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, 2006_____________________________2008_____________________________
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.)
incorporation or organization)
_____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 or a smaller reporting company
(as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer ______ Accelerated filer ______
Non-accelerated filer ___X___.______ (Do not check if smaller reporting company)
Smaller reporting company ____X____.
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). 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, 2006,2008, was approximately $3,266,382.$1,395,806.
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, 2006: 2,902,3522008: 2,648,451
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 20072009 Annual Meeting of Shareholders are
incorporated by 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.)
2
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 20062008 Annual Report and Form 10-K for the fiscal
year ended September 30, 20062008 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 modern CAD system, a test department
with automated network analyzers to 50 GHz, a high capacity conveyor soldering
oven and a fully compliant finishing operation andoperation. The Company's Quality
Management System has been certified ISO 9001:2000 recognizing the Company as
a TQM/ISO9000 based quality assurance program to insure the intrinsic quality of the products produced.vendor.
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 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-9000ISO 9001:2000 contract and design review procedures coupled with a QA
department that is compliant with MIL-I-45208 inspection systems and MIL-STD-45622MIL-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 -0-40 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 analogTV 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 cable 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 spectrum
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,February 17, 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.
5
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.
6
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.MFC. 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 interestsproducts in those regions.
NSI products are less suitableThe Company's international sales increased $177,622 or 42.4% to $596,321 for
export for a numberthe fiscal year ended September 30, 2008 when compared to international sales
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.$418,699 during the fiscal year ended September 30, 2007.
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.
7
EXPORT CONTROLS
- ---------------
Our products are subject to the Export Administration Regulations ("EAR")
administered by the U.S. Department of Commerce and may, in certain instances,
be subject to the International Traffic in Arms Regulations ("ITAR")
administered by the U.S. Department of State. EAR restricts the export of
defense products, technical data and defense services. We believe that we have
implemented internal export procedures and controls in order to achieve
compliance with the applicable U.S. export control regulations.
ENVIRONMENTAL REGULATION
- ------------------------
Compliance with federal, state and local requirements relating to the
discharge of substances into the environment, the disposal of hazardous waste
and other activities affecting the environment has been accomplished without
material effect on the Company's liquidity and capital resources, competitive
position or financial statements and management believes that such compliance
will not have a material effect on the Company's liquidity and capital
resources, competitive position or financial statements in the future.
BACKLOG
- -------
At September 30, 2006,2008, the Company's total backlog of orders, which
represents firm orders from customers, was $731,941$415,911 compared to $692,595$502,760 at
September 30, 2005. Approximately 76% of the2007. The total Company backlog at September 30, 20062008 is
scheduled to ship during fiscal 2007.2009. 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, 2006,2008, the Company employed 5749 full-time and 4 part-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$473,957, $461,954 and $312,189$420,570 for the fiscal years 2006,
20052008,
2007 and 2004,2006, 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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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.
Our 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 harm our business.
118
AVAILABLE INFORMATION
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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.
ITEM 1A. RISK FACTORS
Not applicable.
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.
129
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
MFC's common stock isThe Company's securities are currently quoted on The Pink Sheets
(www.pinksheets.com), an electronic quotation service for securities traded
onover-the-counter, and the NASDAQ over-the-counter market under the
symbol MFCO. The information set forth was obtained from statements provided
by the NASD.OTCBB (www.otcbb.com).
The following table shows the high and low closing sales prices for MFC's
common stock for each full quarterly period within the two most recent fiscal
years. The information set forth was obtained from statements provided by the
NASD and the OTCBB. 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 20062008 High Low
Oct. 1, 20052007 to Dec. 31, 20052007 $ 2.26.94 $ 1.30.60
Jan. 1, 20062008 to Mar. 31, 2006 1.95 1.512008 .94 .70
Apr. 1, 20062008 to June 30, 2006 1.84 1.292008 .96 .56
July 1, 20062008 to Sept. 30, 2006 1.59 1.202008 .85 .65
Fiscal 20052007 High Low
Oct. 1, 20042006 to Dec. 31, 20042006 $ 2.471.67 $ 1.101.07
Jan. 1, 20052007 to Mar. 31, 2005 3.30 1.312007 1.25 .88
Apr. 1, 20052007 to June 30, 2005 2.24 1.212007 1.00 .73
July 1, 20052007 to Sept. 30, 2005 2.05 1.332007 .94 .76
The Company had approximately 650 holders of record of its common stock at
September 30, 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, 2002.2008.
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.
1310
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 reservesreserved 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. The 1998 Plan terminated on April 10, 2008.
Additional information regarding our stock option plan and plan activity for
20062008 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
2008 2007 2006 2005 2004 2003 2002
Net Sales $ 5,231,125 $ 4,634,233 $ 4,536,715 $ 5,533,398 $ 4,876,219
Net Income (Loss) $ 5,059,52039,516 $ 7,251,732
Net (Loss) Income(292,993) $ (411,349) $ 312,211 $ (176,317)
$ (282,400) $ 434,287
Total Assets $ 2,816,736 $ 2,826,042 $ 3,126,373 $ 3,983,652 $ 3,626,605 $ 3,901,545 $ 4,865,885
Long Term Debt $ 0 $ 0 $ 0 $ 0 $ 0
Basic Earnings (Loss)
Per Share $ .01 $ (.10) $ (.14) $ .11 $ (.06) $ (.10) $ .15
Diluted Earnings (Loss)
Per Share $ .01 $ (.10) $ (.13) $ .10 $ (.06)
$ (.10) $ .15
Shares Used In Computing Net
Earnings (Loss) Earnings Per Share:
Basic 2,894,214 2,899,660 2,905,355 2,908,503 2,904,669
2,904,781 2,904,781
Diluted 2,967,274 3,038,098 3,043,903 3,049,115 2,946,482 2,904,781 2,904,781
Cash ($) Dividends Paid Per
Share $ .10 $ .00 $ .00 $ .10 $ .07.00 $ .00
Net income (loss) income as a percentage of: 2008 2007 2006 2005 2004
2003 2002
Net Sales.......................... 0.7% (6.3%) (9.1%) 5.6% (3.6%)
(5.6%) 6.0%
Assets .......................... 1.4% (10.4%) (13.2%) 7.8% (4.9%)
(7.2%Equity............................. 1.7% (12.6%) 8.9%
Equity............................. (15.7%) 9.4% (5.9%) (8.9%9.4% (5.9%) 11.5%
1411
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Microwave Filter Company, Inc. (MFC) operates primarily in the United States
and principally in two industries.one industry. 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 and commercial and defense
electronics. Niagara Scientific, Inc. (NSI), 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. For the
last three years, NSI's sales have consisted of spare parts orders.
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, 2006.2008.
Product group (in thousands) Fiscal 20062008 Fiscal 20052007 Fiscal 20042006
Microwave Filter:
Cable TV $1,958 $1,922 $1,882 $2,598 $2,179
RF/Microwave 1,532 1,497 1,624
1,561 1,149
Satellite 1,549 989 893 1,020 1,082
Broadcast TV 185 191 116 166 235
Niagara Scientific 7 35 21 188 231
------ ------ ------
Total $5,231 $4,634 $4,536 $5,533 $4,876
====== ====== ======
Sales backlog at 9/30 $ 732416 $ 693503 $ 805732
====== ====== ======
Fiscal 20062008 compared to fiscal 20052007
Consolidated net sales for the fiscal year ended September 30, 20062008 equaled
$4,536,715, a decrease$5,231,125, an increase of $996,683$596,892 or 18%12.9%, when compared to consolidated
net sales of $5,533,398$4,634,233 during the fiscal year ended September 30, 2005.
Microwave Filter Company, Inc. (MFC)2007.
12
MFC's Cable TV product sales decreased $829,927increased $35,515 or 15.5%1.8% to $4,515,502$1,957,720 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, 20062008 when compared to Cable TV product
sales of $2,597,756$1,922,205 during the fiscal year ended September 30, 2005.
The2007. Despite
the increase in sales, management continues to project a decrease in sales can be attributeddemand
for Cable TV products due to the transitionshift 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,February 17, 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$35,777 or 4%2.4% to $1,624,435$1,532,711
during the fiscal year ended September 30, 20062008 when compared to sales of
$1,561,641$1,496,934 during the fiscal year ended September 30, 2005. These2007. The Company's
RF/Microwave 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 $127,729increased $560,310 or 12.5%56.7% to $892,717$1,548,838
during the fiscal year ended September 30, 20062008 when compared to $1,020,446sales of
$988,528 during the fiscal year ended September 30, 2005.2007. The decreaseincrease can be
attributed to a
decreasean increase in demand for the Company's filters which suppress strong out-of-bandout-of-
band interference caused by military and civilian radar systems and other
sources. Despite the decrease in sales, managementManagement expects demand for these types of filters to continue with
the proliferation of earth stations world wide and increased sources of
interference.
13
MFC's BTV/Wireless cableBroadcast TV product sales decreased $49,102$6,250 or 29.7%3.3% to $116,484 for
the fiscal year ended September 30,2006 when compared to sales of $165,586$184,910 for
the fiscal year ended September 30, 20052008 when compared to sales of $191,160
for the fiscal year ended September 30, 2007 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, 2006,2008, the Company's total backlog of orders, which
represents firm orders from customers, equaled $731,941$415,911 compared to $692,595$502,760
at September 30, 2005. Approximately 76% of the2007. The total Company backlog at September 30, 20062008 is
scheduled to ship during fiscal 2007.2009. 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 $702,192increased $338,471 or 32%%21.2 to $1,492,995$1,937,219 during the fiscal
year ended September 30, 20062008 when compared to gross profit of $2,195,187$1,598,748
during the fiscal year ended September 30, 2005. The dollar decrease can primarily be
attributed to the lower sales volume.2007. As a percentage of sales,
gross profit decreasedincreased to 32.9%37.0% during the fiscal year ended September 30,
20062008 compared to 39.7%34.5% during the fiscal year ended September 30, 2005.2007. The
decreaseincrease in gross profit as a percentage of sales can alsoprimarily be attributed to the lowerhigher sales
volume resulting in a lower basethis year allowing the Company to better absorb fixed expenses.
Selling, general and administrative (SG&A) expenses increased $111,534decreased $16,589 or
5.8%0.8% to $2,022,485$1,939,422 during the fiscal year ended September 30, 20062008 when
compared to SG&A expenses of $1,910,951$1,956,011 during the fiscal year ended September
30, 2005. The increase is2007. As a percentage of sales, SG&A expenses decreased to 37.1% during
fiscal 2008 when compared to 42.2% during fiscal 2007 due primarily due to planned increases in promotional
expenses andthe
higher payroll and payroll related expensessales volume this year when compared to last year.
Income from operations decreased $813,726improved $355,060 to a loss from operations of $529,490$2,203
during the fiscal year ended September 30, 20062008 when compared to incomea loss from
operations of $284,236$357,263 during the fiscal year ended September 30, 2005.2007. The
decreaseimprovement can primarily be attributed to the lowerhigher sales volume this year
when compared to last year.
Other income increased $12,879decreased $22,676 to $80,609$42,244 for the twelve monthsfiscal year ended
September 30, 20062008 when compared to other income of $67,730$64,920 for the twelve monthsfiscal
year ended September 30, 2005.2007. Other income is primarily interest income
earned on invested cash balances. The increasedecrease in other income can primarily
be attributed to the rise inlower 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 benefitprovision for income taxes of $37,532, an effective
rate of (8.4%),$525 for the fiscal
year ended September 30, 20062008 compared to a provision for income taxes of $39,755, or an effective rate of 11.3%,$650
for the fiscal year ended September 30, 2005.2007. 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 benefit forCompany has determined that, at this time, it is more likely than not that
the current year is
primarily due toCompany will not realize all of the Company's ability to carry back it's operating loss to
fiscal 2005benefits of federal and an increase instate deferred
tax assets, offset by an increase in
theand, as a result, a valuation allowance since the realization of the deferred tax benefit is
not considered more likely than not.
17was established.
14
Fiscal 20052007 compared to fiscal 20042006
Consolidated net sales for the fiscal year ended September 30, 20052007 equaled
$5,533,398,$4,634,233, an increase of $657,179$97,518 or 13.5%2.1%, when compared to consolidated net
sales of $4,876,219$4,536,715 during the fiscal year ended September 30, 2004.2006.
Microwave Filter Company, Inc. (MFC) sales increased $700,073$83,325 or 15.1%1.8% to
$5,345,429$4,598,827 during the fiscal year ended September 30, 20052007 when compared to
sales of $4,645,356$4,515,502 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.2006.
MFC's Cable TV product sales increased $418,976$40,339 or 19.2%2.1% to $2,597,756$1,922,205 during
the fiscal year ended September 30, 20052007 when compared to Cable TV product
sales of $2,178,780$1,881,866 during the fiscal year ended September 30, 2004.
The2006. Despite
the increase in sales, can be attributedmanagement continues to the improved economy mitigating any
drop offproject a decrease in demand
for Cable TV products due to the transitionshift 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 ulticastingmulticasting 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,February 17, 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 $412,951decreased $127,501 or 35.9%7.8% to $1,561,641$1,496,934
during the fiscal year ended September 30, 20052007 when compared to sales of
$1,148,690$1,624,435 during the fiscal year ended September 30, 2004. These2006. The decrease can
be attributed to a decrease in sales to the U. S. Government. For the twelve
months ended September 30, 2007, sales to the U.S. Government equaled $200,681
compared to sales to the U.S. Government of $447,971 during the twelve months
ended September 30, 2006. The Company's RF/Microwave 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.
1815
MFC's Satellite product sales decreased $61,940increased $95,811 or 5.7%10.7% to $1,020,446$988,528 during
the fiscal year ended September 30, 20052007 when compared to $1,082,386sales of $892,717
during the fiscal year ended September 30, 2004.2006. The decreaseincrease can be
attributed to a
decreasethe introduction of new products and 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. Despite the slight decrease in sales, managementManagement 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/Broadcast televison (BTV)/Wireless cable product sales decreased $69,914increased
$74,676 or 29.7%64.1% to $165,586 for
the fiscal year ended September 30,2005 when compared to sales of $235,500$191,160 for the fiscal year ended September 30, 20042007 when
compared to sales of $116,484 for the fiscal year ended September 30, 2006
primarily due to a decreasean increase in demand for UHF Broadcast products.
Niagara Scientific, Inc. (NSI) sales decreased $42,894increased $14,193 or 18.6%66.9% to $187,969$35,406
for the fiscal year ended September 30, 20052007 when compared to sales of $230,863$21,213
for the fiscal year ended September 30, 2004. Sales2006. NSI sales consisted primarily 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.spare part orders during fiscal 2007. 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 2006.2008.
At September 30, 2005,2007, the Company's total backlog of orders, which
represents firm orders from customers, equaled $692,595$502,760 compared to $805,244$731,941
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, 2004.2006. The total Company backlog at September 30, 20052007 is
scheduled to ship during fiscal 2006.2008. 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$105,753 or 30.7%%7.1 to $2,195,187$1,598,748 during the fiscal year
ended September 30, 20052007 when compared to gross profit of $1,679,442$1,492,995 during
the fiscal year ended September 30, 2004.2006. As a percentage of sales, gross
profit increased to 39.7%34.5% during the fiscal year ended September 30, 20052007
compared to 34.4%32.9% during the fiscal year ended September 30, 2004.2006. The
increases in gross profit can primarily be attributed to the higher sales volume, lower
direct labor costs due to efficiency and a favorable product sales mixlower depreciation expense 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 $167,330decreased $66,474 or
9.6%3.3% to $1,910,951, or 34.5% of sales,$1,956,011 during the fiscal year ended September 30, 20052007 when
compared to SG&A expenses of $1,743,621, or 35.8% of sales,$2,022,485 during the fiscal year ended September
30, 2004.2006. The dollar increase isdecrease can primarily relatedbe attributed to increases in payrolllower printing and
payroll relatedmailing costs this year when compared to the same period last year. As a
percentage of sales, SGA expenses decreased to 42.2% during fiscal 2007 when
compared to 44.6% during fiscal 2006 due to both the higher sales volume and
the lower expenses.
19
Income from operations increased $348,415improved $172,227 to $284,236a loss of $357,263 during the
fiscal year ended September 30, 20052007 when compared to a loss from operations
of $64,179$529,490 during the fiscal year ended September 30, 2004.2006. The improvement
can primarily be attributed to the higher sales volume and improved marginslower SGA expenses
this year when compared to last year.
MFC's16
Other income from operations increased $265,017decreased $15,689 to $297,337$64,920 for the fiscal yeartwelve months ended
September 30, 20052007 compared to other income from
operations of $32,320$80,609 for the fiscal yeartwelve months
ended September 30, 2004, due2006. Other income is 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 improvementinterest income earned on
invested cash balances. The decrease in other income can primarily be
attributed to improved marginslower invested cash balances when compared to the same period
last year. Other income may fluctuate based on market interest rates and
planned reductions in SG&A expenses.levels of invested cash balances.
The Company recorded a provision for income taxes of $39,755,$650 for the fiscal
year ended September 30, 2007 compared to a benefit for income taxes of
$37,532, or an effective rate of 11.3%(8.4%)%, 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 use2006. As required by Statement 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 toFinancial Accounting Standards No. 109,
the Company providing a full valuation allowance onhas 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.
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
2008 2007 2006 2005 2004
Cash & cash equivalents $1,417,271 $1,266,979 $705,646
$1,251,594 $817,338
Investments $0 $0 $798,544 $822,651 $851,157
Working capital $1,961,413 $1,876,807 $2,063,269 $2,622,768 $2,213,155
Current ratio 5.055.24 to 1 5.024.69 to 1 4.605.05 to 1
Long-term debt $ 0 $ 0 $ 0
Cash and cash equivalents decreased $545,948increased $150,292 to $705,646$1,417,271 at September 30,
20062008 when compared to $1,251,594$1,266,979 at September 30, 2005.2007. The decreaseincrease was a
result of $209,258$182,704 in net cash provided by operating activities, $29,747 in
net cash used in operating activities, $34,497for capital expenditures and $2,665 in net cash used in investing activities and $302,193 in net cash used in financing
activities.to purchase
treasury stock.
The net decrease of $151,048$64,666 in accounts receivable at September 30, 2006,2008,
when compared to September 30, 2005,2007, can primarily be attributable to an
improvement in accounts receivable collections during the quarter ended
September 30, 2008 when compared to the quarter ended September 30, 2007.
The net decrease of $60,242 in inventories at September 30, 2008, when
compared to September 30, 2007, can primarily be attributed to the decrease in shipments during the month ended September 30, 2006 when compared
to the month ended September 30, 2005.
20
The net decrease of $64,755 in inventories at September 30, 2006, when
compared to September 30, 2005, can primarily be attributed to a decrease in
purchases due to the lowerCompany's
sales volume this year compared to last year,order backlog and our customerscustomer's scheduled delivery dates and an increase in the reserve for
obsolescence.dates.
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$404,457 at September 30, 20062008 compared
to $362,139$389,726 at September 30, 2005.2007. The increase of $27,061$14,731 in inventory
reserves at September 30, 2006, when compared to
September 30, 2005,2008 can primarily be attributed to the obsolescence of
specific inventory items due to 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 decrease in other current assets of $55,364 at September 30, 2006,
when compared to September 30, 2005, can primarily be attributed to a decrease
in prepaid expenses due primarily to the timing of the payments when compared
to last year.
The net decrease of $88,342 in other current liabilities at September 30,
2006, when compared to September 30, 2005, can primarily be attributed to a
discretionary profit sharing contribution of $62,000 accrued at September 30,
2005. No discretionary profit sharing contribution was accrued at September
30, 2006.
Cash used in investing activities during fiscal 2006 consisted of funds
provided by the sale of investments of $24,107 and funds used for capital
expenditures of $58,604.
Cash used in financing activities during fiscal 2006 consisted of funds used
to pay a cash dividend of $290,916 and cash used to purchase treasury stock of
$11,277.17
At September 30, 2006,2008, 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.
Our 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 harm our business.
Off-Balance Sheet Arrangements
At September 30, 20062008 and 2005,2007, 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.
2318
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.
The Company has provided a full valuation allowance against its deferred tax
assets.
2419
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
In February 2007, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities, including an amendment
of FASB Statement No. 115". SFAS 159 permits entities to choose to measure
many financial instruments and certain other items at fair value at specified
election dates. This Statement applies to all entities, including not-for-
profit organizations. SFAS 159 is effective as of the beginning of an
entity's first fiscal year that begins after November 15, 2007. As such, the
Company is required to adopt these provisions at the beginning of the fiscal
year ended September 30, 2009. The Company is currently evaluating the impact
of SFAS 159 on its consolidated financial statements.
FASB Interpretation 48 ("FIN 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""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. InterpretationFIN 48 is
effective as of the beginning of the firstapplies to fiscal
yearyears beginning after December 15,31, 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.adoption permitted. The
Company does not expectadopted FIN 48 in the first quarter of fiscal year 2008 and the
adoption of SFAS No. 158 in fiscal 2008 todid not have ana material impact on its results of operations orconsolidated 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 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 SAB 99 on evaluating the
materiality of misstatements. 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. 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 he fair value of a large block position and
instruments measured at fair value at initial recognition based on transaction
price in accordance with EITF 02-3 or Statement 155.
20
In December 2007, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 160, "Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB No. 51". SFAS 160
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. As such, the Company is required to
adopt these provisions at the beginning of the fiscal year ended September 30,
2010. The Company is currently evaluating the impact of SFAS 160 on its
consolidated financial statements.
In December 2007, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 141(R), "Business Combinations".
SFAS 141(R) establishes principles and requirements for how the acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree, recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase, and determines what information
to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. SFAS 141(R) is effective
for fiscal years, and interim periods within those fiscal years, beginning on
or after December 15, 2008. As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended September 30, 2010. The
Company is currently evaluating the impact of SFAS 141(R) on its consolidated
financial statements but does not expect it to have a material effect.
In March 2008, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 161, "Disclosures
about Derivative Instruments and Hedging Activities-an amendment of FASB
Statement No. 133". SFAS 161 requires enhanced disclosures about an entity's
derivative and hedging activities. SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008 with early application encouraged. As such, the Company is
required to adopt these provisions at the beginning of the fiscal year ended
September 30, 2010. The Company is currently evaluating the impact of SFAS 161
on its consolidated financial statements but does not expect it to have a
material effect.
In May 2008, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 162, "The Hierarchy of Generally
Accepted Accounting Principles". SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in
the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP)
in the United States. SFAS 162 is effective 60 days following the SEC's
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles. The Company is currently evaluating the impact
of SFAS 162 on its consolidated financial statements but does not expect it to
have a material effect.
In May 2008, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 163, "Accounting for
Financial Guarantee Insurance Contracts-an interpretation of FASB Statement
No. 60" ("SFAS 163"). SFAS 163 interprets Statement 60 and amends existing
accounting pronouncements to clarify their application to the financial
guarantee insurance contracts included within the scope of that Statement.
SFAS 163 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and all interim periods within those fiscal
years. As such, the Company is required to adopt these provisions at the
beginning of the fiscal year ended September 30, 2010. The Company is
currently evaluating the impact of SFAS 163 on its consolidated financial
statements but does not expect it to have a material effect.
21
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 20062008 Annual Report and Form 10-K for the fiscal
year ended September 30, 20062008 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, 2006.2008. 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.
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.
27None.
22
ITEM 9A. CONTROLS AND PROCEDURES
1. EvaluationEVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's management, with the participation of disclosure controlsthe Company's Chief
Executive Officer and procedures. Based on their
evaluationChief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e)Rules 13a-
15(e) and 15d-15(e) under the Securities Exchange Act of 1934)1934, as amended (the
"Exchange Act")) as of the end of the period covered by this Annual Reportreport. Based on
Form 10-K,such evaluation, the Company's chief executive officerChief Executive Officer and chief financial officerChief Financial
Officer have concluded that, as of the end of such period, the Company's
disclosure controls and procedures are effective.
2. Changes in internal control over financial reporting. Duringwere effective as of the quarter ended September 30, 2006, there wereend of the period
covered by this report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in the Company's internal control over financial
reporting (as defined in RuleRules 13a-15(f)) and 15d-15(f) under the Exchange Act)
during the most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.reporting
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-
15(f) and 15d-15(f) under the exchange act.
Under the supervision and with the participation of the Company's
management, including our principal executive officer and principal financial
officer, the Company conducted an evaluation of its internal control over
financial reporting based on criteria established in the framework in
"Internal Control-Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, the
Company's management concluded and certifies that its internal control over
financial reporting was effective as of September 30, 2008.
ITEM 9B. OTHER INFORMATION
None.
2823
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 12/1/0608 Class
ROBERT R. ANDREWS Mr. Andrews is the President and 1,214 *
(a)(c) Principal shareholder of Morse
Age 6567 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.
TRUDI B. ARTINI Mrs. Artini is an independent 32,435 1.1%
(a)(b)(d) investor in MFC and various other
Age 8486 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 6567 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.
2924
Common Shares
Actually or Percent
Beneficially of
Director Principal occupation Owned 12/1/0608 Class
CARL F. FAHRENKRUG PE Mr. Fahrenkrug was appointed 72,298 2.5%
(a) President and Chief Executive
Age 6466 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.
DANIEL GALBALLY Mr. Galbally is an accountant 0
(b)(c)(d) for Nucor Steel Auburn, Inc.
Age 5961 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.
PERRY A. HARVEY Mr. Harvey is a consultant in global 0
Age 56 strategic business planning and
Director since 2007 productivity and process improvement.
He holds a Master of Science in
Metallurgical Engineering and a
Metallurgical Engineering Degree from
the University of Wisconsin. He served
as President of ESCO Turbine Technologies
Group (TTG), Syracuse, New York from
2000-2007. He has served as a board member
and president of the Investment Casting
Institute and a board member of the
Manufacturers of Central New York and
the Foundry Educational Foundation Board.
25
Common Shares
Actually or Percent
Beneficially of
Director Principal occupation Owned 12/1/08 Class
RICHARD L. JONES Mr. Jones was appointed a Director 0
Age 5860 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 6163 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.
The Directors listed above and executive officers as a group own 152,872110,622
shares or approximately 5%4% 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.
26
IDENTIFICATION OF EXECUTIVE OFFICERS
Name Age Position
Carl F. Fahrenkrug 6466 President and Chief Executive Officer
Richard L. Jones 5860 Vice President, and Chief Financial
Officer
Milo J. Peterson 66 Vice President and Corporate Secretary
Paul W. Mears 4749 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,
Waswas 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.
27
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth for the fiscal years ended September 30, 2006,
20052008,
2007 and 2004,2006, 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 2006 116,1882008 128,728 -
President and CEO 2005 122,6872007 122,534 -
2004 117,8692006 116,188 -
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 6% of contributions during fiscal 2006.2008. The maximum
corporate match was 6% of an employee's compensation during fiscal 2006.2008.
MFC's contributions to the plans for the years ended September 30, 2006,
20052008,
2007 and 20042006 amounted to $97,748, $134,126$99,122, $103,171 and $67,675,$97,748, 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 reservesreserved 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. 33The 1998 terminated on April 10, 2008.
28
A summary of all stock option activity and information related to all options
outstanding follows:
20062008
--------
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$1.47 108,548 $1.47 30,000
------ -------- ------ --------
Outstanding at
end of year $1.47 108,548 $1.47 30,000- 0 - 0
------ -------- ------ --------
Exercisable at
end of year $1.47 108,548 $1.47 30,000- 0 - 0
------ -------- ------- --------
20052007
--------
ISOs NQSOs
-------- --------
Exercise Shares Exercise Shares
Price Price
-------- -------- -------- --------
Outstanding at
beginning of year $1.47 115,000108,548 $1.47 35,00030,000
Granted - 0 - 0
Exercised $1.47 6,452- 0 - 0
Cancelled - 0 $1.47 5,000- 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
------ -------- ------- --------
3429
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, 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 20072008 Annual Meeting of Shareholders and is
incorporated by reference herein.
3530
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.EXHIBITS.
(a) 1. and 2. Financial Statements and Schedule:Schedules:
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.
3631
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 21, 200618, 2008
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. PetersonDaniel Galbally |S| Richard L. Jones
- ------------------------ -----------------------
Milo J. PetersonDaniel Galbally Richard L. Jones
(Director) (Director)
|S| Sidney Chong
- --------------------
Sidney Chong
(Director)
Dated: December 21, 2006
3718, 2008
32
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
ReportsReport of Independent Registered Public Accounting Firms........39-40Firm.............34
Consolidated Balance Sheets as of September 30, 20062008 and 2005....412007.......35
Consolidated Statements of Operations for the Years
Ended September 30, 2008, 2007 and 2006 2005 and 2004 .......................42..........................36
Consolidated Statements of Stockholders' Equity for the Years
Ended September 30, 2008, 2007 and 2006 2005 and 2004 .......................43..........................37
Consolidated Statements of Cash Flows for the Years
Ended September 30, 2008, 2007 and 2006 2005 and 2004 .......................44..........................38
Notes to Consolidated Financial Statements.......................45-56Statements.......................39-51
SCHEDULE FOR THE YEARS ENDED SEPTEMBER 30, 2006, 20052008, 2007 AND 2004:2006:
II-Valuation and Qualifying Accounts.............................58Accounts................................53
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.
3833
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Microwave Filter Company, Inc. and Subsidiary
East Syracuse, New York 13057
We have audited the accompanying consolidated balance sheets of Microwave
Filter Company, Inc. and Subsidiary as of September 30, 20062008 and 2005,2007, and the
related consolidated statements of operations, changes in stockholders' equity,
(deficit), and cash flows for
each of the two years in the three-year period ended September 30, 2006 and 2005. These2008. The
Company's management is responsible for these consolidated financial
statements are the
responsibility of the Company's management.statements. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the auditsaudit to obtain reasonable assurance about
whether the consolidated financial statements are free of material
misstatement. The company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
company's internal control over financial reporting. Accordingly, we express
no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includesstatements, 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 audits 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 theMicrowave
Filter Company, Inc. and Subsidiary, as of September 30, 20062008 and 2005,2007, and
the results of its operations and its cash flows for each of the two years in the
three-year period ended September 30, 2006 and 2005,2008, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Rotenberg & Co., LLP
Rotenberg & Co., LLP
Rochester, New York
November 17, 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 results of operations and cash flows of Microwave
Filter Company, Inc. and its subsidiaries for the year ended September 30,
2004 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
4016, 2008
34
Microwave Filter Company and Subsidiaries
Consolidated Balance Sheets
September 30
Assets 2006 20052008 2007
- ------ ---- ----
Current assets:
Cash and cash equivalents $ 705,646 $1,251,594
Investments 798,544 822,651$1,417,271 $1,266,979
Accounts receivable-trade, net of allowance for
doubtful accounts of $12,000 and $16,000 344,134 495,182
Accrued federal and state income tax recoverable 137,986 0$12,000 306,076 370,742
Inventories 491,135 555,890600,409 660,651
Prepaid expenses and other current assets 94,826 150,19099,726 86,661
--------- ---------
Total current assets 2,572,271 3,275,5072,423,482 2,385,033
Property, plant and equipment, net 554,102 658,898
Deferred tax asset - noncurrent 0 49,247
----------393,254 441,009
--------- ----------
Total Assets $3,126,373 $3,983,652$2,816,736 $2,826,042
========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 179,800152,313 $ 190,372163,042
Customer deposits 20,298 9,87421,228 47,488
Accrued federal and state income taxes 0 23,0991,175 650
Accrued payroll and related expenses 61,028 59,43261,228 58,049
Accrued compensated absences 210,825 227,717195,426 208,868
Other current liabilities 37,051 142,24530,699 30,129
--------- ---------
Total current liabilities 509,002 652,739462,069 508,226
--------- ---------
Total liabilities 509,002 652,739462,069 508,226
--------- ---------
Commitments (Note 6)
Stockholders' equity:
Common stock, $.10 par value. Authorized 5,000,000 shares
Issued 4,324,140 in 20062008 and 20052007, Outstanding
2,892,458 in 2008 and 2,895,917 in 2007 432,414 432,414
Additional paid-in capital 3,248,706 3,248,706
Retained earnings 456,183 1,158,448202,706 163,190
Common stock in treasury, at cost, 1,421,7881,431,682
shares in 20062008 and 1,414,8401,428,223 shares in 2005 (1,519,932) (1,508,655)2007 (1,529,159) (1,526,494)
--------- ---------
Total stockholders' equity 2,617,371 3,330,9132,354,667 2,317,816
--------- ---------
Total Liabilities and Stockholders' Equity $3,126,373 $3,983,652$2,816,736 $2,826,042
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
4135
Microwave Filter Company and Subsidiaries
Consolidated Statements of Operations
For the Years Ended September 30
2008 2007 2006 2005 2004
---- ---- ----
Net sales $5,231,125 $4,634,233 $4,536,715 $5,533,398 $4,876,219
Cost of goods sold 3,293,906 3,035,485 3,043,720 3,338,211 3,196,777
--------- --------- ---------
Gross profit 1,937,219 1,598,748 1,492,995 2,195,187 1,679,442
Selling, general
and administrative expenses 1,939,422 1,956,011 2,022,485 1,910,951 1,743,621
--------- --------- ---------
(Loss) income from operations (2,203) (357,263) (529,490) 284,236 (64,179)
Non-operating Income
Interest income 34,305 59,132 71,297
41,862 14,734
Miscellaneous 7,939 5,788 9,312 25,868 19,017
------- ------- -------
(Loss) incomeIncome (loss) before
income taxes 40,041 (292,343) (448,881)
351,966 (30,428)
(Benefit) provisionProvision (benefit) for
income taxes 525 650 (37,532) 39,755 145,889
-------- --------- ---------
NET INCOME (LOSS) INCOME$39,516 ($292,993) ($411,349) $312,211 ($176,317)
======== ========= =========
Per share data:
Basic Earnings (Loss) Earnings Per
Common Share $0.01 ($0.10) ($0.14) $0.11 ($0.06)
========= ========= =========
Diluted Earnings (Loss) Earnings per
Common Share $0.01 ($0.10) ($0.13) $0.10 ($0.06)
========= ========= =========
Shares used in computing net
earnings (loss) earnings per common share:
Basic 2,894,214 2,899,660 2,905,355
2,908,503 2,904,669
Diluted 2,967,274 3,038,098 3,043,903 3,049,115 2,946,482
The accompanying notes are an integral part of the consolidated financial
statements.
4236
Microwave Filter Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended September 30, 2006, 20052008, 2007 and 20042006
-----------------------------------------------------
Additional Total
Common Stock Paid-in Retained Treasury Stock Stockholders'
Shares Amt Capital Earnings Shares Amt Equity
------ --- ------- -------- ------ --- ------
Balance,
September 30, 2003 4,317,688 $431,769 $3,239,867 $1,022,554 1,412,907 ($1,505,714) $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$432,414 $3,248,706 $1,158,448 1,414,840 (1,508,655) 3,330,913($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 3,248,706 456,183 1,421,788 (1,519,932) 2,617,371
Net (loss) (292,993) (292,993)
Purchase of treasury stock 6,435 (6,562) (6,562)
---------- --------- ---------- ---------- ------- --------- ---------
Balance
September 30, 2007 4,324,140 432,414 3,248,706 163,190 1,428,223 (1,526,494) 2,317,816
Net income 39,516 39,516
Purchase of treasury stock 3,459 (2,665) (2,665)
---------- --------- ---------- ---------- ------- --------- ---------
Balance
September 30, 2008 4,324,140 $432,414 $3,248,706 $456,183 1,421,788$202,706 1,431,682 ($1,519,932) $2,617,3711,529,159) $2,354,667
========== ======== ========== ========== ========= ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
4337
Microwave Filter Company and Subsidiaries
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
------------------------------------------------
For the Years Ended September 30
--------------------------------
2008 2007 2006 2005 2004
---- ---- ----
Cash flows from operating activities:
Net income (loss) income$39,516 ($292,993) ($411,349) $312,211 ($176,317)
Adjustments to reconcile net income (loss) income to
net cash provided by (used in) provided by operating
activities:
Depreciation 77,502 113,991 163,400 198,476 222,799
Provision for doubtful accounts (87) 550 (4,853) (8,473) (40,137)
Inventory obsolescence provision 14,730 527 (27,061) (24,610) (15,225)
Deferred income taxes 0 0 32,395 (32,395) 246,377
Changes in assets and liabilities:
Accounts receivable-trade 64,753 (27,158) 155,901 (32,865) (95,356)
Federal and state income taxes 525 138,636 (161,085)
22,673 39,910
Inventories 45,512 (170,043) 91,816 106,890 84,645
Other assets (13,065) 8,165 55,364 (82,568) 25,044
Accounts payable and customer deposits (36,989) 10,432 (148) (46,468) (69,513)
Accrued payroll, compensated absences and
related expenses (10,263) (4,936) (15,296) (47,526) (16,695)
Other current liabilities 570 (6,922) (88,342) 92,232 (12,310)
--------- -------- -------
Net cash provided by (used in)
operating activities 182,704 (229,751) (209,258)
--------- -------- --------
Cash flows from investing activities:
Investments 0 798,544 24,107
Capital expenditures (29,747) (898) (58,604)
-------- -------- --------
Net cash (used in) provided by
operating activities (209,258) 457,577 193,222
--------- -------- ---------
Cash flows from investing activities:
Investments 24,107 28,506 24,514
Capital expenditures (58,604) (58,900) (46,754)
-------- -------- --------
Net cash used in investing activities (29,747) 797,646 (34,497) (30,394) (22,240)
-------- -------- --------
Cash flows from financing activities:
Purchase of treasury stock (2,665) (6,562) (11,277) (2,411) (530)
Stock options exercised 0 9,484 0
Cash dividend paid (290,916) 0 0 (290,916)
-------- -------- --------
Net cash (used in) provided by
financing activities (2,665) (6,562) (302,193) 7,073 (530)
-------- -------- --------
Net increase (decrease) increase
in cash and cash equivalents 150,292 561,333 (545,948) 434,256 170,452
Cash and cash equivalents at
beginning of year 1,266,979 705,646 1,251,594 817,338 646,886
---------
--------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $1,417,271 $1,266,979 $705,646
$1,251,594 $817,338========== ========== ========= ========== ========
Supplemental disclosures of cash flows:
Cash paid (refunded) during the year
for (approximately):
Interest $0 $0 $0
Income taxes $0 ($141,000) $91,000 $50,000 ($116,000)
The accompanying notes are an integral part of the consolidated financial
statements.
4438
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.one industry. 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. (MFC)
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 communications 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. For the last three
years, NSI's sales have consisted of spare parts orders.
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 has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk with
respect to cash. The Company also routinely assesses the financial strength
of its customers and, as a consequence, believes that its trade accounts
receivable credit risk exposure is limited.
39
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.
45
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-
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$473,957,
$461,954 and $312,189$420,570 for the fiscal years 2006, 20052008, 2007 and 2004,2006, 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.
41
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. The Company has provided a full
valuation allowance against its deferred tax assets.
46
k.The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes - An Interpretation of FASB Statement No. 109 (FIN 48) as of
October 1, 2007. FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an entity's financial statements in accordance with FASB
Statement No. 109, Accounting for Income Taxes, and prescribes a recognition
threshold and measurement attributes for financial statement disclosure of tax
position taken or expected to be taken on a tax return. Additionally, FIN 48
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. No adjustments were
required upon adoption of FIN 48.
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.
42
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$5,000,
$5,000 and $6,000$3,000 for the fiscal years 2006, 20052008, 2007 and 2004,2006, 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 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, 2005,2008, 2007, and 2004.
47
2006.
q. New Accounting Pronouncements
In February 2007, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities, including an amendment
of FASB Statement No. 115". SFAS 159 permits entities to choose to measure
many financial instruments and certain other items at fair value at specified
election dates. This Statement applies to all entities, including not-for-
profit organizations. SFAS 159 is effective as of the beginning of an
entity's first fiscal year that begins after November 15, 2007. As such, the
Company is required to adopt these provisions at the beginning of the fiscal
year ended September 30, 2009. The Company is currently evaluating the impact
of SFAS 159 on its consolidated financial statements.
FASB Interpretation 48 ("FIN 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""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. InterpretationFIN 48 is
effective as of the beginning of the firstapplies to fiscal
yearyears 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.adoption permitted. The
Company does not expectadopted FIN 48 in the first quarter of fiscal year 2008 and the
adoption of SFAS No. 158 in fiscal 2008 todid not have ana material impact on its results 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-yearconsolidated 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 SAB 99 on evaluating the
materiality of misstatements. 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).
4843
Fair Value Measurements. In September 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 a large block position and
instruments measured at fair value at initial recognition based on transaction
price in accordance with EITF 02-3 or Statement 155.
In December 2007, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 160, "Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB No. 51". SFAS 160
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. As such, the Company is required to
adopt these provisions at the beginning of the fiscal year ended September 30,
2010. The Company is currently evaluating the impact of SFAS 160 on its
consolidated financial statements.
In December 2007, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 141(R), "Business Combinations".
SFAS 141(R) establishes principles and requirements for how the acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree, recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase, and determines what information
to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. SFAS 141(R) is effective
for fiscal years, and interim periods within those fiscal years, beginning on
or after December 15, 2008. As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended September 30, 2010. The
Company is currently evaluating the impact of SFAS 141(R) on its consolidated
financial statements but does not expect it to have a material effect.
44
In March 2008, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 161, "Disclosures
about Derivative Instruments and Hedging Activities-an amendment of FASB
Statement No. 133". SFAS 161 requires enhanced disclosures about an entity's
derivative and hedging activities. SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008 with early application encouraged. As such, the Company is
required to adopt these provisions at the beginning of the fiscal year ended
September 30, 2010. The Company is currently evaluating the impact of SFAS 161
on its consolidated financial statements but does not expect it to have a
material effect.
In May 2008, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 162, "The Hierarchy of Generally
Accepted Accounting Principles". SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in
the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP)
in the United States. SFAS 162 is effective 60 days following the SEC's
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles. The Company is currently evaluating the impact
of SFAS 162 on its consolidated financial statements but does not expect it to
have a material effect.
In May 2008, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 163, "Accounting for
Financial Guarantee Insurance Contracts-an interpretation of FASB Statement
No. 60" ("SFAS 163"). SFAS 163 interprets Statement 60 and amends existing
accounting pronouncements to clarify their application to the financial
guarantee insurance contracts included within the scope of that Statement.
SFAS 163 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and all interim periods within those fiscal
years. As such, the Company is required to adopt these provisions at the
beginning of the fiscal year ended September 30, 2010. The Company is
currently evaluating the impact of SFAS 163 on its consolidated financial
statements but does not expect it to have a material effect.
2. INVENTORIES
Inventories net of provision for obsolescence consisted of the following:
September 30
2006 20052008 2007
---- ----
Raw materials and stock parts $411,885 $448,176$471,289 $517,029
Work-in-process 20,437 42,25019,147 54,938
Finished goods 58,813 65,464109,972 88,684
-------- ---------
$491,135 $555,890$600,408 $660,651
======== ==========
The Company's reserve for obsolescence equaled $389,200$404,457 at September 30,
20062008 and $362,139$389,726 at September 30, 2005.
492007.
45
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
September 30
2006 20052008 2007
---- ----
Land $143,000 $143,000
Building and improvements 1,818,633 1,818,633
Machinery and equipment 3,112,939 3,106,412 3,094,390
Office equipment and fixtures 1,644,200 1,597,6181,668,318 1,645,098
--------- ---------
6,712,245 6,653,6416,742,890 6,713,143
Less: Accumulated depreciation 6,158,143 5,994,7436,349,636 6,272,134
--------- ---------
$554,102 $658,898$393,254 $441,009
========== ==========
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 6% of contributions during fiscal 2006.2008. The maximum corporate
match was 6% of an employee's compensation during fiscal 2006.2008.
The Company's matching contributions to the 401-K plan for the years ended
September 30, 2008, 2007 and 2006 2005were $99,122, $103,171 and 2004 were $97,748, $72,126 and $67,675,
respectively. Additionally, the Company may make discretionary contributions
to the non-contributory profit sharing plan. These contributions were $0 $62,000in
2008, 2007 and $0 in 2006, 2005 and 2004, respectively.
502006.
46
6. OBLIGATIONS UNDER OPERATING LEASES
The Company leases equipment under operating lease agreements expiring at
various dates through September 30, 2009.2013. Rental expense under these leases
for the years ended September 30, 2006, 20052008, 2007 and 20042006 amounted to $11,159,
$11,180$11,159 and $11,074,$11,159, respectively.
Minimum rental commitments at September 30, 20062008 for these leases are:
Year Ended Lease
September 30 Payments
------------ --------
2007 11,159
2008 9,587
2009 2,4369,564
2010 07,128
2011 07,128
2012 7,128
2013 7,128
-------
$23,182$38,076
=======
7. INCOME TAXES
The provision for income taxes consisted of the following:
Year Ended September 30
2008 2007 2006 2005 2004
Currently payable:
Federal ($16,846) ($149,935) ($128,967)
$71,500 ($100,913)
State 525 650 650
425
Deferred (credit) 16,846 149,935 90,785 (32,395) 246,377
------- ------- -------
$525 $650 ($37,532) $39,755 $145,889
======= ======= ===============
A reconciliation of the statutory federal income tax rate and the Company's
effective income tax rate is as follows:
Year ended September 30
______2008______ ______2007______ ______2006______ ______2005______ ______2004______
Amount % Amount % Amount %
Statutory tax rate $13,614 34.0% ($152,620)99,397)(34.0%) $119,668($152,620) 34.0% ($10,346) (34.0%)
Surtax exemption
State income tax net of:
Federal benefit 347 0.9% 429 0.1% 429 0.1% 0 0.0%
Research and experimentation
tax credits (30,807) (76.9%) 0 0.0% (26,431) (7.5%) 0 0.0%
Valuation allowance 17,193 42.9% 99,397 34.0% 90,785 20.2% 0 0.0% 246,377 809.7%
Revision of estimated
taxes payable 0 0.0% 0 0.0% (92,907)(305.3%)
Federal AMT rate
differential 0 0.0% (54,255)(15.4%)0 0.0% 0 0.0%
Other 178 0.4% 221 0.1% 23,874 5.3% 344 0.1% 2,765 9.1%
------- ---- ------- ---- -------- -----
$525 1.3% $650 0.2% ($37,532) (8.4%) $39,755 11.3% $145,889 479.5%
======= ==== ======= ==== ======== =====
51======= ====
47
The temporary differences which give rise to deferred tax assets and
(liabilities) at September 30 are as follows:
2006 20052008 2007
---- ----
Inventory $138,789 $129,527$145,074 $139,821
Accrued warranty 4,250 4,250
Accrued vacation 61,242 64,30056,937 60,892
Accounts receivable 3,923 5,5734,080 4,110
Valuation allowance (208,204) (220,502)(210,341) (209,073)
------- -------
Net deferred tax assets
(liabilities) - current $0 ($16,852)
--------$0
------- -------
Accelerated depreciation ($11,983) ($38,482)$19,669 $7,659
Research and experimentation
tax credit carry forward 143,458 116,121190,678 173,485
AMT credit carry forward 39,399 39,399
NOL carry forward 99,397 99,397
Valuation allowance (170,874) (67,791)(349,143) (319,940)
------- -------
Net deferred tax assets
(liabilities) - noncurrent $0 $49,247$0
------- -------
Net deferred tax assets $0 $32,395$0
======== =======
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 and NOL carry forwards expire in 2025.2027. At September 30,
2006,2008, the Company's federal AMT credit can be carried forward indefinitely.
52
8. INDUSTRY SEGMENT DATA
The Company's primary business segments involve (1)segment involves the operations of Microwave
Filter Company, Inc. (MFC) which designs, develops, manufactures and sells
electronic filters, usedboth for preventing interferenceradio and microwave frequencies, to help process
signal distribution and to prevent unwanted signals from disrupting transmit
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
Net Sales (Unaffiliated):
MFC $4,516 $5,345 $4,645
NSI 21 188 231
Total $4,537 $5,533 $4,876
Operating Profit (Loss): (a)
MFC ($476) $297 $32
NSI (53) (13) (96)
Total ($529) $284 ($64)
Identifiable Assets: (b)
MFC $2,386 $2,680 $2,671
NSI 35 52 139
Subtotal 2,421 2,732 2,810
Corporate Assets-Cash and
Cash Equivalents 706 1,252 817
Total $3,127 $3,984 $3,627
Depreciation Expense:
MFC $163 $196 $219
NSI 0 2 4
Total $163 $198 $223
Capital Expenditures:
MFC $ 59 $ 59 $ 47
NSI 0 0 0
Total $ 59 $ 59 $ 47
Significant Export Sales:
MFC $279 $355 $309
Customers:
In 2005, sales to one MFC customer totaled approximately $624,000 and
exceeded 10% of consolidated net sales.
(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.
53receive operations.
48
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 reservesreserved 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. The 1998 Plan terminated on April 10, 2008.
A summary of all stock option activity and information related to all options
outstanding follows:
20062008
--------
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
------$1.47 108,548 $1.47 30,000
----- -------- ----------- --------
Outstanding at
end of year $1.47 108,548 $1.47 30,000
------- 0 - 0
----- -------- ----------- --------
Exercisable at
end of year $1.47 108,548 $1.47 30,000
------- 0 - 0
----- -------- ------- --------
54------ --------
49
2005
2007
--------
ISOs NQSOs
-------- --------
Exercise Shares Exercise Shares
Price Price
-------- -------- -------- --------
Outstanding at
beginning of year $1.47 115,000108,548 $1.47 35,00030,000
Granted - 0 - 0
Exercised $1.47 6,452- 0 - 0
Cancelled - 0 $1.47 5,000- 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
------ -------- ------- --------
55
10. LEGAL MATTERS
There are currently no material pending legal proceedings against the
Company or its subsidiaries.
11. SUBSEQUENT EVENTS
On October 13, 2008, the Company purchased 244,007 shares of it's stock from
one shareholder at a cost of $122,003.
50
12. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following table sets forth certain unaudited quarterly financial
information For the years ended September 30, 20062008 and 2005:2007:
20062008 Quarter Ended
-----------------------------------------------------
Dec. 31 March 31 June 30 Sept. 30
---------- ---------- ---------- ----------
Net sales $1,080,836 $1,292,429 $1,098,395 $1,065,055$1,343,311 $1,216,664 $1,362,359 $1,308,791
Cost of sales $ 720,495828,872 $ 810,946816,260 $ 785,610819,505 $ 726,669829,269
Net income (loss) income $ (121,407)37,750 $ (42,289)(79,122) $ (178,515)54,256 $ (69,138)
(Loss) earnings26,632
Earnings (loss)
per common share: $ (.04) $ (.01) $ (.06).01 $ (.03) 2005$ .02 $ .01
2007 Quarter Ended
-----------------------------------------------------
Dec. 31 March 31 June 30 Sept. 30
---------- ---------- ---------- ----------
Net sales $1,180,694 $1,411,780 $1,547,158 $1,393,766$1,045,073 $1,276,391 $1,122,960 $1,189,809
Cost of sales $ 758,657708,973 $ 846,729792,194 $ 902,660766,586 $ 830,165767,732
Net (loss) income $ (5,288)(130,564) $ 92,22024,792 $ 121,089(149,075) $ 104,190(38,146)
(Loss) earnings
per common share: $ (.00)(.04) $ .03.01 $ .04(.05) $ .04(.01)
5651
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
5752
Microwave Filter Company and Subsidiaries
Schedule II - VALUATION AND QUALIFYING ACCOUNTS
SEPTEMBER 30, 2006, 20052008, 2007 and 20042006
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, 20062008
Allowance for doubtful accounts $16,390 $0 $4,853 $11,537$12,087 $419 $250 $756 $12,000
Inventory valuation reserves 362,139 27,061 389,200389,726 14,731 404,457
-------- ------- ------ ------- --------
$378,529 $27,061 $0 $4,853 $400,737$401,813 $15,150 $250 $756 $416,457
======== ======= ====== ======= ========
Year ended September 30, 20052007
Allowance for doubtful accounts $24,863 $8,473 $16,390$11,537 $0 $550 $0 $12,087
Inventory valuation reserves 386,749 24,610 362,139389,200 526 389,726
-------- ------- ------ ------- --------
$411,612$400,737 $526 $550 $0 $0 $33,083 $378,529$401,813
======== ======= ====== ======= ========
Year ended September 30, 20042006
Allowance for doubtful accounts $65,000 $40,137 $24,863$16,390 $0 $0 $4,853 $11,537
Inventory valuation reserves 401,974 15,225 386,749362,139 27,061 389,200
-------- ------- ------ ------- --------
$466,974$378,529 $27,061 $0 $0 $55,362 $411,612$4,853 $400,737
======== ======= ====== ======= ========
5853