UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 OR 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended March 31,June 30, 1999
Commission file number 0-10976
MICROWAVE FILTER COMPANY, INC.
(Exact name of registrant as specified in its charter.)
New York 16-0928443
(State of Incorporation) (I.R.S. Employer Identification Number)
6743 Kinne Street, East Syracuse, N.Y. 13057
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (315) 438-4700
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES ( x ) NO ( )
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
Common Stock, $.10 Par Value - 3,266,7203,267,723 shares as of March
31,June
30, 1999.
PART I. - FINANCIAL INFORMATION
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands)
MARCH 31,JUNE 30, 1999 SEPTEMBER 30, 1998
[S] [C] [C]
Assets
Current Assets:
Cash and cash equivalents $ 7561,104 $ 1,221
Accounts receivable-trade,net 805526 652
Federal and state income tax
recoverable 340 56
Inventories 1,3091,310 1,328
Deferred tax asset - current 175116 175
Prepaid expenses and other
current assets 10149 53
-------- --------
Total current assets 3,1803,105 3,485
Property,plant and equipment,net 1,4881,456 1,574
-------- --------
Total assets $ 4,6684,561 $ 5,059
======== ========
Liabilities And Stockholders' Equity
Current liabilities:
Current portion of long term
debt $ 150 $ 45
Accounts payable 322209 356
Customer deposits 97 111
Accrued federal and state
income taxes 3723 0
Accrued payroll and related
expenses 113105 101
Accrued compensated absences 236253 225
Other current liabilities 6455 81
-------- --------
Total current liabilities 884742 919
Deferred tax liability -
noncurrent 51 51
Deferred compensation and
other liabilities 98 12
-------- --------
Total liabilities 944801 982
-------- --------
Stockholders' Equity:
Common stock,$.10 par value 430431 429
Additional paid-in capital 3,2283,234 3,223
Retained earnings 1,0521,087 1,147
-------- --------
4,7104,752 4,799
Common stock in treasury,
at cost (986)(992) (722)
-------- --------
Total stockholders' equity 3,7243,760 4,077
-------- --------
Total liabilities and
stockholders' equity $ 4,6684,561 $ 5,059
======== ========
[FN]
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIXNINE MONTHS
ENDED MARCH 31,JUNE 30, 1999 AND 1998
(Unaudited)
(Amounts in thousands, except per share data)
Three months ended SixNine months ended
March 31 March 31June 30 June 30
1999 1998 1999 1998
[S] [C] [C] [C] [C]
Net sales $1,759 $1,735 $3,392 $3,575$1,645 $1,640 $5,037 $5,215
Cost of goods sold 1,090 1,093 2,078 2,219982 1,025 3,061 3,244
------- ------- ------- -------
Gross profit 669 642 1,313 1,356663 615 1,976 1,971
Selling, general and
administrative expenses 593 598 1,233 1,257618 708 1,852 1,966
------- ------- ------- -------
Income (loss) from
operations 76 44 80 9945 (93) 124 5
Other income (expense) 10 13 26 299 11 36 41
------- ------- ------- -------
Income (loss) before
income taxes 86 57 106 12854 (82) 160 46
Provision (benefit)
for income taxes 30 20 36 4419 (28) 55 16
------- ------- ------- -------
NET INCOME (LOSS) $56 $37 $70 $84$ 35 $(54) $105 $30
======= ======= ======= =======
Basic earningsEarnings (loss) per share $0.02 $0.01 $0.02 $0.02$(0.01) $0.03 $0.01
======= ======= ======= =======
[FN]
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND SIXNINE MONTHS ENDED
MARCH 31,JUNE 30, 1999 AND 1998
(Unaudited)
(Amounts in thousands)
Three months ended SixNine months ended
March 31 March 31June 30 June 30
1999 1998 1999 1998
[S] [C] [C] [C] [C]
Cash flows from operating
activities:
Net income $ 5635 $ 37(54) $ 70105 $ 8430
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization 76 79 149 15778 81 227 238
Stock Compensation 7 4 70 13 4
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable (271) 40 (154) (176)279 169 125 (7)
Inventories 27 (87)0 (51) 19 (147)(198)
Prepaid expenses & other
assets 28 (30) (25) (25)144 34 119 9
Increase (decrease) in:
Accounts payable & accrued
expenses 198 18 (6) 31(126) 25 (132) 57
Deferred compensation &
other liabilities (2) (1) (3) (3)45 (5) 42
------- ------- -------- -------
Net cash provided by
operating activities 119 60 57 (75)415 249 471 175
------- ------- -------- -------
Cash flows from investing activities:
Capital expenditures (21) (33) (63) (160)(45) (24) (108) (184)
Cash flows from financing activities:
Principal payments on
long-term debt (15) (14) (30) (28)(45) (42)
Purchase of treasury stock (30) (264)(7) 0 (270) 0
Cash dividend paid (165) (177)0 0 (165) (177)
------- ------- ------- -------
Net cash used in
financing activities (210) (191) (459) (205)(22) (14) (480) (219)
Increase (decrease) in cash
and cash equivalents (112) (164) (465) (440)348 211 (117) (228)
Cash and cash equivalents
at beginning of period 868 1,158756 995 1,221 1,434
------- ------- ------- -------
Cash and cash equivalents
at end of period $ 756 $ 994 $ 756 $ 994$1,104 $1,206 $1,104 $1,206
======= ======= ======= =======
[FN]
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,JUNE 30, 1999
Note 1. Summary of Significant Accounting Policies
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results
for the six-monthnine-month period ended March 31,June 30, 1999 are not necessarily indicative
of the results that may be expected for the year ended September 30, 1999.
MICROWAVE FILTER COMPANY, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MARCH 31,JUNE 30, 1999
Net sales for the sixnine months ended March 31,June 30, 1999 equaled $3,391,632,$5,036,854, a
decrease of $183,667$177,844 or 5.1%3.4% when compared to net sales of $3,575,299$5,214,698 for
the sixnine months ended March 31,June 30, 1998. Net sales for the three months ended
March 31,June 30, 1999 equaled $1,758,576,$1,645,222, an increase of $23,220$5,823 or 1.3.%0.4% when compared
to net sales of $1,735,356$1,639,399 for the three months ended March 31,June 30, 1998.
Microwave Filter Company, Inc. (MFC) sales for the sixnine months ended March
31,June
30, 1999 equalled $3,081,392,equaled $4,648,885, a decrease of $431,568$486,885 or 12.3%9.5% when compared
to net sales of $3,512,960$5,135,770 for the sixnine months ended March 31,June 30, 1998. MFC sales
for the three months ended March 31,June 30, 1999 equalled $1,556,157, a decrease
of $128,913 or 7.7% when compared to sales of $1,685,070equaled $1,567,493 for the three
months ended March 31,June 30, 1999, a decrease of $55,317 or 3.4% when compared
to net sales of $1,622,810 for the three months ended June 30, 1998.
Niagara Scientific, Inc. (NSI) sales for the nine months ended June 30,
1999 equaled $387,969, an increase of $309,041 or 391% when compared to
net sales of $78,928 for the nine months ended June 30, 1998. NSI sales
for the three months ended June 30, 1999 equaled $77,729, an increase of
$61,140 or 369% when compared to net sales of $16,589 for the three months
ended June 30, 1998.
The decrease in MFC sales can primarily be attributed to the decrease in
the sales of the Company's RF/Microwave products to OEMs (Original Equipment
Manufacturers), due to the completion of OEM contracts during fiscal 1998
and the decrease in the sales of MFC's BTV products, , which include wireless
cable products, primarily due to market conditions; and a decrease in the
sales of MFC's RF/Microwave products. MFC's RF/Microwave product sales were
down due to the completion of OEM contracts during fiscal 1998.
Niagara Scientific, Inc. (NSI), a wholly owned subsidiary, salesconditions.
Gross profit for the sixnine months ended March 31,June 30, 1999 equalled $310,240,equaled $1,976,071,
an increase of $247,901$5,494 or 398%0.3% when compared to salesgross profit of $62,339$1,970,577
for the sixnine months ended March 31,June 30, 1998. NSI's salesGross profit for the three months
ended March 31,June 30, 1999 equalled $202,419,equaled $662,659, an increase of $152,133$47,864 or 303%7.8% when
compared to salesgross profit of $50,286$614,795 for the three months ended March 31, 1998.
Net income for the six months ended March 31, 1999 equalled $69,655, a
decrease of $14,279 or 17% when compared to net income of $83,934 for the six
months ended March 31,June 30,
1998. The decreasedollar increases in net income for the six months
ended March 31, 1999gross profit can primarily be attributed to
the decrease in sales
when compared to the same period last year. Net income for the three months
ended March 31, 1999 equalled $55,930, an increase of $18,720 or 50.3% when
compared to net income of $37,210 for the three months ended March 31, 1998.
The increase in net income for the three months ended March 31, 1999 can
primarily be attributed to the increase in sales and improvementimprovements in gross profit as a percentage of sales when compared to
the same periodperiods last year. GrossAs a percentage of sales, gross profit equaled
39.2% for the sixnine months ended March 31,June 30, 1999 equaled $1,313,412,
a decrease of $42,370 or 3.1% when compared to gross profit of $1,355,78237.8% for the sixnine
months ended March 31,June 30, 1998. As a percentage of sales, gross profit equalled 38.7% for the six months ended March 31, 1999 when compared
to 37.9% for the six months ended March 31, 1998. Gross profitequaled
40.3% for the three months ended March 31,June 30, 1999 equaled $668,446, an increase of $26,622 when compared to gross profit of $641,82437.5% for the
three months ended March 31,June 30, 1998. AsThe increases in gross profit as a
percentage of sales gross profit equalled 38.0% for the three
months ended March 31,can primarily be attributed to lower manufacturing
(excess scrap and rework) costs associated with new product development
during fiscal 1999 when compared to 37.0% for the three months ended
March 31, 1998.same periods last year.
Selling, general and administrative (SG&A) expenses for the sixnine months
ended March 31,June 30, 1999 equaled $1,233,445,$1,851,656, a decrease of $23,773$113,880 or 1.9%5.8%
when compared to SG&A expenses of $1,257,218$1,965,536 for the sixnine months ended
March 31,June 30, 1998. SG&A expenses for the three months ended March 31,June 30, 1999
equaled $592,867,$618,211, a decrease of $5,148$90,107 or 0.9%12.7% when compared to SG&A
expenses of $598,015$708,318 for the three months ended March 31,June 30, 1998. The decreases
can primarily be attributed to decreases in advertising expense and sales
commissions expense when compared to the same periods last year.
Income from operations for the nine months ended June 30, 1999 equaled
$124,415, an increase of $119,374 when compared to income from operations
of $5,041 for the nine months ended June 30, 1998. The increase can
primarily be attributed to the improvements in gross profit as a percentage
of sales and the reduction in SG&A expenses when compared to the same
periods last year. On an industry segment basis, MFC reported income from
operations of $261,919 and NSI reported an operating loss of $137,504 for
the nine months ended June 30, 1999. NSI's operating loss can primarily be
attributed to low sales volume plus the absorption of fixed overhead
expenses.
Cash and cash equivalents decreased $465,238$117,463 to $755,870$1,103,645 at March 31,June 30,
1999 when compared to $1,221,108 at September 30, 1998. The decrease was
a result of $55,807$470,893 in net cash provided by operating activities, $62,862$108,413
in net cash used for capital expenditures and $458,183$479,943 in net cash used in
financing activities.activities ($44,851 used for principal payments on long-term debt,
$164,643 used for a cash dividend paid and $270,449 used to purchase treasury
stock).
The Company's Board of Directors has authorized the repurchase of up to
500,000 shares of the Company's outstanding common stock. The repurchases
will be made from time to time on the open market at prevailing market prices
or in negotiated transactions off the market. During the six months
ended March 31,As of June 30, 1999, 226,560312,380
shares were repurchased using existing cash balances. Management believes the
common stock repurchase program, given the Company's present cash position as
well as the current market price of the stock, reflects its belief in the
fundamental strength of the business and also reflects its commitment to enhancing
shareholder value.
At March 31,June 30, 1999, the Company had unused aggregate lines of credit totaling
$600,000. Of these lines, $100,000 is for the purchase of equipment and is
collateralized by equipment and $500,000 is for working capital and is
collateralized by accounts receivable, inventories and equipment. The
equipment line of credit provides for interest at the bank's base rate
plus one half percent (1/2%). The working capital line of credit provides
for interest at the bank's base rate plus one quarter percent (1/4%).
Management believes that its working capital requirements for the
forseeableforeseeable future will be met by its existing cash balances, future cash
flows from operations and its current credit arrangements.
YEAR 2000 READINESS DISCLOSURE
The YearYEAR 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software
or embedded computer chips may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations which could disrupt the Company's normal business activities.
The Company has conducted a full inventory of its computer systems to
identify the programs and systems that could be affected by the year 2000
problem. The Company has evaluated and tested all critical programs and
systems. Although no assurance can be given, the Company believes all
critical software utilized by the Company is presently year 2000 compliant.
The total cost to the Company of its own Yearyear 2000 assessment, compliance
and verification activities has not been material to the Company's financial
position or results of operations in any given year.
The companyCompany is presently surveying all major vendors and large customers
to assess their state of readiness in addressing the year 2000 problem. The
companyCompany depends on outside suppliers for raw materials, components and parts,
and services. Although items are generally available from a number of
suppliers, the Company purchases certain raw materials and components from a single
supplier. If such a supplier should cease to supply an item, the Company
believes that new sources could be found to provide the raw materials and
components. However, manufacturing delays and added costs could result and
adversely affect the business of the Company. The companyCompany has not experienced
significant delays of this nature in the past, but there can be no assuranceassurances
that delays in delivery due to supply shortages will not occur in the future.
The Company has and will continue to devote the resources necessary to
address any year 2000 issues.issue. The Company's contingency plan is to replace or
repair systems which fail unexpectedly after January 1, 2000. The Company
estimates that the costs associated with its "year 2000"year 2000 contingency, if
required, to be less than $75,000.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
Any statements contained in this report which are not historical facts are
forward looking statements; and, therefore, many important factors could
cause actual results to differ materially from those in the forward looking
statements. Such factors include, but are not limited to, changes
(legislative, regulatory and otherwise) in the MMDS, LPTV or Cable industry,
demand for the Company's products (both domestically and internationally),
the development of competitive products, competitive pricing, market
acceptance of new product introductions, technological changes, general
economic conditions, litigation and other factors, risks and uncertainties
which may be identified in the Company's Securities and Exchange Commission
filings.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is unaware of any material threatened or pending
litigation against the Company.
Item 2. Changes in Securities
None during this reporting period.
Item 3. Defaults Upon Senior Securities
The Company has no senior securities.
Item 4. Submission of Matters to a Vote of Security Holders
a. The Annual meeting of the Shareholders was held on April 15,
1999 at the Embassy Suites Hotel, 6646 Old Collamer Road, East
Syracuse, New York 13057 at 10:00 A.M. pursuant to notice to
the shareholders. The following matters were submitted to the
vote of shareholders:
Proposal 1. The election of three directors to hold office until
the Annual Meeting of the Shareholders at which their term expires
or until their successors have been duly elected.
Proposal 2. The ratification of PricewaterhouseCoopers LLP as the
Company's independent auditors for the fiscal year ending
September 30, 1999.
b. The following named persons received the number of votes set opposite
their respective names for election to the Board of Directors:
DIRECTORS VOTES FOR AUTHORITY
WITHHELD
Carl F. Fahrenkrug 2,688,572 45,672
Daniel Galbally 2,688,327 45,917
Frank S. Markovich 2,688,433 45,811
c. The following proposition received the number of votes set opposite
its respective number:
VOTES FOR VOTES AGAINST ABSTENTIONS
Proposal 2 2,703,196 18,207 12,841None during this reporting period.
Item 6. Exhibits and Reports on Form 8-K
None.
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MICROWAVE FILTER COMPANY, INC.
May 14,August 10, 1999 Carl F. Fahrenkrug
(Date) --------------------------
Carl F. Fahrenkrug
Chief Executive Officer
May 14,August 10, 1999 Richard L. Jones
(Date) --------------------------
Richard L. Jones
Chief Financial Officer