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 DecemberMarch 31, 20102011
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 the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days. YES __X__ NO____
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(Section 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).
YES ____ NO____ (The Registrant is not yet required to submit Interactive
Data)
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer or a smaller reporting company
(as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer ______
Accelerated filer ______
Non-accelerated filer ______ (Do not check if smaller reporting company)
Smaller reporting company ____X____.
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). YES ____ NO__X__
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.10 Par Value - 2,588,144 shares as of February 1,May 2, 2011.
1
MICROWAVE FILTER COMPANY, INC.
Form 10-Q
Index
Item Page
Part I Financial Information
Item 1. Financial Statements 3
Consolidated Balance Sheets (unaudited) 3
Consolidated Statements of Operations (unaudited) 4
Consolidated Statements of Cash Flows (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6-96-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-148-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Item 4. Controls and Procedures 16
Part II Other Information 17
Signatures 18
2
PART I. - FINANCIAL INFORMATION
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
DecemberMarch 31, 20102011 September 30, 2010
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 1,6621,659,244 $ 1,4671,466,719
Accounts receivable-trade, net 356 424of
allowance for doubtful accounts
of $26,000 and $18,000 271,445 423,666
Inventories 553 536563,125 536,004
Prepaid expenses and other
current assets 72 92
------- -------52,970 92,417
----------- -----------
Total current assets 2,643 2,5192,546,784 2,518,806
Property, plant and equipment, net 426 444
------- -------457,850 444,418
----------- -----------
Total assets $ 3,0693,004,634 $ 2,963
======= =======2,963,224
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 199155,239 $ 162161,676
Customer deposits 94 3928,554 39,618
Accrued federal and state income
taxes 2 2payable 2,544 2,544
Accrued payroll and related
expenses 49 5371,659 52,932
Accrued compensated absences 213 245212,318 245,055
Other current liabilities 41 36
------- -------38,294 35,831
----------- -----------
Total current liabilities 598 537
------- -------508,608 537,656
----------- -----------
Total liabilities 598 537
------- -------508,608 537,656
----------- -----------
Stockholders' Equity:
Common stock,$.10 par value 432 432value.
Authorized 5,000,000 shares, Issued
4,324,140 shares in 2011 and 2010,
Outstanding 2,588,144 shares in 2011
and 2,591,486 shares in 2010 432,414 432,414
Additional paid-in capital 3,249 3,2493,248,706 3,248,706
Retained earnings 478 431
------- -------
4,159 4,112503,716 430,504
--------- ---------
4,184,836 4,111,624
Common stock in treasury, at cost
(1,688) (1,686)
------- -------1,735,996 shares in 2011 and
1,732,654 shares in 2010 (1,688,810) (1,686,056)
--------- ---------
Total stockholders' equity 2,471 2,426
------- -------2,496,026 2,425,568
--------- ---------
Total liabilities and
stockholders' equity $ 3,0693,004,634 $ 2,963
======= =======2,963,224
=========== ===========
See Accompanying Notes to Consolidated Financial Statements
3
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS
ENDED DECEMBERMARCH 31, 2011 AND 2010
AND 2009
(Unaudited)
(Amounts in thousands, except per share data)
Three months ended
December 31
2010 2009
Net sales $1,294 $1,135
Cost of goods sold 827 715
------ ------
Gross profit 467 420
Selling, general and
administrative expenses 421 408
------ ------
Income from operations 46 12
Other income (net),
principally interest 2 2
------ ------
Income before
income taxes 48 14
Provision (benefit) for
income taxes 0 0
------ ------
NET INCOME $48 $14
====== ======
Per share data:
Basic and diluted
earnings per share $0.02 $0.01
====== ======
Shares used in computing net
earnings per share: 2,590 2,593
Three months ended Six months ended
March 31 March 31
2011 2010 2011 2010
Net sales $1,258,316 $1,093,697 $2,552,883 $2,228,755
Cost of goods sold 821,299 731,550 1,648,607 1,446,009
---------- ---------- ---------- ----------
Gross profit 437,017 362,147 904,276 782,746
Selling, general and
administrative expenses 413,896 383,271 835,110 791,641
---------- ---------- ---------- ----------
Income (loss) from
operations 23,121 (21,124) 69,166 (8,895)
Other income (net),
principally interest 2,498 1,896 4,046 3,751
---------- ---------- ---------- ----------
Income (loss) before
income taxes 25,619 (19,228) 73,212 (5,144)
Provision for income
taxes 0 0 0 0
---------- ---------- ---------- ----------
NET INCOME (LOSS) $25,619 ($19,228) $73,212 ($5,144)
========== ========== ========== ==========
Per share data:
Basic and diluted earnings
(loss) per share $0.01 ($0.01) $0.03 $0.00
========== ========== ========== ==========
Shares used in computing net
earnings (loss) per share:
Basic and diluted 2,588,331 2,592,899 2,589,117 2,593,055
========== ========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements
4
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREESIX MONTHS ENDED DECEMBERMARCH 31, 2011 AND 2010
AND 2009
(Unaudited)
(Amounts in thousands)
ThreeSix months ended
DecemberMarch 31
2011 2010 2009
Cash flows from operating
activities:
Net income (loss) $ 4873,212 $ 14(5,144)
Adjustments to reconcile
net income (loss) to net
cash provided by (used in)
operating activities:
Depreciation and amortization 23 2248,386 46,889
Provision for doubtful accounts 8,391 0
Change in assets and liabilities:
Accounts receivable - trade 67 (105)143,830 (147,775)
Inventories (17) (19)
Other(27,121) 2,050
Prepaid expenses & other
assets 20 1039,447 5,543
Accounts payable and customer deposits 91 13(17,501) 1,198
Accrued payroll, compensated absences
and related expenses (36) (31)(14,010) 14,878
Other current liabilities 5 1
----- -----2,463 2,275
--------- ---------
Net cash provided by (used in)
operating activities 201 (95)
----- -----257,097 (80,086)
--------- ---------
Cash flows from investing
activities:
Capital expenditures (4) (111)
----- -----(61,818) (117,787)
--------- ---------
Net cash used in(used in) provided by
investing activities (4) (111)
----- -----(61,818) (117,787)
--------- ---------
Cash flows from financing
activities:
Purchase of treasury stock (2) 0
----- -----(2,754) (381)
--------- ---------
Net cash used in(used in) provided by
financing activities (2) 0
----- -----
Net increase(2,754) (381)
--------- ---------
Increase (decrease) in cash
and cash equivalents 195 (206)192,525 (198,254)
Cash and cash equivalents
at beginning of period 1,467 1,476
----- -----1,466,719 1,476,318
--------- ---------
Cash and cash equivalents
at end of period $1,662 $1,270
====== ======$1,659,244 $1,278,064
========== ==========
See Accompanying Notes to Consolidated Financial Statements
5
MICROWAVE FILTER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBERMARCH 31, 20102011
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
Regulation S-K. 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 threesix month
period ended DecemberMarch 31, 20102011 are not necessarily indicative of the results that
may be expected for the year ended September 30, 2011. 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, 2010.
Note 2. Industry Segment Data
The Company's primary business segment involves the 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.
Note 3. 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) DecemberMarch 31, 20102011 September 30, 2010
Raw materials and stock parts $446 $414$439,075 $414,331
Work-in-process 23 2631,025 25,740
Finished goods 84 96
---- ----
$553 $536
==== ====93,025 95,933
-------- --------
$563,125 $536,004
======== ========
The Company's reserve for obsolescence equaled $403,595 at DecemberMarch 31,
20102011 and September 30, 2010.
6
Note 4. Income Taxes
The Company accounts for income taxes under FASB ASC 740-10. Deferred tax
assets and liabilities are based on the difference between the financial
statement and tax basis of assets and liabilities as measured by the enacted
tax rates which are anticipated to be in effect when these differences
reverse. The deferred tax provision is the result of the net change in the
deferred tax assets and liabilities. A valuation allowance is established
when it is necessary to reduce deferred tax assets to amounts expected to be
realized. The Company has provided a full valuation allowance against its
deferred tax assets.
The Company adopted FASB ASC 740-10. FASB ASC 740-10 clarifies the
accounting for uncertainty in income taxes recognized in an entity's financial
statements and prescribes a recognition threshold and measurement attributes
for financial statement disclosure of tax position taken or expected to be
taken on a tax return. Additionally, it provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. The Company determined it has no uncertain tax
positions and therefore no amounts are recorded.
Note 5. Legal Matters
The State of New York Workers' Compensation Board has commenced an action
against Microwave Filter Company, Inc. to recover for an underfunded self
insured program that Microwave Filter Company, Inc. participated in. Due to
the relatively short period of time Microwave Filter Company, Inc.
participated in the program and the limited amount of potential exposure, we
do not expect the resolution of this action will have a material adverse
effect on our financial condition, results of operations or cash flows.
7
Note 6. Recent Pronouncements
The Company adopted in October 2010, the Accounting Standards Update 2009-
13, "Revenue Recognition (Topic 605) - Multiple-Deliverable Revenue
Arrangements" ("ASU 2009-13") and ASU 2009-14, "Software (Topic 985) - Certain
Revenue Arrangements That Include Software Elements" ("ASU 2009-14"). ASU
2009-13 modifies the requirements that must be met for an entity to recognize
revenue from the sale of a delivered item that is part of a multiple-element
arrangement when other items have not yet been delivered. ASU 2009-13
eliminates the requirement that all undelivered elements must have either: (i)
vendor-specific objective evidence, or "VSOE", or (ii) third-party evidence,
or "TPE", before an entity can recognize the portion of an overall arrangement
consideration that is attributable to items that already have been delivered.
In the absence of VSOE or TPE of the standalone selling price for one or more
delivered or undelivered elements in a multiple-element arrangement, entities
will be required to estimate the selling prices of those elements. Overall
arrangement consideration will be allocated to each element (both delivered
and undelivered items) based on their relative selling prices, regardless of
whether those selling prices are evidenced by VSOE or TPE or are based on the
entity's estimated selling price. The residual method of allocating
arrangement consideration has been eliminated. ASU 2009-14 modifies the
software revenue recognition guidance to exclude from its scope tangible
products that contain both software and non-software components that function
together to deliver a product's essential functionality. These new updates are
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. Entities must
adopt the amendments resulting from both of these ASUs in the same period
using the same transition method, where applicable. The adoption of these ASUs
did not have a material impact on the Company's consolidated financial
statements.
In July 2010, the FASB issued ASU 2010-20, "Disclosures about the Credit
Quality of Financing Receivables and the Allowance for Credit Losses" ("ASU
2010-20"). The standard amends ASC Topic 310, "Receivables" to enhance
disclosures about the credit quality of financing receivables and the
allowance for credit losses by requiring an entity to provide a greater level
of disaggregated information and to disclose credit quality indicators, past
due information, and modifications of its financing receivables. ASU 2010-20
is effective for interim or annual fiscal years beginning after December 15,
2010 for public entities and for interim and annual fiscal years beginning
after December 15, 2011 for nonpublic entities. The Company does not expect
the adoption of ASU 2010-20 to have a material impact on its consolidated
financial statements.
In December 2010 the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2010-28, "Intangibles - Goodwill and Other
(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts". ASU 2010-28 modifies
Step 1 of the goodwill impairment test for reporting units with zero or
negative carrying amounts by requiring an entity to perform Step 2 of the
goodwill impairment test if it is more likely than not that a goodwill
impairment exists. This update will be effective for fiscal years beginning
after December 15, 2010. The adoption of this guidance is not expected to have
an impact on the Company's consolidated financial statements.
8
Note 7. Fair Value of Financial Instruments
The carrying values of the Company cash and cash equivalents, accounts
receivable and accounts payable approximate fair value because of the short
maturity of those instruments.
The Company currently does not trade in or utilize derivative financial
instruments.
Note 8. Subsequent Events
In accordance with ASC 855-10,7. Significant Customers
Sales to one customer represented approximately 18% of total sales for the
Company evaluated subsequent events
through February 11, 2011, the date these financial statements were available
to be issued.six months ended March 31, 2011.
9
Item 2.7
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 one industry. 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.
Critical Accounting Policies
The Company's consolidated financial statements are based on the application
of United States 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, 2010 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 stated 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.
108
The Company established a warranty reserve which provides for the estimated
cost of product returns based upon historical experience and any known
conditions or circumstances. Our warranty obligation is affected by product
that does not meet specifications and performance requirements and any related
costs of addressing such matters.
The Company accounts for income taxes under FASB ASC 740-10. Deferred tax
assets and liabilities are based on the difference between the financial
statement and tax basis of assets and liabilities as measured by the enacted
tax rates which are anticipated to be in effect when these differences
reverse. The deferred tax provision is the result of the net change in the
deferred tax assets and liabilities. A valuation allowance is established
when it is necessary to reduce deferred tax assets to amounts expected to be
realized. The Company has provided a full valuation allowance against its
deferred tax assets.
119
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBERMARCH 31, 20102011 vs. THREE MONTHS ENDED DECEMBERMARCH 31, 2009.2010
The following table sets forth the Company's net sales by major product
group for the three months ended DecemberMarch 31, 20102011 and 2009.2010.
Product group (in thousands) Fiscal 2011 Fiscal 2010
Microwave Filter (MFC):
SatelliteCable TV $ 448354,645 $ 372295,576
RF/Microwave 419 278
Cable TV 397 406512,240 405,524
Satellite 374,239 349,928
Broadcast TV 31 7616,103 42,384
Niagara Scientific (NSI): 0 3
------ ------ 1,089 285
---------- ----------
Total $1,295 $1,135
====== ======$1,258,316 $1,093,697
========== ==========
Sales backlog at 12/3/31 $ 672351,030 $ 390
====== ======679,401
========== ==========
Net sales for the three months ended DecemberMarch 31, 20102011 equaled $1,294,567,$1,258,316, an
increase of $159,509$164,619 or 14.1%15.1%, when compared to net sales of $1,135,058$1,093,697 for
the three months ended DecemberMarch 31, 2009.2010.
MFC's SatelliteCable TV product sales increased $59,069 or 20% to $354,645 for the
three months ended DecemberMarch 31, 2010
equaled $447,352, an increase of $75,553 or 20.3%,2011 when compared to Cable TV product sales of
$371,799$295,576 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. Although the current economic slowdown has impacted sales, management
expects demand for these types of filters to continue with the proliferation
of earth stations world wide and increased sources of interference.
MFC's RF/Microwave product sales for the three months ended December 31,
2010 equaled $419,330, an increase of $141,334 or 50.8.%, when compared to
RF/Microwave product sales of $277,996 for the three months ended December 31,
2009. Management attributes the increase in sales to the Company's efforts to
encourage OEM relationships. The Company's RF/Microwave products are primarily
sold to original equipment manufacturers (OEMs) that serve the mobile radio
and commercial and defense electronics markets. Typical customers include the
U.S. Government, General Dynamics, Motorola, Rockwell Collins, Lockheed
Martin, Northrup Gruman and Raytheon. The Company continues to invest in
production engineering and infrastructure development to penetrate OEM market
segments as they become popular. MFC is concentrating its technical resources
and product development efforts toward potential high volume customers as part
of a
concentrated effort to provide substantial long-term growth.
12
MFC's Cable TV product sales for the three months ended December 31, 2010
equaled $396,575, a decrease of $9,364 or 2.3%, when compared to sales of
$405,939 during the same period last year.large order received from one customer. Management continues to project a
decrease in demand for Cable TV products due to the shift from analog to
digital television. Due to the inherent nature of digital modulation versus
analog modulation, fewer filters will be required. The Company has developed
filters for digital television and there will still be requirements for analog
filters for limited applications in commercial and private cable systems.
MFC's RF/Microwave product sales increased $106,716 or %26.3 to $512,240 for
the three months ended March 31, 2011 when compared to RF/Microwave product
sales of $405,524 during the same period last year. Management attributes the
increase in sales to the Company's efforts to encourage OEM relationships.
MFC's RF/Microwave products are 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 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. Sales to one OEM
customer represented approximately 23% of total sales for the quarter ended
March 31, 2011 compared to approximately 21% of total sales for the quarter
ended March 31, 2010.
10
MFC's Satellite product sales increased $24,311 or 6.9% to $374,239 for the
three months ended March 31, 2011 when compared to Satellite product sales of
$349,928 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. Although economic conditions do impact sales, management expects
demand for these types of filters is unknown at this time but is expected to decline.continue with the proliferation of earth
stations world wide and increased sources of interference.
MFC's Broadcast TV/Wireless Cable product sales decreased $26,281 or 62% to
$16,103 for the three months ended DecemberMarch 31, 2010 equaled $31,152, a decrease of $43,379 or 59.3%,2011 when compared to sales of
$76,531$42,384 during the same period.period last year. The decrease can be attributed to ana
decrease in demand for UHF Broadcast products which are primarily sold to
system integrators for rural communities.
The Company'sMFC's sales order backlog equaled $672,366$351,030 at DecemberMarch 31, 20102011 compared to
sales order backlog of $413,159$679,401 at September 30,March 31, 2010. 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 97%94% of the total sales order
backlog at DecemberMarch 31, 20102011 is scheduled to ship by September 30, 2011.
The Company recorded net income of $47,593Gross profit for the three months ended DecemberMarch 31, 20102011 equaled $437,017, an
increase of $74,870 or 20.7%, when compared to net incomegross profit of $14,084$362,147 for
the three months ended DecemberMarch 31, 2009.2010. The improvementdollar increase in netgross profit can
primarily be attributed to the higher sales volume this year when compared to
the same period last year. As a percentage of sales, gross profit equaled
34.7% for the three months ended March 31, 2011 compared to 33.1% for the
three months ended March 31, 2010. The increase in gross profit as a
percentage of sales can primarily be attributed to the higher sales volume
this year providing a higher base to absorb fixed overhead expenses.
Selling, general and administrative (SGA) expenses for the three months
ended March 31, 2011 equaled $413,896, an increase of $30,625 or 8.0%, when
compared to SG&A expenses of $383,271 for the three months ended March 31,
2010. The increase can be primarily be attributed to increases in trade show
and promotional expenses. As a percentage of sales, SGA expenses decreased to
32.9% for the three months ended March 31, 2011 when compared to 35.0% for the
three months ended March 31, 2010 primarily due to the higher sales volume
this year when compared to the same period last year.
The Company recorded income from operations of $23,121 for the second
quarter ended March 31, 2011 compared to a loss from operations of $21,124 for
the three months ended March 31, 2010. The increase in operating income can
primarily be attributed to the higher sales volume this year when compared to
the same period last year.
Gross profitThe provision (benefit) for income taxes equaled $0 for the three months
ended DecemberMarch 31, 2011 and March 31, 2010. Any benefit for losses has been
subject to a valuation allowance since the realization of the deferred tax
benefit is not considered more likely than not.
11
SIX MONTHS ENDED MARCH 31, 2011 vs. SIX MONTHS ENDED MARCH 31, 2010
The following table sets forth the Company's net sales by major product
group for the six months ended March 31, 2011 and 2010.
Product group Fiscal 2011 Fiscal 2010
Microwave Filter (MFC):
Cable TV $ 751,220 $ 701,515
RF/Microwave 931,570 683,520
Satellite 821,591 721,727
Broadcast TV 47,255 118,915
Niagara Scientific (NSI) 1,247 3,078
---------- ----------
Total $2,552,883 $2,228,755
========== ==========
Sales backlog at 3/31 $ 351,030 $ 679,401
========== ==========
Net sales for the six months ended March 31, 2011 equaled $467,259,$2,552,883, an
increase of $46,660$324,128 or 11.1%14.5%, when compared to net sales of $2,228,755 for
the six months ended March 31, 2010.
MFC's Cable TV product sales increased $49,705 or 7.1% to $751,220 for the
six months ended March 31, 2011 when compared to Cable TV product sales of
$701,515 during the six months ended March 31, 2010. The increase can be
attributed to a large order received from one customer. Management continues
to project a decrease in demand for Cable TV products due to the shift from
analog to digital television. Due to the inherent nature of digital modulation
versus analog modulation, fewer filters will be required. The Company has
developed filters for digital television and there will still be requirements
for analog filters for limited applications in commercial and private cable
systems.
MFC's RF/Microwave product sales increased $248,050 or 36.3% to $931,570 for
the six months ended March 31, 2011 when compared to RF/Microwave product
sales of $683,520 during the same period last year. Management attributes the
increase in sales to the Company's efforts to encourage OEM relationships.
MFC's RF/Microwave products are 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 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. Sales to one OEM
customer represented approximately 18% of total sales for the six months ended
March 31, 2011 compared to approximately 15% of total sales for the six months
ended March 31, 2010.
12
MFC's Satellite product sales increased $99,864 or 13.8% to $821,591 for the
six months ended March 31, 2011 when compared to satellite product sales of
$721,727 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. Although economic conditions do impact sales, management expects
demand for these types of filters to continue with the proliferation of earth
stations world wide and increased sources of interference.
MFC's Broadcast TV/Wireless Cable product sales decreased $71,660 or 60.3%
to $47,255 for the six months ended March 31, 2011 when compared to sales of
$118,915 during the same period last year. The decrease can be attributed to a
decrease in demand for UHF Broadcast products which are primarily sold to
system integrators for rural communities.
Gross profit for the six months ended March 31, 2011 equaled $904,276, an
increase of $121,530 or 15.5%, when compared to gross profit of $420,599$782,746 for
the threesix months ended DecemberMarch 31, 2009.2010. The increase can primarily be attributed
to the increase in sales.higher sales volume this year when compared to the same period last
year. As a percentage of sales, gross profit equaled 36.1%35.4% for the threesix months
ended DecemberMarch 31, 20102011 compared to 37.1%35.1% for the threesix months ended DecemberMarch 31,
2009. The decrease in gross profit as
a percentage of sales can primarily be attributed to higher direct material
costs as a percentage of sales primarily due to product sales mix.
Selling, general and administrative (SGA)2010.
SG&A expenses for the threesix months ended DecemberMarch 31, 20102011 equaled $421,214,$835,110, an
increase of $12,844$43,469 or 3.1%5.5%, when compared to SG&A expenses of $408,370$791,641 for
the threesix months ended DecemberMarch 31, 2009.2010. The increase can be primarily be
attributed to increases in trade show and promotional expenses. As a
percentage of sales, SGA expenses decreased to 32.5%32.7% for the threesix months ended
DecemberMarch 31, 20102011 compared to 36%35.5% for the threesix months ended DecemberMarch 31, 20092010
primarily due to the higher sales volume this year when compared to the same
period last year.
The Company recorded income from operations of $69,166 for the six months
ended March 31, 2011 compared to a loss from operations of $8,895 for the six
months ended March 31, 2010. The improvement can primarily be attributed to
the higher sales volume this year when compared to the same period last year.
Other income for the six months ended March 31, 2011 equaled $4,046, an
increase of $295, when compared to other income of $3,751 for the six months
ended March 31, 2010. Other income is primarily interest income earned on
invested cash balances.
Other income equaled $1,548 for the three months ended December 31, 2010
compared to $1,855 for the three months ended December 31, 2009. Other income may fluctuate based on market interest
rates and levels of invested cash balances.
The provision (benefit) for income taxes equaled $0 for both the threesix months ended
DecemberMarch 31, 20102011 and 2009.March 31, 2010. Any benefit for losses havehas been subject to
a valuation allowance since the realization of the deferred tax benefit is not
considered more likely than not.
13
Off-Balance Sheet Arrangements
At DecemberMarch 31, 20102011 and 2009,2010, 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.
LIQUIDITY and CAPITAL RESOURCES
DecemberMar. 31, 2010 September2011 Sep. 30, 2010
Cash & cash equivalents $1,661,680$1,659,244 $1,466,719
Working capital $2,045,120$2,038,176 $1,981,150
Current ratio 4.425.00 to 1 4.68 to 1
Long-term debt $ 0 $ 0
Cash and cash equivalents increased $194,961$192,525 to $1,661,680$1,659,244 at DecemberMarch 31, 20102011
when compared to cash and cash equivalents of $1,466,719 at September 30,
2010. The increase was a result of $201,343$257,097 in net cash provided by operating
activities, $4,470$61,818 in net cash used for capital expenditures and $1,912$2,754 in
net cash used to purchase treasury stock.
The decrease in accounts receivable of $67,298$152,221 at DecemberMarch 31, 20102011 when
compared to September 30, 2010 can primarily be attributed to improved collections and
the lower sales
volumedecrease in shipments during the month ended December 31, 2010of March 2011 when compared to the
month endedof September 30, 2010. Sales for the month ended December 31, 2010 equaled
$336,597 compared to sales of $504,158 for the month ended September 30, 2010.
The increasedecrease in accounts payableprepaid expenses and other current assets of $36,984$39,447 at
DecemberMarch 31, 20102011 when compared to September 30, 2010 can primarily be attributed
to timing.
The increase in customer deposits of $54,452 at DecemberAt March 31, 2010 when
compared to September 30, 2010 can primarily be attributed to one deposit
received from a customer for an order scheduled to ship in January 2011.
The decrease in accrued compensated absences of $32,249 at December 31, 2010
when compared to September 30, 2010 can primarily be attributed to accrued
vacation used or paid during the quarter ended December 31, 2010.
At December 31, 2010,2011, 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.
14
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
may includeincludes 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 2010 Annual Report and Form 10-K for the fiscal
year ended September 30, 2010 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 threesix months ended DecemberMarch 31, 2010.2011. For a detailed discussion of market risk,
see our Annual Report on Form 10-K for the fiscal year ended September 30,
2010, Part II, Item 7A, Quantitative and Qualitative Disclosures About Market
Risk.
15
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
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 amended (the
"Exchange Act")) as of the end of the period covered by this report. Based on
such evaluation, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of such period, the Company's
disclosure controls and procedures were effective as of the end of the period
covered by this report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in the Company's internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
during the most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-
15(f) and 15d-15(f) under the exchange act.
Under the supervision and with the participation of the Company's
management, including our principal executive officer and principal financial
officer, the Company conducted an evaluation of its internal control over
financial reporting based on criteria established in the framework in
"Internal Control-Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, the
Company's management concluded and certifies that its internal control over
financial reporting was effective as of DecemberMarch 31, 2010.2011.
This Quarterly Report does not include an attestation report of the
Company's registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by the
Company's registered public accounting firm.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The State of New York Workers' Compensation Board has commenced an
action against Microwave Filter Company, Inc. to recover for an
underfunded self insured program that Microwave Filter Company, Inc.
participated in. Due to the relatively short period of time Microwave
Filter Company, Inc. participated in the program and the limited
amount of potential exposure, we do not expect the resolution of this
action will have a material adverse effect on our financial
condition, results of operations or cash flows.
Item 1A. Risk Factors
Not applicable.
Item 2. Changes in Securities
None during this reporting period.
Item 3. Defaults Upon Senior Securities
The Company has no senior securities.
Item 4. (Removed and Reserved)
Item 5. Other Information
None.
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
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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.
February 11,May 13, 2011 Carl F. Fahrenkrug
(Date) --------------------------
Carl F. Fahrenkrug
Chief Executive Officer
February 11,May 13, 2011 Richard L. Jones
(Date) --------------------------
Richard L. Jones
Chief Financial Officer
18