UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

 


(Mark one)
_X_  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the fiscal year ended__________September 30, 2014__________________________

 

OR

 

__TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from____________to___________________________________

 

Commission file number__________________0-10976________________________________

 

 

Microwave Filter Company, Inc

(Exact name of registrant as specified in its charter)

 

 

 

 

New York

16-0928443

(State or other jurisdiction of incorporation or organization)

(I.R.S.  Employer Identification No.)

 

 

 

 

6743 Kinne Street,  East Syracuse, NY

13057

(Address of principal executive offices)

(Zip code)

 


Registrant's telephone number including area code____(315) 438-4700_____________

Securities registered pursuant to Section 12(b) of the Act:_____None____________

Securities registered pursuant to Section 12(g) of the Act:

 

Common stock, par value $.10 per share

Title of class

 


  Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     YES ______     NO ___X___

 

  Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     YES ______     NO ___X___

   

   

  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 (§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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  __

  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__

  The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter was $1,643,008 .

  Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

  Shares of common stock outstanding at November 14, 2014:  2,583,507

2


 

 

DOCUMENTS INCORPORATED BY REFERENCE

  Part III: Portions of the Definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for the Company's 2015 Annual Meeting of Shareholders are incorporated by reference into Part III.  (With the exception of those portions which are specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed or incorporated by reference as part of this report.)

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3


 

 

PART I

ITEM 1.  BUSINESS.

FORWARD-LOOKING CAUTIONARY STATEMENT
-------------------------------------------------------------------
  In an effort to provide investors a balanced view of the Company's current condition and future growth opportunities, this Annual Report on Form 10-K may include 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 2014 Annual Report and Form 10-K for the fiscal year ended September 30, 2014 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.


GENERAL DEVELOPMENT OF BUSINESS
--------------------------------------------------------
  Microwave Filter Company, Inc.  (hereinafter referred to as MFC) was incorporated in New York State on September 26, 1967.  MFC is the successor of Microwave Filter Company which was founded in April of 1967.  

  On July 1, 1990, MFC acquired Niagara Scientific, Inc.  (hereinafter referred to as NSI.)

  MFC and its subsidiaries are sometimes referred to collectively as the "Company."

   

 

NARRATIVE DESCRIPTION OF BUSINESS
---------------------------------------------------------
Microwave Filter Company, Inc.  (MFC)

  Established in 1967 in East Syracuse, New York, MFC occupies a modern 40,000 square foot facility with an impressive complement of analytical and design software, test instrumentation, prototype and manufacturing equipment to create passive filters, components and sub systems in the frequency range of 10 MHz to 50 GHz.  

  MFC manufactures RF filters and related components for eliminating interference and facilitating signal processing for such markets as Cable Television, Broadcast, Commercial and Military Communications, Avionics, Radar, Navigation and Defense.  The Company designs waveguide, stripline/ microstrip, transmission line, miniature/subminiature and lumped constant filters.  Configurations include bandpass, highpass, lowpass, bandstop, multiplexers, tunable notch, tunable bandpass, high power filters, amplitude equalized, delay equalized and filter networks.  The Company actively produces over 1,700 standard products and has designed more than 5,000 custom products for specialized applications.  

  The manufacturing facility includes a modern CAD system, a test department with automated network analyzers to 50 GHz, a high capacity conveyor soldering oven and a fully compliant finishing operation.  The Company's Quality Management System has been certified ISO 9001:2008 recognizing the Company as a quality vendor.

  Efficient computer simulation, design and analysis software enhanced by proprietary MFC developed software, allow rapid and accurate filter development at reasonable cost.  Automated network analyzers provide rigorous product testing and performance data storage on a serial number basis in most cases.  

  A network based CAD system allows the transfer of data and programs to the CNC turning and milling centers for fabrication of machined parts.  Prototype PC boards are similarly produced by computer controlled PC board mills.

4


 

 

  A Grieve high capacity conveyor soldering oven is used for production of large quantity assemblies while smaller production quantities are assembled at hand soldering or brazing stations.  

  ISO 9001:2008 contract and design review procedures coupled with a QA department that is compliant with MIL-I-45208 inspection systems and MIL-STD-45622 calibration system standards assures process and product integrity.  A certified staff instructor regularly trains associates to MIL-STD-2000A (now superceded by J-STD-001.)

  Other in-house testing facilities include three environmental chambers capable of testing products for temperatures of -40 to 200 degrees Celsius and humidity up to 100 percent.  Several high power amplifiers are available for power tests up to 2500 watts at 220 MHz and 100 watts at 1,000 MHz.  Facilities are also available for salt spray, sand and dust, shock and vibration, RFI leakage and altitude testing.  

 

MARKETS

Microwave Filter Company, Inc.  (MFC)

  Cable Television (CATV) -  The CATV marketplace has changed due to the transition from analog to digital television.  Digital Television (DTV) is  a type of broadcasting technology that has transformed television viewing.  DTV enables broadcasters to offer television with movie-quality picture and sound.  It also offers greater multicasting and interactive capabilities.  DTV is a more flexible and spectrum efficient technology than the NTSC "analog" broadcast system.  Rather than being limited to providing one analog programming channel, a broadcaster will be able to provide a super sharp "high definition" (HDTV) program or multiple "standard definition" DTV programs simultaneously using the RF spectrum more efficiently.  Providing several program streams on one broadcast channel is called "multicasting." The number of programs a station can send on one digital channel depends on the level of picture detail, also known as "resolution." DTV can provide interactive video and data services that are not possible with "analog" technology.  Converting to DTV will eventually free up parts of the scarce and valuable broadcast airwaves.  Those portions of the spectrum can then be used for other important services, such as advanced wireless and public safety services (police, fire, rescue squads, etc.).  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 serves this market principally with three product groups.  One popular area includes standard and custom filters used at the headend to process signals and remove interference.  A very popular application involves removing or re-routing TV channels to organize programming line-ups.

  A family of trap filters, "Fastrap," is used by cable operators to restrict or permit the viewing of pay per view or other premium programming.  The traps can be ordered in small and large quantities, are 100% inspected and delivered overnight.

  Since all cable operators initially receive programming via satellite, products from our satellite market cross over into the cable television market.  C-band satellite receive systems are prone to various types of terrestrial interference which are curable in many cases by applying MFC bandpass filters.  

5


 

 

  Broadcast - Due to the recent analog to digital conversion within the TV (UHF/VHF) broadcast industry, Microwave Filter Company has experienced a resurgence in business for both TV transmit and receive filters.  Specifically, in order to accommodate the wider digital TV signal bandwidths, customers have been forced to replace their existing (narrower bandwidth) analog filters with (wider bandwidth) digital filters.  As a result, MFC has developed new products (e.g.- DTV mask transmit filters) to accommodate the wider bandwidth digital signals.

   

  Another result of this analog to digital conversion was the elimination of the uppermost UHF channels (52-69) that operated between 698 - 806 MHz.  Subsequently, part of this vacated frequency band was allocated for Public Safety communication use, while much of the remaining band has been auctioned off for Internet Service Provider (ISP) operations (e.g.  - Verizon, AT&T, etc.) Now referred to as the "700 MHz Band" - many of these new applications also require MFC filter products.  Some of these operations actually utilize the same channel allocations formerly used by those defunct UHF channels.

  Consequently, MFC has been able to transform existing filter product lines into an entirely new filter line to satisfy many of these new ISP applications, without requiring significant product modification or new product development.

  MFC also continues to serve other segments of the Broadcast industry such as FM radio, STL (TV Studio-to-Transmitter Links) and the BAS (Broadcast Auxiliary Service) band  (formerly known as the ENG (Electronic News Gathering) band.)

  Satellite - Microwave filters and IF filters for removing interference are provided to both commercial and home C-band TVRO antennas.  A variety of products are available that offer protection and or solutions to interference that affects the feedhorn, downconverter, and receiver.  A variety of filters are also available for satellite services utilizing higher frequency bands such as 12, 13 and 18 GHz.  Although economic conditions have impacted sales, management expects demand for these types of filters to continue with the proliferation of earth stations world wide and increased sources of interference.

  Mobile Radio and Data Links - MFC provides filters to a variety of mobile radio services such as cellular telephone, two way radio and paging to eliminate interference in transmit or receive equipment.  More recently there has been demand for filters and diplexers for broadband microwave applications for Voice Over Internet Protocol ("VOIP") with the number of services increasing and ISP use.  The advent of license exempt applications has increased the need for interference filtering.  With the number of services increasing and our air waves becoming more congested, filters are increasingly important to many transmit operations.  

  RF and Microwave - This market encompasses both commercial and military applications.  Filters in defense applications are used for such purposes as air to ground communications, radar and land communications.  In commercial areas, filters are used to protect such equipment as receivers, transmitters, transceivers and any other electronics used for signal processing.  In addition to filters, this market is also served with MFC's Ferrosorb product line.  Ferrosorb is a microwave absorbing material available in sheets, loads and a variety of other shapes.  The product is used to offer protection by shielding signals or absorbing selective bands.

  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. The Company is also actively sourcing complimentary products to distribute to augment sales.
   
   In 1992, MFC's acquisition of certain assets of Chesterfield Products added an expanded line of products to enhance the RF filter line.  Many of MFC's traditional filters are components added onto a system.  Chesterfield provided MFC with the capability to manufacture miniature and subminiature filters which are components built into electronic systems.  Another Chesterfield capability has provided us with the resources to expand our filter design range down to 5 KHz.  

6


 

 

WORLD TRADE

  Management believes that world marketing is a route to substantial expansion of sales for MFC.  Significant efforts have been made over the last few years to identify key international markets and to establish distributors with appropriate technical backgrounds to represent our products in those regions. The Company's international sales increased $231,411 or 58.7% to $625,148 for the fiscal year ended September 30, 2014 when compared to international sales of $393,737 during the fiscal year ended September 30, 2013

SUPPLIERS

  The Company depends on outside suppliers for raw materials, components and parts, and services.  Although items are generally available from a number of suppliers, the Company purchases certain raw materials and components from a single supplier.  If such a supplier should cease to supply an item, the Company believes that new sources could be found to provide the raw materials and components.  However, manufacturing delays and added costs could result.  The Company has not experienced significant delays of this nature in the past, but there can be no assurance that delays in delivery due to supply shortages will not occur in the future.  Substantial periods of lead time for delivery of certain materials are sometimes experienced by the Company, making it necessary to inventory varied quantities of materials.  

PATENTS AND LICENSES

  The Company has no patents, trademarks, copyrights, licenses or franchises of material importance.  

SEASONAL FLUCTUATIONS

  There are no significant seasonal fluctuations in the Company's business.

GOVERNMENT CONTRACTS

  The Company is not dependent in any material respect on government contracts.

SIGNIFICANT CUSTOMERS

  Sales to one customer represented approximately 25% of total sales for the fiscal year ended September 30, 2014 compared to approximately 14% of total sales for the fiscal year ended September 30, 2013.

EXPORT CONTROLS

  Our products are subject to the Export Administration Regulations ("EAR") administered by the U.S.  Department of Commerce and may, in certain instances, be subject to the International Traffic in Arms Regulations ("ITAR") administered by the U.S.  Department of State.  EAR restricts the export of defense products, technical data and defense services.  We believe that we have implemented internal export procedures and controls in order to achieve compliance with the applicable U.S.  export control regulations.

ENVIRONMENTAL REGULATION

  Compliance with federal, state and local requirements relating to the discharge of substances into the environment, the disposal of hazardous waste and other activities affecting the environment has been accomplished without material effect on the Company's liquidity and capital resources, competitive position or financial statements and management believes that such compliance will not have a material effect on the Company's liquidity and capital resources, competitive position or financial statements in the future.

7


 

 

BACKLOG

  At September 30, 2014, the Company's total backlog of orders, which represents firm orders from customers, was $579,632 compared to $160,344 at September 30, 2013.  The total Company backlog at September 30, 2014 is scheduled to ship during fiscal 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.  

EMPLOYEES

  At September 30, 2014, the Company employed 39 full-time and 3 part-time employees.  

RESEARCH AND DEVELOPMENT

  The Company maintains and expects to continue to maintain an active research and development program.  The Company believes that such a program is needed to maintain its competitive position in existing markets and to provide products for emerging markets.  Costs in connection with research and development were $335,348 and $311,935 for the fiscal years 2014 and 2013, respectively.  Research and development costs are charged to operations as incurred.  

COMPETITION

  The principal competitive factors facing both MFC are price, technical performance, service and the ability to produce in quantity to specific delivery schedules.  Based on these factors, the Company believes it competes favorably in its markets.

AVAILABLE INFORMATION

  Our Internet address is www.microwavefilter.com.  There we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, our proxy statement and any amendments to those reports or statements filed or furnished pursuant to Section 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC).  Our SEC reports can be accessed through the investor relations link of our Web site.  The information found on our Web site is not part of this or any other report we file with or furnish to the SEC.  
   
  The public may read and copy any materials that we file with the SEC at the SEC's Public Reference Room located at 450 Fifth Street NW, Washington, DC 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC also maintains electronic versions of our reports on its website at www.sec.gov.


8


 

 

ITEM 1A.  RISK FACTORS

  Not applicable.


ITEM 1B.  UNRESOLVED STAFF COMMENTS

  None.


ITEM 2.  PROPERTIES.  

  MFC's office and manufacturing facility is located at 6743 Kinne Street, East Syracuse, New York.  This facility, which is owned by MFC, consists of 40,000 square feet of office and manufacturing space located on 3.7 acres.

   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 September 30, 2014 and 2013 was $452,771 and $493,468, 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.

 


ITEM 3.  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. The Company had accrued $12,000 for this action in other current liabilities. 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 4.  MINE SAFETY DISCLOSURES

    Not applicable.   

 

 

   

 

 

 

 

 

9


 

 

PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.


  The Company's securities are currently quoted on the OTCQB marketplace  (www.otcmarkets.com) under the symbol “MFCO.   

  The following table shows the high and low closing sales prices for MFC's common stock for each full quarterly period within the two most recent fiscal years.  The quotations represent prices in the over-the-counter market between dealers in securities.  They do not include retail mark-ups, mark-downs or commissions.

 

 

 

 

 

 

 

 

 

Fiscal 2014

   

High

   

Low

 

 

 

 

 

 

 

Oct. 1, 2013 to Dec. 31, 2013

$

0.54 

$

0.37 

 

Jan. 1, 2014 to Mar. 31, 2014

   

0.69 

   

0.43 

 

Apr. 1, 2014 to June 30, 2014

   

0.69 

   

0.44 

 

July 1, 2014 to Sept. 30, 2014

   

0.58 

   

0.43 

 

 

 

 

 

 

 

Fiscal 2013

   

High

   

Low

 

 

 

 

 

 

 

Oct. 1, 2012 to Dec. 31, 2012

$

1.00 

$

0.60 

 

Jan. 1, 2013 to Mar. 31, 2013

   

0.95 

   

0.66 

 

Apr. 1, 2013 to June 30, 2013

   

0.75 

   

0.30 

 

July 1, 2013 to Sept. 30, 2013

   

0.49 

   

0.32 

 


  The Company had approximately 570 holders of record of its common stock at September 30, 2014.

   Payment of future dividends, if any, will be at the discretion of the Board of Directors after taking into consideration various factors, including the Company's financial condition, operating results and current and anticipated cash needs.

   

 

 

   

 

 

 

 

 

 

 

 

10


 

 

ITEM 6.  SELECTED FINANCIAL DATA.

  The following selected financial information is derived from and should be read in conjunction with the financial statements, including the notes thereto, appearing in Item 8.  - "Financial Statements and Supplemental Data."



Five Year Summary of Financial Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

   

2014

 

   

 

2013

 

 

   

2012

 

   

2011

 

   

2010

   

Net Sales

$

3,627,445 

 

$

 

2,872,491 

 

 

$

4,458,819 

 

$

5,043,934 

 

$

4,691,522 

   

Net Income (Loss)

$

38,567 

 

$

(

551,473 

)

 

$

75,801 

 

$

242,915 

 

$

146,291 

 

Total Assets

$

2,497,294 

 

$

 

2,424,430 

 

 

$

2,599,344 

 

$

2,914,960 

 

$

2,963,224 

   

Equity

$

1,707,708 

 

$

 

1,670,044 

 

 

$

2,221,661 

 

$

2,275,928 

 

$

2,425,568 

 

Long Term Debt

$

410,178 

 

$

 

452,771 

 

 

$

 

$

 

$

   

Basic Earnings (Loss)

   

   

 

   

 

   

 

 

   

   

 

   

   

 

   

   

   

     Per Share

$

0.01 

 

$

(

0.21 

)

 

$

0.03 

 

$

0.09 

 

$

0.06 

 

Diluted Earnings (Loss)

   

   

 

   

 

   

 

 

   

   

 

   

   

 

   

   

   

     Per Share

$

0.01 

 

$

(

0.21 

)

 

$

0.03 

 

$

0.09 

 

$

0.06 

 

Shares Used In Computing Net

   

   

 

   

 

   

 

 

   

   

 

   

   

 

   

   

   

     Earnings (Loss) Per Share:

   

   

 

   

 

   

 

 

   

   

 

   

   

 

   

   

   

     Basic

   

2,584,564 

 

   

 

2,585,204 

 

 

   

2,585,845 

 

   

2,587,807 

 

   

2,592,723 

   

     Diluted

   

2,584,564 

 

   

 

2,585,204 

 

 

   

2,585,845 

 

   

2,587,807 

 

   

2,592,723 

   

Cash ($) Dividends Paid Per  

   

   

 

   

 

   

 

 

   

   

 

   

   

 

   

   

   

     Share

$

 

$

 

 

 

$

0.05 

 

$

0.15 

 

$

   

   

   

   

 

   

 

   

 

 

   

   

 

   

   

 

   

   

   

   

   

   

 

   

 

   

 

 

   

   

 

   

   

 

   

   

   

   

   

   

 

   

 

   

 

 

   

   

 

   

   

 

   

   

   

Net income (loss) as a percentage of:

   

2014

 

   

 

2013

 

 

   

2012

 

   

2011

 

   

2010

   

Net Sales

   

1.06% 

 

   

(

19.20% 

)

 

   

1.70% 

 

   

4.80% 

 

   

3.10% 

 

Assets

   

1.54% 

 

   

(

22.75% 

)

 

   

2.90% 

 

   

8.30% 

 

   

4.90% 

 

Equity

   

2.26% 

 

   

(

33.02% 

)

 

   

3.40% 

 

   

10.70% 

 

   

6.00% 

 

 

 

   

 

 

   

 

 

11


 

 

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

  Microwave Filter Company, Inc.  (MFC) operates primarily in the United States and principally in one industry.  The Company extends credit to business customers, including original equipment manufacturers (OEMs), distributors and other end users, based upon ongoing credit evaluations.  Microwave Filter Company, Inc.  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 and commercial and defense electronics.  NSI's sales consist of spare parts orders.

RESULTS OF OPERATIONS

  The following table sets forth the Company's net sales by major product group for each of the fiscal years in the two year period ended September 30, 2014.

 

 

 

 

 

 

 

Product group (in thousands)

Fiscal 2014

Fiscal 2013

 

 

 

 

 

 

 

Microwave Filter:

 

 

 

 

 

     RF/Microwave

$

1,822,281 

$

974,484 

 

     Satellite

 

1,139,421 

 

1,069,987 

 

     Cable TV

 

520,525 

 

593,335 

 

     Broadcast TV

 

139,902 

 

227,342 

 

Niagara Scientific

 

5,316 

 

7,343 

 

          Total

$

3,627,445 

$

2,872,491 

 

 

 

 

 

 

 

Sales backlog at 9/30

$

579,632 

$

160,344 

 

 

Fiscal 2014 compared to fiscal 2013

  Consolidated net sales for the fiscal year ended September 30, 2014 equaled $3,627,445, an increase of $754,954 or 26.3%, when compared to consolidated net sales of $2,872,491 during the fiscal year ended September 30, 2013.  The increase in sales can primarily be attributed to the increase in sales of the Company’s RF/Microwave product sales.

 

  MFC's RF/Microwave product sales increased $847,797 or 87.0% to $1,822,281 during the fiscal year ended September 30, 2014 when compared to sales of $974,484 during the fiscal year ended September 30, 2013.  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 25% of total sales for the fiscal year ended September 30, 2014 compared to approximately 14% of total sales for the fiscal year ended September 30, 2013. Sales to the US Government increased $195,142 to $281,591 during the fiscal year ended September 30, 2014 when compared to sales of $86,449 during the fiscal year ended September 30, 2013. Sales to the US Government consisted primarily of spare parts which the Government purchases on an as needed basis.    

   

  MFC's Satellite product sales increased $69,434 or 6.5% to $1,139,421 during the fiscal year ended September 30, 2014 when compared to sales of $1,069,987 during the fiscal year ended September 30, 2013.  The increase can be attributed to an increase in demand for 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.

 


 

12


 

 

MFC's Cable TV product sales decreased $72,810 or 12.3% to $520,525 during the fiscal year ended September 30, 2014 when compared to Cable TV product sales of $593,335 during the fiscal year ended September 30, 2013.  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 product sales decreased $87,440 or 38.5% to $139,902 for the fiscal year ended September 30, 2014 when compared to sales of $227,342 for the fiscal year ended September 30, 2013.  These products are primarily sold to system integrators for rural communities.

   At September 30, 2014, the Company's total backlog of orders, which represents firm orders from customers, equaled $579,632 compared to $160,344 at September 30, 2013.  The total Company backlog at September 30, 2014 is scheduled to ship during fiscal 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.

     Gross profit increased $558,630 or 59.6% to $1,495,329 during the fiscal year ended September 30, 2014 when compared to gross profit of $936,699 during the fiscal year ended September 30, 2013. As a percentage of sales, gross profit equaled 41.2% during the fiscal year ended September 30, 2014 compared to 32.6% during the fiscal year ended September 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 larger base to absorb expenses.   
 
  Selling, general and administrative (SG&A) expenses decreased $76,624 or 5.0% to $1,449,498 during the fiscal year ended September 30, 2014 when compared to SG&A expenses of $1,526,122 during the fiscal year ended September 30, 2013.  The dollar decrease can be attributed to planned decreases in catalog printing and direct mail expenses, lower legal expenses, a decrease in bad debt expense due to a reduction in the allowance for doubtful accounts and lower depreciation expense offset by increases in payroll and payroll related expenses. The Company has been participating in the New York State Shared Work Program which allows employers to reduce the hours of all or a particular group of employees. The employees whose hours are reduced can receive partial unemployment insurance benefits to supplement their lost wages or elect to use accrued vacation. As a percentage of sales, SG&A expenses decreased to 40.0% during fiscal 2014 compared to 53.1% during fiscal 2013 primarily due to the higher sales volume this year when compared to the same period last year.

   The Company recorded income from operations of $45,831 for the fiscal year ended September 30, 2014 compared to a loss from operations of $589,423 during the fiscal year ended September 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 $10,861 for the fiscal year ended September 30, 2014 compared to income of $865 for the fiscal year ended September 30, 2013 primarily due to interest expense of $21,524 for the fiscal year ended September 30, 2014 compared to interest expense of $5,590 for the same period last year.


  The Company recorded a benefit for income taxes of $3,597 for the fiscal year ended September 30, 2014 compared to a benefit for income taxes of $37,085 for the fiscal year ended September 30, 2013. The benefit for the current fiscal year can be attributed to a prior year’s federal refund.  The benefit for the fiscal year ended September 30, 2013 can be attributed to a New York State qualified research expenses tax credit. Any provision for income tax expense was fully offset by a reversal of a portion of the Company's valuation allowance. 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 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.

   

13


 

 

LIQUIDITY AND CAPITAL RESOURCES

  MFC defines liquidity as the ability to generate adequate funds to meet its operating and capital needs.  The Company's primary source of liquidity has been funds provided by operations.

 

 

 

 

 

 

 

 

 

 

 

September 30

 

 

 

2014

 

2013

 

Cash & cash equivalents

$

1,081,567 

$

939,959 

 

Working capital

$

1,643,192 

$

1,542,065 

 

Current ratio

 

5.33 to 1

 

6.11 to 1

 

Long-term debt

$

410,178 

$

452,771 

 

 

   Cash and cash equivalents increased $141,608 to $1,081,567 at September 30, 2014 when compared to $939,959 at September 30, 2013. The increase was a result of $209,207 in net cash provided by operating activities, $25,999 in net cash used for capital expenditures, $40,697 in net cash used for repayment of a note payable and  $903 in net cash used to purchase treasury stock.

 

 The net increase of $176,310 in accounts receivable at September 30, 2014, when compared to September 30, 2013, can be attributable to the higher shipments during the month ended September 30, 2014 when compared to the month ended September 30, 2013. Sales for the month ended September 30, 2014 equaled $465,797 compared to sales of $277,172 for the month ended September 30, 2013.

 

   The net decrease of $92,661 in inventories at September 30, 2014, when compared to September 30, 2013, can be attributable to the timing of purchases and our customers scheduled delivery dates.

 

  The increase of $54,631 in accrued compensated absences at September 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. The total amount outstanding as of September 30, 2014 and 2013 was $452,771 and $493,468, 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.

 

    Management believes that its working capital requirements for the foreseeable future will be met by its existing cash balances, future cash flows from operations and its current credit arrangements.

   

Off-Balance Sheet Arrangements

   At September 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.

14


 

 

 

Critical Accounting Policies

  The Company's consolidated financial statements are based on the application of accounting principles generally accepted in the United States of America (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.  

  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 valued at the lower of cost 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.

  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 has deferred tax assets that are reviewed for recoverability and valued accordingly.  These assets are evaluated by using estimates of future taxable income streams and the impact of tax planning strategies.  Valuations related to tax accruals and assets can be impacted by changes to tax codes, changes in statutory tax rates and the Company's future taxable income levels.  The Company has provided a full valuation allowance against its deferred tax assets.

15


 

 

NEW ACCOUNTING PRONOUNCEMENTS

   
  In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in fiscal year 2018.

 

  In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This standard sets forth management’s responsibility to evaluate, each reporting period, whether there is substantial doubt about our ability to continue as a going concern, and if so, to provide related footnote disclosures. The standard is effective for annual reporting periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. We are currently evaluating this new standard and after adoption, we will incorporate this guidance in our assessment of going concern.

  

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 Annual Report on Form 10-K may include 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 2014 Annual Report and Form 10-K for the fiscal year ended September 30, 2014 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 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

   As a “smaller reporting company”, we are not required to provide information required by this item.

 

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

  The Financial Statements called for by this item are submitted as a separate section of this report.  

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.  

  None.

   

16


 

 

ITEM 9A.  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.

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.

 The COSO communication 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 for the quarter ended December 31, 2014.


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 in 1992.  Based on this evaluation, the Company's management concluded and certifies that its internal control over financial reporting was effective as of September 30, 2014.

  This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Our report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management's report in this annual report.


ITEM 9B.  OTHER INFORMATION

  None.

   

 

   

 

 

 

 

 

17


 

 

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

  The names of, and certain information with respect to, the directors of MFC
is set forth below:

 

   

   

Common Shares

   

   

   

Actually or

Percent

   

   

Beneficially

of

Director

Principal occupation

Owned 11/14/14

Class

   

   

   

   

ROBERT R. ANDREWS

Mr. Andrews is the Chairman of the Board and past President of Morse Manufacturing Co., Inc., East Syracuse, N.Y. which produces specialized material handling equipment and has served in that capacity since prior to 1985. He received a B.A degree from Arkansas University and has served as Vice President and a director of the Manufacturers' Association of Central New York, President of the Citizens Foundation, a Trustee of Dewitt Community Church, director of the Salvation Army and Chairman of the Business and Industry Council of Onondaga Community College. Mr. Andrews was elected Chairman of the Board of Directors of Microwave Filter Company, Inc. on November 17, 2004.  

1,214

*

(a)(b)(c)(d)

Age 74

Director since 1992

   

   

   

   

ANNE TINDALL

Ms. Tindall is the founder and President of Employee Management Strategies, Inc. in Fayetteville, New York which provides a variety of comprehensive on and off-site professional and human resource-related services to employers. Ms. Tindall is a graduate of the State University College at Buffalo with a Bachelor of Arts in Human Development - Family and Community Relations, in addition to a number of human resource-related courses and seminars. 

0

 

(a)(b)(d)

Age 61

Director since 2012

   

   

   

   

SIDNEY CHONG

Mr. Chong was a corporate accountant for Carrols Corp. in Syracuse prior to his retirement in January 2011. Prior to joining Carrols Corp., he was a Senior Accountant with Price Waterhouse and Co. in New York City. Mr. Chong has a Bachelor of Science degree in accounting from California State University.  

1,000

*

(a)(b)(c)

Age 73

Director since 1995

   

   

   

   

CARL F. FAHRENKRUG, PE

Mr. Fahrenkrug was appointed President and Chief Executive Officer of MFC on October 7, 1992. He has also served as President and Chief Executive Officer of NSI since prior to 1986. He served as Vice President of Engineering at Microwave Systems, Inc., Syracuse, N.Y. from 1972-1976. Mr. Fahrenkrug has a B.S. and M.S. in Engineering and an MBA from Syracuse University.

72,298

2.80%

(a)

Age 72

Director since 1984

18


 

 

ROBERT D. SHIROKI

Mr. Shiroki is a Certified Public Accountant in the State of New York and the owner of Shiroki Associates CPA's located in Fayetteville, New York, which specializes in small businesses and startups. Prior to joining Shiroki Associates, he was the controller for Hart Lyman Companies of East Syracuse, New York. Mr. Shiroki has a Bachelor of Science in Finance from SUNY Brockport and a Bachelor of Science in Accounting from Syracuse University.   

88,482

  3.4%

(b)(c)(d)

Age 51

Director since 2012

   

   

   

   

ROBERT D. ESSIG

Mr. Essig is Of Counsel to the Law Firm of Costello, Cooney & Fearon, PLLC in Syracuse, New York. His primary areas of practice have been Commercial Law, Commercial Real Estate, Environmental Law, Municipal Law and Zoning Law. Mr. Essig graduated with honors from Fordham University School of Law, J.D., in June of 1975. Mr. Essig was admitted to the New York State Bar and the Federal District Court (NDNY) in 1976. Mr. Essig is a member of the New York State Bar Association and the Onondaga County Bar Association.  

0

   

(a)(d)

Age 69

Director since 2012

   

   

   

   

RICHARD L. JONES

Mr. Jones was appointed a Director of Microwave Filter Company, Inc. on September 7, 2004. Mr. Jones has served as a Vice President and the Chief Financial Officer of Microwave Filter Company, Inc. since October 7, 1992. He has a Bachelor of Science degree in accounting from Syracuse University.  

0

   

Age 66

Director since 2004

   

   

   

   

JOHN J. KENNEDY

Mr. Kennedy is the Senior Partner and Co-founder of Hawthorne Consulting Group, LLC, a continuous improvement consulting firm dedicated to the education and training of business owners, managers and their employees in the concepts of the Toyota Production System. Prior to that, Mr. Kennedy was a senior consultant with Seven Pines Consulting Group/Rutherford Associates. He has also held various management positions with Orion Bus Industries Ltd, General Motors Corp. and the Miller Brewing Company. He holds an MBA from Syracuse University and a BS degree from the University of Pennsylvania.  

1,000

*

(a)(b)(d)

Age 65

Director since 2009

 

 

 

 

FRANK S. MARKOVICH

Mr. Markovich is a consultant in the manufacturing operations and training field. Prior to that he was the Director of the Manufacturing Extension Partnership at UNIPEG Binghamton. He held various high level positions in operations, quality and product management in a 20 year career with BF Goodrich Aerospace, Simmonds Precision Engine Systems of Norwich, New York. He completed US Navy Electronics and Communications Schools and received an MBA from Syracuse University.  

4,340

*

(c)(d)

Age 70

Director since 1992

19


 

 

(a)Member of Executive Committee
(b)Member of Compensation Committee
(c)Member of Finance and Audit Committee
(d)Member of Nominating Committee

*  Denotes less than one percent of class.

   

   

The Directors listed above and executive officers as a group own 168,334 shares or approximately 6.5% of the outstanding common shares of the Company.

The Board of Directors of Microwave Filter Company, Inc.  has determined that  Mr.  Chong and Mr.  Shiroki, both members of the Audit Committee, are "audit committee financial experts" as defined by the SEC's regulations.

IDENTIFICATION OF EXECUTIVE OFFICERS

2

 

 

 

 

Name

Age

Position

 

 

 

 

 

Carl F. Fahrenkrug, Sr

72

President and Chief Executive Officer

 

 

 

 

 

Richard L. Jones

66

Vice President, Chief Financial

 

 

 

Officer and Corporate Secretary

 

 

 

 

 

Paul W. Mears

55

Vice President of Engineering

 

 

 

 

 

Carl F. Fahrenkrug, Jr

46

Vice President of Manufacturing and Systems

 


     
All of the officers serve at the pleasure of the Board of Directors.

Carl F.  Fahrenkrug, Sr was elected President and Chief Executive Officer of MFC on October 7, 1992.  Prior to that date, he had been Executive Vice President and Chief Operating Officer of MFC.  Prior to January 1, 1992, he was President and CEO of NSI and Vice President of Corporate Development for MFC.  

Richard L.  Jones joined MFC in August 1983 as controller.  In February 1985, he was appointed Vice President and Treasurer of MFC.  On October 7, 1992, he was appointed Vice President and Chief Financial Officer.  

Paul W.  Mears began his association with MFC as a Co-op while attending RIT in 1981.  He became a full time employee in 1984 when he began his duties as an Electrical Engineer in Research and Development.  In 1988 he became a Senior Design and Quotation Engineer and in 1989, he was promoted to Assistant Chief Engineer, Manager of Engineering of the Filter Division and in April of 1998, was appointed Vice President of Engineering.

Carl F. Fahrenkrug, Jr joined MFC in 1989 as an engineering intern.  In 1992, he became a full time employee when he began his duties as an electrical engineer.  On April 8, 2009, he was appointed Vice President.


The Company has adopted a Code of Ethics and Business Conduct for all of our employees and directors, including our Chief Executive Officer and Chief Financial Officer.  A copy of our Code of Ethics and Business Conduct is available free of charge on our Company web site at www.microwavefilter.com.

 

20


 

 

ITEM 11.  EXECUTIVE COMPENSATION.

  Information required by this Item is contained in the Company's proxy statement filed with respect to the 2014 Annual Meeting of Shareholders and is incorporated by reference herein.


PROFIT SHARING

  MFC has a profit sharing plan for all employees over the age of 21 with one year of service.  Annual contributions are determined by the Board of Directors and are made from current or accumulated net income.  Allocation of contributions to plan participants are based upon annual compensation.  Participants vest on the basis of 20% after 3 years of service, 40% at 4 years, 60% at 5 years, 80% at 6 years and 100% at 7 years.  MFC's contributions to the profit sharing plan were $0 for the years ended September 30, 2014 and 2013.

  MFC also has a voluntary 401-K plan.  Eligibility is the same as the Profit Sharing Plan.  Contributions to the 401-K plan were matched at a rate of 100% of an employee's first 6% of contributions during fiscal 2013.  The maximum corporate match was 6% of an employee's compensation during fiscal 2014.  

  MFC's matching contributions to the 401-K plan for the years ended September 30, 2014 and 2013 amounted to $76,460 and $80,074, respectively.


COMPENSATION OF DIRECTORS

  Non-officer directors currently receive fees of $250.00 per board and committee meetings.  MFC also reimburses directors for reasonable expenses incurred in attending meetings.  The Chairman of the Board receives $400.00 per board and committee meetings.  Officer members receive no compensation for their attendance at meetings.

   

 

ITEM 12.  SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.

  Information required by this Item is contained in the Company's proxy statement filed with respect to the 2015 Annual Meeting of Shareholders and is incorporated by reference herein.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.  

  None


ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

  Information required by this Item is contained in the Company's proxy statement filed with respect to the 2015 Annual Meeting of Shareholders and is incorporated by reference herein.

21


 

 

PART IV

ITEM 15.  FINANCIAL STATEMENT SCHEDULES AND EXHIBITS.

(a)    1.  and 2.  Financial Statements and Schedules:
     
       Reference is made to the list of Financial Statements submitted

      as a separate section of this report.

(b)    Exhibits:

       Reference is made to the List of Exhibits submitted as a separate
       section of this report.  

   

 

   

SIGNATURES
  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Microwave Filter Company, Inc.  has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  

MICROWAVE FILTER COMPANY, INC.

|S| Carl F.  Fahrenkrug
--------------------------
By:  Carl F.  Fahrenkrug
(President and Chief Executive Officer)

|S| Richard Jones
---------------------
By:  Richard Jones
(Vice President and Chief Financial Officer)

Dated:  December 18, 2014


  Pursuant to the requirements Of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:

 

 

|S| Robert R. Andrews

|S| Carl F. Fahrenkrug

-----------------------------

----------------------------

Robert R. Andrews

Carl F. Fahrenkrug

(Director)

(Director)

 

 

|S| Frank Markovich

|S| Richard L. Jones

--------------------------

--------------------------

Frank Markovich

Richard L. Jones

(Director)

(Director)

 

 

|S| Sidney Chong

 

----------------------

 

Sidney Chong

 

(Director)

 

 


Dated:  December 18, 2014

22


 

 

ANNUAL REPORT ON FORM 10-K

               MICROWAVE FILTER COMPANY, INC.
                      AND SUBSIDIARIES

         INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
             

                 ITEM 8, ITEM 15(a)(1) and (2)

 

 

CONSOLIDATED FINANCIAL STATEMENTS:

Page

 

 

Report of Independent Registered Public Accounting Firm  ..................................

24

Consolidated Balance Sheets as of September 30, 2014 and 2013  ........................

25

Consolidated Statements of Operations for the Years

 

     Ended September 30, 2014 and 2013  ................................................................

26

Consolidated Statements of Stockholders' Equity for the Years

 

     Ended September 30, 2014 and 2013  ................................................................

27

Consolidated Statements of Cash Flows for the Years

 

     Ended September 30, 2014 and 2013  ................................................................

28

Notes to Consolidated Financial Statements  ..........................................................

30-37

 

 

 

 

 

 

 

 

 

 

 

 

 


  All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

 

   

 

   

 

 

23


 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the Board of Directors and
Stockholders of Microwave Filter Company, Inc. 

We have audited the accompanying consolidated balance sheets of Microwave Filter Company, Inc.  as of September 30, 2014 and 2013, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the two-year period ended September 30, 2014.  Microwave Filter  Company, Inc.'s management is responsible for these consolidated financial statements.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Microwave Filter Company, Inc. as of September 30, 2014 and 2013, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2014 in conformity with accounting principles generally accepted in the United States of America.




/s/ EFP Rotenberg, LLP

EFP Rotenberg, LLP
Rochester, New York
December 18, 2014

 

   

 

 

 

 

 

 

 

 

 

 

 

 

24


 

 

 

Microwave Filter Company and Subsidiaries

Consolidated Balance Sheets

-----------------------------------------------------------------

 

 

 

 

 

 

 

 

 

 

 

 

 

   

   

September 30,

 

Assets

 

   

2014

   

 

   

2013

   

 

--------- 

 

   

   

   

 

   

   

   

 

Current assets:

 

   

   

   

 

   

   

   

 

     Cash and cash equivalents

$  

 

1,081,567 

   

$

 

939,959 

   

 

     Accounts receivable-trade, net of allowance for

 

   

   

   

 

   

   

   

 

          doubtful accounts of $4,000 and $26,000

 

   

377,473 

   

 

   

201,163 

   

 

     Federal and state income tax recoverable

 

   

   

 

   

37,085 

   

 

     Inventories, net of obsolete inventory reserve

 

   

 

   

 

   

 

   

 

          of $413,447 and $400,664

 

 

473,839 

 

 

 

566,500 

 

 

     Prepaid expenses and other current assets

 

   

89,721 

   

 

   

98,973 

   

 

   

 

   

   

   

 

   

   

   

 

     Total current assets

 

   

2,022,600 

   

 

   

1,843,680 

   

 

   

 

   

   

   

 

   

   

   

 

Property, plant and equipment, net

 

   

474,694 

   

 

   

580,750 

   

 

   

 

   

   

   

 

   

   

   

 

               Total Assets

$  

 

2,497,294 

   

$  

 

2,424,430 

   

 

   

 

   

   

   

 

   

   

   

 

Liabilities and Stockholders' Equity

 

   

   

   

 

   

   

   

 

---------------------------------------------- 

 

   

   

   

 

   

   

   

 

Current liabilities:

 

   

   

   

 

   

   

   

 

     Accounts payable

$  

 

73,293 

   

$  

 

68,632 

   

 

     Customer deposits

 

   

32,431 

   

 

   

16,362 

   

 

     Accrued payroll and related expenses

 

   

50,234 

   

 

   

46,453 

   

 

     Accrued compensated absences

 

   

148,903 

   

 

   

94,272 

   

 

     Notes Payable - Short Term

 

   

42,593 

   

 

   

40,697 

 

 

     Other current liabilities

 

   

31,954 

   

 

   

35,199 

   

 

   

 

   

   

   

 

   

   

   

 

          Total current liabilities

 

   

379,408 

   

 

   

301,615 

   

 

   

 

   

   

   

 

   

   

   

 

     Notes Payable - Long Term

 

   

410,178 

   

 

   

452,771 

 

 

          Total other liabilities

 

 

410,178 

   

 

   

452,771 

 

 

 

 

 

 

 

 

 

 

 

 

          Total liabilities

 

   

789,586 

   

 

   

754,386 

   

 

   

 

   

   

   

 

   

   

   

 

Stockholders' equity:

 

   

   

   

 

   

   

   

 

     Common stock, $.10 par value. Authorized 5,000,000 shares

 

   

   

   

 

   

   

   

 

          Issued 4,324,140 in 2014 and 2013, Outstanding

 

   

   

   

 

   

   

   

 

          2,583,507 in 2014 and 2,585,086 in 2013

 

   

432,414 

   

 

   

432,414 

   

 

     Additional paid-in capital

 

   

3,248,706 

   

 

   

3,248,706 

   

 

     Retained earnings

 

(

280,893 

)

 

(

319,460 

)

 

     Common stock in treasury, at cost, 1,740,633

 

   

   

   

 

   

   

   

 

     shares in 2014 and 1,739,054 shares in 2013

 

(

1,692,519 

)

 

(

1,691,616 

)

 

   

 

   

   

   

 

   

   

   

 

          Total stockholders' equity

 

   

1,707,708 

   

 

   

1,670,044 

   

 

   

 

   

   

   

 

   

   

   

 

          Total Liabilities and Stockholders' Equity

$

 

2,497,294 

   

$

 

2,424,430 

   

 

 

The accompanying notes are an integral part of the consolidated financial statements.

25


 

 

 

 

 

Microwave Filter Company and Subsidiaries

Consolidated Statements of Operations

-----------------------------------------------------------------

 

 

 

 

 

 

 

 

 

 

 

 

 

   

For the Years Ended September 30

 

 

   

   

2014

   

   

 

2013

 

 

   

   

   

   

   

   

 

   

 

 

Net sales

$

   

3,627,445 

   

$

 

2,872,491 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

   

   

2,132,116 

   

   

 

1,935,792 

 

 

   

   

   

   

   

   

 

   

 

 

          Gross profit

   

   

1,495,329 

   

   

 

936,699 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general

   

   

   

   

   

 

   

 

 

     and administrative expenses

   

   

1,449,498 

   

   

 

1,526,122 

 

 

   

   

   

   

   

   

 

   

 

 

          Income (loss) from operations

   

 

45,831 

 

 

(

589,423 

)

 

   

   

   

   

   

   

 

   

 

 

Non-operating Income (Expense)

   

   

   

   

   

 

   

 

 

          Interest income

   

   

2,005 

   

   

 

1,826 

 

 

          Interest expense

   

(

21,524 

)

 

(

5,590 

)

 

          Miscellaneous

   

   

8,658 

   

   

 

4,629 

 

 

   

   

   

   

   

   

 

   

 

 

          Income (Loss) before income taxes

   

 

34,970 

 

 

(

588,558 

)

 

   

   

   

   

   

   

 

   

 

 

Benefit from income taxes

 

(

3,597 

)

 

(

37,085 

)

 

 

   

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

$

 

38,567 

 

$

(

551,473 

)

 

   

   

   

   

   

   

 

   

 

 

Per share data:  

   

   

   

   

   

 

   

 

 

Basic and Diluted Earnings (Loss)

   

   

   

   

   

 

   

 

 

     Per Common Share

$

 

0.01 

 

$

(

0.21 

)

 

   

   

   

   

   

   

 

   

 

 

Shares used in computing net

   

   

   

   

   

 

   

 

 

     earnings (loss) per common share:

   

   

   

   

   

 

   

 

 

     Basic and diluted

   

   

2,584,564 

   

   

 

2,585,204 

 

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

26


 

 

 

 

 

Microwave Filter Company and Subsidiaries

Consolidated Statements of Stockholders' Equity

For the Years Ended September 30, 2014 and 2013

-----------------------------------------------------------------

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

Common Stock

Retained

Treasury Stock

Stockholders'

Shares

Amt

Capital

Earnings

Shares

Amt

Equity

Balance  

September 30, 2012

4,324,140

$

432,414

$

3,248,706

$

232,013
1,738,819

$

(

1,691,472

)

$

2,221,661

Net loss

(

551,473 

)

(

551,473 

)

Purchase of treasury stock

235

(

144

)

(

144

)

Balance  

September 30, 2013

4,324,140
432,414
3,248,706

(

319,460

)

1,739,054

(

1,691,616

)

1,670,044

Net income

38,567
38,567

Purchase of treasury stock

1,579

(

903

)

(

903

)

Balance

September 30, 2014

4,324,140

$

432,414

$

3,248,706

$

(

280,893

)

1,740,633

 

$

(

1,692,519

)

$

1,707,708

 

 

 



The accompanying notes are an integral part of the consolidated financial statements.

 

   

 

 

 

 

 

 

 

 

27


 

 

 

 

 

Microwave Filter Company and Subsidiaries

Consolidated Statements of Cash Flows

-------------------------------------------------------------------

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended September 30

 

 

 

 

 

   

 

2014

   

   

 

2013

   

 

   

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

          Net income (loss)  

$

 

38,567 

 

$  

(

551,473 

)

 

Adjustments to reconcile net income to

 

 

 

 

 

 

 

 

 

     net cash provided by (used in) operating

 

 

 

 

 

 

 

 

 

     activities:

 

 

 

 

 

 

 

 

 

          Depreciation  

   

   

132,055 

   

   

   

166,120 

   

 

         Provision for doubtful accounts

 

(

21,950 

)

 

 

 

 

          Inventory obsolescence provision

 

 

12,783 

 

 

(

7,675 

)

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

          Accounts receivable-trade

 

(

154,360 

)

 

 

62,222 

 

 

          Federal and state income tax recoverable  

   

 

37,085 

 

   

(

37,085 

)

 

          Inventories  

   

 

79,878 

 

   

(

29,750 

)

 

          Prepaid and other current assets  

   

 

9,252 

 

   

 

12,369 

 

 

          Accounts payable and customer deposits  

   

 

20,730 

 

   

 (

37,894 

)  

 

          Accrued payroll, compensated absences and

 

 

 

 

 

 

 

 

 

               related expenses

 

 

58,412 

 

 

 (

82,762 

)

 

          Other current liabilities  

   

(

3,245 

)

   

 

3,891 

 

 

   

 

 

 

 

 

 

 

 

 

          Net cash provided by (used in)

 

 

 

 

 

 

 

 

 

               operating activities  

   

 

209,207 

 

   

(

502,037 

)

 

   

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

          Capital expenditures

 

(

25,999 

)

 

(

74,345 

)

 

          Net cash used in

 

 

 

 

 

 

 

 

 

               investing activities  

   

(  

25,999 

)

   

(  

74,345 

)

 

   

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

     Proceeds from note payable  

   

 

 

   

 

493,468 

 

 

    Repayment of note payable

 

(  

40,697 

)

   

 

 

 

     Purchase of treasury stock  

 

(  

903 

)

   

(  

144 

)

 

   

 

 

 

 

 

 

 

 

 

          Net cash (used in) provided by

 

 

 

 

 

 

 

 

 

               financing activities  

   

(

41,600 

)

   

 

493,324 

 

 

   

 

 

 

 

 

 

 

 

 

          Net increase (decrease) in cash

 

 

 

 

 

 

 

 

 

               and cash equivalents  

   

 

141,608 

 

   

(

83,058 

)

 

   

 

 

 

 

 

 

 

 

 

28


 

 

Cash and cash equivalents at

 

 

 

 

 

 

 

 

 

     beginning of year  

   

   

939,959 

   

   

   

1,023,017 

   

 

   

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of year  

$

   

1,081,567 

   

$

   

939,959 

   

 

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