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EX-31 - EXHIBIT 31 - MICROWAVE FILTER CO INC /NY/ | exhibit31.htm |
EX-32 - EXHIBIT 32 - MICROWAVE FILTER CO INC /NY/ | exhibit32.htm |
EXCEL - IDEA: XBRL DOCUMENT - MICROWAVE FILTER CO INC /NY/ | Financial_Report.xls |
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.
MICROWAVE FILTER COMPANY, INC.
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 - 2,586,227 shares
as of August 1, 2011.
Table of Contents
Item | Page |
Part I Financial Information | |
Item 1. Financial Statements | 3 |
Consolidated Balance Sheets (unaudited) | 3 |
Consolidated Statements of Operations (unaudited) | 4 |
Consolidated Statements of Cash Flows (unaudited) | 5 |
Notes to Consolidated Financial Statements (unaudited) | 6-8 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9-15 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 16 |
Item 4. Controls and Procedures | 17 |
Part II Other Information | 18 |
Signatures | 19 |
<PAGE> 2
Table of Contents
Microwave Filter Company and
Subsidiaries
Consilidated Balance Sheets
June 30, 2011
|
September 30, 2010
|
||
|
(Unaudited) | |
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents |
$
|
1,662,968 | $ | 1,466,719 | ||||
Accounts receivable-trade, net of |
|
|
||||||
allowance for doubtful accounts | ||||||||
of $26,000 and $18,000 | 283,876 | 423,666 | ||||||
Inventories, net |
564,400 | 536,004 | ||||||
Prepaid expenses and other current assets | 59,726 | 92,417 | ||||||
|
|
|||||||
Total current assets | 2,570,970 | 2,518,806 | ||||||
Property, plant and equipment, net | 479,842 | 444,418 | ||||||
|
|
|||||||
Total assets |
$
|
3,050,812 | $ | 2,963,224 | ||||
|
|
|||||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable |
$
|
134,767 | $ | 161,676 | ||||
Customer deposits | 46,150 | 39,618 | ||||||
Accrued federal and state income taxes | 2,544 | 2,544 | ||||||
Accrued payroll and related expenses | 48,652 | 52,932 | ||||||
Accrued compensated absences | 246,580 | 245,055 | ||||||
Other current liabilities | 28,928 | 35,831 | ||||||
|
|
|||||||
Total current liabilities | 507,621 | 537,656 | ||||||
|
|
|||||||
Total liabilities | 507,621 | 537,656 | ||||||
|
|
|||||||
Stockholders' Equity: | ||||||||
Common stock, $.10 par value |
|
|
||||||
Authorized 5,000,000 shares, Issued | ||||||||
4,324,140 shares in 2011 and 2010, | ||||||||
Outstanding 2,586,227 shares in 2011 | ||||||||
and 2,591,486 shares in 2010 | 432,414 | 432,414 | ||||||
Additional paid-in capital | 3,248,706 | 3,248,706 | ||||||
Retained earnings | 552,748 | 430,504 | ||||||
|
||||||||
Common stock in treasury, at cost | ||||||||
1,737,913 shares in 2011 and |
|
|
||||||
1,732,654 shares in 2010 | (1,690,677 |
)
|
(1,686,056 | ) | ||||
Total stockholders' equity | 2,543,191 | 2,425,568 | ||||||
|
|
|||||||
Total liabilities and stockholders' equity |
$
|
3,050,812 | $ | 2,963,224 | ||||
<FN>
See Accompanying Notes to Consolidated Financial Statements
<PAGE> 3
Table of Contents
Microwave Filter Company and Subsidiaries
Consilidated Statements of Operations
(Unaudited)
Three months ended | Nine months ended | ||||||||||||
June 30, | June 30, | ||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||
Net sales |
$
|
1,179,496 | $ | 1,029,159 | $ | 3,732,379 | $ | 3,257,914 | |||||
Cost of goods sold | 737,692 | 695,020 | 2,386,299 | 2,141,029 | |||||||||
|
|
|
|
|
|||||||||
Gross profit | 441,804 | 334,139 | 1,346,080 | 1,116,885 | |||||||||
Selling, general and | |||||||||||||
administrative expenses | 395,472 | 385,031 | 1,230,582 | 1,176,672 | |||||||||
|
|
|
|
||||||||||
Income (loss) from operations | 46,332 | (50,892 | ) | 115,498 | (59,787 | ) | |||||||
Other income (net), principally | |||||||||||||
interest | 2,700 | 1,855 | 6,746 | 5,606 | |||||||||
Income (loss) before income taxes | 49,032 | (49,037 | ) | 122,244 | (54,181 | ) | |||||||
Provision (benefit) for income taxes | 0 | 0 | 0 | 0 | |||||||||
NET INCOME (LOSS) |
$
|
49,032 | $ | (49,037 | ) | $ | 122,244 | $ | (54,181 | ) | |||
|
|
|
|||||||||||
Per share data: | |||||||||||||
Basic and diluted earnings (loss) | |||||||||||||
per share |
$
|
0.02 |
$
|
(0.02 | ) |
$
|
0.05 |
$
|
(0.02 | ) | |||
Shares used in computing net | |||||||||||||
earnings (loss) per share: | 2,586,787 | 2,592,818 | 2,588,340 | 2,593,022 |
<FN>
See Accompanying Notes to Consolidated Financial Statements
<PAGE> 4
Table of Contents
Nine months ended | |||||||
June 30 | |||||||
|
2011 | 2010 | |||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | 122,244 | $ | (54,181 | ) | ||
Adjustments to reconcile net income (loss) | |||||||
to net cash provided by (used in) | |||||||
operating activities: | |||||||
Depreciation | 75,971 | 71,881 | |||||
Provision for doubtful accounts | 8,391 | 0 | |||||
Change in assets and liabilities: | |||||||
Accounts receivable | 131,399 | 17,212 |
|
||||
Inventories | (28,396 | ) | (22,628 | ) | |||
Prepaid expenses and other assets | 32,691 | 13,221 | |||||
Accounts payable and customer deposits | (20,377 | ) | 681 | ||||
Accrued payroll, compensated absences | |||||||
and related expenses | (2,755 | ) | (6,206 | ) | |||
Other current liabilities | (6,903 | ) | 3,731 | ||||
|
|
||||||
Net cash provided by (used in) | |||||||
operating activities | 312,265 | 23,711 |
|
||||
|
|
||||||
Cash flows from investing activities: | |||||||
Capital expenditures | (111,395 | ) |
|
(140,659 | ) | ||
|
|
||||||
Net cash (used in) provided by | |||||||
investing activities | (111,395 | ) | (140,659 | ) | |||
|
|
||||||
Cash flows from financing activities: | |||||||
Purchase of treasury stock | (4,621 | ) | (381 | ) | |||
|
|
|
|||||
Net cash (used in) provided by | |||||||
financing activities | (4,621 | ) | (381 | ) | |||
|
|
||||||
Increase (decrease) in cash | |||||||
and cash equivalents | 196,249 | (117,329 | ) | ||||
Cash and cash equivalents | |||||||
at beginning of period | 1,466,719 | 1,476,318 | |||||
|
|
||||||
Cash and cash equivalents | |||||||
at end of period | $ | 1,662,968 | $ | 1,358,989 |
<FN>
See Accompanying Notes to Consolidated Financial Statements
<PAGE> 5
Table of Contents
MICROWAVE FILTER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting
Policies
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Regulation
S-K. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The
operating results for the nine month period ended June 30, 2011
are not necessarily indicative of the results that may be expected
for the year ended September 30, 2011. For further information,
refer to the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10K for the year
ended September 30, 2010.
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:
June 30, 2011 |
September
30, 2010
|
Raw materials and stock parts | $ | 440,232 |
$
|
414,331 | ||||
Work-in-process | 28,220 | 25,740 | ||||||
Finished goods | 95,948 | 95,933 | ||||||
|
|
|||||||
$ | 564,400 |
$
|
536,004 |
The Company's reserve for obsolescence equaled $403,595 at June 30, 2011 and September 30, 2010.
<PAGE> 6
Table of Contents
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.
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 18% of
total sales for the nine months ended June 30, 2011.
<PAGE> 7
Table of Contents
Note 8. Recent Accounting Pronouncements
In June 2011, the Financial Accounting Standards
Board, or FASB, issued guidance regarding the presentation of
comprehensive income. The new standard requires the presentation
of comprehensive income, the components of net income and the
components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate
but consecutive statements. The new standard also requires
presentation of adjustments for items that are reclassified from
other comprehensive income to net income in the statement where
the components of net income and the components of other
comprehensive income are presented. The updated guidance is
effective on a retrospective basis for financial statements issued
for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2011. The adoption of this guidance
will not have a material impact on our financial statements.
In May 2011, the FASB issued additional guidance on
fair value measurements that clarifies the application of existing
guidance and disclosure requirements, changes certain fair value
measurement principles and requires additional disclosures about
fair value measurements. The updated guidance is effective on a
prospective basis for financial statements issued for fiscal
years, and interim periods within those fiscal years, beginning
after December 15, 2011. The adoption of this guidance will not
have a material impact on our financial statements.
Note 9. Subsequent Events
On August 3, 2011, the Board of Directors of
Microwave Filter Company, Inc. declared a special cash dividend of
fifteen cents per common share. The dividend is payable on
September 6, 2011 to shareholders of record as of August 19,
2011.
<PAGE>
8
Table of Contents
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 consolidated financial statements are
based on the application of United States generally accepted
accounting principles (GAAP). GAAP requires the use of estimates,
assumptions, judgments and subjective interpretations of
accounting principles that have an impact on the assets,
liabilities, revenue and expense amounts reported. The Company
believes its use of estimates and underlying accounting
assumptions adhere to GAAP and are consistently applied.
Valuations based on estimates are reviewed for reasonableness and
adequacy on a consistent basis throughout the Company. Primary
areas where financial information of the Company is subject to the
use of estimates, assumptions and the application of judgment
include revenues, receivables, inventories, and taxes. Note 1 to
the consolidated financial statements in our Annual Report on Form
10-K for the fiscal year ended September 30, 2010 describes the
significant accounting policies used in preparation of the
consolidated financial statements. The most significant areas
involving management judgments and estimates are described below
and are considered by management to be critical to understanding
the financial condition and results of operations of the Company.
Revenues from product sales are recorded as the products are shipped and title and risk of loss have passed to the customer, provided that no significant vendor or post-contract support obligations remain and the collection of the related receivable is probable. Billings in advance of the Company's performance of such work are reflected as customer deposits in the accompanying consolidated balance sheet.
Allowances for doubtful accounts are based on estimates of losses related to customer receivable balances. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances.
The Company's inventories are stated at the lower of cost determined on the first-in, first-out method or market. The Company uses certain estimates and judgments and considers several factors including product demand and changes in technology to provide for excess and obsolescence reserves to properly value inventory.
<PAGE> 9
Table of Contents
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
Table of Contents
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2011 vs. THREE MONTHS ENDED JUNE 30, 2010
The following table sets forth the
Company's net sales by major product group for the three months
ended June 30, 2011 and 2010.
Product group |
Fiscal 2011
|
Fiscal 2010
|
||||
Microwave Filter (MFC): | ||||||
RF/Microwave | $ | 440,508 |
$
|
298,366 | ||
Satellite | 398,190 | 367,396 | ||||
Cable TV | 311,732 | 324,060 | ||||
Broadcast TV | 28,771 | 38,694 | ||||
Niagara Scientific (NSI): | 295 | 643 | ||||
|
|
|||||
Total | $ | 1,179,496 |
$
|
1,029,159 | ||
|
|
|||||
Sales
backlog at June 30 |
$ | 617,978 |
$
|
654,643 |
Net sales for the three months ended June 30, 2011 equaled $1,179,496, an increase of $150,337 or 14.6%, when compared to net sales of $1,029,159 for the three months ended June 30, 2010.
MFC’s RF/Microwave product sales increased $142,142 or 47.6% to $440,508 for the three months ended June 30, 2011 when compared to RF/Microwave product sales of $298,366 during the same period last year. Management attributes the increase in sales to the Company’s efforts to encourage Original Equipment Manufacturer (OEM) relationships. MFC’s RF/Microwave products are sold primarily to Original Equipment Manufacturers that serve the mobile radio, commercial communications and defense electronics markets. The Company continues to invest in production engineering and infrastructure development to penetrate OEM market segments as they become popular. MFC is concentrating its technical resources and product development efforts toward potential high volume customers as part of a concentrated effort to provide substantial long-term growth. Sales to one OEM customer represented approximately 17% of total sales for the quarter ended June 30, 2011 compared to approximately 11% of total sales for the quarter ended June 30, 2010.
MFC’s Satellite product sales increased $30,794 or 8.4% to $398,190 for the three months ended June 30, 2011 when compared to Satellite product sales of $367,396 during the same period last year. The increase can be attributed to an increase in demand for the Company’s filters which suppress strong out-of-band interference caused by military and civilian radar systems and other sources. Although economic conditions do impact sales, management expects demand for these types of filters to continue with the proliferation of earth stations world wide and increased sources of interference.
<PAGE> 11
Table of Contents
MFC’s Cable TV product sales
decreased $12,328 or 3.8% to $311,732 for the three months ended
June 30, 2011 when compared to Cable TV product sales of $324,060
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
$9,923 or 25.6% to $28,771 for the three months ended June 30,
2011 when compared to sales of $38,694 during the same period last
year. The decrease can be attributed to a decrease in demand for
UHF Broadcast products which are primarily sold to system
integrators for rural communities.
MFC's sales order backlog equaled $617,978 at June 30, 2011 compared to sales order backlog of $654,643 at June 30, 2010. However, backlog is not necessarily indicative of future sales. Accordingly, the Company does not believe that its backlog as of any particular date is representative of actual sales for any succeeding period. Approximately 85% of the total sales order backlog at June 30, 2011 is scheduled to ship by September 30, 2011.
Gross profit for the three months ended June 30, 2011 equaled $441,804, an increase of $107,665 or 32.2%, when compared to gross profit of $334,139 for the three months ended June 30, 2010. The dollar increase in gross profit can primarily be attributed to the higher sales volume this year when compared to the same period last year. As a percentage of sales, gross profit equaled 37.5% for the three months ended June 30, 2011 compared to 32.5% for the three months ended June 30, 2010. The increase in gross profit as a percentage of sales can primarily be attributed to the higher sales volume this year providing a higher base to absorb fixed expenses.
Selling, general and administrative (SGA) expenses for the three months ended June 30, 2011 equaled $395,472, an increase of $10,441 or 2.7%, when compared to SG&A expenses of $385,031 for the three months ended June 30, 2010. As a percentage of sales, SGA expenses decreased to 33.5% for the three months ended June 30, 2011 when compared to 37.4% for the three months ended June 30, 2010 primarily due to the higher sales volume this year when compared to the same period last year.
The Company recorded income from operations of $46,332 for the three months ended June 30, 2011 compared to a loss from operations of $50,892 for the three months ended June 30, 2010. The improvement in operating income can primarily be attributed to the higher sales volume this year when compared to the same period last year.
The provision (benefit) for income taxes equaled $0 for
the three months ended June 30, 2011 and June 30, 2010. We have
not recognized any provision for income taxes as pretax income was
offset by a reduction in our deferred tax asset valuation reserve.
Any benefit for losses has been subject to a valuation allowance
since the realization of the deferred tax benefit is not
considered more likely than not.
<PAGE>
12
Table of Contents
NINE MONTHS ENDED JUNE 30, 2011 vs. NINE
MONTHS ENDED JUNE 30, 2010
The following table sets forth the Company's net sales by major product group for the nine months ended June 30, 2011 and 2010.
Product group |
Fiscal 2011
|
Fiscal 2010
|
||||
Microwave Filter (MFC): | ||||||
RF/Microwave | $ | 1,372,078 |
$
|
981,886 | ||
Satellite | 1,219,781 | 1,089,123 | ||||
Cable TV | 1,062,952 | 1,025,575 | ||||
Broadcast TV | 76,026 | 157,609 | ||||
Niagara Scientific (NSI): | 1,542 | 3,721 | ||||
|
|
|||||
Total | $ | 3,732,379 |
$
|
3,257,914 | ||
|
|
|||||
Sales backlog at June 30 |
$ | 617,978 |
$
|
654,643 |
Net sales for the nine months ended June 30, 2011 equaled $3,732,379, an increase of $474,465 or 14.6%, when compared to net sales of $3,257,914 for the nine months ended June 30, 2010.
MFC’s RF/Microwave product sales increased $390,192
or 39.7% to $1,372,078 for the nine months ended June 30, 2011
when compared to RF/Microwave product sales of $981,886 during the
same period last year. Management attributes the increase in sales
to the Company’s efforts to encourage Original Equipment
Manufacturer (OEM) relationships. MFC’s RF/Microwave products are
sold primarily to Original Equipment Manufacturers that serve the
mobile radio, commercial communications and defense electronics
markets. The Company continues to invest in production engineering
and infrastructure development to penetrate OEM market segments as
they become popular. MFC is concentrating its technical resources
and product development efforts toward potential high volume
customers as part of a concentrated effort to provide substantial
long-term growth. Sales to one OEM customer represented
approximately 18% of total sales for the nine months ended June
30, 2011 compared to approximately 14% of total sales for the nine
months ended June 30, 2010.
MFC’s Satellite product sales increased $130,658 or
12% to $1,219,781 for the nine months ended June 30, 2011 when
compared to satellite product sales of $1,089,123 during the same
period last year. The increase can be attributed to an increase in
demand for the Company’s filters which suppress strong out-of-band
interference caused by military and civilian radar systems and
other sources. Although economic conditions do impact sales,
management expects demand for these types of filters to continue
with the proliferation of earth stations world wide and increased
sources of interference.
<PAGE>
13
Table of Contents
MFC’s Cable TV product sales increased $37,377 or 3.6% to $1,062,952 for the nine months ended June 30, 2011 when compared to Cable TV product sales of $1,025,575 during the nine months ended June 30, 2010. The increase can be attributed to a large order received from one customer. 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
$81,583 or 51.8% to $76,026 for the nine months ended June 30,
2011 when compared to sales of $157,609 during the same period
last year. The decrease can be attributed to a decrease in demand
for UHF Broadcast products which are primarily sold to system
integrators for rural communities.
Gross profit for the nine months ended June 30, 2011
equaled $1,346,080, an increase of $229,195 or 20.5%, when
compared to gross profit of $1,116,885 for the nine months ended
June 30, 2010. The increase can primarily be attributed to the
higher sales volume this year when compared to the same period
last year. As a percentage of sales, gross profit increased to
36.1% for the nine months ended June 30, 2011 compared to 34.3%
for the nine months ended June 30, 2010. The increase in gross
profit as a percentage of sales can primarily be attributed to the
higher sales volume this year providing a higher base to absorb
fixed expenses.
SG&A expenses for the nine months ended June 30, 2011
equaled $1,230,582, an increase of $53,910 or 4.6%, when compared
to SG&A expenses of $1,176,672 for the nine months ended June
30, 2010. The dollar increase can primarily be attributed to
increases in payroll and payroll related expenses and trade show
and promotional expenses this year when compared to the same
period last year. As a percentage of sales, SGA expenses decreased
to 33% for the nine months ended June 30, 2011 compared to 36.1%
for the nine months ended June 30, 2010 primarily due to the
higher sales volume this year when compared to the same period
last year.
The Company recorded income from operations of $115,498 for the nine months ended June 30, 2011 compared to a loss from operations of $59,787 for the nine months ended June 30, 2010. The improvement can primarily be attributed to the higher sales volume this year when compared to the same period last year.
Other income for the nine months ended June 30, 2011 equaled $6,746, an increase of $1,140 when compared to other income of $5,606 for the nine months ended June 30, 2010. Other income is primarily interest income earned on invested cash balances. Other income may fluctuate based on market interest rates and levels of invested cash balances.
The provision (benefit) for income taxes equaled $0 for
the nine months ended June 30, 2011 and June 30, 2010. We have not
recognized any provision for income taxes as pretax income was
offset by a reduction in our deferred tax asset valuation reserve.
Any benefit for losses has been subject to a valuation allowance
since the realization of the deferred tax benefit is not
considered more likely than not.
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14
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Off-Balance Sheet ArrangementsAt June 30, 2011 and 2010, 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
June 30, 2011 | September 30, 2010 | ||
Cash & cash equivalents | $1,662,968 | $1,466,719 | |
Working capital | $2,063,349 | $1,981,150 | |
Current ratio | 5.06 to 1 | 4.68 to 1 | |
Long-term debt | $0 | $0 |
Cash and cash equivalents increased $196,249 to $1,662,968 at June 30, 2011 when compared to cash and cash equivalents of $1,466,719 at September 30, 2010. The increase was a result of $312,265 in net cash provided by operating activities, $111,395 in net cash used for capital expenditures and $4,621 in net cash used to purchase treasury stock.
The decrease in accounts receivable of $139,790 at June 30, 2011 when compared to September 30, 2010 can be attributed to improved collections and the decrease in shipments during the quarter ended June 30, 2011 when compared to the quarter ended September 30, 2010.
The decrease in prepaid expenses and other current assets of $32,691 and the decrease in accounts payable of $26,909 at June 30, 2011 when compared to September 30, 2010 can primarily be attributed to timing.
Capital expenditures totaling $111,395 for the nine months ended June 30, 2011 consisted primarily of test equipment, simulation software, computer hardware and a Company truck. The Company has committed to building improvements of approximately $50,000 and equipment purchases of approximately $25,000 for the quarter ended September 30, 2011. The Company has committed to approximately $225,000 of capital equipment purchases for the quarter ended December 31, 2011 (the first quarter of fiscal 2012.)
At June 30, 2011, the Company had unused aggregate lines
of credit totaling $750,000 collateralized by all inventory,
equipment and accounts receivable.
Management believes that its working capital requirements
for the forseeable future will be met by its existing cash
balances, future cash flows from operations and its current credit
arrangements.
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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 2010 Annual Report and Form 10-K for the fiscal year ended September 30, 2010 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 nine months ended June 30, 2011. For a detailed discussion of market risk, see our Annual Report on Form 10-K for the fiscal year ended September 30, 2010, 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.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the exchange act.
Under the supervision and with the participation of the Company’s management, including our principal executive officer and principal financial officer, the Company conducted an evaluation of its internal control over financial reporting based on criteria established in the framework in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company’s management concluded and certifies that its internal control over financial reporting was effective as of June 30, 2011.
This Quarterly Report does not include an attestation
report of the Company’s registered public accounting firm
regarding internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s registered
public accounting firm.
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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.
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. (Removed and Reserved)
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.
August 12,
2011
Carl F. Fahrenkrug
(Date)
--------------------------
Carl F. Fahrenkrug
Chief Executive Officer
August 12,
2011
Richard L. Jones
(Date)
--------------------------
Richard L. Jones
Chief Financial Officer
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