Attached files
file | filename |
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EX-32 - EXHIBIT 32 - MICROWAVE FILTER CO INC /NY/ | exhibit32.htm |
EX-31 - EXHIBIT 31 - MICROWAVE FILTER CO INC /NY/ | exhibit31.htm |
EXCEL - IDEA: XBRL DOCUMENT - MICROWAVE FILTER CO INC /NY/ | Financial_Report.xls |
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, 2014
Commission file number 0-10976
MICROWAVE FILTER COMPANY, INC.
(Exact name of registrant as specified in its charter.)
New York |
16-0928443 |
|
(State of Incorporation) |
(I.R.S. Employer Identification Number) |
|
6743 Kinne Street, East Syracuse, N.Y. |
13057 |
|
(Address of Principal Executive Offices) |
(Zip Code) |
(315) 438-4700
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days.
YES __X__ NO____
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES __X__ NO____
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer ______
Accelerated filer ______
Non-accelerated filer ______ (Do not check if smaller reporting company)
Smaller reporting company ____X____.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ____ NO__X__
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common Stock, $.10 Par Value - 2,584,366 shares as of August 1, 2014.
MICROWAVE FILTER COMPANY, INC.
Form 10-Q
Index
Item |
Page |
Part I Financial Information |
|
Item 1. Financial Statements |
3 |
Condensed Consolidated Balance Sheets (unaudited) |
3 |
Condensed Consolidated Statements of Operations (unaudited) |
5 |
Condensed Consolidated Statements of Cash Flows (unaudited) |
6 |
Notes to Condensed Consolidated Financial Statements (unaudited) |
8-10 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
11-18 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
19 |
Item 4. Controls and Procedures |
19 |
Part II Other Information |
20 |
Signatures |
21 |
<PAGE> 2
PART I. - FINANCIAL INFORMATION
Microwave Filter Company and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
June 30, 2014 |
September 30, 2013 |
|||||||
Assets |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ |
1,052,165 |
$ |
939,959 | ||||
Accounts receivable-trade, net of |
||||||||
allowance for doubtful accounts |
||||||||
of $26,000 and $26,000 |
231,985 | 201,163 | ||||||
Federal and state income tax recoverable |
0 | 37,085 | ||||||
Inventories, net |
533,721 | 566,500 | ||||||
Prepaid expenses and other current assets |
84,555 | 98,973 | ||||||
Total current assets |
1,902,426 | 1,843,680 | ||||||
Property, plant and equipment, net |
502,826 | 580,750 | ||||||
Total assets |
$ |
2,405,252 |
$ |
2,424,430 | ||||
Liabilities and Stockholders' Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ |
88,236 |
$ |
68,632 | ||||
Customer deposits |
23,314 | 16,362 | ||||||
Accrued payroll and related expenses |
54,993 | 46,453 | ||||||
Accrued compensated absences |
131,352 | 94,272 | ||||||
Notes payable - short term |
42,107 | 40,697 | ||||||
Other current liabilities |
34,439 | 35,199 | ||||||
Total current liabilities |
374,441 | 301,615 | ||||||
Notes payable - long term |
420,970 | 452,771 | ||||||
Total other liabilities |
420,970 | 452,771 | ||||||
Total liabilities |
795,411 | 754,386 | ||||||
<PAGE> 3
Stockholders' Equity: |
||||||||
Common stock, $.10 par value |
||||||||
Authorized 5,000,000 shares, Issued |
||||||||
4,324,140 shares in 2014 and 2013, |
||||||||
Outstanding 2,584,366 shares in 2014 |
||||||||
and 2,585,086 in 2013 |
432,414 | 432,414 | ||||||
Additional paid-in capital |
3,248,706 | 3,248,706 | ||||||
Retained deficit |
(379,250) | (319,460) | ||||||
Common stock in treasury, at cost |
||||||||
1,739,774 shares in 2014 and 1,739,054 |
||||||||
shares in 2013 |
(1,692,029) | (1,691,616) | ||||||
Total stockholders' equity |
1,609,841 | 1,670,044 | ||||||
Total liabilities and stockholders' equity |
$ |
2,405,252 |
$ |
2,424,430 |
<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements
<PAGE> 4
Microwave Filter Company and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended |
Nine months ended |
|||||||||||
June 30, |
June 30, |
|||||||||||
2014 |
2013 |
2014 |
2013 |
|||||||||
Net sales |
$ |
1,019,881 |
$ |
705,148 |
$ |
2,622,303 |
$ |
2,084,735 | ||||
Cost of goods sold |
560,850 | 439,440 | 1,585,619 | 1,484,560 | ||||||||
Gross profit |
459,031 | 265,708 | 1,036,684 | 600,175 | ||||||||
Selling, general and |
||||||||||||
administrative expenses |
364,247 | 317,827 | 1,089,956 | 1,190,719 | ||||||||
Income (loss) from operations |
94,784 | (52,119) | (53,272) | (590,544) | ||||||||
Other income (expense), net |
(4,002) | 1,579 | (10,115) | 4,979 | ||||||||
Income (loss) |
||||||||||||
before income taxes |
90,782 | (50,540) | (63,387) | (585,565) | ||||||||
(Benefit) provision |
||||||||||||
for income taxes |
(3,597) | 0 | (3,597) | 0 | ||||||||
Net income (loss) |
$ |
94,379 |
$ |
(50,540) |
$ |
(59,790) |
$ |
(585,565) | ||||
Net Income (Loss) Per Common Share |
||||||||||||
Basic and diluted earnings (loss) |
||||||||||||
per share |
$ |
0.04 |
$ |
(0.02) |
$ |
(0.02) |
$ |
(0.23) | ||||
Weighted Average Common Shares |
||||||||||||
Outstanding |
||||||||||||
Shares used in computing net |
||||||||||||
earnings (loss) per share: |
2,584,450 | 2,585,156 | 2,584,744 | 2,585,243 |
<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements
<PAGE> 5
Microwave Filter Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended |
||||||
June 30 |
||||||
2014 |
2013 |
|||||
Cash flows from operating activities: |
||||||
Net loss |
$ |
(59,790) |
$ |
(585,565) | ||
Adjustments to reconcile net loss to |
||||||
net cash provided by (used in) |
||||||
operating activities: |
||||||
Depreciation |
98,660 | 125,167 | ||||
Change in operating assets and liabilities: |
||||||
Accounts receivable-trade |
(30,822) | 35,136 | ||||
Federal and state income |
||||||
tax recoverable |
37,085 | 0 | ||||
Inventories |
32,779 | (63,931) | ||||
Prepaid expenses and other assets |
14,418 | 24,606 | ||||
Accounts payable and customer |
||||||
deposits |
26,556 | (8,255) | ||||
Accrued payroll and related expenses |
||||||
and compensated absences |
45,620 | (63,546) | ||||
Other current liabilities |
(760) | (2,443) | ||||
Net cash provided by (used in) |
||||||
operating activities |
163,746 | (538,831) | ||||
Cash flows from investing activities: |
||||||
Property, plant and equipment purchased |
(20,736) | (74,345) | ||||
Net cash used in investing activities |
(20,736) | (74,345) | ||||
Cash flows from financing activities: |
||||||
Repayment of note payable |
(30,391) | 0 | ||||
Purchase of treasury stock |
(413) | (144) | ||||
Net cash used in financing activities |
(30,804) | (144) |
<PAGE> 6
Increase (decrease) in cash and cash equivalents |
112,206 | (613,320) | ||||
Cash and cash equivalents |
||||||
at beginning of period |
939,959 | 1,023,017 | ||||
Cash and cash equivalents |
||||||
at end of period |
$ |
1,052,165 |
$ |
409,697 | ||
Supplemental Schedule of Cash Flow Information: |
||||||
Interest paid |
$ |
16,382 |
$ |
0 |
<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements
<PAGE> 7
MICROWAVE FILTER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
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, 2014 are not necessarily indicative of the results that may be expected for the year ended September 30, 2014. 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, 2013.
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, 2014 |
September 30, 2013 |
||||||
Raw materials and stock parts |
$ |
411,646 |
$ |
432,871 | |||
Work-in-process |
21,320 | 24,137 | |||||
Finished goods |
100,755 | 109,492 | |||||
$ |
533,721 |
$ |
566,500 |
The Company's reserve for obsolescence equaled $400,664 at June 30, 2014 and September 30, 2013. The Company provides for a valuation reserve for certain inventory that is deemed to be obsolete, of excess quantity or otherwise impaired.
<PAGE> 8
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 had commenced an action against Microwave Filter Company, Inc. to recover for an underfunded self insured program that Microwave Filter Company, Inc. participated in. Microwave Filter Company, Inc. entered into a settlement agreement with the State of New York Workers’ Compensation Board on April 29, 2014 in the amount of $2,559. The settlement amount was paid on May 15, 2014 and the matter is closed.
Note 6. Fair Value of Financial Instruments
The carrying values of the Company cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of those instruments.
The Company currently does not trade in or utilize derivative financial instruments.
Note 7. Significant Customers
Sales to one customer represented approximately 26% of total sales for the nine months ended June 30, 2014 compared to approximately 17% of total sales for the nine months ended June 30, 2013.
<PAGE> 9
Note 8. Notes Payable
On July 2, 2013, Microwave Filter Company, Inc. (the “Company”) entered into a Ten Year Term Loan with KeyBank National Association in the amount of Five Hundred Thousand and No/100 Dollars ($500,000.00). The amount of all advances outstanding together with accrued interest thereon shall be due and payable on July 2, 2023 (“Maturity”). The Company shall pay interest on the outstanding principal balance of this Note at the rate per annum equal to 4.5%. The net proceeds from the Term Loan will be available to provide working capital as needed. The total amount outstanding as of June 30, 2014 and September 30, 2013 was $463,077 and $493,468, respectively. Interest accrued as of June 30, 2014 and September 30, 2013 was $1,621 and $1,727, respectively.
The Company has secured this Note by: (a) a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing which creates a 1st lien on real property situated in the Town of Dewitt, County of Onondaga, and State of New York and known as 6743 Kinne Street, East Syracuse, New York; (b) a General Assignment of Rents and Leases; (c) an Environmental Compliance and Indemnification; and (d) such other security as may now or hereafter be given to Lender as collateral for the loan.
Note 9. Earnings Per Share
The Company presents basic earnings per share (“EPS”), computed based on the weighted average number of common shares outstanding for the period, and when applicable diluted EPS, which gives the effect to all dilutive potential shares outstanding (i.e. options) during the period after restatement for any stock dividends. Income (loss) used in the EPS calculation is net income (loss) for each period. There were no dilutive potential shares outstanding for the periods ending June 30, 2014 and 2013.
Note 10. Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2014-09, “Revenue from Contracts with Customers: Topic 606”. This ASU replaces nearly all existing U.S. GAAP guidance on revenue recognition. The standard prescribes a five-step model for recognizing revenue, the application of which will require significant judgment. This standard is effective for fiscal years beginning after December 15, 2016, and for interim periods within those fiscal years. Microwave Filter Company, Inc. is in the process of assessing the impact this ASU will have on its consolidated financial position, results of operations and cash flows.
<PAGE> 10
MICROWAVE FILTER COMPANY, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Business Overview
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 consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2013 describes the significant accounting policies used in preparation of the condensed consolidated financial statements. The most significant areas involving management judgments and estimates are described below and are considered by management to be critical to understanding the financial condition and results of operations of the Company.
Revenues from product sales are recorded as the products are shipped and title and risk of loss have passed to the customer, provided that no significant vendor or post-contract support obligations remain and the collection of the related receivable is probable. Billings in advance of the Company's performance of such work are reflected as customer deposits in the accompanying condensed consolidated balance sheet.
Allowances for doubtful accounts are based on estimates of losses related to customer receivable balances. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances.
The Company's inventories are stated at the lower of cost determined on the first-in, first-out method or market. The Company uses certain estimates and judgments and considers several factors including product demand and changes in technology to provide for excess and obsolescence reserves to properly value inventory.
<PAGE> 11
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> 12
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2014 vs. THREE MONTHS ENDED JUNE 30, 2013
The following table sets forth the Company's net sales by major product group for the three months ended June 30, 2014 and 2013.
Product group |
Fiscal 2014 |
|
Fiscal 2013 |
|
||
Microwave Filter (MFC): |
|
|
|
|
|
|
RF/Microwave |
$ |
595,928 |
|
$ |
243,621 |
|
Satellite |
|
240,423 |
|
|
245,303 |
|
Cable TV |
|
160,186 |
|
|
152,314 |
|
Broadcast TV |
|
22,708 |
|
|
62,528 |
|
Niagara Scientific (NSI): |
|
636 |
|
|
1,382 |
|
|
|
|
|
|
|
|
Total |
$ |
1,019,881 |
|
$ |
705,148 |
|
|
|
|
|
|
|
|
Sales backlog at June 30 |
$ |
792,917 |
|
$ |
262,690 |
|
Net sales for the three months ended June 30, 2014 equaled $1,019,881, an increase of $314,733 or 44.6%, when compared to net sales of $705,148 for the three months ended June 30, 2013. The increase in sales can primarily be attributed to the increase in the Company’s RF/Microwave product sales.
MFC’s RF/Microwave product sales increased $352,307 or 144.6% to $595,928 for the three months ended June 30, 2014 when compared to RF/Microwave product sales of $243,621 during the same period last year. The increase can primarily be attributed to a $1,157,072 order received from an Original Equipment Manufacturer (OEM) during the quarter ended December 31, 2013 with shipments beginning in February 2014 and ending in March 2015 and an increase in sales to the U.S. Government. The Company’s RF/Microwave products are sold primarily to OEM’s 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 31% of total sales for the three months ended June 30, 2014 and approximately 21% of total sales for the three months ended June 30, 2013.
MFC’s Satellite product sales decreased $4,880 or 2.0% to $240,423 for the three months ended June 30, 2014 when compared to Satellite product sales of $245,303 during the same period last year. 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
MFC’s Cable TV product sales increased $7,872 or 5.2% to $160,186 for the three months ended June 30, 2014 when compared to Cable TV product sales of $152,314 during the same period last year. Management continues to project a decrease in demand for Cable TV products due to the shift from analog to digital television. Due to the inherent nature of digital modulation versus analog modulation, fewer filters will be required. The Company has developed filters for digital television and there will still be requirements for analog filters for limited applications in commercial and private cable systems. Management also believes that the decrease in capital expenditures from Cable Television companies has also contributed to the decline in sales.
MFC’s Broadcast TV/Wireless Cable product sales decreased $39,820 to $22,708 for the three months ended June 30, 2014 when compared to sales of $62,528 during the same period last year. The decrease can be attributed to an decrease in demand for UHF Broadcast products which are primarily sold to system integrators for rural communities.
MFC's sales order backlog equaled $792,917 at June 30, 2014 compared to sales order backlog of $262,690 at June 30, 2013. The increase can primarily be attributed to a $1,157,072 order received from an OEM during the quarter ended December 31, 2013 with shipments beginning in February 2014 and ending in March 2015. 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 56% of the total sales order backlog at June 30, 2014 is scheduled to ship by September 30, 2014.
Gross profit for the three months ended June 30, 2014 equaled $459,031, an increase of $193,323 or 72.8%, when compared to gross profit of $265,708 for the three months ended June 30, 2013. As a percentage of sales, gross profit equaled 45.0% for the three months ended June 30, 2014 compared to 37.7% for the three months ended June 30, 2013. The increase in gross profit can primarily be attributed to the higher sales volume this year when compared to the same period last year providing a higher base to absorb fixed expenses.
Selling, general and administrative (SGA) expenses for the three months ended June 30, 2014 equaled $364,247, an increase of $46,420 or 14.6%, when compared to SGA expenses of $317,827 for the three months ended June 30, 2013. The increase can primarily be attributed to higher payroll expenses. As a percentage of sales, SGA expenses equaled 35.7% for the three months ended June 30, 2014 when compared to 45.1% for the three months ended June 30, 2013 primarily due to the higher sales volume this year providing a higher base to absorb expenses.
The Company recorded income from operations of $94,784 for the three months ended June 30, 2014 compared to a loss from operations of $52,119 for the three months ended June 30, 2013. The improvement can primarily be attributed to the higher sales volume this year when compared to the same period last year.
Other income (expense) was an expense of $4,002 for the three months ended June 30, 2014 compared to other income of $1,579 for the three months ended June 30, 2013 primarily due to interest expense of $5,375 and $0 for the three months ended June 30, 2014 and 2013, respectively. Other income generally consists of sales of scrap material, stock transfer fees, the forfeiture of non-refundable deposits and other incidental items.
The (benefit) provision for income taxes equaled a benefit of $3,597 for the three months ended June 30, 2014 and $0 for June 30, 2013. The tax benefit recognized in the current period represents a Federal refund from the prior fiscal year. 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.
<PAGE> 14
NINE MONTHS ENDED JUNE 30, 2014 vs. NINE MONTHS ENDED JUNE 30, 2013
The following table sets forth the Company's net sales by major product group for the nine months ended June 30, 2014 and 2013.
|
|
|
|
|
|
|
Product group |
Fiscal 2014 |
|
Fiscal 2013 |
|
||
Microwave Filter (MFC): |
|
|
|
|
|
|
RF/Microwave |
$ |
1,343,680 |
|
$ |
759,027 |
|
Satellite |
|
824,117 |
|
|
768,055 |
|
Cable TV |
|
351,077 |
|
|
432,896 |
|
Broadcast TV |
|
99,696 |
|
|
119,244 |
|
Niagara Scientific (NSI): |
|
3,733 |
|
|
5,513 |
|
Total |
$ |
2,622,303 |
|
$ |
2,084,735 |
|
Sales backlog at June 30 |
$ |
792,917 |
|
$ |
262,690 |
|
Net sales for the nine months ended June 30, 2014 equaled $2,622,303, an increase of $537,568 or 25.8%, when compared to net sales of $2,084,735 for the nine months ended June 30, 2013. The increase in sales can primarily be attributed to the increase in the Company’s RF/Microwave product sales.
MFC’s RF/Microwave product sales increased $584,653 or 77.0% to $1,343,680 for the nine months ended June 30, 2014 when compared to RF/Microwave product sales of $759,027 during the same period last year. The increase can primarily be attributed to a $1,157,072 order received from an OEM during the quarter ended December 31, 2013 with shipments beginning in February 2014 and ending in March 2015 and an increase in sales to the U.S. Government. MFC’s RF/Microwave products are sold primarily to OEMs 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 26% of total sales for the nine months ended June 30, 2014 compared to approximately 17% of total sales for the nine months ended June 30, 2013.
MFC’s Satellite product sales increased $56,062 or 7.3% to $824,117 for the nine months ended June 30, 2014 when compared to satellite product sales of $768,055 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> 15
MFC’s Cable TV product sales decreased $81,819 or 18.9% to $351,077 for the nine months ended June 30, 2014 when compared to Cable TV product sales of $432,896 during the same period last year. Management continues to project a decrease in demand for Cable TV products due to the shift from analog to digital television. Due to the inherent nature of digital modulation versus analog modulation, fewer filters will be required. The Company has developed filters for digital television and there will still be requirements for analog filters for limited applications in commercial and private cable systems. Management also believes that the decrease in capital expenditures from Cable Television companies has also contributed to the decline in sales.
MFC’s Broadcast TV/Wireless Cable product sales decreased $19,548 or 16.4% to $99,696 for the nine months ended June 30, 2014 when compared to sales of $119,244 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 $792,917 at June 30, 2014 compared to sales order backlog of $262,690 at June 30, 2013. The increase can primarily be attributed to a $1,157,072 order received from an OEM during the quarter ended December 31, 2013 with shipments beginning in February 2014 and ending in March 2015. 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 56% of the total sales order backlog at June 30, 2014 is scheduled to ship by September 30, 2014.
Gross profit for the nine months ended June 30, 2014 equaled $1,036,684 an increase of $436,509 or 72.7%, when compared to gross profit of $600,175 for the nine months ended June 30, 2013. As a percentage of sales, gross profit equaled 39.5% for the nine months ended June 30, 2014 compared to 28.8% for the nine months ended June 30, 2013. The increase in gross profit can primarily be attributed to the higher sales volume this year when compared to the same period last year providing a higher base to absorb fixed expenses.
SG&A expenses for the nine months ended June 30, 2014 equaled $1,089,956 a decrease of $100,763 or 8.5%, when compared to SG&A expenses of $1,190,719 for the nine months ended June 30, 2013. The decrease can primarily be attributed to planned decreases in catalog printings, mailings, attendance at trade shows and lower depreciation expense. As a percentage of sales, SGA expenses equaled 41.6% for the nine months ended June 30, 2014 compared to 57.1% for the nine months ended June 30, 2013 primarily due to the higher sales volume this year providing a higher base to absorb expenses.
The Company recorded a loss from operations of $53,272 for the nine months ended June 30, 2014 compared to a loss from operations of $590,544 for the nine months ended June 30, 2013. The improvement in operating income can primarily be attributed to the higher sales volume this year when compared to the same period last year.
Other income (expense) was an expense of $10,115 for the nine months ended June 30, 2014 compared to income of $4,979 for the nine months ended June 30, 2013 primarily due to interest expense of $16,275 and $0 for the nine months ended June 30, 2014 and 2013, respectively. Other income generally consists of sales of scrap material, stock transfer fees, the forfeiture of non-refundable deposits and other incidental items.
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The (benefit) provision for income taxes equaled a benefit of $3,597 for the three months ended June 30, 2014 and $0 for June 30, 2013. The tax benefit recognized in the current period represents a Federal refund from the prior fiscal year. 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.
Off-Balance Sheet Arrangements
At June 30, 2014 and 2013, 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.
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LIQUIDITY and CAPITAL RESOURCES
June 30, 2014 |
September 30, 2013 |
||
Cash & cash equivalents |
$1,052,165 |
$939,959 |
|
Working capital |
$1,527,985 |
$1,542,065 |
|
Current ratio |
5.08 to 1 |
6.11 to 1 |
|
Long-term debt |
$420,970 |
$452,771 |
Cash and cash equivalents increased $112,206 to $1,052,165 at June 30, 2014 when compared to cash and cash equivalents of $939,959 at September 30, 2013. The increase was a result of $163,746 in net cash
provided by operating activities, $20,736 in net cash used for capital expenditures, $30,391 in net cash used
for repayment of a note payable and $413 used to purchase treasury stock.
Cash flow from Net Income (Loss), adjusted for non-cash charges to depreciation, was $38,870. Working Capital changes in Current Assets and Liabilities resulted in net cash flow of $124,876. The increase in accounts receivable of $30,822 at June 30, 2014 when compared to September 30, 2013 can primarily be attributed to the higher sales for the month ended June 30, 2014 when compared to the month ended September 30, 2013. The increase in accounts payable of $19,604 at June 30, 2014 when compared to September 30, 2013 can primarily be attributed to the timing of payments to vendors. The increase in accrued compensated absences of $37,080 at June 30, 2014 when compared to September 30, 2013 can be attributed to additional vacation days awarded to employees.
On July 2, 2013, Microwave Filter Company, Inc. (the “Company”) entered into a Ten Year Term Loan with KeyBank National Association in the amount of Five Hundred Thousand and No/100 Dollars ($500,000.00). The amount of all advances outstanding together with accrued interest thereon shall be due and payable on July 2, 2023 (“Maturity”). The Company shall pay interest on the outstanding principal balance of this Note at the rate per annum equal to 4.5%. The net proceeds from the Term Loan will be available to provide working capital as needed.
Management believes that its working capital requirements for the forseeable future will be met by its existing cash balances and future cash flows from operations.
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In 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 2013 Annual Report and Form 10-K for the fiscal year ended September 30, 2013 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
As a “smaller reporting company” we are not required to provide information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION 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.
In making this assessment, our management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission under the 1992 Framework (COSO). The COSO Commission has recently adopted a revision of the Internal Control-Integrated Framework which will become effective in December 2014. The Company expects to be in full compliance later this year.
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 had commenced an action
against Microwave Filter Company, Inc. to recover for an underfunded self
insured program that Microwave Filter Company, Inc. participated in.
Microwave Filter Company, Inc. entered into a settlement agreement with the
State of New York Workers’ Compensation Board on April 29, 2014 in the amount
of $2,559. The settlement amount was paid on May 15, 2014 and the matter is closed.
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.
August 12, 2014 (Date) |
Carl F. Fahrenkrug -------------------------- Carl F. Fahrenkrug Chief Executive Officer |
August 12, 2014 (Date) |
Richard L. Jones -------------------------- Richard L. Jones Chief Financial Officer |
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