UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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) |
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 - 2,586,227 shares as of AugustFebruary 1, 2011.2012.
Consilidated
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 1,662,968 | $ | 1,466,719 | ||||
Accounts receivable-trade, net of | | | ||||||
allowance for doubtful accounts | ||||||||
of $26,000 and $18,000 | 283,876 | 423,666 | ||||||
Inventories, net | 564,400 | 536,004 | ||||||
Prepaid expenses and other current assets | 59,726 | 92,417 | ||||||
| | |||||||
Total current assets | 2,570,970 | 2,518,806 | ||||||
Property, plant and equipment, net | 479,842 | 444,418 | ||||||
| | |||||||
Total assets | $ | 3,050,812 | $ | 2,963,224 | ||||
| | |||||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 134,767 | $ | 161,676 | ||||
Customer deposits | 46,150 | 39,618 | ||||||
Accrued federal and state income taxes | 2,544 | 2,544 | ||||||
Accrued payroll and related expenses | 48,652 | 52,932 | ||||||
Accrued compensated absences | 246,580 | 245,055 | ||||||
Other current liabilities | 28,928 | 35,831 | ||||||
| | |||||||
Total current liabilities | 507,621 | 537,656 | ||||||
| | |||||||
Total liabilities | 507,621 | 537,656 | ||||||
| | |||||||
Stockholders' Equity: | ||||||||
Common stock, $.10 par value | | | ||||||
Authorized 5,000,000 shares, Issued | ||||||||
4,324,140 shares in 2011 and 2010, | ||||||||
Outstanding 2,586,227 shares in 2011 | ||||||||
and 2,591,486 shares in 2010 | 432,414 | 432,414 | ||||||
Additional paid-in capital | 3,248,706 | 3,248,706 | ||||||
Retained earnings | 552,748 | 430,504 | ||||||
| ||||||||
Common stock in treasury, at cost | ||||||||
1,737,913 shares in 2011 and | | | ||||||
1,732,654 shares in 2010 | (1,690,677 | ) | (1,686,056 | ) | ||||
Total stockholders' equity | 2,543,191 | 2,425,568 | ||||||
| | |||||||
Total liabilities and stockholders' equity | $ | 3,050,812 | $ | 2,963,224 | ||||
December 31, 2011 | September 30, 2011 | ||||||||||
Assets | |||||||||||
Current Assets: | |||||||||||
Cash and cash equivalents | $ | 1,298,693 | $ | 1,258,885 | |||||||
Accounts receivable-trade, net of | | | |||||||||
allowance for doubtful accounts | |||||||||||
of $26,000 and $26,000 | 221,686 | 352,054 | |||||||||
Federal and state income tax recoverable | 0 | 24,828 | |||||||||
Inventories, net | 517,391 | 567,261 | |||||||||
Prepaid expenses and other current assets | 81,867 | 94,114 | |||||||||
| | ||||||||||
Total current assets | 2,119,637 | 2,297,142 | |||||||||
Property, plant and equipment, net | 769,313 | 617,818 | |||||||||
| | ||||||||||
Total assets | $ | 2,888,950 | $ | 2,914,960 | |||||||
| | ||||||||||
Liabilities and Stockholders' Equity | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | 151,701 | $ | 195,535 | |||||||
Customer deposits | 57,909 | 51,886 | |||||||||
Accrued federal and state income taxes | 574 | 0 | |||||||||
Accrued payroll and related expenses | 39,421 | 57,514 | |||||||||
Accrued compensated absences | 228,845 | 250,443 | |||||||||
Other current liabilities | 31,755 | 83,654 | |||||||||
| | ||||||||||
Total current liabilities | 510,205 | 639,032 | |||||||||
| | ||||||||||
Total liabilities | 510,205 | 639,032 | |||||||||
| | ||||||||||
Stockholders' Equity: | |||||||||||
Common stock, $.10 par value | | | |||||||||
Authorized 5,000,000 shares, Issued | |||||||||||
4,324,140 shares in 2012 and 2011, | |||||||||||
Outstanding 2,586,227 shares in 2012 | |||||||||||
and 2011 | 432,414 | 432,414 | |||||||||
Additional paid-in capital | 3,248,706 | 3,248,706 | |||||||||
Retained earnings | 388,302 | 285,485 | |||||||||
| |||||||||||
Common stock in treasury, at cost | |||||||||||
1,737,913 shares in 2012 and 2011 | ( | 1,690,677 | ) | ( | 1,690,677 | ) | |||||
Total stockholders' equity | 2,378,745 | 2,275,928 | |||||||||
| | ||||||||||
Total liabilities and stockholders' equity | $ | 2,888,950 | $ | 2,914,960 | |||||||
Microwave Filter Company and Subsidiaries
Consilidated
Consolidated Statements of Operations (unaudited)
For the Three MonthsEnded December 31, 2011 and 2010
(Unaudited)
Three months ended | Nine months ended | ||||||||||||
June 30, | June 30, | ||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||
Net sales | $ | 1,179,496 | $ | 1,029,159 | $ | 3,732,379 | $ | 3,257,914 | |||||
Cost of goods sold | 737,692 | 695,020 | 2,386,299 | 2,141,029 | |||||||||
| | | | | |||||||||
Gross profit | 441,804 | 334,139 | 1,346,080 | 1,116,885 | |||||||||
Selling, general and | |||||||||||||
administrative expenses | 395,472 | 385,031 | 1,230,582 | 1,176,672 | |||||||||
| | | | ||||||||||
Income (loss) from operations | 46,332 | (50,892 | ) | 115,498 | (59,787 | ) | |||||||
Other income (net), principally | |||||||||||||
interest | 2,700 | 1,855 | 6,746 | 5,606 | |||||||||
Income (loss) before income taxes | 49,032 | (49,037 | ) | 122,244 | (54,181 | ) | |||||||
Provision (benefit) for income taxes | 0 | 0 | 0 | 0 | |||||||||
NET INCOME (LOSS) | $ | 49,032 | $ | (49,037 | ) | $ | 122,244 | $ | (54,181 | ) | |||
| | | |||||||||||
Per share data: | |||||||||||||
Basic and diluted earnings (loss) | |||||||||||||
per share | $ | 0.02 | $ | (0.02 | ) | $ | 0.05 | $ | (0.02 | ) | |||
Shares used in computing net | |||||||||||||
earnings (loss) per share: | 2,586,787 | 2,592,818 | 2,588,340 | 2,593,022 |
Three months ended | ||||||||
December 31, | ||||||||
2011 | 2010 | |||||||
Net sales | $ | 1,317,207 | $ | 1,294,567 | ||||
Cost of goods sold | 813,995 | 827,308 | ||||||
| | |||||||
Gross profit | 503,212 | 467,259 | ||||||
Selling, general and administrative expenses | 421,970 | 421,214 | ||||||
| | |||||||
Income from operations | 81,242 | 46,045 | ||||||
Other income (net) | 21,575 | 1,548 | ||||||
Income before income taxes | 102,817 | 47,593 | ||||||
Provision (benefit) for income taxes | 0 | 0 | ||||||
NET INCOME | $ | 102,817 | $ | 47,593 | ||||
| ||||||||
Per share data: | ||||||||
Basic and diluted earnings per share | $ | 0.04 | $ | 0.02 | ||||
Shares used in computing net | ||||||||
earnings per share: | 2,586,227 | 2,589,885 |
Nine months ended | Three months ended | |||||||||||||||
June 30 | December 31 | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income (loss) | $ | 122,244 | $ | (54,181 | ) | |||||||||||
Net income | $ | 102,817 | $ | 47,593 | ||||||||||||
Adjustments to reconcile net income (loss) | ||||||||||||||||
Adjustments to reconcile net income | ||||||||||||||||
to net cash provided by (used in) | ||||||||||||||||
operating activities: | ||||||||||||||||
Depreciation | 75,971 | 71,881 | 37,583 | 22,759 | ||||||||||||
Provision for doubtful accounts | 8,391 | 0 | ||||||||||||||
Gain on sale of fixed assets | ( | 20,000 | ) | 0 | ||||||||||||
Change in assets and liabilities: | ||||||||||||||||
Accounts receivable | 131,399 | 17,212 | | 130,368 | 67,268 | | ||||||||||
Federal and state income tax recoverable | 25,402 | 0 | ||||||||||||||
Inventories | (28,396 | ) | (22,628 | ) | | 49,870 | ( | 17,252 | ) | |||||||
Prepaid expenses and other assets | 32,691 | 13,221 | 12,247 | 20,292 | ||||||||||||
Accounts payable and customer deposits | (20,377 | ) | 681 | ( | 37,811 | ) | 91,436 | |||||||||
Accrued payroll, compensated absences | ||||||||||||||||
and related expenses | (2,755 | ) | (6,206 | ) | ( | 39,691 | ) | ( | 36,128 | ) | ||||||
Other current liabilities | (6,903 | ) | 3,731 | ( | 51,899 | ) | 5,375 | |||||||||
| | | | |||||||||||||
Net cash provided by (used in) | ||||||||||||||||
operating activities | 312,265 | 23,711 | | 208,886 | 201,343 | | ||||||||||
| | | | |||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Capital expenditures | (111,395 | ) | | (140,659 | ) | ( | 189,078 | ) | ( | 4,470 | ) | |||||
Proceeds from sale of fixed assets | | 20,000 | | 0 | ||||||||||||
| | |||||||||||||||
Net cash (used in) provided by | ||||||||||||||||
investing activities | (111,395 | ) | (140,659 | ) | ( | 169,078 | ) | ( | 4,470 | ) | ||||||
| | | | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||
Purchase of treasury stock | (4,621 | ) | (381 | ) | 0 | ( | 1,912 | ) | ||||||||
| | | | | ||||||||||||
Net cash (used in) provided by | ||||||||||||||||
financing activities | (4,621 | ) | (381 | ) | 0 | ( | 1,912 | ) | ||||||||
| | | | |||||||||||||
Increase (decrease) in cash | ||||||||||||||||
Net increase (decrease) in cash | ||||||||||||||||
and cash equivalents | 196,249 | (117,329 | ) | 39,808 | 194,961 | |||||||||||
Cash and cash equivalents | ||||||||||||||||
at beginning of period | 1,466,719 | 1,476,318 | 1,258,885 | 1,466,719 | ||||||||||||
| | | | |||||||||||||
Cash and cash equivalents | ||||||||||||||||
at end of period | $ | 1,662,968 | $ | 1,358,989 | $ | 1,298,693 | $ | 1,661,680 | ||||||||
Supplemental Schedule of Cash Flow Information: | ||||||||||||||||
Income taxes paid | $ | 15,000 | $ | 0 |
MICROWAVE FILTER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 ninethree month period ended June 30,December 31, 2011 are not necessarily indicative of the results that may be expected for the year ended September 30, 2011.2012. 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.
2011.
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:
September 30, |
Raw materials and stock parts | $ | 440,232 | $ | 414,331 | $ | 455,304 | $ | 499,622 | ||||||||
Work-in-process | 28,220 | 25,740 | 15,521 | 14,056 | ||||||||||||
Finished goods | 95,948 | 95,933 | 46,566 | 53,583 | ||||||||||||
| | | | |||||||||||||
$ | 564,400 | $ | 536,004 | $ | 517,391 | $ | 567,261 |
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.
The Company has accrued $12,000 for this action in other current liabilities.
Note 6. Fair Value of Financial Instruments
Note 7. Significant Customers
Sales to one customer represented approximately 18%16% of total sales for the ninethree months ended June 30, 2011.December 31, 2011 compared to 14% of total sales for the three months ended December 31, 2010.
Note 8. Recent Accounting Pronouncements
In May 2011, the FASB issued Accounting Standards Update No. 2011-04, topic 820, Fair Value Measurement, to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with United States GAAP and International Financial Reporting Standards. Some of the amendments clarify the Board’s intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. Specifically, the guidance requires additional disclosures for fair value measurements that are based on significant unobservable inputs. The updated guidance is to be applied prospectively and is effective for the Company’s interim and annual periods beginning January 1, 2012. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
FASB Accounting Standards Update 2011-05, "Presentation of Comprehensive Income," was issued in June 2011 to be effective for fiscal years beginning after December 15, 2011. Comprehensive income includes certain items that are recognized as "other comprehensive income" ("OCI") and are excluded from net income. Examples include unrealized gains/losses on certain investments and gains/losses on derivative instruments designated as hedges. Under provisions of the update, the components of OCI must be presented in one of two formats: either (i) together with net income in a continuous statement of comprehensive income or (ii) in a second statement of comprehensive income to immediately follow the income statement. An existing option to present the components of OCI as part of the statement of changes in shareholders' equity is being eliminated. The Company expects the update to have minimal effect on its financial statements.
Note 9. Subsequent Events On August 3, 2011, the Board of Directors of Microwave Filter Company, Inc. declared a special cash dividend of fifteen cents per common share. The dividend is payable on September 6, 2011 to shareholders of record as of August 19, 2011.
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, 20102011 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.
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.
<PAGE> 10
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30,DECEMBER 31, 2011 vs. THREE MONTHS ENDED JUNE 30, 2010DECEMBER 31, 2010.
The following table sets forth the Company's net sales by major product group for the three months ended June 30,December 31, 2011 and 2010.
Quarter ended | Quarter ended | |||||||||||
Product group | Fiscal 2011 | Fiscal 2010 | Dec. 31, 2011 | Dec. 31, 2010 | ||||||||
Microwave Filter (MFC): | ||||||||||||
RF/Microwave | $ | 440,508 | $ | 298,366 | $ | 525,932 | $ | 419,330 | ||||
Cable TV | 433,447 | 396,575 | ||||||||||
Satellite | 398,190 | 367,396 | 331,354 | 447,352 | ||||||||
Cable TV | 311,732 | 324,060 | ||||||||||
Broadcast TV | 28,771 | 38,694 | 25,128 | 31,152 | ||||||||
Niagara Scientific (NSI): | 295 | 643 | 1,346 | 158 | ||||||||
| | | | |||||||||
Total | $ | 1,179,496 | $ | 1,029,159 | $ | 1,317,207 | $ | 1,294,567 | ||||
| | | | |||||||||
Sales backlog at June 30 | $ | 617,978 | $ | 654,643 | ||||||||
Sales backlog at December 31 | $ | 303,666 | $ | 672,366 |
MFC’s Cable TV product sales decreased $12,328 or 3.8% to $311,732 for the three months ended June 30,December 31, 2011 when compared to Cable TV product sales of $324,060$396,575 during the same period last year. ManagementDespite the increase, 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.
<PAGE> 11
MFC’s Satellite product sales decreased $115,998 or 25.9% to $331,354 for the three months ended December 31, 2011 when compared to Satellite product sales of $447,352 during the same period last year. The decrease can be attributed to a decrease in demand for the Company’s filters which suppress strong out-of-band interference caused by military and civilian radar systems and other sources. Management attributes the decrease in sales to global economic conditions. For the quarter ended December 31, 2011, international sales were down $82,111 or 44.6% to $102,197 when compared to international sales of $184,308 for the quarter ended December 31, 2010. 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 $9,923$6,024 or 25.6%19.3% to $28,771$25,128 for the three months ended June 30,December 31, 2011 when compared to sales of $38,694$31,152 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.
MFC's sales order backlog equaled $617,978$303,666 at June 30,December 31, 2011 compared to sales order backlog of $654,643$672,366 at June 30,December 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 85% of theThe total sales order backlog at June 30,December 31, 2011 is scheduled to ship by September 30, 2011.2012.
Gross profit for the three months ended June 30,December 31, 2011 equaled $441,804,$503,212, an increase of $107,665$35,953 or 32.2%7.7%, when compared to gross profit of $334,139$467,259 for the three months ended June 30,December 31, 2010. The dollarAs a percentage of sales, gross profit increased to 38.2% for the three months ended December 31, 2011 compared to 36.1% for the three months ended December 31, 2010.The increase in gross profit can primarily be attributed to the higher sales volume, lower direct material costs as a percentage of sales primarily due to product sales mix and lower manufacturing overhead payroll and payroll related expenses this year when compared to the same period last year. As a percentage of sales, gross profit equaled 37.5% for the three months ended June 30, 2011 compared to 32.5% for the three months ended June 30, 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 expenses.
Selling, general and administrative (SGA) expenses for the three months ended June 30,December 31, 2011 equaled $395,472,$421,970, an increase of $10,441$756 or 2.7%0.2%, when compared to SG&ASGA expenses of $385,031$421,214 for the three months ended June 30,December 31, 2010. As a percentage of sales, SGA expenses decreased to 33.5%32.0% for the three months ended June 30,December 31, 2011 when compared to 37.4%32.5% for the three months ended June 30,December 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 $46,332$81,242 for the three months ended June 30,December 31, 2011 compared to a lossincome from operations of $50,892$46,045 for the three months ended June 30,December 31, 2010. The improvement in operating income can primarily be attributed to the higher sales volume, lower direct material costs as a percentage of sales and lower manufacturing overhead payroll and payroll related expenses this year when compared to the same period last year.
Other income for the three months ended December 31, 2011 equaled $21,575, an increase of $20,027, when compared to other income of $1,548 for the three months ended December 31, 2010. The increase can be attributed to a $20,000 gain on the sale of a fixed asset.
The provision (benefit) for income taxes equaled $0 for the three months ended June 30,December 31, 2011 and June 30,December 31, 2010. We have not recognized any provision for income taxes as pretaxbecause taxable income was reduced by bonus tax basis depreciation and offset by a reduction in our deferred tax asset valuation reserve. 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. As required by FASB ASC 740, the Company has determined that, at this time, it is more likely than not that the Company will not realize all of the benefits of federal and state deferred tax assets, and as a result, a valuation allowance was established.
<PAGE> 12
NINE MONTHS ENDED JUNE 30, 2011 vs. NINE MONTHS ENDED JUNE 30, 2010
The following table sets forth the Company's net sales by major product group for the nine months ended June 30, 2011 and 2010.
Product group | Fiscal 2011 | Fiscal 2010 | ||||
Microwave Filter (MFC): | ||||||
RF/Microwave | $ | 1,372,078 | $ | 981,886 | ||
Satellite | 1,219,781 | 1,089,123 | ||||
Cable TV | 1,062,952 | 1,025,575 | ||||
Broadcast TV | 76,026 | 157,609 | ||||
Niagara Scientific (NSI): | 1,542 | 3,721 | ||||
| | |||||
Total | $ | 3,732,379 | $ | 3,257,914 | ||
| | |||||
Sales backlog at June 30 | $ | 617,978 | $ | 654,643 |
Net sales for the nine months ended June 30, 2011 equaled $3,732,379, an increase of $474,465 or 14.6%, when compared to net sales of $3,257,914 for the nine months ended June 30, 2010.
MFC’s RF/Microwave product sales increased $390,192 or 39.7% to $1,372,078 for the nine months ended June 30, 2011 when compared to RF/Microwave product sales of $981,886 during the same period last year. Management attributes the increase in sales to the Company’s efforts to encourage Original Equipment Manufacturer (OEM) relationships. MFC’s RF/Microwave products are sold primarily to Original Equipment Manufacturers 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 nine months ended June 30, 2011 compared to approximately 14% of total sales for the nine months ended June 30, 2010.
MFC’s Satellite product sales increased $130,658 or 12% to $1,219,781 for the nine months ended June 30, 2011 when compared to satellite product sales of $1,089,123 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.
<PAGE> 13
MFC’s Broadcast TV/Wireless Cable product sales decreased $81,583 or 51.8% to $76,026 for the nine months ended June 30, 2011 when compared to sales of $157,609 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 nine months ended June 30, 2011 equaled $1,346,080, an increase of $229,195 or 20.5%, when compared to gross profit of $1,116,885 for the nine months ended June 30, 2010. The increase 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 increased to 36.1% for the nine months ended June 30, 2011 compared to 34.3% for the nine months ended June 30, 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 expenses. SG&A expenses for the nine months ended June 30, 2011 equaled $1,230,582, an increase of $53,910 or 4.6%, when compared to SG&A expenses of $1,176,672 for the nine months ended June 30, 2010. The dollar increase can primarily be attributed to increases in payroll and payroll related expenses and trade show and promotional expenses this year when compared to the same period last year. As a percentage of sales, SGA expenses decreased to 33% for the nine months ended June 30, 2011 compared to 36.1% for the nine months ended June 30, 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 $115,498 for the nine months ended June 30, 2011 compared to a loss from operations of $59,787 for the nine months ended June 30, 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 nine months ended June 30, 2011 equaled $6,746, an increase of $1,140 when compared to other income of $5,606 for the nine months ended June 30, 2010. Other income is primarily interest income earned on invested cash balances. Other income may fluctuate based on market interest rates and levels of invested cash balances.
The provision (benefit) for income taxes equaled $0 for the nine months ended June 30, 2011 and June 30, 2010. We have not recognized any provision for income taxes as pretax income was offset by a reduction in our deferred tax asset valuation reserve. 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.
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June 30, 2011 | September 30, 2010 | December 31, 2011 | September 30, 2011 | |||
Cash & cash equivalents | $1,662,968 | $1,466,719 | $1,298,693 | $1,285,885 | ||
Working capital | $2,063,349 | $1,981,150 | $1,609,432 | $1,658,110 | ||
Current ratio | 5.06 to 1 | 4.68 to 1 | 4.15 to 1 | 3.59 to 1 | ||
Long-term debt | $0 | $0 |
The decrease in accounts receivable of $139,790$130,368 at June 30,December 31, 2011 when compared to September 30, 20102011 can be attributed to improved collections and the decrease inlower shipments during the quartermonth ended June 30,December 31, 2011 when compared to the quartermonth ended September 30, 2010.2011.
The decrease in prepaid expenses and other current assetsinventories of $32,691 and the decrease in accounts payable of $26,909$49,870 at June 30,December 31, 2011 when compared to September 30, 20102011 can primarily be attributed to timing.the lower sales order backlog at December 31, 2011 when compared to September 30, 2011.
The decrease in accounts payable of $43,834 at December 31, 2011 when compared to September 30, 2011 can primarily be attributed to the lower inventories at December 31, 2011 when compared to September 30, 2011.
The decrease in other current liabilities of $51,889 at December 31, 2011 when compared to September 30, 2011 can primarily be attributed to the payment of a $50,000 profit sharing contribution which was accrued at September 30, 2011.
Capital expenditures totaling $111,395$189,078 for the ninethree months ended June 30,December 31, 2011 consisted primarily of test equipment, simulation software, computer hardware and a Company truck. The Company has committed to building improvements of approximately $50,000 and equipment purchases of approximately $25,000 for the quarter ended September 30, 2011. The Company has committed to approximately $225,000 of capital equipment purchases for the quarter ended December 31, 2011 (the first quarter of fiscal 2012.)machinery.
At June 30,December 31, 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.
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 June 30,December 31, 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.
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, 2011February 13, 2012 Carl F. Fahrenkrug
(Date) --------------------------
Carl F. Fahrenkrug
Chief Executive OfficerAugust 12, 2011February 13, 2012 Richard L. Jones
(Date) --------------------------
Richard L. Jones
Chief Financial Officer
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