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 March 31,June 30, 2004
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 - 2,904,7662,904,439 shares as of March
31,June
30, 2004.
PART I. - FINANCIAL INFORMATION
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)thousands, except per share data)
MARCH 31,JUNE 30, 2004 SEPTEMBER 30, 2003
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 517759 $ 647
Investments 861856 876
Accounts receivable-trade, net 346446 318
Federal and state income
tax recoverable 17737 39
Inventories 612567 708
Deferred tax asset - current 0 235
Prepaid expenses and other
current assets 9870 93
-------- --------
Total current assets 2,6112,735 2,916
Property, plant and equipment, net 893846 975
Deferred tax asset - noncurrent 0 11
-------- --------
Total assets $ 3,5043,581 $ 3,902
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 219211 $ 172
Customer deposits 351 144
Accrued payroll and related
expenses 107103 96
Accrued compensated absences 241231 255
Other current liabilities 3839 46
-------- --------
Total current liabilities 608635 713
-------- --------
Total liabilities 608635 713
-------- --------
Stockholders' Equity:
Common stock,$.10 par value 432 432
Additional paid-in capital 3,240 3,240
Retained earnings 730781 1,023
-------- --------
4,4024,452 4,695
Common stock in treasury,
at cost (1,506) (1,506)
-------- --------
Total stockholders' equity 2,8962,946 3,189
-------- --------
Total liabilities and
stockholders' equity $ 3,5043,581 $ 3,902
======== ========
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIXNINE MONTHS
ENDED MARCH 31,JUNE 30, 2004 AND 2003
(Unaudited)
(Amounts in thousands, except per share data)
Three months ended SixNine months ended
March 31 March 31June 30 June 30
2004 2003 2004 2003
Net sales $1,022 $1,014 $2,256 $2,503$1,374 $1,323 $3,630 $3,826
Cost of goods sold 721 762 1,610 1,802875 1,012 2,485 2,814
------- ------- ------- -------
Gross profit 301 252 646 701499 311 1,145 1,012
Selling, general and
administrative expenses 447 530 864 1,119426 432 1,290 1,550
------- ------- ------- -------
(Loss)Income (loss) from
operations (146) (278) (218) (418)73 (121) (145) (538)
Other income (net),
principallyPrincipally interest 4 5 8 134 12 16
------- ------- ------- -------
(Loss)Income (loss) before
income taxes (142) (273) (210) (405)77 (117) (133) (522)
Provision (benefit) for
income taxes 106 (94) 82 (140)27 (40) 109 (180)
------- ------- ------- -------
NET INCOME (LOSS) $50 ($248)77) ($179)242) ($292) ($265)342)
======= ======= ======= =======
Per share data:
Basic earnings (loss)
per share $0.02 ($0.09)0.03) ($0.06)0.08) ($0.10) ($0.09)0.12)
======= ======= ======= =======
Diluted earnings (loss)
per share $0.02 ($0.03) ($0.08) ($0.12)
======= ======= ======= =======
Shares used in computing
net earnings (loss) per share:
Basic 2,905 2,905 2,905 2,905
Diluted 2,921 2,905 2,916 2,905
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND SIXNINE MONTHS ENDED
MARCH 31,JUNE 30, 2004 AND 2003
(Unaudited)
(Amounts in thousands)thousands, except per share data)
Three months ended SixNine months ended
March 31 March 31June 30 June 30
2004 2003 2004 2003
Cash flows from operating
activities:
Net income (loss) $ 50 ($ 248)77) ($ 179)242) ($ 292) ($ 265)342)
Adjustments to reconcile
net lossincome (loss) to net
cash used inprovided by (used in)
operating activities:
Depreciation and amortization 56 75 111 15155 76 166 227
Deferred tax assets 2460 0 246 0
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable 12 234 (27) 68(101) (132) (128) (65)
Federal and state income
tax recoverable (116) (94) (138) (110)141 (42) 3 (152)
Inventories (36) (132) 95 2545 279 140 304
Prepaid expenses & other
assets (21) (14) (5) 928 24 23 34
Increase (decrease) in:
Accounts payable & accrued
expenses 92 66 36 (62)(21) (122) 15 (184)
Customer deposits 2 50 (142) 49 (103) (93) (54)
Federal and state income tax
taxes payable 0 0 0 (234)
------- ------- ------ -------------- -------
Net cash provided by (used
in) provided
by operating activities (13) 6 (116) (369)246 (97) 130 (466)
------- ------ ------ ------------- -------- -------
Cash flows from investing
activities:
Investments 5 381 15 392105 20 497
Capital expenditures (7) (26) (29) (41)(9) (5) (38) (46)
------- ------ ------ ------------- -------- -------
Net cash (used in) provided
by investing activities (2) 355 (14) 351(4) 100 (18) 451
Cash flows from financing
activities:
Cash dividend paid 0 (290)0 0 (290)
------- ------ ------ ------------- ------- -------
Net cash (used in)used in
financing activities 0 (290)0 0 (290)
(Decrease) increaseIncrease (decrease) in cash
and cash equivalents (15) 71 (130) (308)242 3 112 (305)
Cash and cash equivalents
at beginning of period 532 270517 341 647 649
------- ------ ------ ------------- ------- -------
Cash and cash equivalents
at end of period $ 517759 $ 341344 $ 517759 $ 341344
======= ======= ======= =======
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,JUNE 30, 2004
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 Operatingoperating results for the sixnine
month period ended March 31,June 30, 2004 are not necessarily indicative of the
results that may be expected for the year ended September 30, 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, 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, and mobile radio, commercial
communications 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 SixNine months ended
(thousands of dollars) March 31 March 31,June 30, June 30,
2004 2003 2004 2003
Net Sales (Unaffiliated):
MFC $1,005$1,349 $ 967 $2,056 $2,268862 $3,405 $3,130
NSI 17 47 200 23525 461 225 696
------ ------ ------ ------
Total $1,022 $1,014 $2,256 $2,503$1,374 $1,323 $3,630 $3,826
====== ====== ====== ======
Operating (loss) profit: (a)
MFC $88 ($106)170) ($205)79) ($167) ($216)385)
NSI (40) (73) (51) (202)(15) 49 (66) (153)
------ ------ ------ ------
Total $73 ($146)121) ($278)145) ($218) ($418)538)
===== ====== ====== ======= =============
Identifiable assets: (b)
MFC $2,879 $3,188 $2,879 $3,188$2,713 $2,987 $2,713 $2,987
NSI 108 535 108 535109 431 109 431
------ ------ ------ ------
Subtotal 2,987 3,723 2,987 3,7232,822 3,418 2,822 3,418
Corporate Assets - Cash
And Cash Equivalents 517 341 517 341759 344 759 344
------ ------ ------ ------
Total $3,504 $4,064 $3,504 $4,064$3,581 $3,762 $3,581 $3,762
====== ====== ====== ======
(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
CompaniesCompany's operations in each industry.segment.
Note 3. Inventories
Inventories net of reserveprovision for obsolescence consisted of the following:
(thousands of dollars) March 31,June 30, 2004 September 30, 2003
Raw materials and stock parts $455$418 $427
Work-in-process 7371 202
Finished goods 8478 79
------ ----
$612$567 $708
====== ====
The Company's reserveprovision for obsolescence equaled $390,985$391 at March 31,June 30,
2004 and $401,974$402 at September 30, 2003.
Note 4. Deferred Tax Assets
As a result of the Company's cumulative losses, the Company recorded a
non-cash charge to establish a valuation allowance of $246,000 against net
deferred tax assets.assets during the quarter ended March 31, 2004. The charge was
calculated in accordance with the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109), which
requires an assessment of both positive and negative evidence when measuring
the need for a valuation allowance. Evidence, such as operating results during
the most recent three-year period, is given more weight when due to our
current lack of visibility, there is a greater degree of uncertainty that the
level of future profitability needed to record the deferred tax assets will be
achieved. Our results over the most recent three-year period have been
negatively affected by the downturn in the telecommunications marketplace, the
sluggish economy and reduced capital spending. The Company's cumulative losslosses in the
most recent three-year period inclusive of the loss for the quarter ended March 31, 2004, representedrepresent sufficient negative evidence to
require a valuation allowance under the provisions of SFAS 109. The Company
will maintain a valuation allowance until sufficient positive evidence exists
to support its reduction or reversal.
Note 5. Stock Options
On April 9, 1998, the Board of Directors and Shareholders of Microwave
Filter Company, Inc. approved the 1998 Microwave Filter Company, Inc.
Incentive Stock Plan (the "1998 Plan"). Under the 1998 Plan, the Company may
grant incentive stock options ("ISOs"), non-qualified stock options ("NQSOs")
and stock appreciation rights to directors, officers and employees of the
Company and its affiliates. The 1998 Plan reserves 150,000 shares for
issuance. The exercise price of the ISOs and NQSOs will be 100% of the fair
market value of the Common Stock on the date the ISOs and NQSOs are granted.
The 1998 Plan will terminate on April 10, 2008. On June 21, 2004, the Board of
Directors granted ISOs totaling 115,000 shares and NQSOs totaling 35,000
shares at an exercise price of $1.47.
Note 6. Stock Based Compensation
The Company measures compensation expense for its stock-option based
employee compensation plans using the intrinsic value method. The following
table sets forth the pro forma effect of these plans as if the fair value-
based method had been used to measure compensation expense.
Three months ended Nine months ended
June 30 June 30
2004 2003 2004 2003
(thousands of dollars, except per share data)
Net earnings (loss), as
reported $50 ($77) ($242) ($342)
Fair value based stock
compensation cost, net
of tax (156) 0 (156) 0
------ ----- ------ ------
Pro forma earnings (loss) ($106) ($77) ($398) ($342)
====== ===== ====== ======
Earnings (loss) per share:
Basic $0.02 ($0.03) ($0.08) ($0.12)
Diluted $0.02 ($0.03) ($0.08) ($0.12)
Pro forma earnings (loss) per share:
Pro forma basic ($0.04) ($0.03) ($0.14) ($0.12)
Pro forma diluted ($0.04) ($0.03) ($0.14) ($0.12)
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, and mobile radio, commercial communications 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.
Critical Accounting Policies
The Company's consolidated financial statements are based on the application
of generally accepted accounting principles (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. Note 1 to the consolidated financial statements in our Annual Report on
Form 10-K for the fiscal year ended September 30, 2003 describes the
significant accounting policies used in preparation of the consolidated
financial statements. The most significant areas involving management
judgments and estimates are described below and are considered by management
to be critical to understanding the financial condition and results of
operations of the Company.
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. Collections 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 has 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 accounts for our stock-based compensation plan under the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." No compensation expense has been recognized in the
accompanying financial statements relative to our stock option plan. Pro forma
information regarding net income and earnings per share is required by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," as amended, and has been determined as if we had
accounted for our stock options under the fair value method described in that
statement.
As a result of the Company's cumulative losses, the Company recorded a non-
cash charge to establish a valuation allowance of $246,000 against net
deferred tax assets.assets during the quarter ended March 31, 2004. The charge was
calculated in accordance with the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109), which
requires an assessment of both positive and negative evidence when measuring
the need for a valuation allowance. Evidence, such as operating results during
the most recent three-year period, is given more weight when due to our
current lack of visibility, there is a greater degree of uncertainty that the
level of future profitability needed to record the deferred tax assets will be
achieved. Our results over the most recent three-year period have been
negatively affected by the downturn in the telecommunications marketplace, the
sluggish economy and reduced capital spending. The Company's cumulative losslosses in the
most recent three-year period inclusive of the loss for the quarter ended March 31, 2004, representedrepresent sufficient negative evidence to
require a valuation allowance under the provisions of SFAS 109. The Company
will maintain a valuation allowance until sufficient positive evidence exists
to support its reduction or reversal.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,JUNE 30, 2004 vs. THREE MONTHS ENDED MARCH 31,JUNE 30, 2003
Net sales for the three months ended March 31,June 30, 2004 equaled $1,022,496,$1,373,974, an
increase of $8,604$51,428 or 0.8%3.9% when compared to net sales of $1,013,892$1,322,546 for the
three months ended March 31,June 30, 2003.
MFC sales for the three months ended March 31,June 30, 2004 equaled $1,005,712$1,348,960, an
increase of $39,190$487,217 or 4.1%56.5% when compared to sales of $966,522$861,743 for the three
months ended March 31,June 30, 2003. The increase in MFC sales can primarily be attributed to
both an increase in the sales of the company's standard
cable/satellite TV products.Company's RF/Microwave products sold to
the Industrial/OEM (Original Equipment Manufacturer) market segment and an
increase in the sales of the Company's standard/catalog products sold
primarily to the Cable Television market segment.
MFC's sales order backlog equaled $510,212$425,843 at March 31,June 30, 2004, an increasea decrease of
$112,948,$84,369, when compared to sales order backlog of $397,264$510,212 at DecemberMarch 31, 2003.2004.
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%84% of
MFC's sales order backlog at March 31,June 30, 2004 is scheduled to ship by September
30, 2004.
The increase in MFC's sales order backlog can be attributed to an increase
in orders for the Company's RF/Microwave products.
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.
NSI sales for the three months ended March 31,June 30, 2004 equaled $16,784,$25,014, a
decrease of $30,586$435,789 or 64.6%94.6% when compared to sales of $47,370$460,803 for the three
months ended March 31,June 30, 2003. 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,June 30,
2004, NSI's backlog of orders equaled $7,701,$144,135, an increase of $136,434 when
compared to backlog of $0$7,701 at DecemberMarch 31, 2003. Similar2004. NSI's total backlog of orders
is scheduled to MFC,ship during the first quarter of fiscal 2005. Despite the
increase in backlog, NSI continues to feel the effectseffect of a sluggish economy
and reduced capital spending.
The Company recorded net earnings of $50,381 for the three months ended June
30, 2004 compared to a net loss of $76,552 for the three months ended June 30,
2003. The improvement can primarily be attributed to the increase in gross
profit during the quarter ended March 31, 2004 when compared to the same
period last year.
Gross profit for the three months ended March 31,June 30, 2004 equaled $300,958,$499,469, an
increase of $49,271$188,904 or 19.5.%60.8%, when compared to gross profit of $251,687$310,565 for
the three months ended March 31,June 30, 2003. As a percentage of sales, gross profit
increasedimproved to 29.4%36.4% for the three months ended March 31,June 30, 2004 compared to 24.8%23.5%
for the three months ended March 31,June 30, 2003. The increase in gross profit as a
percentage of sales can primarily be attributed to a favorable product sales mixmix. MFC's
sales, whose targeted gross profits are higher than NSI's, accounted for 98.1%
of sales during the quarter.quarter ended June 30, 2004 compared to 65.2% of sales
during the quarter ended June 30, 2003.
Selling, general and administrative (SGA) expenses for the three months
ended March 31,June 30, 2004 equaled $447,293,$426,647, a decrease of $82,479$4,711 or 15.6.%1.1% when
compared to SG&A expenses of $529,772$431,358 for the three months ended March 31,June 30,
2003. As a percentage of sales, SGA expenses decreased to 43.7%31.1% of sales for
the three months ended March 31,June 30, 2004 compared to 52.3%32.6% of sales for the three
months ended March 31,June 30, 2003 primarily due to the dollar decreaseincrease in expenses.sales. Due to the
uncertain economic climate, the Company ishas been 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.
The Company
On an industry segment basis, MFC recorded a lossincome from operations of $146,335$87,640
for the second
quarterthree months ended March 31,June 30, 2004 compared to a loss from operations of
$278,085$169,790 for the three months ended March 31, 2003. The reduction in the loss can be
attributedJune 30, 2003 primarily due to the
improvementincrease in gross profit as a percentage of sales and the
decrease in selling, general and administrative (SG&A) expenses during the
quarter when compared to the same period last year.
On an industry segment basis, MFC recorded a loss from operations for the
three months ended March 31, 2004 of $106,559 compared to loss from operations
of $204,811 for the three months ended March 31, 2003.sales. NSI recorded a loss from operations of $39,776$14,818 for the
three months ended March 31,June 30, 2004 compared to income from operations of $73,274$48,997
for the three months ended March 31,
2003.
As a result of the Company's cumulative losses, the Company recorded a non-
cash charge to establish a valuation allowance of $246,000 against net
deferred tax assets. The charge was calculated in accordance with the
provisions of Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes (SFAS 109), which requires an assessment of both positive and
negative evidence when measuring the need for a valuation allowance. Evidence,
such as operating results during the most recent three-year period, is given
more weight when due to our current lack of visibility, there is a greater
degree of uncertainty that the level of future profitability needed to record
the deferred tax assets will be achieved. Our results over the most recent
three-year period have been negatively affected by the downturn in the
telecommunications marketplace, the sluggish economy and reduced capital
spending. The Company's cumulative loss in the most recent three-year period,
inclusive of the loss for the quarter ended March 31, 2004, represented
sufficient negative evidence to require a valuation allowance under the
provisions of SFAS 109. The Company will maintain a valuation allowance until
sufficient positive evidence exists to support its reduction or reversal.
The Company recorded a provision for income taxes of $105,065 for the three
months ended March 31, 2004 compared to a benefit for income taxes of $94,322
for the three months ended March 31,June 30, 2003 primarily due to the Company
providing a full valuation allowance on the deferred tax assets. In addition,
during the quarter March 31, 2004, the Company assessed its net current taxes
payable and recorded an adjustment of approximately $92,000 to reflect amounts
recoverable.
SIXdecrease in
sales.
NINE MONTHS ENDED MARCH 31,JUNE 30, 2004 vs. SIXNINE MONTHS ENDED MARCH 31,JUNE 30, 2003
Net sales for the sixnine months ended March 31,June 30, 2004 equaled $2,255,776,$3,629,750, a
decrease of $247,273,$195,845, or 9.9%5.1% when compared to net sales of $2,503,049$3,825,595 for
the sixnine months ended March 31,June 30, 2003.
MFC sales for the sixnine months ended March 31,June 30, 2004 equaled $2,055,816, a
decrease$3,404,776, an
increase of $211,869,$275,348 or 9.3%8.8%, when compared to sales of $2,267,685$3,129,428 for the
sixnine months ended March 31,June 30, 2003. The decreaseincrease in MFC sales can primarily be
attributed to a decreasean increase in the sales of the company's standard
cable/satellite TVCompany's RF/Microwave products
for the six month period ended March 31, 2004 when
comparedsold to the same period last year.OEMs.
NSI sales for the sixnine months ended March 31,June 30, 2004 equaled $199,960,$224,974, a
decrease of $35,404$471,193 or 15%67.7% when compared to sales of $235,364$696,167 for the sixnine
months ended March 31,June 30, 2003. 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. Similar to
MFC, NSI continues to feel the effects of the sluggish economy and reduced
capital spending.
The Company recorded a net loss of $241,787, for the nine months ended June
30, 2004 compared to a net loss of $341,796 for the nine months ended June 30,
2003. The improvement can be attributed to the improved margins realized this
year and the decrease in selling, general and administrative expenses this
year when compared to the same period last year.
Gross profit for the sixnine months ended March 31,June 30, 2004 equaled $645,533$1,145,002 or
28.6%31.5% of sales, a decreasean increase of $55,840,$133,064 or 8.0%13.1%, when compared to gross
profit of $701,373$1,011,938 or 28.0%26.5% of sales for the sixnine months ended March 31,June 30,
2003. The decreasesincreases in gross profit can primarily be attributed to the lowerproduct
sales volume.mix.
SG&A expenses for the sixnine months ended March 31,June 30, 2004 equaled $863,556,$1,290,203, a
decrease of $255,413$260,124 or 22.8%16.8% when compared to SG&A expenses of $1,118,969$1,550,327 for
the sixnine months ended March 31,June 30, 2003. 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.
The Company recorded a loss from operationsprovision for income taxes of $218,023$108,677 for the sixnine
months ended June 30, 2004, compared to a benefit for income taxes of $180,029
for the nine months ended June 30, 2003, primarily due to the Company
providing a full valuation allowance on the deferred tax assets in the second
quarter. In addition, during the quarter ended March 31, 2004, comparedthe Company
assessed its net current taxes payable and recorded an adjustment of
approximately $92,000 to a loss from operations of $417,596 forreflect amounts recoverable. For the sixnine months
ended March 31, 2003. The improvement can primarily be attributed
to the reduction in selling, general and administrative (SG&A) expenses for
the six months ended March 31,June 30, 2004, when compared to the same period last
year.
As previously discussed, the Company establishedhas been accruing a full valuation allowanceprovision (benefit) for
income taxes at an effective tax rate of $246,000 against our net deferred tax assets during the current quarter and
reflected in the six months ended March 31, 2004.34.5%.
LIQUIDITY and CAPITAL RESOURCES
Cash and cash equivalents decreased $130,346increased $112,182 to $516,540$759,068 at March 31,June 30,
2004 when compared to $646,886 at September 30, 2003. The decreaseincrease was a
result of $116,094$130,321 in net cash used inprovided by operating activities, $14,247$17,627
in net cash used in investing activities and $5$512 in net cash used in
financing activities to
purchase treasury stock.
The increase in accounts receivable of $27,641$127,655 at March 31,June 30, 2004, when
compared to September 30, 2003, can primarily be attributed to the increase in
sales during the month ended March 31,June 30, 2004 when compared to the month ended
September 30, 2003.
The increase in federal and state income tax recoverable of $137,978 at
March 31, 2004, when compared to September 30, 2003, can primarily be
attributed to the net operating loss carry backs adjusted for during the
quarter ended March 31, 2004 as well as revisions to the current recoverable.
The decrease of $95,456 in inventories of $140,450 at March 31, 2004, when compared to
SeptemberJune 30, 2003, can primarily be attributable to the scheduled delivery of
NSI's sales order backlog of September 30, 2003 during the six months ended
March 31, 2004.
The decrease of $246,000 in deferred tax assets at March 31, 2004, when
compared to September 30, 2003, can primarily be attributable to the valuation
allowance of $246,000 charged against net deferred tax assets during the
quarter ended March 31, 2004.
The increase in accounts payable of $47,338 at March 31, 2004, when compared to
September 30, 2003, can primarily be attributed to an increase in purchases
as a resultNSI shipment during the
month of the increase in the MFC sales order backlog at March 31, 2004
when compared to September 30,October 2003.
The decrease of $141,695$93,943 in customer deposits at March 31,June 30, 2004, when compared
to September 30, 2003, can primarily be attributedattributable to thean NSI shipment of
NSI's sales order backlog of September 30, 2003 during
the six months ended
March 31, 2004.month of October 2003.
Cash used inprovided by investing activities during the sixnine months ended March 31,June 30,
2004 consisted of funds provided by the sale of investments of $14,985$19,961 and
funds used for capital expenditures of $29,232.$37,588.
At March 31,June 30, 2004, the Company had unused aggregate lines of credit totaling
$750,000 collateralized by all inventory, equipment and accounts receivable.$750,000.
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.
Off-Balance Sheet Arrangements
At March 31,June 30, 2004 and 2003, 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.
RECENT ACCOUNTING PRONOUNCEMENTS
None.
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. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no significant change in our exposures to market risk during
the three and sixnine months ended March 31,June 30, 2004. For a detailed discussion of
market risk, see our Annual Report on Form 10-K for the fiscal year ended
September 30, 2003, Part II, Item 7A, Quantitative and Qualitative Disclosures
About Market Risk.
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 March 31,June 30, 2004, 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. Submission of Matters to a Vote of Security Holders
a. The Annual meeting of the Shareholders was held on April 6,
2004 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
Robert A. Andrews 2,510,158 25,882
Sidney K. Chong 2,359,034 177,006
Louis S. Misenti 2,228,815 307,225None during this reporting period.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
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
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.
May 14,August 13, 2004 Carl F. Fahrenkrug
(Date) --------------------------
Carl F. Fahrenkrug
Chief Executive Officer
May 14,August 13, 2004 Richard L. Jones
(Date) --------------------------
Richard L. Jones
Chief Financial Officer