Exercise Shares Exercise Shares
Price Price
-------- -------- -------- --------
Outstanding at
beginning of year $1.47 115,000 $1.47 35,000
Granted - -0 - 0
Exercised $1.47 6,452 - 0
Cancelled - 0 $1.47 5,000
------ -------- ------ --------
Outstanding at
end of year $1.47 108,548 $1.47 30,000
------ -------- ------ --------
Exercisable at
end of year $1.47 108,548 $1.47 30,000
------ -------- ------ --------
Exercisable at
end of year $1.47 108,548 $1.47 30,000
------ -------- ------- --------
50
2004
--------
ISOs NQSOs
-------- --------
Exercise Shares Exercise Shares
Price Price
-------- -------- -------- --------
Outstanding at
beginning of year - 0 - 0
Granted $1.47 115,000 $1.47 35,000
Exercised - 0 - 0
Cancelled - 0 - 0
------ -------- ------ --------
Outstanding at
end of year $1.47 115,000 $1.47 35,000
------ -------- ------ --------
Exercisable at
end of year $1.47 115,000 $1.47 35,000
------ -------- ------ --------
5155
10. Stock Based Compensation
The Company measures compensation expense for its stock-option based
employee compensation plans using the intrinsic value method. The following
table sets forth the pro forma effect of these plans as if the fair value-
based method had been used to measure compensation expense.
Year ended
September 30
2005 2004
-------- --------
(thousands of dollars, except
per share data)
Net earnings (loss), as
reported $312 ($176)
Fair value based stock
compensation cost, net
of tax 0 (156)
---- -----
Pro forma earnings (loss) $312 ($332)
==== =====
Earnings (loss) per share:
Basic $0.11 ($0.06)
Diluted $0.10 ($0.06)
Pro forma earnings (loss) per share:
Pro forma basic $0.11 ($0.11)
Pro forma diluted $0.10 ($0.11)
Shares used in computing net (loss)
earnings per common share
Basic 2,909 2,905
Diluted 3,049 2,946
For the fiscal year ended September 30, 2004 the fair value of options at
the date of grant was estimated using the Black-Scholes model with the
following assumptions:
Expected option life 5 years
Risk-free interest rate 4.24%
Expected dividend yield 0.00%
Expected volatility 101.00%
11. LEGAL MATTERS
There are currently no material pending legal proceedings against the
Company or its subsidiaries.
52
12. SUBSEQUENT EVENTS
On November 9, 2005, the Board of Directors of Microwave Filter Company,
Inc. declared a ten cents per share cash dividend to shareholders of record on
December 9, 2005 to be distributed on January 9, 2006.
13.11. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following table sets forth certain unaudited quarterly financial
information For the years ended September 30, 20052006 and 2004:2005:
2006 Quarter Ended
-----------------------------------------------------
Dec. 31 March 31 June 30 Sept. 30
---------- ---------- ---------- ----------
Net sales $1,080,836 $1,292,429 $1,098,395 $1,065,055
Cost of sales $ 720,495 $ 810,946 $ 785,610 $ 726,669
Net (loss) income $ (121,407) $ (42,289) $ (178,515) $ (69,138)
(Loss) earnings
per common share: $ (.04) $ (.01) $ (.06) $ (.03)
2005 Quarter Ended
-----------------------------------------------------
Dec. 31 March 31 June 30 Sept. 30
------------ ------------ ------------ -----------
Net sales $1,180,694 $1,411,780 $1,547,158 $1,393,766
Cost of sales $ 758,657 $ 846,729 $ 902,660 $ 830,165
Net (loss) income $ (5,288) $ 92,220 $ 121,089 $ 104,190
(Loss) earnings
per common share: $ (.00) $ .03 $ .04 $ .04
2004 Quarter Ended
-----------------------------------------------------
Dec. 31 March 31 June 30 Sept. 30
------------ ------------ ------------ --------------------- ---------- ---------- ----------
Net sales $1,233,280 $1,022,496 $1,373,974 $1,246,469$1,180,694 $1,411,780 $1,547,158 $1,393,766
Cost of sales $ 888,705758,657 $ 721,538846,729 $ 874,505902,660 $ 712,029830,165
Net (loss) income $ (44,550)(5,288) $ (247,618)92,220 $ 50,381121,089 $ 65,470104,190
(Loss) earnings
per common share: $ (.02)(.00) $ (.09).03 $ .02.04 $ .02.04
5356
EXHIBIT INDEX
Page
Exhibit No. Description Number
3.1 MFC Certificate of Corporation, as amended. *
3.2 MFC Amended and Restated Bylaws. *
10.1 Bond Purchase Agreement dated as of February 22,1984 *
among MFC, Onondaga County Industrial Development Agency
("OCIDA") and Key Bank of Central New York ("Bondholder").
10.2 Lease Agreement dated as of February 22, 1984 between MFC and OCIDA. *
10.3 Mortgage and Security Agreement dated as of February 22, 1984 from *
MFC and OCIDA to the Bondholder.
10.4 Guaranty Agreement dated as of February 22, 1984 from MFC to OCIDA *
and the Bondholder.
31.1 Section 13a-14(a)/15d-14(a) Certification of Carl F. Fahrenkrug
31.2 Section 13a-14(a)/15d-14(a) Certification of Richard L. Jones
32.1 Section 1350 Certification of Carl F. Fahrenkrug
32.2 Section 1350 Certification of Richard L. Jones
* Previously filed
5457
Microwave Filter Company and Subsidiaries
Schedule II - VALUATION AND QUALIFYING ACCOUNTS
SEPTEMBER 30, 2006, 2005 2004 and 20032004
Col. A Col. B Col. C Col. D Col. E
Additions
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
- ----------- --------- ----------------------- ---------- ----------
Year ended September 30, 20052006
Allowance for doubtful accounts $24,863 $8,473 $16,390 $0 $4,853 $11,537
Inventory valuation reserves 386,749 24,610 362,139 27,061 389,200
-------- ------- ------ ------- --------
$411,612$378,529 $27,061 $0 $0 $33,083 $378,529$4,853 $400,737
======== ======= ====== ======= ========
Year ended September 30, 20042005
Allowance for doubtful accounts $65,000 $40,137 $24,863 $8,473 $16,390
Inventory valuation reserves 401,974 15,225 386,749 24,610 362,139
-------- ------- ------ ------- --------
$466,974$411,612 $0 $0 $55,362 $411,612$33,083 $378,529
======== ======= ====== ======= ========
Year ended September 30, 20032004
Allowance for doubtful accounts $49,325 $15,675 $65,000 $40,137 $24,863
Inventory valuation reserves 345,161 56,813 401,974 15,225 386,749
-------- ------- ------ ------- --------
$394,486 $72,488$466,974 $0 $0 $466,974$55,362 $411,612
======== ======= ====== ======= ========
5558