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) |
Common Stock, $.10 Par Value - 2,585,161 shares
as of May 1, 2013.
Microwave Filter
Company and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
March 31, 2013
|
September 30, 2012
|
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents |
$
|
637,793 | $ | 1,023,017 | ||||
Accounts receivable-trade, net of | ||||||||
allowance for doubtful accounts | ||||||||
of $26,000 and $26,000 | 152,757 | 263,385 | ||||||
Inventories, net | 576,889 | 529,075 | ||||||
Prepaid expenses and other current assets | 85,207 | 111,342 | ||||||
Total current assets | 1,452,646 | 1,926,819 | ||||||
Property, plant and equipment, net | 663,618 | 672,525 | ||||||
Total assets |
$
|
2,116,264 | $ | 2,599,344 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable |
$
|
145,731 | $ | 92,325 | ||||
Customer deposits | 29,537 | 30,563 | ||||||
Accrued payroll and related expenses | 61,579 | 51,289 | ||||||
Accrued compensated absences | 157,221 | 172,198 | ||||||
Other current liabilities | 35,680 | 31,308 | ||||||
Total current liabilities | 429,748 | 377,683 | ||||||
Total liabilities | 429,748 | 377,683 | ||||||
Stockholders' Equity: | ||||||||
Common stock, $.10 par value | ||||||||
Authorized 5,000,000 shares, Issued | ||||||||
4,324,140 shares in 2013 and 2012, | ||||||||
Outstanding 2,585,161 shares in 2013 | ||||||||
and 2,586,227 in 2012 | 432,414 | 432,414 | ||||||
Additional paid-in capital | 3,248,706 | 3,248,706 | ||||||
Retained earnings (deficit) |
( | 303,012 | ) | 232,013 | ||||
Common stock in treasury, at cost | ||||||||
1,738,979 shares in 2013 and 1,737,913 | ||||||||
shares in 2012 | ( | 1,691,592 | ) | ( | 1,691,472 | ) | ||
|
||||||||
Total stockholders' equity | 1,686,516 | 2,221,661 | ||||||
Total liabilities and stockholders' equity |
$
|
2,116,264 | $ | 2,599,344 | ||||
Microwave Filter
Company and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended | Six months ended | |||||||||||||||||
March 31, | March 31, | |||||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||||
Net sales | $ | 608,343 | $ | 1,025,920 |
$
|
1,379,587 | $ | 2,343,127 | ||||||||||
Cost of goods sold | 477,076 | 688,306 | 1,045,120 | 1,502,301 | ||||||||||||||
Gross profit | 131,267 | 337,614 | 334,467 | 840,826 | ||||||||||||||
Selling, general and | ||||||||||||||||||
administrative expenses | 442,477 | 470,737 | 872,892 | 892,707 | ||||||||||||||
(Loss) income from operations | |
( | 311,210 | ) | |
|
( |
133,123 | ) |
|
( | 538,425 | ) | |
|
( |
51,881 | ) |
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Other income (net) | 1,210 | |
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3,071 | |
3,400 | |
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24,646 | |||||||||
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(Loss) income | ||||||||||||||||||
before income taxes | ( | 310,000 | ) | |
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( | 130,052 | ) | |
( | 535,025 | ) | |
|
( |
27,235 | ) | |
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(Benefit) provision | ||||||||||||||||||
for income taxes | 0 | |
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0 | |
0 | |
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0 | |||||||||
Net (loss) income | $ | ( | 310,000 | ) |
$
|
( | 130,052 | ) | $ | ( | 535,025 | ) |
$
|
( | 27,235 | ) | ||
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Per share data: | ||||||||||||||||||
Basic and diluted (loss) | ||||||||||||||||||
earnings per share | $ | ( | 0.12 | ) |
$
|
( | 0.05 | ) | $ | ( | 0.21 | ) |
$
|
( | 0.01 | ) | ||
Shares used in computing net | ||||||||||||||||||
(loss) earnings per share: | 2,585,252 | 2,586,227 | 2,585,287 | 2,586,227 |
Six months ended | ||||||||||||||||||
March 31 | ||||||||||||||||||
2013 | 2012 | |||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||
Net loss | $ | ( | 535,025 | ) | $ | ( | 27,235 | ) | ||||||||||
Adjustments to reconcile net (loss) | ||||||||||||||||||
income to net cash provided by | ||||||||||||||||||
used in) operating activities: | ||||||||||||||||||
Depreciation | 83,252 | 77,287 | ||||||||||||||||
Gain on sale of fixed assets | |
0 | |
( | 20,000 |
) | ||||||||||||
Change in operating assets and liabilities: | ||||||||||||||||||
Accounts receivable-trade | 110,628 | 28,542 | ||||||||||||||||
Federal and state income | ||||||||||||||||||
tax recoverable |
0
|
24,828 |
||||||||||||||||
Inventories | ( | 47,814 | ) | |
107,348 | |||||||||||||
Prepaid expenses and other assets | 26,135 | 20,757 | ||||||||||||||||
Accounts payable and customer | ||||||||||||||||||
deposits | |
52,380 | ( | 116,778 | ) | |||||||||||||
Accrued payroll and related expenses | ||||||||||||||||||
and compensated absences | ( | 4,687 | ) | ( | 38,906 | ) | ||||||||||||
Other current liabilities |
|
4,372 | ( | 38,735 | ) | |||||||||||||
Net cash (used in) provided by | ||||||||||||||||||
operating activities | ( | 310,759 | ) | 17,108 | ||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||
Property, plant and equipment purchased | ( | 74,345 | ) | ( | 189,078 | ) | ||||||||||||
Proceeds from sale of fixed assets | 0 | 20,000 | ||||||||||||||||
Net cash used in investing activities | ( | 74,345 | ) | ( | 169,078 | ) | ||||||||||||
Cash flows from financing activities: | ||||||||||||||||||
Purchase of treasury stock | ( | 120 | ) | |
0 |
|||||||||||||
Net cash used in financing activities | ( |
120 | ) | |
0 |
|||||||||||||
Decrease in cash and cash equivalents | ( | 385,224 | ) | ( | 151,970 | ) | ||||||||||||
Cash and cash equivalents | ||||||||||||||||||
at beginning of period | 1,023,017 | 1,258,885 | ||||||||||||||||
Cash and cash equivalents | |
|||||||||||||||||
at end of period | $ | 637,793 | $ | 1,106,915 | ||||||||||||||
Supplemental Schedule of Cash Flow Information: | ||||||||||||||||||
Income taxes paid | $ | 0 | $ | 15,000 |
MICROWAVE FILTER COMPANY, INC.
NOTES TO CONDENSED 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 six month period ended March 31, 2013
are not necessarily indicative of the results that may be expected
for the year ended September 30, 2013. For further information,
refer to the condensed consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10K for
the year ended September 30, 2012.
Note 2. Industry Segment Data
The Company's primary business segment involves the
operations of Microwave Filter Company, Inc. (MFC) which designs,
develops, manufactures and sells electronic filters, both for
radio and microwave frequencies, to help process signal
distribution and to prevent unwanted signals from disrupting
transmit or receive operations. Markets served include cable
television, television and radio broadcast, satellite broadcast,
mobile radio, commercial communications and defense
electronics.
Note 3.
Inventories
Inventories are stated at the lower of cost determined on
the first-in, first-out method or market.
Inventories net of
reserve for obsolescence consisted of the following:
March 31, 2013 |
September
30, 2012
|
Raw materials and stock parts | $ | 488,687 |
$
|
455,000 | ||||
Work-in-process | 15,288 | 13,554 | ||||||
Finished goods | 72,914 | 60,521 | ||||||
$ | 576,889 |
$
|
529,075 |
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 14% of
total sales for the six months ended March 31, 2013 compared to
19% of total sales for the six months ended March 31, 2012.
None applicable.
Microwave Filter Company, Inc. operates primarily in the United States and principally in one industry. The Company extends credit to business customers based upon ongoing credit evaluations. Microwave Filter Company, Inc. (MFC) designs, develops, manufactures and sells electronic filters, both for radio and microwave frequencies, to help process signal distribution and to prevent unwanted signals from disrupting transmit or receive operations. Markets served include cable television, television and radio broadcast, satellite broadcast, mobile radio, commercial communications and defense electronics.
Critical Accounting Policies
The Company's condensed consolidated financial
statements are based on the application of United States generally
accepted accounting principles (GAAP). GAAP requires the use of
estimates, assumptions, judgments and subjective interpretations
of accounting principles that have an impact on the assets,
liabilities, revenue and expense amounts reported. The Company
believes its use of estimates and underlying accounting
assumptions adhere to GAAP and are consistently applied.
Valuations based on estimates are reviewed for reasonableness and
adequacy on a consistent basis throughout the Company. Primary
areas where financial information of the Company is subject to the
use of estimates, assumptions and the application of judgment
include revenues, receivables, inventories, and taxes. Note 1 to
the condensed 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 condensed consolidated financial statements. The most
significant areas involving management judgments and estimates are
described below and are considered by management to be critical to
understanding the financial condition and results of operations of
the Company.
Revenues from product sales are recorded as the products are shipped and title and risk of loss have passed to the customer, provided that no significant vendor or post-contract support obligations remain and the collection of the related receivable is probable. Billings in advance of the Company's performance of such work are reflected as customer deposits in the accompanying condensed consolidated balance sheet.
Allowances for doubtful accounts are based on estimates of losses related to customer receivable balances. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances.
The Company's inventories are stated at the lower of cost determined on the first-in, first-out method or market. The Company uses certain estimates and judgments and considers several factors including product demand and changes in technology to provide for excess and obsolescence reserves to properly value inventory.
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>
9
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2013 vs. THREE MONTHS ENDED MARCH 31, 2012
The following table sets forth the
Company's net sales by major product group for the three months
ended March 31, 2013 and 2012.
Product group |
Fiscal 2013
|
Fiscal 2012
|
||||
Microwave Filter (MFC): | ||||||
RF/Microwave | $ | 191,279 |
$
|
369,112 | ||
Satellite | 279,622 | 370,976 | ||||
Cable TV | 97,192 | 247,622 | ||||
Broadcast TV | 38,089 | 35,822 | ||||
Niagara Scientific (NSI): | 2,161 | 2,388 | ||||
Total | $ | 608,343 |
$
|
1,025,920 | ||
Sales
backlog at March 31 |
$ | 298,866 |
$
|
612,412 |
MFC’s RF/Microwave product sales decreased $177,833 or
48.2% to $191,279 for the three months ended March 31, 2013 when
compared to RF/Microwave product sales of $369,112 during the same
period last year. 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 4% of total sales for the quarter ended March 31,
2013 compared to approximately 23% of total sales for the quarter
ended March 31, 2012.
MFC’s Satellite product sales decreased $91,354 or 24.6% to
$279,622 for the three months ended March 31, 2013 when compared
to Satellite product sales of $370,976 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. Although economic conditions do impact sales,
management expects demand for these types of filters to continue
with the proliferation of earth stations world wide and increased
sources of interference.
<PAGE>
10
MFC’s Cable TV product sales
decreased $150,430 or 60.7% to $97,192 for the three months ended
March 31, 2013 when compared to Cable TV product sales of $247,622
during the same period last year. Management continues to project
a decrease in demand for Cable TV products due to the shift from
analog to digital television. Due to the inherent nature of
digital modulation versus analog modulation, fewer filters will be
required. The Company has developed filters for digital television
and there will still be requirements for analog filters for
limited applications in commercial and private cable systems.
MFC’s Broadcast TV/Wireless Cable product sales increased
$2,267 to $38,089 for the three months ended March 31, 2013 when
compared to sales of $35,822 during the same period last year. The
increase can be attributed to an increase in demand for UHF
Broadcast products which are primarily sold to system integrators
for rural communities.
MFC's sales order backlog equaled $298,866 at March 31,
2013 compared to sales order backlog of $612,412 at March 31,
2012. 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 March 31,
2013 is scheduled to ship by September 30, 2013.
.
Gross profit for the three months ended March 31,
2013 equaled $131,267, a decrease of $206,347 or 61.1%, when
compared to gross profit of $337,614 for the three months ended
March 31, 2012. The dollar decrease in gross profit can primarily
be attributed to the lower sales volume this year when compared to
the same period last year. As a percentage of sales, gross profit
equaled 21.6% for the three months ended March 31, 2013 compared
to 32.9% for the three months ended March 31, 2012. The decrease
in gross profit as a percentage of sales can primarily be
attributed to the lower sales volume this year providing a lower
base to absorb fixed expenses.
Selling, general and administrative (SGA) expenses for the three months ended March 31, 2013 equaled $442,477, a decrease of $28,620 or 6.0%, when compared to SGA expenses of $470,737 for the three months ended March 31, 2012. As a percentage of sales, SGA expenses increased to 72.7% for the three months ended March 31, 2013 when compared to 45.9% for the three months ended March 31, 2012 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 $311,210 for the three months ended March 31, 2013 compared to a loss from operations of $133,123 for the three months ended March 31, 2012. The decrease in operating income can primarily be attributed to the lower sales volume this year when compared to the same period last year.
The (benefit) provision for income taxes equaled $0 for the three months ended March 31, 2013 and March 31, 2012. We have not recognized any (benefit) provision for income taxes. Any benefit for losses has been subject to a valuation allowance since the realization of the deferred tax benefit is not considered more likely than not. As required by FASB ASC 740 (Prior Authoritative Literature: SFAS 109, Accounting for Income Taxes), the Company has evaluated the positive and negative evidence bearing upon the realization of its deferred tax assets. The Company has determined that, at this time, it is more likely than not that the Company will not realize all of the benefits of federal and state deferred tax assets, and, as a result, a valuation allowance was established.
<PAGE>
11
SIX MONTHS ENDED MARCH 31, 2013 vs.
SIX MONTHS ENDED MARCH 31, 2012
The following table sets forth the Company's net sales by major product group for the six months ended March 31, 2013 and 2012.
Product group |
Fiscal 2013
|
Fiscal 2012
|
||||
Microwave Filter (MFC): | ||||||
RF/Microwave | $ | 515,406 |
$
|
895,044 | ||
Satellite | 522,752 | 702,330 | ||||
Cable TV | 280,582 | 681,069 | ||||
Broadcast TV | 56,716 | 60,950 | ||||
Niagara Scientific (NSI): | 4,131 | 3,734 | ||||
Total | $ | 1,379,587 |
$
|
2,343,127 | ||
Sales backlog at March 31 | $ | 298,866 |
$
|
612,412 |
Net sales for the six months ended March 31, 2013 equaled $1,379,587, a decrease of $963,540 or 41.1%, when compared to net sales of $2,343,127 for the six months ended March 31, 2012. Net sales have been decreasing since the quarter ended July 31, 2012. It is difficult to determine precisely the cause of this systemic erosion in sales but it is conjectured that the fear engendered by the sequester of budgetary funds for the Defense Department has had a major impact on MFC’s economic environment. It should be remembered that substantial Defense cuts occurred during FY 2012 which have affected the whole communications market place as suppliers to the Defense industry have made the commercial market place more competitive as they have sought to redirect their sales efforts away from Defense. Management also believes that the decrease in capital expenditures from non-defense oriented companies (such as Cable Television companies) has also contributed to the overall decline and demand across all market segments served by MFC. In order to mitigate the effects of this decline in demand for our products during this difficult period, management has adopted a plan of cost reduction, as well as, an accelerated development and acquisition of new products. This coupled with an increase in promotional activity for existing and new products will hopefully mitigate the systemic effects of the market place by allowing MFC to increase its market share by virtue of a plethora of products for a wider range of applications and for a larger customer segment.
MFC’s RF/Microwave product sales decreased $379,638 or 42.4% to $515,406 for the six months ended March 31, 2013 when compared to RF/Microwave product sales of $895,044 during the same period last year. MFC’s RF/Microwave products are sold primarily to Original Equipment Manufacturers that serve the mobile radio, commercial communications and defense electronics markets. The Company continues to invest in production engineering and infrastructure development to penetrate OEM market segments as they become popular. MFC is concentrating its technical resources and product development efforts toward potential high volume customers as part of a concentrated effort to provide substantial long-term growth. Sales to one OEM customer represented approximately 14% of total sales for the six months ended March 31, 2013 compared to approximately 19% of total sales for the six months ended March 31, 2012.
MFC’s Satellite product sales decreased $179,578 or
25.6% to $522,752 for the six months ended March 31, 2013 when
compared to satellite product sales of $702,330 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. Although economic conditions do impact sales,
management expects demand for these types of filters to continue
with the proliferation of earth stations world wide and increased
sources of interference.
<PAGE>
12
MFC’s Broadcast TV/Wireless Cable product sales decreased
$4,234 or 6.9% to $56,716 for the six months ended March 31, 2013
when compared to sales of $60,950 during the same period last
year. The decrease can be attributed to a decrease in demand for
UHF Broadcast products which are primarily sold to system
integrators for rural communities.
Gross profit for the six months ended March 31, 2013
equaled $334,467, a decrease of $506,359 or 60.2%, when compared
to gross profit of $840,826 for the six months ended March 31,
2012. The decrease can primarily be attributed to the lower sales
volume this year when compared to the same period last year. As a
percentage of sales, gross profit equaled to 24.2% for the six
months ended March 31, 2013 compared to 35.9% for the six months
ended March 31, 2012. The decrease in gross profit as a percentage
of sales can primarily be attributed to the lower sales volume
this year providing a lower base to absorb fixed expenses.
SG&A expenses for the six months ended March 31, 2013
equaled $872,892, a decrease of $19,815 or 2.2%, when compared to
SG&A expenses of $892,707 for the six months ended March 31,
2012. As a percentage of sales, SGA expenses increased to 63.3%
for the six months ended March 31, 2013 compared to 38.1% for the
six months ended March 31, 2012 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 $538,425 for the six months ended March 31, 2013 compared to a loss from operations of $51,881 for the six months ended March 31, 2012. 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 six months ended March 31, 2013 equaled $3,400, a decrease of $21,246 when compared to other income of $24,646 for the six months ended March 31, 2012. The decrease can be attributed to a $20,000 gain on the sale of a fixed asset last year.
The (benefit) provision for income taxes equaled $0 for
the six months ended March 31, 2013 and March 31, 2012. We have
not recognized any (benefit) provision for income taxes. Any
benefit for losses has been subject to a valuation allowance since
the realization of the deferred tax benefit is not considered more
likely than not. As required by FASB ASC 740 (Prior
Authoritative Literature: SFAS 109, Accounting for Income Taxes),
the Company has evaluated the positive and negative evidence
bearing upon the realization of its deferred tax assets. The
Company has determined that, at this time, it is more likely than
not that the Company will not realize all of the benefits of
federal and state deferred tax assets, and, as a result, a
valuation allowance was established.
<PAGE>
13
March 31, 2013 | September 30, 2012 | ||
Cash & cash equivalents | $637,793 | $1,023,017 | |
Working capital | $1,022,898 | $1,549,136 | |
Current ratio | 3.38 to 1 | 5.10 to 1 | |
Long-term debt | $0 | $0 |
The decrease in accounts receivable of $110,628 at March
31, 2013 when compared to September 30, 2012 can primarily be
attributed to the decrease in sales for the month ended March 31,
2013 when compared to the month ended September 30, 2012.
The increase in inventories of $47,814 at March 31, 2013 when compared to September 30, 2012 can be attributed to the addition of new products, prior purchase commitments and lower than expected sales orders.
The increase in accounts payable of $53,406 at March 31, 2013 when compared to September 30, 2012 can be attributed to approximately $28,000 worth of product catalogs received and mailed to customers towards the end of March and the increase in inventories.
At March 31, 2013, 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.
May 14, 2013
Carl F. Fahrenkrug
(Date)
--------------------------
Carl F. Fahrenkrug
Chief Executive Officer
May 14, 2013
Richard L. Jones
(Date)
--------------------------
Richard L. Jones
Chief Financial Officer
<PAGE>
18