SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
|(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
Common Stock, $.10 Par Value - 2,585,321 shares as of February 1, 2013.
|Part I Financial Information|
|Item 1. Financial Statements||3|
|Consolidated Balance Sheets (unaudited)||3|
|Consolidated Statements of Operations (unaudited)||4|
|Consolidated Statements of Cash Flows (unaudited)||5|
|Notes to Consolidated Financial Statements (unaudited)||6-7|
|Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations||8-12|
|Item 3. Quantitative and Qualitative Disclosures About Market Risk||13|
|Item 4. Controls and Procedures||14|
|Part II Other Information||15|
|December 31, 2012||September 30, 2012|
|Cash and cash equivalents||$||
|Accounts receivable-trade, net of|
|allowance for doubtful accounts|
|of $26,000 and $26,000||162,963||263,385|
|Inventories, net of obsolete inventory reserve|
|of $408,340 and $408,340||553,037||529,075|
|Prepaid expenses and other current assets||98,886||111,342|
|Total current assets||1,675,482||1,926,819|
|Property, plant and equipment, net||704,441||672,525|
|Liabilities and Stockholders' Equity|
|Accrued payroll and related expenses||33,418||51,289|
|Accrued compensated absences||164,667||172,198|
|Other current liabilities||30,188||31,308|
|Total current liabilities||383,287||377,683|
|Common stock, $.10 par value|
|Authorized 5,000,000 shares, Issued|
|4,324,140 shares in 2013 and 2012,|
|Outstanding 2,585,321 shares in 2013|
|Additional paid-in capital||3,248,706||3,248,706|
|Common stock in treasury, at cost|
|1,738,819 shares in 2013 and 2012||(||1,691,472||)||(||1,691,472||)|
|Total stockholders' equity||1,996,636||2,221,661|
|Total liabilities and stockholders' equity||$||2,379,923||$||2,599,344|
Microwave Filter Company and
Consolidated Statements of Operations (unaudited)
For the Three Months Ended December 31, 2012 and 2011
|Three months ended|
|Cost of goods sold||568,044||813,995|
|Selling, general and administrative expenses||430,415||421,970|
|(Loss) income from operations||(||227,215||)||81,242|
|Other income (net)||2,190||21,575|
|(Loss) income before income taxes||(||225,025||)||102,817|
|Provision (benefit) for income taxes||0||0|
|NET (LOSS) INCOME||$||(||225,025||)||$||102,817|
|Per share data:|
|Basic and diluted (loss) earnings per share||$||(||0.09||)||
|Shares used in computing net (loss)|
|earnings per share:||2,585,321||2,586,227|
|Three months ended|
|Cash flows from operating activities:|
|Net (loss) income||$||(||225,025||)||$||102,817|
|Adjustments to reconcile net (loss) income|
|to net cash provided by (used in)|
|Gain on sale of fixed assets||0||(||20,000||)|
|Change in assets and liabilities:|
|Federal and state income tax recoverable||0||25,402|
|Prepaid expenses and other assets||12,456||12,247|
|Accounts payable and customer deposits||32,126||(||37,811||)|
|Accrued payroll, compensated absences|
|and related expenses||(||25,402||)||(||39,691||)|
|Other current liabilities||(||1,120||)||(||51,899||)|
|Net cash (used in) provided by|
|Cash flows from investing activities:|
|Proceeds from sale of fixed assets||0||20,000|
|Net cash (used in) provided by|
|Net (decrease) increase in cash|
|and cash equivalents||(||162,421||)||39,808|
|Cash and cash equivalents|
|at beginning of period||1,023,017||1,258,885|
|Cash and cash equivalents|
|at end of period||$||860,596||$||1,298,693|
|Supplemental Schedule of Cash Flow Information:|
|Income taxes paid||$||0||$||15,000|
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, 2012 are not necessarily indicative of the results that may be expected for the year ended September 30, 2013. 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, 2012.
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, 2012||
September 30, 2012
|Raw materials and stock parts||$||468,732||
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
Note 6. Fair Value of Financial Instruments
Note 7. Significant Customers
Sales to one customer represented approximately 22% of
total sales for the three months ended December 31, 2012 compared
to 16% of total sales for the three months ended December 31,
Note 8. Recent Accounting Pronouncements
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, 2012 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2012 vs. THREE MONTHS ENDED DECEMBER 31, 2011.
The following table sets forth the
Company's net sales by major product group for the three months
ended December 31, 2012 and 2011.
|Quarter ended||Quarter ended|
|Product group||Dec. 31, 2012||
Dec. 31, 2011
|Microwave Filter (MFC):|
|Niagara Scientific (NSI):||1,970||1,346|
|Sales backlog at December 31||$||325,852||
MFC’s Satellite product sales decreased $88,224 or 26.6% to $243,130 for the three months ended December 31, 2012 when compared to Satellite product sales of $331,354 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. 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 $6,501 or 25.9% to $18,627 for the three months ended December 31, 2011 when compared to sales of $25,128 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 $325,852 at December 31, 2012 compared to sales order backlog of $303,666 at December 31, 2011. 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, 2012 is scheduled to ship by September 30, 2013.
Gross profit for the three months ended December 31, 2012
equaled $203,200, a decrease of $300,012 or 59.6%, when compared
to gross profit of $503,212 for the three months ended December
31, 2011. As a percentage of sales, gross profit decreased to
26.3% for the three months ended December 31, 2012 compared to
38.2% for the three months ended December 31, 2011.The decrease in
gross profit can primarily be attributed to fixed manufacturing
overhead costs and lower sales volume this year when compared to
the same period last year.
Selling, general and administrative (SGA) expenses for the three months ended December 31, 2012 equaled $430,415, an increase of $8,445 or 2.0%, when compared to SGA expenses of $421,970 for the three months ended December 31, 2011. As a percentage of sales, SGA expenses increased to 55.8% for the three months ended December 31, 2012 when compared to 32.0% for the three months ended December 31, 2011 primarily due to the lower sales volume this year when compared to the same period last year.
The Company recorded a loss from operations of $227,215
for the three months ended December 31, 2012 compared to income
from operations of $81,242 for the three months ended December 31,
2011. The decrease in operating income can primarily be attributed
to the lower sales volume this year when compared to the same
period last year.
Other income for the three months ended December 31, 2012
equaled $2,190, a decrease of $19,385, when compared to other
income of $21,575 for the three months ended December 31, 2011.
The decrease can be attributed to a $20,000 gain on the sale of a
fixed asset during the quarter ended December 31, 2011.
The provision (benefit) for income taxes equaled $0 for
the three months ended December 31, 2012 and December 31, 2011. 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
|December 31, 2012||September 30, 2012|
|Cash & cash equivalents||$860,596||$1,023,017|
|Current ratio||4.37 to 1||5.10 to 1|
The net decrease in accounts receivable of $100,422 at December 31, 2012 when compared to September 30, 2012 can primarily be attributed to the lower shipments during the quarter ended December 31, 2012 when compared to the quarter ended September 30, 2012. Net sales for the quarter ended December 31, 2012 equaled $771,244 compared to net sales of $968,356 for the quarter ended September 30, 2012.
The increase in inventories of $23,962 at December 31,
2012 when compared to September 30, 2012 can be attributed to the
higher sales order backlog at December 31, 2012 when compared to
September 30, 2012, our customer's scheduled delivery dates and
the lower than expected sales volume during the quarter ended
December 31, 2012. At December 31, 2012, the Company's total
backlog of orders, which represents firm orders from customers,
equaled $325,852 compared to $272,318 at September 30, 2012.
The increase in accounts payable of $22,485 at December 31, 2012 when compared to September 30, 2012 can primarily be attributed to the higher inventories at December 31, 2012 when compared to September 30, 2012.
At December 31, 2012, 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.
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 14, 2013 Carl F. Fahrenkrug
Carl F. Fahrenkrug
Chief Executive Officer
February 14, 2013 Richard L. Jones
Richard L. Jones
Chief Financial Officer