UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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) |
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, $.10 Par Value - 2,586,227 shares
as of February 1, 2012.
Item | Page |
Part I Financial Information | |
Item 1. Financial Statements | 3 |
Consolidated Balance Sheets (unaudited) | 3 |
Consolidated Statements of Operations (unaudited) | 4 |
Consolidated Statements of Cash Flows (unaudited) | 5 |
Notes to Consolidated Financial Statements (unaudited) | 6-8 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9-13 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 14 |
Item 4. Controls and Procedures | 15 |
Part II Other Information | 16 |
Signatures | 17 |
December 31, 2011 |
September 30, 2011 |
||||||||||
Assets | |||||||||||
Current Assets: | |||||||||||
Cash and cash equivalents | $ |
|
1,298,693 | $ |
1,258,885 | ||||||
Accounts receivable-trade, net of |
|
|
|||||||||
allowance for doubtful accounts | |||||||||||
of $26,000 and $26,000 | 221,686 | 352,054 | |||||||||
Federal and state income
tax recoverable |
0 |
24,828 |
|||||||||
Inventories, net |
517,391 | 567,261 | |||||||||
Prepaid expenses and other current assets | 81,867 | 94,114 | |||||||||
|
|
||||||||||
Total current assets | 2,119,637 | 2,297,142 | |||||||||
Property, plant and equipment, net | 769,313 | 617,818 | |||||||||
|
|
||||||||||
Total assets | $ |
|
2,888,950 | $ |
2,914,960 | ||||||
|
|
||||||||||
Liabilities and Stockholders' Equity | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ |
|
151,701 | $ |
195,535 | ||||||
Customer deposits | 57,909 | 51,886 | |||||||||
Accrued federal and state income taxes | 574 | 0 |
|||||||||
Accrued payroll and related expenses | 39,421 | 57,514 | |||||||||
Accrued compensated absences | 228,845 | 250,443 | |||||||||
Other current liabilities | 31,755 | 83,654 | |||||||||
|
|
||||||||||
Total current liabilities | 510,205 | 639,032 | |||||||||
|
|
||||||||||
Total liabilities | 510,205 | 639,032 | |||||||||
|
|
||||||||||
Stockholders' Equity: | |||||||||||
Common stock, $.10 par value |
|
|
|||||||||
Authorized 5,000,000 shares, Issued | |||||||||||
4,324,140 shares in 2012 and 2011, | |||||||||||
Outstanding 2,586,227 shares in 2012 | |||||||||||
and 2011 | 432,414 | 432,414 | |||||||||
Additional paid-in capital | 3,248,706 | 3,248,706 | |||||||||
Retained earnings | 388,302 | 285,485 | |||||||||
|
|||||||||||
Common stock in treasury, at cost | |||||||||||
1,737,913 shares in 2012
and 2011 |
( |
1,690,677 |
) |
( |
1,690,677 |
) |
|||||
Total stockholders' equity | 2,378,745 | 2,275,928 | |||||||||
|
|
||||||||||
Total liabilities and stockholders' equity | $ |
|
2,888,950 | $ |
2,914,960 | ||||||
Microwave Filter Company and
Subsidiaries
Consolidated Statements of
Operations (unaudited)
For the Three Months Ended
December 31, 2011 and 2010
Three months ended | ||||||||
December 31, | ||||||||
2011 | 2010 | |||||||
Net sales |
$
|
1,317,207 | $ | 1,294,567 | ||||
Cost of goods sold | 813,995 | 827,308 | ||||||
|
|
|||||||
Gross profit | 503,212 | 467,259 | ||||||
Selling, general and administrative expenses | 421,970 | 421,214 | ||||||
|
|
|||||||
Income from operations | 81,242 | 46,045 | ||||||
Other income (net) | 21,575 |
1,548 |
||||||
Income before income taxes | 102,817 | 47,593 | ||||||
Provision (benefit) for income taxes | 0 | 0 | ||||||
NET INCOME |
$
|
102,817 | $ | 47,593 | ||||
|
||||||||
Per share data: | ||||||||
Basic and diluted earnings per share |
$
|
0.04 |
$
|
0.02 | ||||
Shares used in computing net | ||||||||
earnings per share: | 2,586,227 | 2,589,885 |
Three months ended | |||||||||
December 31 | |||||||||
|
2011 | 2010 | |||||||
Cash flows from operating activities: | |||||||||
Net income |
$ | 102,817 | $ | 47,593 | |||||
Adjustments to reconcile net income |
|||||||||
to net cash provided by (used in) | |||||||||
operating activities: | |||||||||
Depreciation | 37,583 | 22,759 | |||||||
Gain on sale of fixed assets |
( |
20,000 |
) |
0 | |||||
Change in assets and liabilities: | |||||||||
Accounts receivable | 130,368 | 67,268 |
|
||||||
Federal and state income tax
recoverable |
25,402 |
0 |
|||||||
Inventories | |
49,870 | ( | 17,252 | ) | ||||
Prepaid expenses and other assets | 12,247 | 20,292 | |||||||
Accounts payable and customer deposits | ( |
37,811 | ) | 91,436 | |||||
Accrued payroll, compensated absences | |||||||||
and related expenses | ( |
39,691 | ) | ( |
36,128 | ) | |||
Other current liabilities | ( |
51,899 | ) | 5,375 | |||||
|
|
||||||||
Net cash provided by (used in) | |||||||||
operating activities | 208,886 | 201,343 |
|
||||||
|
|
||||||||
Cash flows from investing activities: | |||||||||
Capital expenditures |
( |
189,078 |
) |
( |
4,470 |
) |
|||
Proceeds
from sale of fixed assets |
|
20,000 |
|
0 | |||||
Net cash (used in) provided by | |||||||||
investing activities | ( |
169,078 | ) | ( |
4,470 | ) | |||
|
|
||||||||
Cash flows from financing activities: | |||||||||
Purchase of treasury stock | 0 |
( |
1,912 | ) | |||||
|
|
|
|||||||
Net cash (used in) provided by | |||||||||
financing activities | 0 |
( |
1,912 | ) | |||||
|
|
||||||||
Net increase (decrease) in cash | |||||||||
and cash equivalents | 39,808 | 194,961 | |||||||
Cash and cash equivalents | |||||||||
at beginning of period | 1,258,885 | 1,466,719 | |||||||
|
|
||||||||
Cash and cash equivalents | |||||||||
at end of period | $ | 1,298,693 | $ | 1,661,680 | |||||
Supplemental Schedule of Cash
Flow Information: |
|||||||||
Income taxes paid |
$ |
15,000 |
$ |
0 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting
Policies
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Regulation
S-K. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The
operating results for the three month period ended December 31,
2011 are not necessarily indicative of the results that may be
expected for the year ended September 30, 2012. For further
information, refer to the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10K
for the year ended September 30, 2011.
Note 2. Industry Segment Data
The Company's business 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:
December
31, 2011 |
September
30, 2011
|
Raw materials and stock parts | $ | 455,304 |
$
|
499,622 | ||||
Work-in-process | 15,521 | 14,056 | ||||||
Finished goods | 46,566 | 53,583 | ||||||
|
|
|||||||
$ | 517,391 |
$
|
567,261 |
Note 5. Legal Matters
The State of New York Workers’ Compensation Board has
commenced an action against Microwave Filter Company, Inc. to
recover for an underfunded self insured program that Microwave
Filter Company, Inc. participated in. Due to the relatively short
period of time Microwave Filter Company, Inc. participated in the
program and the limited amount of potential exposure, we do not
expect the resolution of this action will have a material adverse
effect on our financial condition, results of operations or cash
flows. The Company has accrued $12,000 for this action in other
current liabilities.
Note 6. Fair Value of Financial Instruments
Note 7. Significant Customers
Sales to one customer represented approximately 16% of
total sales for the three months ended December 31, 2011 compared
to 14% of total sales for the three months ended December 31,
2010.
Note 8. Recent Accounting Pronouncements
In May 2011, the
FASB issued Accounting Standards Update No. 2011-04, topic
820, Fair Value Measurement, to improve the
comparability of fair value measurements presented and
disclosed in financial statements prepared in accordance with
United States GAAP and International Financial Reporting
Standards. Some of the amendments clarify the Board’s intent
about the application of existing fair value measurement
requirements. Other amendments change a particular principle
or requirement for measuring fair value or for disclosing
information about fair value measurements. Specifically, the
guidance requires additional disclosures for fair value
measurements that are based on significant unobservable
inputs. The updated guidance is to be applied prospectively
and is effective for the Company’s interim and annual periods
beginning January 1, 2012. The adoption of this guidance is
not expected to have a material impact on the Company’s
consolidated financial statements.
FASB Accounting Standards Update
2011-05, "Presentation of Comprehensive Income," was issued in
June 2011 to be effective for fiscal years beginning after
December 15, 2011. Comprehensive income includes certain items
that are recognized as "other comprehensive income" ("OCI")
and are excluded from net income. Examples include unrealized
gains/losses on certain investments and gains/losses on
derivative instruments designated as hedges. Under provisions
of the update, the components of OCI must be presented in one
of two formats: either (i) together with net income in a
continuous statement of comprehensive income or (ii) in a
second statement of comprehensive income to immediately follow
the income statement. An existing option to present the
components of OCI as part of the statement of changes in
shareholders' equity is being eliminated. The Company expects
the update to have minimal effect on its financial statements.
Microwave Filter Company, Inc. operates primarily in the United States and principally in one industry. The Company extends credit to business customers based upon ongoing credit evaluations. Microwave Filter Company, Inc. (MFC) designs, develops, manufactures and sells electronic filters, both for radio and microwave frequencies, to help process signal distribution and to prevent unwanted signals from disrupting transmit or receive operations. Markets served include cable television, television and radio broadcast, satellite broadcast, mobile radio, commercial communications and defense electronics.
Critical Accounting Policies
The Company's consolidated financial statements are based on the application of United States generally accepted accounting principles (GAAP). GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. The Company believes its use of estimates and underlying accounting assumptions adhere to GAAP and are consistently applied. Valuations based on estimates are reviewed for reasonableness and adequacy on a consistent basis throughout the Company. Primary areas where financial information of the Company is subject to the use of estimates, assumptions and the application of judgment include revenues, receivables, inventories, and taxes. Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011 describes the significant accounting policies used in preparation of the consolidated financial statements. The most significant areas involving management judgments and estimates are described below and are considered by management to be critical to understanding the financial condition and results of operations of the Company.
Revenues from product sales are recorded as the products are shipped and title and risk of loss have passed to the customer, provided that no significant vendor or post-contract support obligations remain and the collection of the related receivable is probable. Billings in advance of the Company's performance of such work are reflected as customer deposits in the accompanying consolidated balance sheet.
Allowances for doubtful accounts are based on estimates of losses related to customer receivable balances. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances.
The Company's inventories are stated at the lower of cost determined on the first-in, first-out method or market. The Company uses certain estimates and judgments and considers several factors including product demand and changes in technology to provide for excess and obsolescence reserves to properly value inventory.
The Company accounts for income taxes under FASB ASC
740-10. Deferred tax assets and liabilities are based on the
difference between the financial statement and tax basis of assets
and liabilities as measured by the enacted tax rates which are
anticipated to be in effect when these differences reverse. The
deferred tax provision is the result of the net change in the
deferred tax assets and liabilities. A valuation allowance is
established when it is necessary to reduce deferred tax assets to
amounts expected to be realized. The Company has provided a full
valuation allowance against its deferred tax assets.
<PAGE>
10
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2011 vs. THREE MONTHS ENDED DECEMBER 31, 2010.
The following table sets forth the
Company's net sales by major product group for the three months
ended December 31, 2011 and 2010.
Quarter ended |
Quarter ended |
|||||
Product group | Dec. 31, 2011 |
Dec. 31, 2010
|
||||
Microwave Filter (MFC): | ||||||
RF/Microwave | $ | 525,932 |
$
|
419,330 | ||
Cable TV |
433,447 | 396,575 | ||||
Satellite |
331,354 | 447,352 | ||||
Broadcast TV | 25,128 | 31,152 | ||||
Niagara Scientific (NSI): | 1,346 | 158 |
||||
|
|
|||||
Total | $ | 1,317,207 |
$
|
1,294,567 | ||
|
|
|||||
Sales
backlog at December 31 |
$ | 303,666 |
$
|
672,366 |
MFC’s Satellite product sales decreased $115,998 or 25.9% to $331,354 for the three months ended December 31, 2011 when compared to Satellite product sales of $447,352 during the same period last year. The decrease can be attributed to a decrease in demand for the Company’s filters which suppress strong out-of-band interference caused by military and civilian radar systems and other sources. Management attributes the decrease in sales to global economic conditions. For the quarter ended December 31, 2011, international sales were down $82,111 or 44.6% to $102,197 when compared to international sales of $184,308 for the quarter ended December 31, 2010. 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.
MFC’s Broadcast TV/Wireless Cable product sales decreased $6,024 or 19.3% to $25,128 for the three months ended December 31, 2011 when compared to sales of $31,152 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 $303,666 at December 31, 2011 compared to sales order backlog of $672,366 at December 31, 2010. However, backlog is not necessarily indicative of future sales. Accordingly, the Company does not believe that its backlog as of any particular date is representative of actual sales for any succeeding period. The total sales order backlog at December 31, 2011 is scheduled to ship by September 30, 2012.
Gross profit for the three months ended December 31, 2011
equaled $503,212, an increase of $35,953 or 7.7%, when compared to
gross profit of $467,259 for the three months ended December 31,
2010. As a percentage of sales, gross profit increased to 38.2%
for the three months ended December 31, 2011 compared to 36.1% for
the three months ended December 31, 2010.The increase in gross
profit can be attributed to the higher sales volume, lower direct
material costs as a percentage of sales primarily due to product
sales mix and lower manufacturing overhead payroll and payroll
related expenses this year when compared to the same period last
year.
Selling, general and administrative (SGA) expenses for the three months ended December 31, 2011 equaled $421,970, an increase of $756 or 0.2%, when compared to SGA expenses of $421,214 for the three months ended December 31, 2010. As a percentage of sales, SGA expenses decreased to 32.0% for the three months ended December 31, 2011 when compared to 32.5% for the three months ended December 31, 2010 primarily due to the higher sales volume this year when compared to the same period last year.
The Company recorded income from operations of $81,242
for the three months ended December 31, 2011 compared to income
from operations of $46,045 for the three months ended December 31,
2010. The improvement in operating income can primarily be
attributed to the higher sales volume, lower direct material costs
as a percentage of sales and lower manufacturing overhead payroll
and payroll related expenses this year when compared to the same
period last year.
Other income for the three months ended December 31, 2011
equaled $21,575, an increase of $20,027, when compared to other
income of $1,548 for the three months ended December 31, 2010. The
increase can be attributed to a $20,000 gain on the sale of a
fixed asset.
The provision (benefit) for income taxes equaled $0 for
the three months ended December 31, 2011 and December 31, 2010. We
have not recognized any provision for income taxes because taxable
income was reduced by bonus tax basis depreciation and offset by a
reduction in our deferred tax asset valuation reserve. Any benefit
for losses has been subject to a valuation allowance since the
realization of the deferred tax benefit is not considered more
likely than not. As required by FASB ASC 740, 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>
12
December 31, 2011 | September 30, 2011 | ||
Cash & cash equivalents | $1,298,693 | $1,285,885 | |
Working capital | $1,609,432 | $1,658,110 | |
Current ratio | 4.15 to 1 | 3.59 to 1 | |
Long-term debt | $0 | $0 |
The decrease in accounts receivable of $130,368 at December 31, 2011 when compared to September 30, 2011 can be attributed to improved collections and lower shipments during the month ended December 31, 2011 when compared to the month ended September 30, 2011.
The decrease in inventories of $49,870 at December 31, 2011 when compared to September 30, 2011 can primarily be attributed to the lower sales order backlog at December 31, 2011 when compared to September 30, 2011.
The decrease in accounts payable of $43,834 at December
31, 2011 when compared to September 30, 2011 can primarily be
attributed to the lower inventories at December 31, 2011 when
compared to September 30, 2011.
The decrease in other current liabilities of $51,889 at
December 31, 2011 when compared to September 30, 2011 can
primarily be attributed to the payment of a $50,000 profit sharing
contribution which was accrued at September 30, 2011.
Capital expenditures totaling $189,078 for the three
months ended December 31, 2011 consisted primarily of
machinery.
At December 31, 2011, the Company had unused aggregate
lines of credit totaling $750,000 collateralized by all inventory,
equipment and accounts receivable.
Management believes that its working capital requirements
for the forseeable future will be met by its existing cash
balances, future cash flows from operations and its current credit
arrangements.
Under the supervision and with the participation of the Company’s management, including our principal executive officer and principal financial officer, the Company conducted an evaluation of its internal control over financial reporting based on criteria established in the framework in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company’s management concluded and certifies that its internal control over financial reporting was effective as of December 31, 2011.
This Quarterly Report does not include an attestation
report of the Company’s registered public accounting firm
regarding internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s registered
public accounting firm.
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.
February 13, 2012
Carl F. Fahrenkrug
(Date)
--------------------------
Carl F. Fahrenkrug
Chief Executive Officer
February 13,
2012
Richard L. Jones
(Date)
--------------------------
Richard L. Jones
Chief Financial Officer
<PAGE>
17