UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 OR 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended MarchDecember 31, 2003
Commission file number 0-10976
MICROWAVE FILTER COMPANY, INC.
(Exact name of registrant as specified in its charter.)
New York 16-0928443
(State of Incorporation) (I.R.S. Employer Identification Number)
6743 Kinne Street, East Syracuse, N.Y. 13057
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (315) 438-4700
Indicate by check mark whether 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 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 whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
YES ( ) NO ( x )
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
Common Stock, $.10 Par Value - 2,904,781 shares as of MarchDecember 31, 2003.
PART I. - FINANCIAL INFORMATION
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
MARCHDecember 31, 2003 SEPTEMBER 30, 20022003
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 341532 $ 649647
Investments 986 1,378866 876
Accounts receivable-trade, net 311 379358 318
Federal and state income
tax recoverable 110 061 39
Inventories 938 963577 708
Deferred tax asset - current 180 180235 235
Prepaid expenses and other
current assets 111 12076 93
-------- --------
Total current assets 2,977 3,6692,705 2,916
Property, plant and equipment, net 1,087 1,197941 975
Deferred tax asset - noncurrent 11 11
-------- --------
Total assets $ 4,0643,657 $ 4,8663,902
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 261151 $ 180172
Customer deposits 189 140
Accrued federal and state
income taxes 0 234144
Accrued payroll and related
expenses 117 12695 96
Accrued compensated absences 216 249218 255
Other current liabilities 45 14649 46
-------- --------
Total current liabilities 828 1,075
Deferred tax liability -
noncurrent 30 30513 713
-------- --------
Total liabilities 858 1,105513 713
-------- --------
Stockholders' Equity:
Common stock,$.10 par value 432 432
Additional paid-in capital 3,240 3,240
Retained earnings 1,040 1,595978 1,023
-------- --------
4,712 5,2674,650 4,695
Common stock in treasury,
at cost (1,506) (1,506)
-------- --------
Total stockholders' equity 3,206 3,7613,144 3,189
-------- --------
Total liabilities and
stockholders' equity $ 4,0643,657 $ 4,8663,902
======== ========
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS
AND SIX MONTHS
ENDED MARCHDECEMBER 31, 2003 AND 2002
(Unaudited)
(Amounts in thousands, except per share data)
Three months ended
Six months ended
MarchDecember 31 March 31
2003 2002
2003 2002
Net sales $1,014 $2,111 $2,503 $4,501$1,233 $1,489
Cost of goods sold 762 1,317 1,802 2,537
------- -------889 1,039
------- -------
Gross profit 252 794 701 1,964344 450
Selling, general and
administrative expenses 530 562 1,119 1,172416 589
------- -------
------- -------
(Loss) incomeLoss from operations (278) 232 (418) 792(72) (139)
Other income (net),
Principallyprincipally interest 5 11 13 244 8
------- -------
------- -------
(Loss) IncomeLoss before income
taxes (273) 243 (405) 816
(Benefit) Provision(68) (131)
Benefit for income
taxes (94) 84 (140) 282
------- -------(23) (45)
------- -------
NET (LOSS) INCOMELOSS ($179) $15945) ($265) $534
======= =======86)
======= =======
Basic (loss) earningsloss per
share ($0.06) $0.05.02) ($0.09) $0.180.03)
======= =======
Weighted average number of
common shares outstanding 2,905 2,905
======= =======
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND SIX MONTHS ENDED
MARCHDECEMBER 31, 2003 AND 2002
(Unaudited)
(Amounts in thousands)
Three months ended
Six months ended
March 31 MarchDecember 31
2003 2002
2003 2002
Cash flows from operating
activities:
Net (loss) income ($ 179)loss $ 159 ($ 265)(45) $ 534(86)
Adjustments to reconcile
net incomeloss to net cash provided byused
in operating activities:
Depreciation and amortization 75 66 151 13155 76
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable 234 124 68 (201)
Inventories (132) 45 25 (125)(39) (166)
Federal and state income
taxtaxes recoverable (94) 0 (110) 0(22)
Inventories 131 157
Prepaid expenses & other
assets (14) (21) 9 (57)16 7
Increase (decrease) in:
Accounts payable & accrued
expenses 116 18 (247) 695
------- ------- -------- -------
Net cash provided by (used
in) operating activities 6 391 (369) 977
------- ------- -------- -------
Cash flows from investing
activities:
Investments 381 (1,040) 392 (530)
Capital expenditures (26) (8) (41) (36)
------- ------- -------- -------
Net cash provided by (used
in) investing activities 355 (1,048) 351 (566)
Cash flows from financing
activities:
Cash dividend paid (290) (203) (290) (203)
------- -------(55) (127)
Customer deposits (144) (1)
Federal and state income
taxes payable (234)
------- -------
Net cash used in financingby
operating activities (290) (203) (290) (203)
Increase (decrease)(103) (374)
------- -------
Cash flows from (used in)
investing activities:
Investments 10 10
Capital expenditures (22) (15)
------- -------
Net cash used in
investing activities (12) (5)
------- -------
Net decrease in cash
and cash equivalents 71 (860) (308) 208(115) (379)
Cash and cash equivalents
at beginning of period 270 1,441647 649 373
------- -------
------- -------
Cash and cash equivalents
at end of period $ 341532 $ 581 $ 341 $ 581
======= =======270
======= =======
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCHDECEMBER 31, 2003
Note 1. Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. The Operating results for the sixthree
month period ended MarchDecember 31, 2003 are not necessarily indicative of the
results that may be expected for the year ended September 30, 2003.2004. For
further information, refer to the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10K for the year ended
September 30, 2002.2003.
Note 2. Industry Segment Data
The Company's primary business segments involve (1) operations of Microwave
Filter Company, Inc. (MFC) which designs, develops, manufactures and sells
electronic filters, both for radio and microwave frequencies, to help process
signal distribution and to prevent unwanted signals from disrupting transmit
or receive operations. Markets served include cable television, television and
radio broadcast, satellite broadcast, mobile radio, commercial and defense
electronics; and (2) Niagara Scientific, Inc. (NSI), a wholly owned
subsidiary, which custom designs case packing machines to automatically pack
products into shipping cases. Customers are typically processors of food and
other commodity products with a need to reduce labor cost with a modest
investment and quick payback.
Information by segment is as follows:
Three months ended
Six months ended
(thousands of dollars) MarchDecember 31 March 31,
2003 2002
2003 2002
Net Sales (Unaffiliated):
MFC $ 967 $1,722 $2,268 $4,091$1,050 $1,301
NSI 47 389 235 410
------ ------183 188
------ ------
Total $1,014 $2,111 $2,503 $4,501
====== ======$1,233 $1,489
====== ======
Operating (loss) profit:loss: (a)
MFC ($205) $22960) ($216) $84310)
NSI (73) 3 (202) (51)
------ ------(12) (129)
------ ------
Total ($278) $23272) ($418) $792139)
====== ====== ======= =======
Identifiable assets: (b)
MFC $3,188 $4,162 $3,188 $4,162$3,034 $3,802
NSI 535 553 535 553
------ ------91 346
------ ------
Subtotal 3,723 4,715 3,723 4,7153,125 4,148
Corporate Assets - Cash
And Cash Equivalents 341 581 341 581
------ ------532 270
------ ------
Total $4,064 $5,296 $4,064 $5,296
====== ======$3,657 $4,418
====== ======
(a) Operating profit (loss) is total revenue less cost of goods sold and
operating expenses. In computing operating profit, none of the following
items have been added or deducted: 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
Companies operations in each industry.
Note 3. Inventories
Inventories net of provisionreserve for obsolescence consisted of the following:
(thousands of dollars) MarchDecember 31, 2003 September 30, 20022003
Raw materials and stock parts $468 $636$432 $427
Work-in-process 419 25765 202
Finished goods 51 70
------80 79
---- $938 $963
======----
$577 $708
==== ====
The Company's provisionreserve for obsolescence equaled $345,161$390,985 at MarchDecember 31,
2003 and $401,974 at September 30, 2002.2003.
Note 4. Recent Accounting Pronouncements
SFAS No. 146, "AccountingDeferred Tax Assets
In recent quarters, the Company's operations have experienced losses before
income taxes for Costs Associated with Exitfinancial and tax reporting purposes; however, we believe
improvements in the order backlog, industry projections as well as changes in
our operations and cost structure are sufficient to generate the minimum
amounts of taxable income to utilize our deferred tax assets prior to their
expiration. If the Company's expectations for future operating results are not
met due to general economic conditions or Disposal
Activities," was issued June 2002 andother factors, the Company may need
to establish valuation allowances for all or a portion of its deferred tax
assets.
Although realization is effective for exit or disposal
activities initiated afternot assured, the Company believes it is more likely
than not the net deferred tax asset balance as of December 31, 2002. SFAS No. 146 addresses
financial accounting2003 will be
realized. The Company was able to support this conclusion based upon
projections of future operating results. Differences between forecasted and
reportingactual future operating results could adversely impact our ability to realize
our deferred income tax assets; however, differences between forecasted and
actual future operating results are continually monitored to ensure the
Company has adequate support for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity Including Certain Costs Incurred in a
Restructuring." The adoption of this standard has no impact on the financial
statementsrealization of the Company.
In November 2002, the FASB issued FASB Interpretation (FIN) 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, which clarifies disclosure and
recognition/measurement requirements related to certain guarantees. The
disclosure requirements are effective for financial statements issued after
December 15, 2002 and the recognition/measurement requirements are effective
on a prospective basis for guarantees issued or modified after December 31,
2002. We adopted the disclosure provisions of FIN 45 effective December 31,
2002, and the recognition/measurement requirements of FIN 45 did not have an
impact on our financial position or results of operations for the three months
ended March 31, 2003. See further discussion regarding indemnifications in
Footnote 5.
Note 5. Commitments and Contingencies
Legal matters:
The Company is unaware of any material threatened or pending litigation
against the Company.
Indemnifications:
The Certificate of Incorporation provides for indemnification of all
officers and directors for certain events or occurrences while the officer or
director is, or was serving, at the Company's request in such capacity. The
term of the indemnification period is for the officer's or director's
lifetime. There have been no modifications to the Certificate of Incorporation
since December 31, 2002, nevertheless, management believes the estimated fair
value of these indemnifications is minimal.deferred tax assets.
MICROWAVE FILTER COMPANY, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Microwave Filter Company, Inc. operates primarily in the United States and
principally in two industries. The Company extends credit to business
customers 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 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
typically processors of food and other commodity products with a need to
reduce labor cost with a modest investment and quick payback.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCHDECEMBER 31, 2003 vs. THREE MONTHS ENDED MARCHDECEMBER 31, 20022002.
Net sales for the three months ended MarchDecember 31, 2003 equaled $1,013,892,$1,233,280, a
decrease of $1,097,059$255,877 or 52%17.2% when compared to net sales of $2,110,951$1,489,157 for the
three months ended MarchDecember 31, 2002. The decrease in sales can primarily be
attributed to a general decline in customer demand for the Company's products.
MFC sales for the three months ended MarchDecember 31, 2003 equaled $966,522,$1,050,104, a
decrease of $755,070$251,059 or 43.9%19.3% when compared to sales of $1,721,592$1,301,163 for the
three months ended MarchDecember 31, 2002. The decrease in MFC sales can primarily
be attributed to a decrease in the sales of the company's standard
cable/satellite TV products. Last year, theThe Company saw an increaseattributes this decrease in demand
for the company's filters which suppress strong out-of-band interference
caused by military and civilian radar systems, primarily duesales to
the increased
security measures that were taken as a result of the September 11th terrorist
attacks. That demand has subsided resultingdownturn in the lower salestelecommunications marketplace and due to the current economic
climate, MFC has not seen an increase in sales in other
product areas.climate.
MFC's sales order backlog equaled $189,781$397,264 at MarchDecember 31, 2003, a decreasean increase
of $108,536,$68,455, when compared to sales order backlog of $298,317$328,809 at December 31,
2002.September 30,
2003. 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.
Approximately 98% of MFC'sThe total MFC sales order backlog at MarchDecember 31, 2003 is scheduled to ship by
September 30, 2003.2004.
The Company continues to invest in production engineering and infrastructure
development to penetrate OEM (Original Equipment Manufacturer) 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 did realize
a slight increase in the sales of the Company's RF/Microwave products sold to
this market segment during the quarter ended December 31, 2003 when compared
to the same period last year. MFC's RF/Microwave product sales equaled
$328,436 for the three months ended December 31, 2003 and $311,580 for the
three months ended December 31, 2002.
NSI sales for the three months ended MarchDecember 31, 2003 equaled $47,370,$183,176, a
decrease of $341,989 or 87.8%$4,818 when compared to sales of $389,359$187,994 for the three months
ended MarchDecember 31, 2002. Sales of NSI related equipment, on a quarter to
quarter basis, can be impacted by the timing of the shipment of the custom
designed equipment and the customer's scheduled delivery dates. At March 31,
2003,Similar to
MFC, NSI's backlog of orders equaled $549,631, an increase of $155,031 when
compared to backlog of $394,600 at December 31, 2002. Despite the increase in sales order backlog, NSI continues to feel the effects oflevels have also been impacted negatively by the
sluggish economy and reduced capital spending. Approximately 75% ofAt December 31, 2003, NSI's
totalsales order backlog equaled $0 compared to sales order backlog of orders is scheduled to ship by$123,980 at
September 30, 2003.
Net income decreased $337,856 in the second quarterThe Company recorded a net loss of fiscal 2003 to$44,550, or a loss of $179,076 when compared to net income of $158,781$.02 per share, for
the three months ended MarchDecember 31, 2003 compared to a net loss of $86,168, or
a loss of $.03 per share, for the three months ended December 31, 2002. The
decrease in the net incomeloss this year, despite the lower sales volume, when
compared to the same period last year can primarily be attributed to the
decreasea
reduction in sales.operating expenses.
Gross profit for the three months ended MarchDecember 31, 2003 equaled $251,687,$344,575,
a decrease of $541,919$105,111 or 68.3%23.4%, when compared to gross profit of $793,606$449,686 for
the three months ended MarchDecember 31, 2002. As a percentage of sales, gross
profit equaled 24.8%27.9% for the three months ended MarchDecember 31, 2003 compared to
37.6%30.2% for the three months ended MarchDecember 31, 2002. The decreases in gross
profit can primarily be attributed to lower sales volume.the decrease in sales.
Selling, general and administrative (SGA) expenses for the three months
ended MarchDecember 31, 2003 equaled $529,772,$416,263, a decrease of $32,217$172,934 or 5.7%29.4%,
when compared to SG&A expenses of $561,989$589,197 for the three months ended MarchDecember
31, 2002. Due to this dollar decrease, SGA expenses increaseddecreased to 52.3%33.8% of
sales for the three months ended MarchDecember 31, 2003 when compared to 26.6%39.6% of sales
for the three months ended MarchDecember 31, 20022002. The reductions were primarily
duerelated to the decreasedecreases in sales this year when compared
to the same period last year.payroll and payroll related expenses and planned
reductions in media advertising costs and trade show expenses. Due to the
uncertain economic climate, the Company is emphasizing cost controls and cost
cutting measures to minimize operating expenses.
However, despite the downturn in sales, the Company does
not expect to significantly reduce its current marketing efforts or research
and development efforts.
On an industry segment basis, MFC recorded a loss from operations of $60,271
for the three months ended MarchDecember 31, 2003 of $204,811 compared to incomea loss from
operations of $228,973$10,600 for the three months ended MarchDecember 31, 2002. MFC's loss
from operations can2002 primarily
be attributeddue to the lower sales volume.decrease in sales. NSI recorded a loss from operations of $73,274$11,417
for the three months ended MarchDecember 31, 2003 compared to incomea loss from
operations of $2,644$128,911 for the three months ended MarchDecember 31, 2002. NSI's
loss from operationsimprovement can alsodirectly be attributed to the
low sales volume.
SIX MONTHS ENDED MARCHimproved gross profit margins and
planned reductions in SGA expenses.
Off-Balance Sheet Arrangements
At December 31, 2003 vs. SIX MONTHS ENDED MARCH 31,and 2002, Net salesthe 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 six months ended March 31, 2003 equaled $2,503,049, a
decreasepurpose of $1,998,362 or 44.4% when compared to net sales of $4,501,411 for
the six months ended March 31, 2002.
MFC sales for the six months ended March 31, 2003 equaled $2,267,685, a
decrease of $1,823,635 or 44.6% when compared to sales of $4,091,320 for the
six months ended March 31, 2002. The decrease in MFC sales can primarily be
attributed to a decrease in the sales of the company's standard
cable/satellite TV products. Last year, the Company saw an increase in demand
for the company's filters which suppress strong out-of-band interference
caused by military and civilian radar systems, primarily due to the increased
security measures that were taken as a result of the September 11th terrorist
attacks. That demand has subsided resulting in the lower sales and due to the
current economic climate, MFC has not seen an increase in sales in other
product areas.
NSI sales for the six months ended March 31, 2003 equaled $235,364, a
decrease of $174,727 or 42.6% when compared to sales of $410,091 for the six
months ended March 31, 2002. Sales of NSI related equipment, on a quarter to
quarter basis, can be impacted by the timing of the shipment of the custom
designed equipment and the customer's scheduled delivery dates. At March 31,
2003, NSI's backlog of orders equaled $549,631, an increase of $243,693 when
compared to backlog of $305,938 at September 30, 2002. Despite the increase in
sales order backlog, NSI continues to feel the effects of the sluggish economy
and reduced capital spending. Approximately 75% of NSI's total backlog of
orders is scheduled to ship by September 30, 2003.
Net income for the six months ended March 31, 2003 decreased $799,517 to a
loss of $265,244 when compared to net income of $534,273 for the six months
ended March 31, 2002. The decrease in net income can primarily be attributed
to the lower sales volume.
Gross profit for the six months ended March 31, 2003 equaled $701,373 or
28.0% of sales, a decrease of $1,262,324 or 64.3%, when compared to gross
profit of $1,963,697 or 43.6% of sales for the six months ended March 31,
2002. The decreases in gross profit can primarily be attributed to the lower
sales volume.
SG&A expenses for the six months ended March 31, 2003 equaled $1,118,969, a
decrease of $52,693 or 4.5% when compared to SG&A expenses of $1,171,662 for
the six months ended March 31, 2002. Due to the uncertain economic climate,
the Company is emphasizing cost controls and cost cutting measures to minimize
operating expenses. However, despite the downturn in sales, the Company does
not expect to significantly reduce its current marketing efforts or research
and development efforts.
facilitating off-balance sheet arrangements.
Critical Accounting Policies
The Company's consolidated financial statements are based on the application
of accounting principles generally accepted accounting principlesin 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. CollectionsBillings 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 hasestablished 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 had net deferred tax assets that are reviewed for recoverabilityof approximately $246,000 reflecting
basis differences between book and valued accordingly. Thesetax and other deductions available to
reduce taxable income in future years. In assessing the realization of the
Company's deferred tax assets, are evaluated by using estimateswe consider whether it is more likely than not
the deferred tax assets will be realized. The ultimate realization of our
deferred income tax assets depends upon our ability to generate future taxable
income streams. Valuations relatedincomes during the periods in which our basis differences and other deductions
become deductible and prior to the expiration of our net operating loss carry
forwards. On a quarterly basis, the Company evaluates the recoverability of
its deferred tax accrualsassets based upon historical results and assets can be
impacted by changes to tax codes, changesforecasted results
over future years and matches this forecast against the basis differences,
deductions available in statutory tax ratesfuture years and the Company'slimitations allowed for net
operating loss carry forwards to ensure there is adequate support for the
realization of the deferred tax assets. In the event we were to determine that
we would not be able to realize all or part of our net deferred tax assets in
the future, taxablean adjustment to the deferred tax assets would be charged as a
reduction to income levels.in the period such determination was made. Likewise,
should we determine that we would be able to realize future deferred tax
assets in excess of its net recorded amount, an adjustment to the deferred tax
assets would increase income in the period such determination was made.
LIQUIDITY and CAPITAL RESOURCES
Cash and cash equivalents decreased $307,998$115,138 to $341,198$531,748 at March 31, 2003December 31,2003
when compared to $649,196$646,886 at September 30, 2002.2003. The decrease was a result of
$368,426$103,346, in net cash used in operating activities $350,906 in net cash
provided by investing activities and $290,478$11,792 in net cash
used in financinginvesting activities.
The decreaseincrease of $39,691 in accounts receivable of $67,946 at MarchDecember 31, 2003, when
compared to September 30, 2002,2003, can primarily be attributedattributable to the decreaseincrease
in salesshipments during the month ended MarchDecember 31, 2003 when compared to the
month ended September 30, 2002.2003.
The increasedecrease of $130,954 in accounts payable of $81,424inventories at MarchDecember 31, 2003, when compared
to September 30, 2002,2003, can primarily be attributedattributable to the increase in
purchases as a resultscheduled delivery
of the increase in the NSINSI's sales order backlog of September 30, 2003 during the quarter ended
December 31, 2003.
The decrease of $144,390 in customer deposits at MarchDecember 31, 2003, when
compared to September 30, 2002.
The increase of $49,020 in customer deposits at March 31, 2003, when
compared to September 30, 2002, can primarily be attributable to the increase
in the NSI sales order backlog.
The decrease in other current liabilities of $101,438 at March 31, 2003,
when compared to September 30, 2002, can primarily be attributed to the paymentshipment of
NSI's sales order backlog of September 30, 2003 during the fiscal year 2002 discretionary profit sharing contribution.quarter ended
December 31, 2003.
Cash used in investing activities during the sixthree months ended MarchDecember 31,
2003 consisted of funds provided by the sale of investments ($391,878)of $9,922 and
funds used for capital expenditures ($40,972).
Cash used in financing activities during the six months ended March 31, 2003
consisted of funds used to pay a cash dividend ($290,478) on January 31, 2003.$21,714.
At MarchDecember 31, 2003, the Company had unused aggregate lines of credit
totaling $600,000. Of these lines, $100,000 is for the purchase of$750,000 collateralized by all inventory, equipment and is
collateralized by equipment and $500,000 is for working capital and is
collateralized by accounts
receivable, inventories and equipment.receivable.
Management believes that its working capital requirements for the forseeable
future will be met by its existing cash balances, future cash flows from
operations and its current credit arrangements.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," was issued June 2002 and is effective for exit or disposal
activities initiated after December 31, 2002. SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity Including Certain Costs Incurred in a
Restructuring." The adoption of this standard has no impact on the financial
statements of the Company.
In November 2002, the FASB issued FASB Interpretation (FIN) 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, which clarifies disclosure and
recognition/measurement requirements related to certain guarantees. The
disclosure requirements are effective for financial statements issued after
December 15, 2002 and the recognition/measurement requirements are effective
on a prospective basis for guarantees issued or modified after December 31,
2002. We adopted the disclosure provisions of FIN 45 effective December 31,
2002, and the recognition/measurement requirements of FIN 45 did not have an
impact on our financial position or results of operations for the three months
ended March 31, 2003.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
- ------------------------------------------------------------------------
Any statements contained in this report which are not historical facts are
forward looking statements; and, therefore, many important factors could
cause actual results to differ materially from those in the forward looking
statements. Such factors include, but are not limited to, changes
(legislative, regulatory and otherwise) in the MMDS, LPTV or Cable industry,
demand for the Company's products (both domestically and internationally),
the development of competitive products, competitive pricing, market
acceptance of new product introductions, technological changes, general
economic conditions, litigation and other factors, risks and uncertainties
which may be identified in the Company's Securities and Exchange Commission
filings.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time period specified in the
rules and forms of the Securities and Exchange Commission. Based upon their
evaluation of those controls and procedures performed as of December 31, 2003,
the Chief Executive and Chief Financial Officers of the Company concluded,
based upon their best judgement, that the Company's disclosure controls and
procedures were adequate.
The Company made no significant changes in its internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of the evaluation of those controls by the Chief Executive and Chief
Financial Officers. There were no significant deficiencies or material
weaknesses identified in the evaluation and, therefore, no corrective actions
were taken. While the Chief Executive and Chief Financial Officers of the
Company believe that the Company's existing disclosure controls and procedures
have been effective to accomplish its objectives, the Chief Executive and
Chief Financial Officers of the Company intend to examine, refine and
formalize our disclosure controls and procedures and monitor ongoing
developments.
Notwithstanding the foregoing, there can be no assurance that the Company's
disclosure controls and procedures will detect or uncover all failures of
persons within the Company and its consolidated subsidiaries to disclose
material information otherwise required to be set forth in the Company's
periodic reports.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is unaware of any material threatened or pending
litigation against the Company.
Item 2. Changes in Securities
None during this reporting period.
Item 3. Defaults Upon Senior Securities
The Company has no senior securities.
Item 4. Controls and Procedures
During the 90-day period prior to the filing date of this report,
management, including the Company's Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based
upon, and as of the date of that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the disclosure
controls and procedures were effective, in all material respects, to
ensure that information required to be disclosed in the reports the
Company files and submits under the Exchange Act is recorded,
processed, summarized and reported as and when required.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal
controls subsequent to the date the Company carried out its
evaluation. There were no significant deficiencies or material
weaknesses identified in the evaluation and, therefore, no corrective
actions were taken.
Item 5. Submission of Matters to a Vote of Security Holders
a. The Annual meeting of the Shareholders was held on April 7,
2003 at the Holiday Inn, Carrier Circle, East Syracuse, New York
13057 at 10:00 A.M. pursuant to notice to the shareholders.
The following matter was submitted to the vote of shareholders:
Proposal 1. The election of three directors to hold office until
the Annual Meeting of the Shareholders at which their term expires
or until their successors have been duly elected.
b. The following named persons received the number of votes set opposite
their respective names for election to the Board of Directors:
DIRECTORS VOTES FOR AUTHORITY
WITHHELD
Trudi B. Artini 2,568,607 25,775
Milo Peterson 2,571,487 22,895
David B. Robinson 2,575,608 18,774None during this reporting period.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 99.131.1 Section 13a-14(a)/15d-14(a) Certification Pursuant to 18 U.S.C.of Carl F. Fahrenkrug
31.2 Section 13a-14(a)/15d-14(a) Certification of Richard L. Jones
32.1 Section 1350 as Adopted
Pursuant to Section 906Certification of the Sarbanes-Oxley Act of 2002
Exhibit 99.2 Certification Pursuant to 18 U.S.C.Carl F. Fahrenkrug
32.2 Section 1350 as Adopted
Pursuant to Section 906Certification of the Sarbanes-Oxley Act of 2002Richard L. Jones
b. Reports on Form 8-K
None.
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MICROWAVE FILTER COMPANY, INC.
MayFebruary 14, 20032004 Carl F. Fahrenkrug
(Date) --------------------------
Carl F. Fahrenkrug
Chief Executive Officer
MayFebruary 14, 20032004 Richard L. Jones
(Date) --------------------------
Richard L. Jones
Chief Financial Officer
CERTIFICATION
I, Carl F. Fahrenkrug, Chief Executive Officer of Microwave Filter Company,
Inc. ("Company"), certify that:
1. I have reviewed this Form 10-Q of the Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this
quarterly report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Company, including it's consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the evaluation Date;
5. The Company's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee of
Company's board of directors ( or persons performing the equivalent
function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weakness in internal controls, and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal controls;
and
6. The Company's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003 /s/ Carl F. Fahrenkrug
Carl F. Fahrenkrug
CERTIFICATION
I, Richard L. Jones, Chief Financial Officer of Microwave Filter Company,
Inc. ("Company"), certify that:
1. I have reviewed this Form 10-Q of the Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this
quarterly report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Company, including it's consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date:
5. The Company's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit
committee of Company's board of directors ( or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weakness in internal controls, and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003 /s/ Richard L. Jones
Richard L. Jones
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C SECTION1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Microwave Filter Company, Inc. (the
Company) on Form 10-Q for the period ending March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the Report), I, Carl F.
Fahrenkrug, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/Carl F. Fahrenkrug
Carl F. Fahrenkrug
Chief Executive Officer
May 14, 2003
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C SECTION1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Microwave Filter Company, Inc. (the
Company) on Form 10-Q for the period ending March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the Report), I, Richard
L. Jones, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/Richard L. Jones
Richard L. Jones
Chief Financial Officer
May 14, 2003