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.
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
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 - 2,585,161 shares as of May 1, 2013.
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Microwave Filter Company and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
March 31, 2013 | September 30, 2012 |
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 637,793 | $ | 1,023,017 | ||||
Accounts receivable-trade, net of | ||||||||
allowance for doubtful accounts | ||||||||
of $26,000 and $26,000 | 152,757 | 263,385 | ||||||
Inventories, net | 576,889 | 529,075 | ||||||
Prepaid expenses and other current assets | 85,207 | 111,342 | ||||||
Total current assets | 1,452,646 | 1,926,819 | ||||||
Property, plant and equipment, net | 663,618 | 672,525 | ||||||
Total assets | $ | 2,116,264 | $ | 2,599,344 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 145,731 | $ | 92,325 | ||||
Customer deposits | 29,537 | 30,563 | ||||||
Accrued payroll and related expenses | 61,579 | 51,289 | ||||||
Accrued compensated absences | 157,221 | 172,198 | ||||||
Other current liabilities | 35,680 | 31,308 | ||||||
Total current liabilities | 429,748 | 377,683 | ||||||
Total liabilities | 429,748 | 377,683 | ||||||
Stockholders' Equity: | ||||||||
Common stock, $.10 par value | ||||||||
Authorized 5,000,000 shares, Issued | ||||||||
4,324,140 shares in 2013 and 2012, | ||||||||
Outstanding 2,585,161 shares in 2013 | ||||||||
and 2,586,227 in 2012 | 432,414 | 432,414 | ||||||
Additional paid-in capital | 3,248,706 | 3,248,706 | ||||||
Retained earnings (deficit) | ( | 303,012 | ) | 232,013 | ||||
Common stock in treasury, at cost | ||||||||
1,738,979 shares in 2013 and 1,737,913 | ||||||||
shares in 2012 | ( | 1,691,592 | ) | ( | 1,691,472 | ) | ||
| ||||||||
Total stockholders' equity | 1,686,516 | 2,221,661 | ||||||
Total liabilities and stockholders' equity | $ | 2,116,264 | $ | 2,599,344 | ||||
<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements
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Microwave Filter Company and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended | Six months ended | |||||||||||||||||
March 31, | March 31, | |||||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||||
Net sales | $ | 608,343 | $ | 1,025,920 | $ | 1,379,587 | $ | 2,343,127 | ||||||||||
Cost of goods sold | 477,076 | 688,306 | 1,045,120 | 1,502,301 | ||||||||||||||
Gross profit | 131,267 | 337,614 | 334,467 | 840,826 | ||||||||||||||
Selling, general and | ||||||||||||||||||
administrative expenses | 442,477 | 470,737 | 872,892 | 892,707 | ||||||||||||||
(Loss) income from operations | ( | 311,210 | ) | ( | 133,123 | ) | ( | 538,425 | ) | ( | 51,881 | ) | ||||||
Other income (net) | 1,210 | 3,071 | 3,400 | 24,646 | ||||||||||||||
(Loss) income | ||||||||||||||||||
before income taxes | ( | 310,000 | ) | ( | 130,052 | ) | ( | 535,025 | ) | ( | 27,235 | ) | ||||||
(Benefit) provision | ||||||||||||||||||
for income taxes | 0 | 0 | 0 | 0 | ||||||||||||||
Net (loss) income | $ | ( | 310,000 | ) | $ | ( | 130,052 | ) | $ | ( | 535,025 | ) | $ | ( | 27,235 | ) | ||
Per share data: | ||||||||||||||||||
Basic and diluted (loss) | ||||||||||||||||||
earnings per share | $ | ( | 0.12 | ) | $ | ( | 0.05 | ) | $ | ( | 0.21 | ) | $ | ( | 0.01 | ) | ||
Shares used in computing net | ||||||||||||||||||
(loss) earnings per share: | 2,585,252 | 2,586,227 | 2,585,287 | 2,586,227 |
<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements
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Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six months ended | ||||||||||||||||||
March 31 | ||||||||||||||||||
2013 | 2012 | |||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||
Net loss | $ | ( | 535,025 | ) | $ | ( | 27,235 | ) | ||||||||||
Adjustments to reconcile net (loss) | ||||||||||||||||||
income to net cash provided by | ||||||||||||||||||
used in) operating activities: | ||||||||||||||||||
Depreciation | 83,252 | 77,287 | ||||||||||||||||
Gain on sale of fixed assets | 0 | ( | 20,000 | ) | ||||||||||||||
Change in operating assets and liabilities: | ||||||||||||||||||
Accounts receivable-trade | 110,628 | 28,542 | ||||||||||||||||
Federal and state income | ||||||||||||||||||
tax recoverable | 0 | 24,828 | ||||||||||||||||
Inventories | ( | 47,814 | ) | 107,348 | ||||||||||||||
Prepaid expenses and other assets | 26,135 | 20,757 | ||||||||||||||||
Accounts payable and customer | ||||||||||||||||||
deposits | 52,380 | ( | 116,778 | ) | ||||||||||||||
Accrued payroll and related expenses | ||||||||||||||||||
and compensated absences | ( | 4,687 | ) | ( | 38,906 | ) | ||||||||||||
Other current liabilities | | 4,372 | ( | 38,735 | ) | |||||||||||||
Net cash (used in) provided by | ||||||||||||||||||
operating activities | ( | 310,759 | ) | 17,108 | ||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||
Property, plant and equipment purchased | ( | 74,345 | ) | ( | 189,078 | ) | ||||||||||||
Proceeds from sale of fixed assets | 0 | 20,000 | ||||||||||||||||
Net cash used in investing activities | ( | 74,345 | ) | ( | 169,078 | ) | ||||||||||||
Cash flows from financing activities: | ||||||||||||||||||
Purchase of treasury stock | ( | 120 | ) | 0 | ||||||||||||||
Net cash used in financing activities | ( | 120 | ) | 0 | ||||||||||||||
Decrease in cash and cash equivalents | ( | 385,224 | ) | ( | 151,970 | ) | ||||||||||||
Cash and cash equivalents | ||||||||||||||||||
at beginning of period | 1,023,017 | 1,258,885 | ||||||||||||||||
Cash and cash equivalents | | |||||||||||||||||
at end of period | $ | 637,793 | $ | 1,106,915 | ||||||||||||||
Supplemental Schedule of Cash Flow Information: | ||||||||||||||||||
Income taxes paid | $ | 0 | $ | 15,000 |
<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements
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MICROWAVE FILTER COMPANY, INC.
NOTES TO CONDENSED 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 six month period ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ended September 30, 2013. For further information, refer to the condensed consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10K for the year ended September 30, 2012.
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:
March 31, 2013 | September 30, 2012 |
Raw materials and stock parts | $ | 488,687 | $ | 455,000 | ||||
Work-in-process | 15,288 | 13,554 | ||||||
Finished goods | 72,914 | 60,521 | ||||||
$ | 576,889 | $ | 529,075 |
The Company's reserve for obsolescence equaled $408,340 at March 31, 2013 and September 30, 2012.
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Note 4. Income Taxes
The Company accounts for income taxes under FASB ASC 740-10. Deferred tax assets and liabilities are based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates which are anticipated to be in effect when these differences reverse. The deferred tax provision is the result of the net change in the deferred tax assets and liabilities. A valuation allowance is established when it is necessary to reduce deferred tax assets to amounts expected to be realized. The Company has provided a full valuation allowance against its deferred tax assets.
The Company adopted FASB ASC 740-10. FASB ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax position taken or expected to be taken on a tax return. Additionally, it provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company determined it has no uncertain tax positions and therefore no amounts are recorded.
Note 5. Legal Matters
The State of New York Workers’ Compensation Board has commenced an action against Microwave Filter Company, Inc. to recover for an underfunded self insured program that Microwave Filter Company, Inc. participated in. Due to the relatively short period of time Microwave Filter Company, Inc. participated in the program and the limited amount of potential exposure, we do not expect the resolution of this action will have a material adverse effect on our financial condition, results of operations or cash flows. The Company has accrued $12,000 for this action in other current liabilities.
Note 6. Fair Value of Financial Instruments
The Company currently does not trade in or utilize derivative financial instruments.
Note 7. Significant Customers
Sales to one customer represented approximately 14% of total sales for the six months ended March 31, 2013 compared to 19% of total sales for the six months ended March 31, 2012.
Note 8. Recent Accounting Pronouncements
None applicable.
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MICROWAVE FILTER COMPANY, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Microwave Filter Company, Inc. operates primarily in the United States and principally in one industry. The Company extends credit to business customers based upon ongoing credit evaluations. Microwave Filter Company, Inc. (MFC) designs, develops, manufactures and sells electronic filters, both for radio and microwave frequencies, to help process signal distribution and to prevent unwanted signals from disrupting transmit or receive operations. Markets served include cable television, television and radio broadcast, satellite broadcast, mobile radio, commercial communications and defense electronics.
Critical Accounting Policies
The Company's 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, 2012 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.
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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.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2013 vs. THREE MONTHS ENDED MARCH 31, 2012
The following table sets forth the Company's net sales by major product group for the three months ended March 31, 2013 and 2012.
Product group | Fiscal 2013 | Fiscal 2012 | ||||
Microwave Filter (MFC): | ||||||
RF/Microwave | $ | 191,279 | $ | 369,112 | ||
Satellite | 279,622 | 370,976 | ||||
Cable TV | 97,192 | 247,622 | ||||
Broadcast TV | 38,089 | 35,822 | ||||
Niagara Scientific (NSI): | 2,161 | 2,388 | ||||
Total | $ | 608,343 | $ | 1,025,920 | ||
Sales backlog at March 31 | $ | 298,866 | $ | 612,412 |
Net sales for the three months ended March 31, 2013 equaled $608,343, a decrease of $417,577 or 40.7%, when compared to net sales of $1,025,920 for the three months ended March 31, 2012. Net sales have been decreasing since the quarter ended July 31, 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’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.
MFC’s RF/Microwave product sales decreased $177,833 or 48.2% to $191,279 for the three months ended March 31, 2013 when compared to RF/Microwave product sales of $369,112 during the same period last year. MFC’s RF/Microwave products are sold primarily to Original Equipment Manufacturers (OEM) 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 4% of total sales for the quarter ended March 31, 2013 compared to approximately 23% of total sales for the quarter ended March 31, 2012.
MFC’s Satellite product sales decreased $91,354 or 24.6% to $279,622 for the three months ended March 31, 2013 when compared to Satellite product sales of $370,976 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. 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.
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MFC’s Cable TV product sales decreased $150,430 or 60.7% to $97,192 for the three months ended March 31, 2013 when compared to Cable TV product sales of $247,622 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.
MFC’s Broadcast TV/Wireless Cable product sales increased $2,267 to $38,089 for the three months ended March 31, 2013 when compared to sales of $35,822 during the same period last year. The increase can be attributed to an increase in demand for UHF Broadcast products which are primarily sold to system integrators for rural communities.
MFC's sales order backlog equaled $298,866 at March 31, 2013 compared to sales order backlog of $612,412 at March 31, 2012. 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. The total sales order backlog at March 31, 2013 is scheduled to ship by September 30, 2013.
.
Gross profit for the three months ended March 31, 2013 equaled $131,267, a decrease of $206,347 or 61.1%, when compared to gross profit of $337,614 for the three months ended March 31, 2012. The dollar decrease in gross profit can primarily be attributed to the lower sales volume this year when compared to the same period last year. As a percentage of sales, gross profit equaled 21.6% for the three months ended March 31, 2013 compared to 32.9% for the three months ended March 31, 2012. The decrease in gross profit as a percentage of sales can primarily be attributed to the lower sales volume this year providing a lower base to absorb fixed expenses.
Selling, general and administrative (SGA) expenses for the three months ended March 31, 2013 equaled $442,477, a decrease of $28,620 or 6.0%, when compared to SGA expenses of $470,737 for the three months ended March 31, 2012. As a percentage of sales, SGA expenses increased to 72.7% for the three months ended March 31, 2013 when compared to 45.9% for the three months ended March 31, 2012 primarily due to the lower sales volume this year when compared to the same period last year.
The Company recorded a loss from operations of $311,210 for the three months ended March 31, 2013 compared to a loss from operations of $133,123 for the three months ended March 31, 2012. The decrease in operating income can primarily be attributed to the lower sales volume this year when compared to the same period last year.
The (benefit) provision for income taxes equaled $0 for the three months ended March 31, 2013 and March 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.
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SIX MONTHS ENDED MARCH 31, 2013 vs. SIX MONTHS ENDED MARCH 31, 2012
The following table sets forth the Company's net sales by major product group for the six months ended March 31, 2013 and 2012.
Product group | Fiscal 2013 | Fiscal 2012 | ||||
Microwave Filter (MFC): | ||||||
RF/Microwave | $ | 515,406 | $ | 895,044 | ||
Satellite | 522,752 | 702,330 | ||||
Cable TV | 280,582 | 681,069 | ||||
Broadcast TV | 56,716 | 60,950 | ||||
Niagara Scientific (NSI): | 4,131 | 3,734 | ||||
Total | $ | 1,379,587 | $ | 2,343,127 | ||
Sales backlog at March 31 | $ | 298,866 | $ | 612,412 |
Net sales for the six months ended March 31, 2013 equaled $1,379,587, a decrease of $963,540 or 41.1%, when compared to net sales of $2,343,127 for the six months ended March 31, 2012. Net sales have been decreasing since the quarter ended July 31, 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’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.
MFC’s RF/Microwave product sales decreased $379,638 or 42.4% to $515,406 for the six months ended March 31, 2013 when compared to RF/Microwave product sales of $895,044 during the same period last year. 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 14% of total sales for the six months ended March 31, 2013 compared to approximately 19% of total sales for the six months ended March 31, 2012.
MFC’s Satellite product sales decreased $179,578 or 25.6% to $522,752 for the six months ended March 31, 2013 when compared to satellite product sales of $702,330 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. 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.
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MFC’s Cable TV product sales decreased $400,487 or 58.8% to $280,582 for the six months ended March 31, 2013 when compared to Cable TV product sales of $681,069 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. MFC’s Broadcast TV/Wireless Cable product sales decreased $4,234 or 6.9% to $56,716 for the six months ended March 31, 2013 when compared to sales of $60,950 during the same period last year. The decrease can be attributed to a decrease in demand for UHF Broadcast products which are primarily sold to system integrators for rural communities.
Gross profit for the six months ended March 31, 2013 equaled $334,467, a decrease of $506,359 or 60.2%, when compared to gross profit of $840,826 for the six months ended March 31, 2012. The decrease can primarily be attributed to the lower sales volume this year when compared to the same period last year. As a percentage of sales, gross profit equaled to 24.2% for the six months ended March 31, 2013 compared to 35.9% for the six months ended March 31, 2012. The decrease in gross profit as a percentage of sales can primarily be attributed to the lower sales volume this year providing a lower base to absorb fixed expenses.
SG&A expenses for the six months ended March 31, 2013 equaled $872,892, a decrease of $19,815 or 2.2%, when compared to SG&A expenses of $892,707 for the six months ended March 31, 2012. As a percentage of sales, SGA expenses increased to 63.3% for the six months ended March 31, 2013 compared to 38.1% for the six months ended March 31, 2012 primarily due to the lower sales volume this year when compared to the same period last year.
The Company recorded a loss from operations of $538,425 for the six months ended March 31, 2013 compared to a loss from operations of $51,881 for the six months ended March 31, 2012. The decrease in operating income can primarily be attributed to the lower sales volume this year when compared to the same period last year.
Other income for the six months ended March 31, 2013 equaled $3,400, a decrease of $21,246 when compared to other income of $24,646 for the six months ended March 31, 2012. The decrease can be attributed to a $20,000 gain on the sale of a fixed asset last year.
The (benefit) provision for income taxes equaled $0 for the six months ended March 31, 2013 and March 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.
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Off-Balance Sheet ArrangementsAt March 31, 2013 and 2012, the Company did not have any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which might have been established for the purpose of facilitating off-balance sheet arrangements.
LIQUIDITY and CAPITAL RESOURCES
March 31, 2013 | September 30, 2012 | ||
Cash & cash equivalents | $637,793 | $1,023,017 | |
Working capital | $1,022,898 | $1,549,136 | |
Current ratio | 3.38 to 1 | 5.10 to 1 | |
Long-term debt | $0 | $0 |
Cash and cash equivalents decreased $385,224 to $637,793 at March 31, 2013 when compared to cash and cash equivalents of $1,023,017 at September 30, 2012. The decrease was a result of $310,759 in net cash used in operating activities, $74,345 in net cash used for capital expenditures and $120 used to purchase treasury stock.
The decrease in accounts receivable of $110,628 at March 31, 2013 when compared to September 30, 2012 can primarily be attributed to the decrease in sales for the month ended March 31, 2013 when compared to the month ended September 30, 2012.
The increase in inventories of $47,814 at March 31, 2013 when compared to September 30, 2012 can be attributed to the addition of new products, prior purchase commitments and lower than expected sales orders.
The increase in accounts payable of $53,406 at March 31, 2013 when compared to September 30, 2012 can be attributed to approximately $28,000 worth of product catalogs received and mailed to customers towards the end of March and the increase in inventories.
At March 31, 2013, 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.
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995In an effort to provide investors a balanced view of the Company's current condition and future growth opportunities, this Quarterly Report on Form 10-Q includes comments by the Company's management about future performance. These statements which are not historical information are "forward-looking statements" pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These, and other forward-looking statements, are subject to business and economic risks and uncertainties that could cause actual results to differ materially from those discussed. These risks and uncertainties include, but are not limited to: risks associated with demand for and market acceptance of existing and newly developed products as to which the Company has made significant investments; general economic and industry conditions; slower than anticipated penetration into the satellite communications, mobile radio and commercial and defense electronics markets; competitive products and pricing pressures; increased pricing pressure from our customers; risks relating to governmental regulatory actions in broadcast, communications and defense programs; as well as other risks and uncertainties, including but not limited to those detailed from time to time in the Company's Securities and Exchange Commission filings. These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. You are encouraged to review Microwave Filter Company’s 2012 Annual Report and Form 10-K for the fiscal year ended September 30, 2012 and other Securities and Exchange Commission filings. Forward looking statements may be made directly in this document or “incorporated by reference” from other documents. You can find many of these statements by looking for words like “believes,” “expects,” “anticipates,” “estimates,” or similar expressions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no significant change in our exposures to market risk during the six months ended March 31, 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.
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ITEM 4. CONTROLS AND PROCEDURESEVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The State of New York Workers’ Compensation Board has commenced an action
against Microwave Filter Company, Inc. to recover for an underfunded self
insured program that Microwave Filter Company, Inc. participated in.
Due to the relatively short period of time Microwave Filter Company, Inc.
participated in the program and the limited amount of potential exposure,
we do not expect the resolution of this action will have a material adverse
effect on our financial condition, results of operations or cash flows.
The Company has accrued $12,000 for this action in other current liabilities.
Item 1A. Risk Factors
Not applicable.
Item 2. Changes in Securities
None during this reporting period.
Item 3. Defaults Upon Senior Securities
The Company has no senior securities.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
a. Exhibits
31.1 Section 13a-14(a)/15d-14(a) Certification of Carl F. Fahrenkrug
31.2 Section 13a-14(a)/15d-14(a) Certification of Richard L. Jones
32.1 Section 1350 Certification of Carl F. Fahrenkrug
32.2 Section 1350 Certification of Richard L. Jones
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MICROWAVE FILTER COMPANY, INC.
May 14, 2013 Carl F. Fahrenkrug
(Date) --------------------------
Carl F. Fahrenkrug
Chief Executive Officer
May 14, 2013 Richard L. Jones
(Date) --------------------------
Richard L. Jones
Chief Financial Officer
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