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, 2013
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) |
(315) 438-4700
Registrant's telephone number, including area code
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 __X__ NO____
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 - 2,585,0862,584,522 shares as of August 1, 2013.
MICROWAVE FILTER COMPANY, INC.
Index
Item | Page |
Part I Financial Information | |
Item 1. Financial Statements | 3 |
Condensed Consolidated Balance Sheets (unaudited) | 3 |
Condensed Consolidated Statements of Operations (unaudited) | |
Condensed Consolidated Statements of Cash Flows (unaudited) | |
Notes to Condensed Consolidated Financial Statements (unaudited) | 8-10 |
Item 2. | 11-17 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. Controls and Procedures | 18 |
Part II Other Information | 19 |
Signatures | 20 |
<PAGE> 2
PART I. - FINANCIAL INFORMATION
Microwave Filter Company and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
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| December 31, 2013 | September 30, 2013 | ||||||
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Assets |
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Current Assets: |
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Cash and cash equivalents | $ | 945,313 |
| $ | 939,959 |
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Accounts receivable-trade, net of |
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allowance for doubtful accounts |
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of $26,000 and $26,000 |
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| 147,247 |
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| 201,163 |
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Federal and state income tax recoverable |
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| 0 |
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| 37,085 |
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Inventories, net |
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| 556,606 |
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| 566,500 |
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Prepaid expenses and other current assets |
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| 123,167 |
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| 98,973 |
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Total current assets |
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| 1,772,333 |
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| 1,843,680 |
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Property, plant and equipment, net |
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| 550,409 |
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| 580,750 |
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Total assets |
| $ | 2,322,742 |
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| $ | 2,424,430 |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Accounts payable |
| $ | 118,594 |
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| $ | 68,632 |
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Customer deposits |
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| 42,421 |
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| 16,362 |
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Accrued payroll and related expenses |
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| 47,180 |
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| 46,453 |
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Accrued compensated absences |
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| 97,270 |
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| 94,272 |
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Notes payable - short term |
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| 41,162 |
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| 40,697 |
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Other current liabilities |
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| 35,674 |
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| 35,199 |
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Total current liabilities |
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| 382,301 |
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| 301,615 |
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Notes payable -long term |
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| 442,291 |
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| 452,771 |
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Total other liabilities |
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| 442,291 |
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| 452,771 |
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Total liabilities |
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| 824,592 |
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| 754,386 |
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<PAGE> 3
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Stockholders' Equity: |
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Common stock, $.10 par value |
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Authorized 5,000,000 shares, |
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Issued 4,324,140 shares in 2014 and 2013, |
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Outstanding 2,585,086 shares in 2014 and 2013 |
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| 432,414 |
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| 432,414 |
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Additional paid-in capital |
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| 3,248,706 |
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| 3,248,706 |
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Retained deficit |
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| (491,354) |
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| (319,460) |
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Common stock in treasury, at cost |
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1,739,054 shares in 2014 and 2013 |
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| (1,691,616) |
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| (1,691,616) |
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Total stockholders' equity |
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| 1,498,150 |
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| 1,670,044 |
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Total liabilities and stockholders' equity |
| $ | 2,322,742 |
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| $ | 2,424,430 |
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June 30, 2013 | September 30, 2012 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 409,697 | $ | 1,023,017 | ||||
Accounts receivable-trade, net of | ||||||||
allowance for doubtful accounts | ||||||||
of $26,000 and $26,000 | 228,249 | 263,385 | ||||||
Inventories, net | 593,006 | 529,075 | ||||||
Prepaid expenses and other current assets | 86,736 | 111,342 | ||||||
Total current assets | 1,317,688 | 1,926,819 | ||||||
Property, plant and equipment, net | 621,703 | 672,525 | ||||||
Total assets | $ | 1,939,391 | $ | 2,599,344 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 84,926 | $ | 92,325 | ||||
Customer deposits | 29,707 | 30,563 | ||||||
Accrued payroll and related expenses | 42,373 | 51,289 | ||||||
Accrued compensated absences | 117,568 | 172,198 | ||||||
Other current liabilities | 28,865 | 31,308 | ||||||
Total current liabilities | 303,439 | 377,683 | ||||||
Total liabilities | 303,439 | 377,683 | ||||||
Stockholders' Equity: | ||||||||
Common stock, $.10 par value | ||||||||
Authorized 5,000,000 shares, Issued | ||||||||
4,324,140 shares in 2013 and 2012, | ||||||||
Outstanding 2,585,086 shares in 2013 | ||||||||
and 2,585,321 in 2012 | 432,414 | 432,414 | ||||||
Additional paid-in capital | 3,248,706 | 3,248,706 | ||||||
Retained earnings (deficit) | (353,552) | 232,013 | ||||||
Common stock in treasury, at cost | ||||||||
1,739,054 shares in 2013 and 1,738,819 | ||||||||
shares in 2012 | (1,691,616) | (1,691,472) | ||||||
Total stockholders' equity | 1,635,952 | 2,221,661 | ||||||
Total liabilities and stockholders' equity | $ | 1,939,391 | $ | 2,599,344 |
<FN>
<PAGE>
Microwave Filter Company and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
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| Three months ended |
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| December 31, |
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| 2013 |
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| 2012 |
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Net sales | $ | 655,447 |
| $ | 771,244 |
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Cost of goods sold |
| 456,913 |
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| 568,044 |
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Gross profit |
| 198,534 |
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| 203,200 |
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Selling, general and |
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administrative expenses |
| 366,547 |
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| 430,415 |
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Loss from operations |
| (168,013) |
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| (227,215) |
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Other income (expense), net |
| (3,881) |
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| 2,190 |
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Loss before income taxes |
| (171,894) |
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| (225,025) |
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(Benefit) provision |
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for income taxes |
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| 0 |
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Net loss | $ | (171,894) |
| $ | (225,025) |
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Net Loss Per Common Share |
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Basic and diluted earnings per share | $ | (0.07) |
| $ | (0.09) |
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Weighted Average Common Shares |
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Outstanding |
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Shares used in computing net |
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(loss) earnings per share: |
| 2,585,086 |
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| 2,585,321 |
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Three months ended | Nine months ended | |||||||||||
June 30, | June 30, | |||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||
Net sales | $ | 705,148 | $ | 1,147,336 | $ | 2,084,735 | $ | 3,490,463 | ||||
Cost of goods sold | 439,440 | 713,193 | 1,484,560 | 2,215,494 | ||||||||
Gross profit | 265,708 | 434,143 | 600,175 | 1,274,969 | ||||||||
Selling, general and | ||||||||||||
administrative expenses | 317,827 | 381,294 | 1,190,719 | 1,274,001 | ||||||||
(Loss) income from operations | (52,119) | 52,849 | (590,544) | 968 | ||||||||
Other income (net) | 1,579 | 2,027 | 4,979 | 26,673 | ||||||||
(Loss) income | ||||||||||||
before income taxes | (50,540) | 54,876 | (585,565) | 27,641 | ||||||||
(Benefit) provision | ||||||||||||
for income taxes | 0 | (38,582) | 0 | (38,582) | ||||||||
Net (loss) income | $ | (50,540) | $ | 93,458 | $ | (585,565) | $ | 66,223 | ||||
Net (Loss) Income Per Common Share | ||||||||||||
Basic and diluted earnings per share | $ | (0.02) | $ | 0.04 | $ | (0.23) | $ | 0.03 | ||||
Weighted Average Common Shares | ||||||||||||
Outstanding | ||||||||||||
Shares used in computing net | ||||||||||||
(loss) earnings per share: | 2,585,156 | 2,585,569 | 2,585,243 | 2,586,008 |
<FN>
<PAGE> 4
Microwave Filter Company and Subsidiaries
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| Three months ended |
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| December 31 |
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| 2013 |
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| 2012 |
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Cash flows from operating activities: |
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Net loss | $ | (171,894) | $ | (225,025) |
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Adjustments to reconcile net loss |
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to net cash provided by |
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(used in) operating activities: |
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Depreciation |
| 32,702 |
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| 41,337 |
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Change in operating assets and liabilities: |
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Accounts receivable-trade |
| 53,916 |
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| 100,422 |
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Federal and state income |
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tax recoverable |
| 37,085 |
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| 0 |
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Inventories |
| 9,894 |
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| (23,962) |
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Prepaid expenses and other assets |
| (24,194) |
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| 12,456 |
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Accounts payable and customer |
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deposits |
| 76,021 |
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| 32,126 |
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Accrued payroll and related expenses |
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and compensated absences |
| 3,725 |
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| (25,402) |
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Other current liabilities |
| 475 |
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| (1,120) |
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Net cash provided by (used in) |
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operating activities |
| 17,730 |
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| (89,168) |
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Cash flows from investing activities: |
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Property, plant and equipment purchased |
| (2,361) |
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| (73,253) |
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Net cash used in investing activities |
| (2,361) |
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| (73,253) |
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Cash flows from financing activities: |
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Repayment of note payable |
| (10,015) |
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| 0 |
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Net cash used in financing activities |
| (10,015) |
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| 0 |
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<PAGE> 6
Increase (decrease) in cash and |
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cash equivalents |
| 5,354 |
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| (162,421) |
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Cash and cash equivalents |
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at beginning of period |
| 939,959 |
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| 1,023,017 |
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Cash and cash equivalents |
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at end of period | $ | 945,313 |
| $ | 860,596 |
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Supplemental Schedule of Cash Flow Information: |
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Interest | $ | 5,575 |
| $ | 0 |
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Nine months ended | ||||||
June 30 | ||||||
2013 | 2012 | |||||
Cash flows from operating activities: | ||||||
Net (loss) income | $ | (585,565) | $ | 66,223 | ||
Adjustments to reconcile net (loss) | ||||||
income to net cash provided by | ||||||
(used in) operating activities: | ||||||
Depreciation | 125,167 | 117,172 | ||||
Gain on sale of fixed assets | 0 | (20,000) | ||||
Change in operating assets and liabilities: | ||||||
Accounts receivable-trade | 35,136 | 38,096 | ||||
Federal and state income | ||||||
tax recoverable | 0 | (13,754) | ||||
Inventories | (63,931) | 69,231 | ||||
Prepaid expenses and other assets | 24,606 | 421 | ||||
Accounts payable and customer | ||||||
deposits | (8,255) | (118,972) | ||||
Accrued payroll and related expenses | ||||||
and compensated absences | (63,546) | (65,091) | ||||
Other current liabilities | (2,443) | (52,740) | ||||
Net cash (used in) provided by | ||||||
operating activities | (538,831) | 20,586 | ||||
Cash flows from investing activities: | ||||||
Property, plant and equipment purchased | (74,345) | (198,225) | ||||
Proceeds from sale of fixed assets | 0 | 20,000 | ||||
Net cash used in investing activities | (74,345) | (178,225) | ||||
Cash flows from financing activities: | ||||||
Purchase of treasury stock | (144) | (663) | ||||
Net cash used in financing activities | (144) | (663) | ||||
Decrease in cash and cash equivalents | (613,320) | (158,302) | ||||
Cash and cash equivalents | ||||||
at beginning of period | 1,023,017 | 1,258,885 | ||||
Cash and cash equivalents | ||||||
at end of period | $ | 409,697 | $ | 1,100,583 | ||
Supplemental Schedule of Cash Flow Information: | ||||||
Income taxes paid | $ | 0 | $ | 15,000 |
<FN>
<PAGE>
MICROWAVE FILTER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
Note 1. Summary of Significant Accounting Policies
Note 2. Industry Segment Data
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:
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| December 31, 2013 |
| September 30, 2013 |
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Raw materials and stock parts |
| $ | 416,567 |
| $ | 432,871 |
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Work-in-process |
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| 26,589 |
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| 24,137 |
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Finished goods |
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| 113,450 |
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| 109,492 |
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| $ | 556,606 |
| $ | 566,500 |
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June 30, 2013 | September 30, 2012 | ||||||
Raw materials and stock parts | $ | 502,276 | $ | 455,000 | |||
Work-in-process | 16,011 | 13,554 | |||||
Finished goods | 74,719 | 60,521 | |||||
$ | 593,006 | $ | 529,075 |
The Company's reserve for obsolescence equaled $373,171$400,664 at June 30,December 31, 2013 and $408,340$400,664 at September 30, 2012.2013. The Company provides for a valuation reserve for certain inventory that is deemed to be obsolete, of excess quantity or otherwise impaired. The decrease of $35,169 in inventory reserve at June 30, 2013 can be attributed to the sale of inventory that had been reserved.
<PAGE>
Note 4. Income Taxes
Note 5. Legal Matters
The State of New York Workers’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
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.
Note 7. Significant Customers
Sales to one customer represented approximately 17%10% of total sales for the ninethree months ended June 30,December 31, 2013 compared to approximately 20%22% of total sales for the ninethree months ended June 30,December 31, 2012.
<PAGE>
Note 8. Subsequent Event
On July 2, 2013, Microwave Filter Company, Inc. (the “Company”"Company") entered into a Ten Year Term Loan with KeyBank National Association in the amount of Five Hundred Thousand and No/100 Dollars ($500,000.00). The amount of all advances outstanding together with accrued interest thereon shall be due and payable on July 2, 2023 (“Maturity”("Maturity"). The Company shall pay interest on the outstanding principal balance of this Note at the rate per annum equal to 4.5%. The net proceeds from the Term Loan will be available to provide working capital as needed.
The Company has secured this Note by: (a) a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing which creates a 1
st lien on real property situated in the Town of Dewitt, County of Onondaga, and State of New York and known as 6743 Kinne Street, East Syracuse, New York; (b) a General Assignment of Rents and Leases; (c) an Environmental Compliance and Indemnification; and (d) such other security as may now or hereafterNote 9. Credit Facilities
The Company has unused aggregate lines of credit totaling $750,000 collateralized by inventory, equipment and accounts receivable. The variable interest rate is the "prime rate" as published each business day in the "Money Rates" column of the Wall Street Journal.
Note 9.10. Recent Accounting Pronouncements
None applicable.
<PAGE>
MICROWAVE FILTER COMPANY, INC.
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 condensed 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 condensed consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 20122013 describes the significant accounting policies used in preparation of the condensed 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 condensed 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.
<PAGE>
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.
<PAGE> 10
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30,December 31, 2013 vs. THREE MONTHS ENDED JUNE 30,December 31, 2012
The following table sets forth the Company's net sales by major product group for the three months ended June 30,December 31, 2013 and 2012.
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Product group | Fiscal 2014 |
| Fiscal 2013 |
| ||
Microwave Filter (MFC): |
|
|
|
|
|
|
RF/Microwave | $ | 241,349 |
| $ | 324,127 |
|
Satellite |
| 305,626 |
|
| 243,130 |
|
Cable TV |
| 84,685 |
|
| 183,390 |
|
Broadcast TV |
| 21,582 |
|
| 18,627 |
|
Niagara Scientific (NSI): |
| 2,205 |
|
| 1,970 |
|
|
|
|
|
|
|
|
Total | $ | 655,447 |
| $ | 771,244 |
|
|
|
|
|
|
|
|
Sales backlog at December 31 | $ | 1,331,100 |
| $ | 352,852 |
|
Product group | Fiscal 2013 | Fiscal 2012 | ||||
Microwave Filter (MFC): | ||||||
RF/Microwave | $ | 243,621 | $ | 412,104 | ||
Satellite | 245,303 | 326,759 | ||||
Cable TV | 152,314 | 370,369 | ||||
Broadcast TV | 62,528 | 37,394 | ||||
Niagara Scientific (NSI): | 1,382 | 710 | ||||
Total | $ | 705,148 | $ | 1,147,336 | ||
Sales backlog at June 30 | $ | 262,690 | $ | 394,680 |
Net sales for the three months ended June 30,December 31, 2013 equaled $705,148$655,447 a decrease of $442,188$115,797 or 38.5%15%, when compared to net sales of $1,147,336$771,244 for the three months ended June 30,December 31, 2012. Net sales have been decreasing since the quarter ended June 30, 2012. It is difficult to determine precisely the cause of this systemic erosion in sales but it is conjectured that the fear engendered by the sequester of budgetary funds for the Defense Department has had a major impact on MFC’sMFC's economic environment. It should be remembered that substantial Defense cuts occurred during FY 2012 which have affected the whole communications market place as suppliers to the Defense industry have made the commercial market place more competitive as they have sought to redirect their sales efforts away from Defense. Management also believes that the decrease in capital expenditures from non-defense oriented companies (such as Cable Television companies) has also contributed to the overall decline and demand across all market segments served by MFC. In order to mitigate the effects of this decline in demand for our products during this difficult period, management has adopted a plan of cost reduction, as well as, an accelerated development and acquisition of new products. This coupled with an increase in promotional activity for existing and new products will hopefully mitigate the systemic effects of the market place by allowing MFC to increase its market share by virtue of a plethora of products for a wider range of applications and for a larger customer segment.
<PAGE> 13
MFC's RF/Microwave product sales decreased $168,483$82,778 or 40.9%25.5% to $243,621$241,349 for the three months ended June 30,December 31, 2013 when compared to RF/Microwave product sales of $412,104$324,127 during the same period last year. MFC’sMFC'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 22%10% of total sales for both the three months ended June 30,December 31, 2013 and June 30, 2012.
MFC's Satellite product sales increased $62,496 or 25.7% to $305,626 for the three months ended December 31, 2013 when compared to Satellite product sales of $326,759$243,130 during the same period last year. The decreaseincrease can be attributed to a decreasean 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 Cable TV product sales decreased $218,055$98,705 or 58.9%53.9% to $152,314$84,685 for the three months ended June 30,December 31, 2013 when compared to Cable TV product sales of $370,369$183,390 during the same period last year. 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. Management also believes that the decrease in capital expenditures from non-defense oriented companies (such as Cable Television companies) has also contributed to the decline in sales.
MFC's sales order backlog equaled $262,690$1,331,100 at June 30,December 31, 2013 compared to sales order backlog of $394,680$352,852 at June 30,December 31, 2012. The increase can primarily be attributed to a large OEM order received during the quarter ended December 31, 2013. 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 73%78% of the total sales order backlog at June 30,December 31, 2013 is scheduled to ship by September 30, 2013.
<PAGE> 14
Selling, general and administrative (SGA) expenses for the three months ended June 30,December 31, 2013 equaled $317,827,$366,547, a decrease of $63,467$63,868 or 16.6%14.8%, when compared to SGA expenses of $381,294$430,415 for the three months ended June 30,December 31, 2012. The decrease can primarily be attributed to lower payroll and payroll related expenses. The Company has been participating in the New York State Shared Work program which allows employers to reduce the hours of all or a particular group of employees. The employees whose hours are reduced can receive partial unemployment insurance benefits or elect to use accrued vacation. As a percentage of sales, SGA expenses increased to 45.1%equaled 55.9% for the three months ended June 30,December 31, 2013 when compared to 33.2%55.8% for the three months ended June 30, 2012December 31, 2012.
The Company recorded a loss from operations of $168,013 for the three months ended December 31, 2013 compared to a loss from operations of $227,215 for the three months ended December 31, 2012. The improvement can primarily duebe attributed to the lower sales volumeSGA expenses this year when compared to the same period last year.
Other income (expense) was an expense of $52,119$3,881 for the three months ended June 30,December 31, 2013 compared to income from operations of $52,849$2,190 for the for the three months ended June 30, 2012. The decrease in operating income canDecember 31, 2012 primarily be attributeddue to interest expense of $5,598 for the lower sales volume this year when compared tothree months ended December 31, 2013 and $0 for the same period last year.
The (benefit) provision for income taxes equaled $0 for the three months ended June 30,December 31, 2013 and June 30,December 31, 2012. We have not recognized any (benefit) provision for income taxes. 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 (Prior Authoritative Literature: SFAS 109, Accounting for Income Taxes), the Company has evaluated the positive and negative evidence bearing upon the realization of its deferred tax assets. 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.
Product group | Fiscal 2013 | Fiscal 2012 | ||||
Microwave Filter (MFC): | ||||||
RF/Microwave | $ | 759,027 | $ | 1,307,148 | ||
Satellite | 768,055 | 1,029,089 | ||||
Cable TV | 432,896 | 1,051,438 | ||||
Broadcast TV | 119,244 | 98,344 | ||||
Niagara Scientific (NSI): | 5,513 | 4,444 | ||||
Total | $ | 2,084,735 | $ | 3,490,463 | ||
Sales backlog at June 30 | $ | 262,690 | $ | 394,680 |
Off-Balance Sheet Arrangements
<PAGE> 15
LIQUIDITY and CAPITAL RESOURCES
|
|
|
|
|
|
|
|
| December 31, 2013 | September 30, 2013 |
|
|
|
|
|
Cash & cash equivalents | $945,313 | $939,959 |
|
Working capital | $1,390,032 | $1,542,065 |
|
Current ratio | 4.64 to 1 | 6.11 to 1 |
|
Long-term debt | $442,291 | $452,771 |
|
June 30, 2013 | September 30, 2012 | ||
Cash & cash equivalents | $409,697 | $1,023,017 | |
Working capital | $1,014,249 | $1,549,136 | |
Current ratio | 4.34 to 1 | 5.10 to 1 | |
Long-term debt | $0 | $0 |
Cash and cash equivalents decreased $613,320increased $5,354 to $409,697$945,313 at June 30,December 31, 2013 when compared to cash and cash equivalents of $1,023,017$939,959 at September 30, 2012.2013. The decreaseincrease was a result of $538,831$17,730 in net cash used inprovided by operating activities, primarily due to the net loss, $74,345$2,361 in net cash used for capital expenditures and $144$10,015 in net cash used for repayment of a note payable. The increase of $17,730 in net cash provided by operating activities can primarily be attributed to purchase treasury stock.
The decreasedecreases in accounts receivable of $35,136$53,916 and the federal and state income tax recoverable of $37,085 at June 30,December 31, 2013 when compared to September 30, 20122013 can primarily be attributed to the decrease in sales for the month ended June 30, 2013 when compared to the month ended September 30, 2012.
At June 30,December 31, 2013, the Company had unused aggregate lines of credit totaling $750,000 collateralized by all inventory, equipment and accounts receivable.
On July 2, 2013, Microwave Filter Company, Inc. (the “Company”"Company") entered into a Ten Year Term Loan with KeyBank National Association in the amount of Five Hundred Thousand and No/100 Dollars ($500,000.00). The amount of all advances outstanding together with accrued interest thereon shall be due and payable on July 2, 2023 (“Maturity”("Maturity"). The Company shall pay interest on the outstanding principal balance of this Note at the rate per annum equal to 4.5%. The net proceeds from the Term Loan will be available to provide working capital as needed.
Despite the losses incurred during Fiscal 2013 and the first quarter of Fiscal 2014, 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.
<PAGE> 16
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
<PAGE> 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a "smaller reporting company" we are not required to market risk during the nine months ended June 30, 2013. For a detailed discussion of market risk, see our Annual Report on Form 10-K for the fiscal year ended September 30, 2012, Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk.
ITEM 4. CONTROLS AND PROCEDURES
<PAGE>
PART II - OTHER INFORMATION
<PAGE>
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.
<PAGE> 20