UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 OR 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended June 30,December 31, 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 - 3,267,7233,164,186 shares as of June
30,December
31, 1999.
PART I. - FINANCIAL INFORMATION
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands)
JUNE 30,DECEMBER 31, 1999 SEPTEMBER 30, 19981999
[S] [C] [C]
Assets
Current Assets:
Cash and cash equivalents $ 1,104365 $ 1,221264
Investments 775 775
Accounts receivable-trade,net 526 652
Federal and state income tax
recoverable 0 56753 696
Inventories 1,310 1,3281,336 1,192
Deferred tax asset - current 116 175163 163
Prepaid expenses and other
current assets 49 53125 66
-------- --------
Total current assets 3,105 3,4853,517 3,156
Property,plant and equipment,net 1,456 1,5741,490 1,547
-------- --------
Total assets $ 4,5615,007 $ 5,0594,703
======== ========
Liabilities And Stockholders' Equity
Current liabilities:
Current portion of long term
debt $ 0 $ 45
Accounts payable 209 356$ 269 $ 215
Customer deposits 97 111465 271
Accrued federal and state
income taxes 23 0110 76
Accrued payroll and related
expenses 105 10199 70
Accrued compensated absences 253 225247 240
Other current liabilities 55 8154 71
-------- --------
Total current liabilities 742 9191,244 943
Deferred tax liability -
noncurrent 51 516 6
Deferred compensation and
other liabilities 8 123 5
-------- --------
Total liabilities 801 9821,253 954
-------- --------
Stockholders' Equity:
Common stock,$.10 par value 431 429431
Additional paid-in capital 3,234 3,2233,240 3,240
Retained earnings 1,087 1,1471,207 1,142
-------- --------
4,752 4,7994,878 4,813
Common stock in treasury,
at cost (992) (722)(1,124) (1,064)
-------- --------
Total stockholders' equity 3,760 4,0773,754 3,749
-------- --------
Total liabilities and
stockholders' equity $ 4,5615,007 $ 5,0594,703
======== ========
[FN]
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS
AND NINE MONTHS
ENDED JUNE 30,DECEMBER 31, 1999 AND 1998
(Unaudited)
(Amounts in thousands, except per share data)
Three months ended
Nine months ended
June 30 June 30
1999 1998Dec. 31
1999 1998
[S] [C] [C]
[C] [C]
Net sales $1,645 $1,640 $5,037 $5,215$1,570 $1,633
Cost of goods sold 982 1,025 3,061 3,244
------- -------934 988
------- -------
Gross profit 663 615 1,976 1,971636 645
Selling, general and
administrative expenses 618 708 1,852 1,966
------- -------552 641
------- -------
Income (loss) from operations 45 (93) 124 584 4
Other income (expense) 9 11 36 41
------- -------15 17
------- -------
Income (loss) before income
taxes 54 (82) 160 4699 21
Provision (benefit) for income
taxes 19 (28) 55 16
------- -------34 7
------- -------
NET INCOME (LOSS) $ 35 $(54) $105 $30
======= =======$65 $14
======= =======
Earnings (loss) per share $0.01 $(0.01) $0.03 $0.01
======= =======$0.02 $0.00
======= =======
[FN]
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND NINE MONTHS ENDED
JUNE 30,DECEMBER 31, 1999 AND 1998
(Unaudited)
(Amounts in thousands)
Three months ended
Nine months ended
June 30 June 30December 31
1999 1998
1999 1998
[S] [C] [C] [C] [C]
Cash flows from operating
activities:
Net income $ 3565 $ (54) $ 105 $ 3014
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization 78 81 227 238
Stock Compensation 7 0 13 476 73
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable 279 169 125 (7)(57) 117
Inventories 0 (51) 19 (198)(144) (8)
Prepaid expenses & other
assets 144 34 119 9(59) (53)
Increase (decrease) in:
Accounts payable & accrued
expenses (126) 25 (132) 57301 (204)
Deferred compensation &
other liabilities (2) 45 (5) 42(1)
------- ------- -------- -------
Net cash provided by (used in)
operating activities 415 249 471 175
------- ------- -------- -------180 (62)
Cash flows from investing activities:
Capital expenditures (45) (24) (108) (184)(19) (42)
------- -------
Net cash used in
investing activities (19) (42)
Cash flows from financing activities:
Principal payments on
long-term debt 0 (15) (14) (45) (42)
Purchase of treasury stock (7) 0 (270) 0
Cash dividend paid 0 0 (165) (177)
------- -------(60) (234)
------- -------
Net cash used in
financinginvesting activities (22) (14) (480) (219)(60) (249)
Increase (decrease) in cash
and cash equivalents 348 211 (117) (228)101 (353)
Cash and cash equivalents
at beginning of period 756 995264 1,221 1,434
------- -------
------- -------
Cash and cash equivalents
at end of period $1,104 $1,206 $1,104 $1,206
======= =======$ 365 $ 868
======= =======
[FN]
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30,DECEMBER 31, 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 nine-monththree-month period
ended June 30,December 31, 1999 are not necessarily indicative of the results that may
be expected for the year ended September 30, 1999.2000.
Note 2. Industry Segment Data
The Company's primary business segments involve (1) operations of Microwave
Filter Company, Inc. (MFC) which manufactures electronic filters used for
preventing interference or signal processing in cable television, satellite,
broadcast, aerospace and government markets; and (2) operations of Niagara
Scientific, Inc. (NSI) which manufactures industrial automation equipment.
Information by segment is as follows: (thousands of dollars)
2000 1999
Net Sales (Unaffiliated):
MFC $1,504 $1,525
NSI 66 108
------- -------
$1,570 $1,633
======= =======
Operating profit (loss): (a)
MFC $95 $111
NSI (11) (107)
------- -------
84 4
======= =======
Identifiable assets: (b)
MFC 4,004 3,445
NSI 638 305
------- -------
Subtotal 4,642 3,750
Corporate Assets - Cash and
Cash Equivalents 365 868
------- -------
Total $5,007 $4,618
======= =======
(a) Operating profit (loss) is total revenue less operating expenses.
In computing operating profit, none of the following items have been
added or deducted: interest expense, income taxes and miscellaneous
income. Expenses incurred on behalf of both Companies are allocated
based upon estimates of their relationship to each entity.
(b) Identifiable assets by industry are those assets that are used in
the Company's operations in each industry.
MICROWAVE FILTER COMPANY, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
JUNE 30,DECEMBER 31, 1999
Net sales for the nine months ended June 30, 1999 equaled $5,036,854, a
decrease of $177,844 or 3.4% when compared to net sales of $5,214,698 for
the nine months ended June 30, 1998.
Net sales for the three months ended June 30,December 31, 1999 equaled $1,645,222, an increaseequalled $1,569,449,
a decrease of $5,823$63,607 or 0.4%3.9% when compared to net sales of $1,639,399$1,633,056 for
the three months ended June 30,December 31, 1998.
Microwave Filter Company, Inc. (MFC) net sales for the ninethree months ended
June
30,December 31, 1999 equaled $4,648,885,equalled $1,503,078, a decrease of $486,885$22,157 or 9.5%1.5% when
compared to net sales of $5,135,770$1,525,235 for the ninethree months ended June 30,December 31,
1998.
MFCNiagara Scientific, Inc. (NSI), a wholly owned subsidiary, net sales for the
three months ended June 30,December 31, 1999 equaled $1,567,493 for the three
months ended June 30, 1999,equalled $66,371, a decrease of $55,317$41,450
or 3.4%38.4% when compared to net sales of $1,622,810$107,821 for the three months ended
June 30,December 31, 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 salesNet income for the three months ended June 30,December 31, 1999 equaled $77,729,equalled $64,509, an
increase of $61,140$50,784 or 369%370% when compared to net salesincome of $16,589$13,725 for the
three months ended June 30,December 31, 1998. The increase in net income can primarily
be attributed to planned reductions in advertising and promotional expenses.
Gross profit decreased $9,624 or 1.5% to $635,342 during the three months
ended December 31, 1999 when compared to gross profit of $644,966 during the
three months ended December 31, 1998. The decrease in MFC salesgross profit during the
three months ended December 31, 1999 can primarily be attributed to the
decrease in thesales. As a percentage of 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.
Gross profit for the nine months ended June 30, 1999 equaled $1,976,071,
an increase of $5,494 or 0.3% when compared to gross profit of $1,970,577
for the nine months ended June 30, 1998. Gross profitequalled 40.5% for
the three months ended June 30,December 31, 1999 equaled $662,659, an increase of $47,864 or 7.8% when compared to gross profit of $614,79539.5% for the three
months ended June 30,December 31, 1998. The dollar increases in gross profit can primarily be attributed to
the improvementsimprovement in gross profit as a
percentage of sales when compared to
the same periods last year. As a percentage of sales, gross profit equaled
39.2% for the nine months ended June 30, 1999 compared to 37.8% for the nine
months ended June 30, 1998. As a percentage of sales, gross profit equaled
40.3% for the three months ended June 30, 1999 compared to 37.5% for the
three months ended June 30, 1998. The increases in gross profit as a
percentage of sales can primarily be attributed to lower manufacturing
(excess scrap and rework) costs associated with new product development
during fiscalDecember 31, 1999 when compared
to the same periodsperiod last year.
year can primarily be attributed to gains in
productivity.
Selling, general and administrative (SG&A) expenses fordecreased $88,543 to
$552,035 during the ninethree months ended June 30,December 31, 1999 equaled $1,851,656, a decrease of $113,880 or 5.8% when compared to SG&A
expenses of $1,965,536 for the nine months ended
June 30, 1998. SG&A expenses for$640,578 during the three months ended June 30,December 31, 1998. The
decrease is primarily due to planned reductions in advertising and promotional
expenses.
The Company's total backlog of orders increased $453,063 to $1,570,919 at
December 31, 1999
equaled $618,211, a decrease of $90,107 or 12.7% when compared to SG&A
expenses$1,117,856 at September 30, 1999. MFC's
backlog of $708,318 for the three months ended June 30, 1998. The decreases
can primarily be attributedorders increased $3,961 to decreases in advertising expense and sales
commissions expense$524,537 at December 31, 1999 when
compared to the same periods last year.
Income from operations for the nine months ended June$520,576 at September 30, 1999 equaled
$124,415, an increase1999. NSI's backlog of $119,374orders increased
$449,102 to $1,046,382 at December 31, 1999 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$597,280 at
September 30, 1999. NSI's operating loss can primarily be
attributedThe total Company backlog of orders at December 31, 1999 is
scheduled to low sales volume plus the absorption of fixed overhead
expenses.ship during fiscal 2000.
Cash and cash equivalents decreased $117,463increased $101,137 to $1,103,645$365,284 at June 30,December 31,
1999 when compared to $1,221,108cash and cash equivalents of $264,147 at September 30,
1998.1999. The decreaseincrease was a result of $470,893$180,177 in net cash provided by operating
activities, $108,413$18,599 in net cash used for capital expenditures and $479,943$60,441
in net cash used in financing activities.
Cash used in financing activities ($44,851 used for principal payments on long-term debt,
$164,643 used for a cash dividend paid and $270,449during the three months ended December
31, 1999 consisted of funds used to purchase treasury
stock).repurchase common stock of the Company.
The Company's Board of Directors hashad authorized the repurchase of up to
500,000 shares of the Company's outstanding stock. On January 26, 2000, the
Company's Board of Directors authorized the repurchase of an additional
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. AsSince July 1998, 423,246 shares of June 30, 1999, 312,380
shares were repurchased using existing cash balances.the
Company's common stock have been repurchased. 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 June 30,December 31, 1999, the Company had available 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 foreseeableforseeable
future will be met by its existing cash balances, future cash flows from operations and its
current credit arrangements.
YEAR 2000 READINESS DISCLOSURE
The YEAR 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 year 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 Company is presently surveying all major vendors and large customers
to assess their state of readiness in addressing the year 2000 problem. The
Company 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 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 Company has not experienced
significant delays of this nature in the past, but there can be no assurances
that delays 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 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 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.company.
Item 2. Changes in Securities
None during this reporting period.
Item 3. Defaults Upon Senior Securities
The Company has no senior securities.
Item 4. Submission of Matters to a Vote of Security Holders
None during this reporting period.
Item 6. Exhibits and Reports on Form 8-K
None.
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MICROWAVE FILTER COMPANY, INC.
August 10, 1999February 14, 2000 Carl F. Fahrenkrug
(Date) --------------------------
Carl F. Fahrenkrug
Chief Executive Officer
August 10, 1999February 14, 2000 Richard L. Jones
(Date) --------------------------
Richard L. Jones
Chief Financial Officer