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                 June 30,December 31, 2005


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 by check mark whether the registrant is a shell company (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 -    2,909,4632,909,141 shares
            as of June
30,December 31, 2005.




                       PART I. - FINANCIAL INFORMATION

                         MICROWAVE FILTER COMPANY, INC.
                          CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)
                            JUNEDecember 31, 2005      September 30, 2005         SEPTEMBER 30, 2004
                               (Unaudited)

Assets

Current Assets:

Cash and cash equivalents           $ 1,1701,210                $ 8171,252
Investments                             832                    851818                    823
Accounts receivable-trade, net          of
 allowance for doubtful accounts of
 $16303                    495
Federal and $25                            452                    454state income tax
 recoverable                             17                      0
Inventories                             610                    638618                    556
Prepaid expenses and other
 current assets                         64                     68
                                    -------138                    150
                                    --------               -------

Total current assets                  3,128                  2,8283,104                  3,276

Property, plant and equipment, net      of accumulated depreciation of
 $5,944 and $5,796                      703                    799631                    659

Deferred tax asset - noncurrent          49                     49
                                    -------                -------

Total assets                        $ 3,8313,784                $ 3,6273,984
                                    =======                =======

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable                    $   139211                $   180190
Customer deposits                        23                     6722                     10
Accrued federal and state
 incomesincome taxes                             38                      0                     23
Accrued payroll and related
 expenses                                61                     8259                     60
Accrued compensated absences            262                    253
Accrued profit sharing                   47                      2235                    228
Cash dividend payable                   291                      0
Other current liabilities                34                     3148                    142
                                    -------                -------

Total current liabilities               604                    615866                    653
                                    -------                -------

Total liabilities                       604                    615866                    653
                                    -------                -------




Stockholders' Equity:

Common stock,$.10 par value             432                    432
Additional paid-in capital            3,249                  3,2403,249
Retained earnings                       1,054                    846746                  1,159
                                    -------                -------

                                      4,735                  4,5184,427                  4,840
Common stock in treasury,
 at cost                             (1,508)                (1,506)(1,509)                (1,509)
                                    -------                -------

Total stockholders' equity            3,227                  3,0122,918                  3,331
                                    -------                -------

Total liabilities and
 stockholders' equity               $ 3,8313,784                $ 3,6273,984
                                    =======                =======


See Accompanying Notes to Consolidated Financial Statements



                     MICROWAVE FILTER COMPANY, INC.
                 CONSOLIDATED STATEMENTS OF OPERATIONS
                          FOR THE THREE MONTHS
                    AND NINE MONTHS
                      ENDED JUNE 30,DECEMBER 31, 2005 AND 2004
                              (Unaudited)

(Amounts in thousands, except per share data)

                                Three months ended
                                   Nine months ended
                                     June 30                   June 30
                                2005          2004December 31
                                2005          2004


Net sales                      $1,547        $1,374       $4,140       $3,630$1,080        $1,181

Cost of goods sold                903           875        2,508        2,485
                               ------        ------720           759
                               ------        ------
Gross profit                      644           499        1,632        1,145360           422

Selling, general and
 administrative expenses          505           426        1,416        1,290501           436
                               ------        ------
------       ------
Income (loss)Loss from operations             139            73          216         (145)(141)          (14)

Other income (net),
  principally interest             12             4           30           1220             9
                               ------        ------

------       ------

Income (loss)Loss before income
  taxes                          151            77          246         (133)(121)           (5)


Provision (benefit) for
  income taxes                      30            27           38          109
                               ------        ------0             0
                               ------        ------

NET INCOME (LOSS)                $121           $50         $208LOSS                        ($242)
                               ======        ======121)          ($5)
                               ======        ======
Per share data:

Basic earnings (loss)
   per share                   $0.04         $0.02        $0.07       ($0.08)
                               ======        ======0.04)       ($0.00)
                               ======        ======
Diluted earnings (loss)
   per share                   $0.04         $0.02        $0.07       ($0.08)
                               ======        ======0.04)       ($0.00)
                               ======        ======
Shares used in computing
   net earnings (loss) per share:
   Basic                        2,910         2,905        2,908        2,9052,909         2,904
   Diluted                      3,048         2,905        3,050        2,9163,053


See Accompanying Notes to Consolidated Financial Statements



                          MICROWAVE FILTER COMPANY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            FOR THE THREE MONTHS AND NINE MONTHS ENDED
                            JUNE 30,DECEMBER 31, 2005 AND 2004
                                   (Unaudited)

(Amounts in thousands)

                                Three months ended
                                   Nine months ended
                                      June 30               June 30
                                  2005       2004December 31
                                2005          2004

Cash flows from operating
 activities:
Net income (loss)loss                     $ 121(121)        $   50       $ 208      ($ 242)(5)

Adjustments to reconcile net
 income (loss)loss to net cash used inprovided by
 (used in) operating activities:

Depreciation and amortization    50         55         148         166
Deferred tax assets                  0          0           0         24639             49

Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable 18       (101)          2        (128)- trade     192            119
Federal and state income
 tax recoverabletaxes                          (40)             0
141           0           3
Inventories                     41         45          29         140(62)            31
Prepaid expenses &and other
 assets                          15         28           3          23
Increase (decrease) in:12             (5)
Accounts payable &and accrued
 expenses                       (65)       (21)         (6)         15(68)           (92)
Customer deposits                2         49         (44)        (93)
Federal and state income tax
 taxes payable                      31          0          38           0
                                 -----      -----       -----       -----12            (50)
                             ------         ------

Net cash (used in) provided
 by operating activities        213        246         378         130
                                 -----      -----       -----       -----(36)            47
                             ------         ------

Cash flows from (used in)
 investing activities:

Investments                       4          5              19          204
Capital expenditures            (26)(11)            (9)
                             (52)        (38)
                                 -----      -----       -----       -----------         ------

Net cash used in
 investing activities            (22)        (4)        (33)        (18)
                                 -----      -----       -----       -----(6)            (5)
                             ------         ------

Cash flows from
 financing activities:
Stock options exercisedactivities             0              0
                             9           0
Purchase of treasury stock          (1)         0          (2)          0
                                 -----      -----       -----       -----------         ------

Net cash (used in) provided
 by financing activities            (1)         0           7           0
                                 -----      -----       -----       -----

Increase(decrease) increase in
 cash and cash equivalents      190        242         352         112(42)            42


Cash and cash equivalents
 at beginning of period       980        517         818         647
                                 -----      -----       -----       -----1,252            817
                             ------         ------

Cash and cash equivalents
 at end of period            $1,170$1,210         $  759      $1,170      $  759
                                 =====      =====       =====       =====859
                             ======         ======


See Accompanying Notes to Consolidated Financial Statements



                    MICROWAVE FILTER COMPANY, INC.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        JUNE 30,DECEMBER 31, 2005


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 ninethree
month period ended June 30,December 31, 2005 are not necessarily indicative of the
results that may be expected for the year ended September 30, 2005.2006. 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, 2004.2005.


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 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
 Nine months ended
 (thousands of dollars)           June 30,             June 30,
                                 2005      2004December 31
                                 2005      2004

Net Sales (Unaffiliated):
   MFC                          $1,542    $1,349     $3,957    $3,405$1,078    $1,023
   NSI                               5        25        183       225
                                ------    ------2       158
                                ------    ------
   Total                        $1,547    $1,374     $4,140    $3,630
                                ======    ======$1,080    $1,181
                                ======    ======

Operating profit (loss): income: (a)
   MFC                           $152        $88       $212      ($79)129)     ($46)
   NSI                             (13)       (15)         4       (66)
                                 ----       ----       ----      ----(12)       32
                                ------    ------
   Total                         $139        $73       $216     ($145)
                                 ====       ====       ====      ====141)     ($14)
                                ======    ======


Identifiable assets: (b)
   MFC                          $2,589    $2,713     $2,589    $2,713$2,528    $2,543
   NSI                              72       109         72       109
                                ------    ------46        78
                                ------    ------
   Subtotal                      2,661     2,822      2,661     2,8222,574     2,621
   Corporate Assets - Cash
   And Cash Equivalents          1,170       759      1,170       759
                                ------    ------1,210       859
                                ------    ------
   Total                        $3,831    $3,581     $3,831    $3,581
                                ======    ======$3,784    $3,480
                                ======    ======

(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. Investments

  Investments generally consistCash Dividend

 On November 9, 2005, the Board of commercial paper, government backed
obligations and other guaranteed commercial debt that have an original
maturityDirectors of more than three months andMicrowave Filter Company, Inc.
declared a remaining maturityten cents per share cash dividend to shareholders of less than one
year. Investments are carried at cost which approximates market.record on
December 9, 2005 to be distributed on January 9, 2006. 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.dividend
totaled $290,914.


Note 4. Inventories

 Inventories are stated at the lower of cost determined on the first-in,
first-out method or market.

 Inventories net of reserve for obsolescence consisted of the following:

  (thousands of dollars)          June 30,December 31, 2005     September 30, 20042005

Raw materials and stock parts              $475                 $428$498                 $448
Work-in-process                              54                  12647                   42
Finished goods                               81                   84
                                         ------73                   66
                                           ----                 $610                 $638
                                         ======----
                                           $618                 $556
                                           ====                 ====

 The Company's reserve for obsolescence equaled $386,749$362,139 at June 30,December 31,
2005 and September 30, 2004.2005.


Note 5. 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. As a result of
the Company's losses, the Company recorded a non-cash charge to establish a
valuation allowance of $288,293 against net deferred tax assets during the
fiscal year ended September 30, 2004. The charge was calculated in accordance
with the provisions of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109), which requires an assessment of both
positive and negative evidence when measuring the need for a valuation
allowance. Evidence, such as operating results during the most recent three-
year period, is given more weight when due to our current lack of visibility,
there is a greater degree of uncertainty that the level of future
profitability needed to record the deferred tax assets will be achieved. The
Company's losses in the most recent three-year period represented sufficient
negative evidence to require a valuation allowance under the provisions of
SFAS 109. The Company will maintain a valuation allowance until sufficient
positive evidence exists to support its reduction or reversal.



Note 6. Stock Options

  On April 9, 1998, the Board of Directors and Shareholders of Microwave
Filter Company, Inc. approved the 1998 Microwave Filter Company, Inc.
Incentive Stock Plan (the "1998 Plan"). Under the 1998 Plan, the Company may
grant incentive stock options ("ISOs"), non-qualified stock options ("NQSOs")
and stock appreciation rights to directors, officers and employees of the
Company and its affiliates. The 1998 Plan reserves 150,000 shares for
issuance. The exercise price of the ISOs and NQSOs will be 100% of the fair
market value of the Common Stock on the date the ISOs and NQSOs are granted.
The 1998 Plan will terminate on April 10, 2008. On June 21, 2004, the Board of
Directors granted ISOs totaling 115,000 shares and NQSOs totaling 35,000
shares at an exercise price of $1.47. All options were 100% vested.

  We account for our incentive stock plan under the recognition and
measurement principles 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.

A summary of all stock option activity and information related to all options
outstanding follows:


NineThree months ended June 30,December 31, 2005 ---------------------------------- ISOs NQSOs -------- -------- Exercise Shares Exercise Shares Price Price -------- -------- -------- -------- Outstanding at beginning of period $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 period $1.47 108,548 $1.47 30,000 ------ -------- ------ -------- Exercisable at end of period $1.47 108,548 $1.47 30,000 ------ -------- ------- --------
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 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, 20042005 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. 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 determined on the first-in, first-out method 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 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. As a result of the Company's losses, the Company recorded a non-cash charge to establish a valuation allowance of $288,293 against net deferred tax assets duringfor the fiscal year ended September 30, 2004. The charge was calculated in accordance with the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109), which requires an assessment of both positive and negative evidence when measuring the need for a valuation allowance. Evidence, such as operating results during the most recent three- year period, is given more weight when due to our current lack of visibility, there is a greater degree of uncertainty that the level of future profitability needed to record the deferred tax assets will be achieved. The Company's losses in the most recentfor that three-year period represented sufficient negative evidence to require a valuation allowance under the provisions of SFAS 109. The Company will maintain a valuation allowance until sufficient positive evidence exists to support its reduction or reversal. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30,DECEMBER 31, 2005 vs. THREE MONTHS ENDED JUNE 30, 2004DECEMBER 31, 2004. Net sales for the three months ended June 30,December 31, 2005 equaled $1,547,158, an increase$1,080,836, a decrease of $173,184$99,858 or 12.6%8.5% when compared to net sales of $1,373,974$1,180,694 for the three months ended June 30,December 31, 2004. MFC sales for the three months ended June 30,December 31, 2005 equaled $1,542,113,$1,078,704, an increase of $193,153$55,486 or 14.3%5.4%, when compared to sales of $1,348,960$1,023,218 for the three months ended June 30,December 31, 2004. The increase in MFC sales can primarily be attributed to an increase in the sales of the company's Cable TV products. Cable TV product sales for the three months ended June 30, 2005 equaled $807,740, an increase of $249,095 or 44.4%, when compared to Cable TV product sales of $558,645 for the three months ended June 30, 2004. The increase can be attributed to increased demand and the shipment of one order totaling approximately $200,000Company's RF/Microwave products during the quarter ended June 30, 2005. quarter. MFC's RF/Microwave product sales for the three months ended June 30,December 31, 2005 equaled $423,435,$406,532, an increase of $58,528$203,084 or 16%99.8%, when compared to RF/Microwave product sales of $364,907$203,448 for the three months ended June 30,December 31, 2004. The company's RF/MicrowaveThese products are primarily sold primarily to original equipment manufacturers (OEMs) that serve the mobile radio, commercial communications and defense electronics markets. 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 customersin this area as part of a concentrated effort to provide substantial long-term growth. Both MFC's Satellite productA significant portion of the increase were sales and Broadcast TV product sales decreasedto the U.S. Government which equaled $179,738 during the three months ended June 30,December 31, 2005 when compared to the same period last year. Satellite product sales were down $81,085 and Broadcast TV product sales were down $33,385 due primarily to a decrease in demand when compared to$3,250 during the same period last year. MFC's Cable TV product sales for the three months ended December 31, 2005 equaled $386,207, a decrease of $143,315 or 27.1%, when compared to sales of $529,522 during the same period last year. Management attributes the decrease in the Cable TV product sales to the shift from analog to digital television. Although the Company has developed filters for digital television, the demand for these types of filters is unknown at this time. MFC's Satellite product sales for the three months ended December 31, 2005 equaled $250,269, an increase of $48,160 or 23.8%, when compared to sales of $202,109 during the same period last year. The increase can be attributed to an increase in demand for the Company's filters which suppress strong out-of- band interference caused by military and civilian radar systems and other sources. MFC's BTV/Wireless Cable product sales for the three months ended December 31, 2005 equaled $35,696, a decrease of $52,443 or 59.5%, when compared to sales of $88,139 during the same period last year primarily due to a decrease in demand for UHF Broadcast products. MFC's sales order backlog equaled $455,142$700,835 at June 30,December 31, 2005 compared to sales order backlog of $756,310$692,595 at March 31,September 30, 2005 and $472,331 at December 31, 2004 and $661,109 at September 30, 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 88% of MFC'sThe total MFC sales order backlog at June 30,December 31, 2005 is scheduled to ship by September 30, 2005.2006. NSI sales for the three months ended June 30,December 31, 2005 equaled $5,045,$2,132, a decrease of $19,969$155,344 or 98.6%, when compared to sales of $25,014$157,476 for the three months ended June 30,December 31, 2004. SalesNSI sales consisted primarily 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. NSI's sales order levels have been impacted negatively by the sluggish economy and reduced capital spending.spare part orders during this quarter. NSI has also 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. At June 30,December 31, 2005, NSI's sales order backlog of orders equaled $0. The Company recorded a net loss of $121,407, or a loss of $.04 per share, for the three months ended December 31, 2005 compared to a net loss of $5,288, or a loss of $.00 per share, for the three months ended December 31, 2004. The decrease can primarily be attributed to lower gross profit and higher selling, general and administrative expenses this year when compared to the same period last year. Gross profit for the three months ended June 30,December 31, 2005 equaled $644,498, an increase$360,341, a decrease of $145,029$61,696 or 29%14.6%, when compared to gross profit of $499,469$422,037 for the three months ended June 30,December 31, 2004. As a percentage of sales, gross profit increased to 41.7%equaled 33.3% for the three months ended June 30,December 31, 2005 compared to 36.4%35.7% for the three months ended June 30,December 31, 2004. The increasesdecrease in gross profit can primarily be attributed to the increasedlower sales volume and a favorable product sales mixmix. The Company's Cable TV product sales, which typically generate a higher margin than other product groups, decreased $143,315 or 27% this yearquarter when compared to the same period last year. Selling, general and administrative (SGA) expenses for the three months ended June 30,December 31, 2005 equaled $505,156,$501,182, an increase of $78,509$65,081 or 18.4%14.9%, when compared to SG&A expenses of $426,647$436,101 for the three months ended June 30,December 31, 2004. The increase can primarily be attributed to an increase inhigher payroll and payroll related expenses.expenses due to additional hires and higher sales commissions due to the increase in the RF/Microwave product sales. As a percentage of sales, SG&ASGA expenses equaled 32.7%46.4% for the three months ended June 30,December 31, 2005 compared to 31.1% of sales36.9% for the three months ended June 30,December 31, 2004. The Company recordedOther income from operations of $139,342 for the third quarter ended June 30, 2005 compared tois primarily interest income from operations of $72,822earned on invested cash balances. Other income equaled $19,434 for the three months ended June 30, 2004. The improvement can primarily be attributed to the higher sales volume and improved gross margins this year whenDecember 31, 2005 compared to the same period last year. On an industry segment basis, MFC recorded income from operations of $152,522$8,776 for the three months ended June 30, 2005 compared to income from operations of $87,640 for the three months ended June 30, 2004. MFC's improvement can primarily be attributed to the higher sales volume and improved gross margins this year when compared to the same period last year. NSI recorded a loss from operations of $13,180 for the three months ended June 30, 2005 compared to a loss from operations of $14,818 for the three months ended June 30, 2004. The Company recorded a provision for income taxes of $30,273, an effective rate of 20%, for the three months ended June 30, 2005 compared to a provision for income taxes of $26,537, an effective rate of 34.5%, for the three months ended June 30, 2004. NINE MONTHS ENDED JUNE 30, 2005 vs. NINE MONTHS ENDED JUNE 30, 2004 Net sales for the nine months ended June 30, 2005 equaled $4,139,632, an increase of $509,882, or 14% when compared to net sales of $3,629,750 for the nine months ended June 30, 2004. MFC sales for the nine months ended June 30, 2005 equaled $3,956,968, an increase of $552,192, or 16.2% when compared to sales of $3,404,776 for the nine months ended June 30, 2004. The increase in MFC sales can primarily be attributed to an increase in the sales of the company's Cable TV and RF/Microwave product sales when compared to last year. For the nine months ended June 30, 2005, MFC's Cable TV product sales equaled $1,894,255, an increase of $328,600 or 20.9%, when compared to Cable TV product sales of $1,565,655 for the nine months ended June 30, 2004. For the nine months ended June 30, 2005, MFC's RF/Microwave product sales equaled $1,197,319, an increase of $294,813 or 32.6%, when compared to RF/Microwave product sales of $902,505 ffor the none months ended June 30, 2004. NSI sales for the nine months ended June 30, 2005 equaled $182,664, a decrease of $42,310 or 18.8% when compared to sales of $224,974 for the nine months ended June 30, 2004. Gross profit for the nine months ended June 30, 2005 equaled $1,631,586 an increase of $486,584, or 42.5%, when compared to gross profit of $1,145,002 for the nine months ended June 30, 2004. As a percentage of sales, gross profit increased to 39.4% for the nine months ended June 30, 2005 compared to 31.5% for the nine months ended June 30, 2004. The increases in gross profit can primarily be attributed to the higher sales volume and a favorable product sales mix. SG&A expenses for the nine months ended June 30, 2005 equaled $1,415,574 an increase of $125,371 or 9.7%, when compared to SG&A expenses of $1,290,203 for the nine months ended June 30,December 31, 2004. The increase can primarily be attributed to increasesthe rise in payroll and payroll related expenses. As a percentage of sales, SGA expenses equaled 34.2% for the nine months ended June 30, 2005 compared to 35.5% of sales for the nine months ended June 30, 2004. interest rates. The Company recorded income from operations of $216,012 for the nine months ended June 30, 2005 compared to a loss from operations of $145,201 for the nine months ended June 30, 2004. The improvement can primarily be attributed to the higher sales volume and improved gross margins this year when compared to the same period last year. The Company recorded a provision (benefit) for income taxes of $37,537, an effective rate of 15.3% attributable to beingequaled $0 for both the three months ended December 31, 2005 and 2004. The benefit for the current year loss has been subject to Federal alternative minimum tax, for the nine months ended June 30, 2005 compared to a provision for income taxes of $108,677 for the nine months ended June 30, 2004. Last year, the Company recorded a non-cash charge to establish a valuation allowance of $246,000 against net deferred tax assets duringsince the quarter ended March 31, 2004. The charge was calculated in accordance with the provisionsrealization 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. Thebenefit is not considered more likely than not. Off-Balance Sheet Arrangements At December 31, 2005 and 2004, the Company will maintain a valuation allowance until sufficient positive evidence existsdid not have any unconsolidated entities or financial partnerships, such as entities often referred to support its reductionas structured finance or reversal.special purpose entities, which might have been established for the purpose of facilitating off-balance sheet arrangements. LIQUIDITY and CAPITAL RESOURCES Cash and cash equivalents increased $352,290decreased $41,327 to $1,169,628$1,210,267 at June 30, 2005December 31,2005 when compared to $817,338cash and cash equivalents of $1,251,594 at September 30, 2004.2005. The increasedecrease was a result of $378,133$34,650 in net cash provided byused in operating activities, $33,182$6,472 in net cash used in investing activities and $7,339 in net cash provided by financing activities. The positive cash flow from operations was due primarily$205 used to income before depreciation and amortization.purchase treasury stock. The decrease of $192,205 in accounts payable of $41,654receivable at June 30,December 31, 2005, when compared to September 30, 2004,2005, can primarily be attributedattributable to athe decrease in purchasesshipments during the monthquarter ended June 30,December 31, 2005 when compared to the monthquarter ended September 30, 2004.2005. The decreaseincrease of $62,005 in purchases can be attributed to both the lower sales order backloginventories at June 30,December 31, 2005, when compared to September 30, 2004,2005, can primarily be attributable to an increase in purchases during the quarter ended December 31, 2005 when compared to the quarter ended September 30, 2005 and customer scheduled delivery dates.the lower than expected sales levels this quarter when compared to the quarter ended September 30, 2005. The decreaseincrease of $43,530$21,052 in customer depositsaccounts payable at June 30,December 31, 2005, when compared to September 30, 2004,2005, can primarily be attributed to the shipment of NSI's sales order backlog of September 30, 2004increase in purchases during the nine monthsquarter ended JuneDecember 31, 2005 when compared to the quarter ended September 30, 2005. Cash used in investing activities during the ninethree months ended June 30,December 31, 2005 consisted of funds provided by the sale of investments of $18,975$4,458 and funds used for capital expenditures of $52,157. Cash provided$10,930. 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. The cash dividend totaled $290,914 and will be met by financing activities during the nine months ended June 30, 2005 consisted of funds provided by stock options exercised of $9,484 and funds used for the purchase of treasury stock of $2,145.existing cash balances. At June 30,December 31, 2005, 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 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 June 30, 2005 and 2004, 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. 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. Our inability to introduce new and enhanced products on a timely basis. Market acceptance of newly developed products may be slower than anticipated. Pricing pressures from our customers and/or market pressure from competitors may reduce selling prices. Difficulty in obtaining an adequate supply of raw materials or components at reasonable prices. Loss of key personnel or the inability to attract new employees. Governmental regulatory actions could adversely affect our business. RECENT PRONOUNCEMENTS - ---------------------- In November 2004,May 2005, the Financial Accounting Standards Board (FASB)FASB published Statement of Financial Accounting Standards No. 151, Inventory Costs, an amendment of ARB154, Accounting Changes and Error Corrections. Statement 154 replaces APB No. 43, Chapter 4.20, Accounting Changes, and FASB Statement 151 amends the guidanceNo. 3, Reporting Changes in Chapter 4, "Inventory Pricing" of ARB No. 43 and clarifiesInterim Financial Statements. The Statement changes the accounting for, abnormal amountsand reporting of, idle facility expense, freight, handling costs,a change in accounting principle. Statement 154 requires retrospective application to prior periods' financial statements of voluntary changes in accounting principle and wasted material (spoilage).changes required by new accounting standards when the standard does not include specific transition provisions, unless it is impracticable to do so. Statement 151 requires that those items be recognized as current-period charges. Statement 151 also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. Statement 151154 is effective for inventory costs incurredaccounting changes and corrections of errors in fiscal years beginning after December 15, 2005 (the Company's fiscal 2007). Early application is permitted for accounting changes and corrections of errors during fiscal years beginning after June 15, 2005. Statement 151 is effective for the1, 2005 (the Company's 2006 fiscal year and is not expected to have a material impact on the Company's financial statements. In December 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123R, "Share-Based Payment" (FAS 123R), a revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation", which addresses financial accounting and reporting for costs associated with stock-based compensation. FAS 123R addresses all forms of share-based payment ("SBP") awards, including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. FAS 123R requires Microwave Filter Company, Inc. to adopt the new accounting provisions beginning in our fourth quarter of 2005. Under the Modified Prospective Method, we do not anticipate recording any compensation expense at time of adoption since all options granted were fully vested. The American Jobs Creation Act of 2004, signed into law in October 2004, provides for a variety of changes in the tax law including incentives to repatriate undistributed earnings of foreign subsidiaries, phased elimination of the Foreign Sales Corporation/Extraterritorial Income benefit and a domestic manufacturing benefit. We are currently evaluating the potential impact of this legislation and assessing the domestic manufacturing benefit. We do not believe this Act will have a significant impact on the Company's financial position or results of operations in the future.2006). 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 Quarterly Report on Form 10-Q includes 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 20042005 Annual Report and Form 10-K for the fiscal year ended September 30, 20042005 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. 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 nine months ended June 30,December 31, 2005. For a detailed discussion of market risk, see our Annual Report on Form 10-K for the fiscal year ended September 30, 2004,2005, Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk. ITEM 4. CONTROLS AND PROCEDURES 1. Evaluation of disclosure controls and procedures. Based on their evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company's chief executive officer and chief financial officer have concluded that the Company's disclosure controls and procedures are effective. 2. Changes in internal control over financial reporting. During the period covered by this Quarterly Report on Form 10-Q, there were no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f)) that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 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 None 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. August 12, 2005February 13, 2006 Carl F. Fahrenkrug (Date) -------------------------- Carl F. Fahrenkrug Chief Executive Officer August 12, 2005February 13, 2006 Richard L. Jones (Date) -------------------------- Richard L. Jones Chief Financial Officer