UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q


Quarterly Report Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934.

 

For  the quarterly period ended December 31, 2014

 

Commission file number 0-10976


MICROWAVE FILTER COMPANY, INC.

(Exact name of registrant as specified in its charter.)


 

 

 

New York

 

16-0928443

(State of Incorporation)

 

(I.R.S. Employer Identification Number)

 

 

 

6743 Kinne Street, East Syracuse, N.Y.

 

13057

(Address of Principal Executive Offices)

 

(Zip Code)

 

(315) 438-4700
Registrant's telephone number, including area code


    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of  the Securities Exchange Act of  1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days.     
YES __X__  NO____

    Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
  YES __X__  NO____

    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act). 
Large accelerated filer ______
Accelerated filer ______
Non-accelerated filer ______ (Do not check if smaller reporting company)
Smaller reporting company ____X____. 

    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
      YES ____  NO__X__

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

    Common Stock, $.10 Par Value -    2,581,547 shares as of January 31, 2015.

 

 

 

MICROWAVE FILTER COMPANY, INC.
Form 10-Q

Index

 

 

 

 

Item

Page

   

   

Part I Financial Information

  

   

   

Item 1. Financial Statements

   

   

         Condensed Consolidated Balance Sheets (unaudited)

   

   

         Condensed Consolidated Statements of Operations (unaudited)

   

   

         Condensed Consolidated Statements of Cash Flows (unaudited)

   

   

         Notes to Condensed Consolidated Financial Statements (unaudited)

8-10

 

   

Item 2. Management’s Discussion and Analysis of Financial Condition

 

         and Results of Operations

   

11 -1 6

 

   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

17 

   

   

Item 4. Controls and Procedures

17 

   

   

Part II Other Information

18 

   

   

Signatures

19 

 

 

            



<PAGE>                                2


 

PART I. - FINANCIAL INFORMATION

Microwave Filter Company and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)

 

 

 

   

December 31, 2014

September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

Assets

   

   

 

   

 

 

   

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

   

   

 

   

 

 

   

   

 

   

 

Cash and cash equivalents 

 

$

 

1,004,705

 

 

 

$

 

1,081,567

 

Accounts receivable-trade, net of

   

   

 

   

 

 

   

   

 

   

 

     allowance for doubtful accounts

   

   

 

   

 

 

   

   

 

   

 

     of $4,000 and $4,000 

   

   

 

361,537

 

 

   

   

 

377,473

 

Inventories, net

   

   

 

467,082

 

 

   

   

 

473,839

 

Prepaid expenses and other current assets

   

   

 

70,830

 

 

   

   

 

89,721

 

   

   

   

 

   

 

 

   

   

 

   

 

Total current assets

   

   

 

1,904,154

 

 

   

   

 

2,022,600

 

   

   

   

 

   

 

 

   

   

 

   

 

Property, plant and equipment, net

   

   

 

486,524

 

 

   

   

 

474,694

 

   

   

   

 

   

 

 

   

   

 

   

 

Total assets

   

$

 

2,390,678

 

 

   

$

 

2,497,294

 

   

   

   

 

   

 

 

   

   

 

   

 

Liabilities and Stockholders' Equity

   

   

 

   

 

 

   

   

 

   

 

   

   

   

 

   

 

 

   

   

 

   

 

Current liabilities:

   

   

 

   

 

 

   

   

 

   

 

Accounts payable

   

$

 

73,747

 

 

   

$

 

73,293

 

Customer deposits

   

   

 

27,212

 

 

   

   

 

32,431

 

Accrued payroll and related expenses

   

   

 

55,084

 

 

   

   

 

50,234

 

Accrued compensated absences

   

   

 

152,150

 

 

   

   

 

148,903

 

Notes payable - short term

 

 

 

43,080

 

 

 

 

 

42,593

 

Other current liabilities

   

   

 

27,662

 

 

   

   

 

31,954

 

   

   

   

 

   

 

 

   

   

 

   

 

Total current liabilities

   

   

 

378,935

 

 

   

   

 

379,408

 

   

   

   

 

 

 

 

   

   

 

   

 

Notes payable -long term

 

 

 

399,211

 

 

 

 

 

410,178

 

Total other liabilities

 

 

 

399,211

 

 

 

 

 

410,178

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

   

   

 

778,146

 

 

   

   

 

789,586

 

 

 

 

 

 

 

 

 

 

 

 

 

   

   

   

 

   

 

 

   

   

 

   

 


<PAGE>                                3


 

Stockholders' Equity:

   

   

 

   

 

 

   

   

 

   

 

Common stock, $.10 par value

   

   

 

   

 

 

   

   

 

   

 

     Authorized 5,000,000 shares,

   

   

 

   

 

 

   

   

 

   

 

     Issued 4,324,140 shares in 2015 and 2014,

   

   

 

   

 

 

   

   

 

   

 

     Outstanding 2,581,547 shares in 2015 and

   

   

 

 

 

 

   

   

 

 

 

     2,583,507 in 2014

 

 

 

432,414 

 

 

 

 

 

432,414 

 

Additional paid-in capital

   

   

 

3,248,706 

 

 

   

   

 

3,248,706 

 

Retained deficit

   

 

(

374,919 

)

 

   

   

(

280,893 

)

   

   

   

 

   

 

 

   

   

 

   

 

Common stock in treasury, at cost

 

 

 

 

 

 

 

 

 

 

 

     1,742,593 shares in 2015 and

 

 

 

 

 

 

 

 

 

 

 

     1,740,633 shares in 2014

   

 

(

1,693,669 

)

 

   

 

(

1,692,519 

)

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders' equity

   

   

 

1,612,532 

 

 

   

   

 

1,707,708 

 

   

   

   

 

   

 

 

   

   

 

   

 

Total liabilities and  stockholders' equity

   

$

 

2,390,678 

 

 

   

$

 

2,497,294 

 

 

 

 

<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements





<PAGE>                                4


 

Microwave Filter Company and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

   

 

Three months ended

   

   

   

   

 

December 31,

   

   

   

   

 

2014

 

 

 

 

2013

   

   

   

   

 

   

 

 

 

 

   

   

   

Net sales

$

849,927

$

655,447

Cost of goods sold

   

 

539,813

 

 

 

 

456,913

 

   

 

 

 

 

 

 

 

 

 

 

 

Gross profit

   

 

310,114

 

 

 

 

198,534

 

   

 

 

 

 

 

 

 

 

 

 

 

Selling, general and

   

 

   

 

 

 

 

   

 

   

     administrative expenses

   

 

400,188

 

 

 

 

366,547

 

   

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(

90,074

)

 

 

(

168,013

)

 

 

 

 

 

 

 

 

 

 

 

   

Other income (expense), net 

   

(

3,952

)

 

 

(

3,881

)

   

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

   

(

94,026

)

 

 

(

171,894

)

 

 

 

 

 

 

 

 

 

 

 

 

(Benefit) provision

 

 

 

 

 

 

 

 

 

 

    for income taxes

   

 

0

 

 

 

 

0

 

   

   

   

 

   

 

 

 

 

   

 

   

Net loss

$

(

94,026

)

 

$

(

171,894

)

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Per Common Share

   

 

   

 

 

 

 

   

 

   

Basic and diluted loss per share

$

(

0.04

)

$

(

0.07

)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares

 

 

 

 

 

 

 

 

 

 

Outstanding

 

 

 

 

 

 

 

 

 

 

Shares used in computing net loss

   

 

   

 

 

 

 

   

 

   

     per share:

   

 

2,583,025

 

 

 

 

2,585,086

   

   

 


<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements


<PAGE>                                5


 

Microwave Filter Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

December 31

 

   

   

 

2014

 

   

   

 

2013

 

   

   

 

   

 

   

   

 

   

 

Cash flows from operating activities:

   

 

   

 

   

   

 

   

 

Net loss

$

(

94,026 

)

   

$  

(

171,894 

)

 

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net loss

   

 

   

 

   

   

 

   

 

     to net cash provided by

   

 

   

 

   

   

 

   

 

     (used in) operating activities:

 

 

 

 

 

 

 

 

 

Depreciation

   

 

26,769 

 

   

   

 

32,702 

 

Change in operating assets and liabilities:

   

 

   

 

   

   

 

   

 

Accounts receivable-trade

   

 

15,936 

 

   

   

 

53,916 

 

Federal and state income

 

 

 

 

 

 

 

 

 

     tax recoverable

 

 

 

 

 

 

37,085 

 

Inventories

   

 

6,757 

 

   

   

 

9,894 

 

Prepaid expenses and other assets

   

 

18,891 

 

   

   

(

24,194 

)

Accounts payable and customer

 

 

 

 

 

 

 

 

 

     deposits

   

(

4,765 

)

   

   

 

76,021 

 

Accrued payroll and related expenses

   

 

   

 

   

   

 

   

 

     and compensated absences

   

 

8,097 

 

   

   

 

3,725 

 

Other current liabilities

   

(

4,292 

)

   

   

 

475 

 

 

 

 

 

 

 

 

 

 

 

Net cash (used in) provided by

 

 

 

 

 

 

 

 

 

    operating activities

   

(

26,633 

)

   

   

 

17,730 

 

   

   

 

   

 

   

   

 

   

 

Cash flows from investing activities:

   

 

   

 

   

   

 

   

 

Property, plant and equipment purchased

   

(

38,599 

)

   

   

(

2,361 

)

 

 

 

 

 

 

 

 

 

 

  Net cash used in investing activities

   

(

38,599 

)

   

   

(

2,361 

)

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

   

 

   

 

   

   

 

   

 

Repayment of note payable

 

(

10,480 

)

 

 

(

10,015 

)

Purchase of treasury stock

   

(

1,150 

)

   

   

(

)

 

 

 

 

 

 

 

 

 

 

  Net cash used in financing activities

   

(

11,630 

)

   

   

(

10,015 

)


<PAGE>                                6


 

 

 

 

 

 

 

 

 

 

 

(Decrease) increase  in cash and

   

 

 

 

   

   

 

 

 

   cash equivalents

   

(

76,862 

)

   

   

 

5,354 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

      at beginning of period

   

 

1,081,567 

 

   

   

 

939,959 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

      at end of period

$

 

1,004,705 

 

   

$

 

945,313 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Schedule of Cash Flow Information:

 

 

 

 

 

 

 

 

 

    Interest

$

 

5,111 

 

 

$

 

5,575 

 

 



<FN>


See Accompanying Notes to Condensed Consolidated Financial Statements




<PAGE>                                7


 

MICROWAVE FILTER COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

   DECEMBER  31, 2014



Note 1. Summary of Significant Accounting Policies   

  The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The operating results for the three month period ended December  31, 2014 are not necessarily indicative of the results that may be expected for the year ended September 30, 2015. 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, 2014. 



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:

 

 

 

 

 

 

 

 

 

 

 

 

   

December 31, 2014

 

September 30, 2014

 

 

 

 

 

 

 

 

 

Raw materials and stock parts

   

$

352,764 

   

$

334,891 

   

Work-in-process

   

   

32,221 

   

   

46,292 

   

Finished goods

   

   

82,097 

   

   

92,656 

   

   

   

   

   

   

   

   

   

   

   

$

467,082 

   

$

473,839 

   

 

  The Company's reserve for obsolescence equaled $413,447 at December  31, 2014 and September 30, 2014. The Company provides for a valuation reserve for certain inventory that is deemed to be obsolete, of excess quantity or otherwise impaired. 


<PAGE>                                8


 

Note 4. Income Taxes

  The Company accounts for income taxes under FASB ASC 740-10. Deferred tax assets and liabilities are based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates which are anticipated to be in effect when these differences reverse. The deferred tax provision is the result of the net change in the deferred tax assets and liabilities.  A valuation allowance is established when it is necessary to reduce deferred tax assets to amounts expected to be realized. The Company has provided a full valuation allowance against its deferred tax assets.

  The Company adopted FASB ASC 740-10. FASB ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements  and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax position taken or expected to be taken on a tax return. Additionally, it provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company determined it has no uncertain tax positions and therefore no amounts are recorded.

 

 

Note 5. Legal Matters

  None.

 

 

Note 6. Fair Value of Financial Instruments

  The carrying values of the Company cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of those instruments.

  The Company currently does not trade in or utilize derivative financial instruments.

 

 

Note 7. Significant Customers

  Sales to one customer represented approximately 28% of total sales for the three months ended December  31, 2014 compared to approximately 10% of total sales for the three months ended December  31, 2013. This one customer has represented approximately 25%, 14% and 21% of total sales for the fiscal years ending September 30, 2014, 2013 and 2012, respectively. A loss of this customer or programs related to this customer could materially impact the Company. Management does anticipate future orders from this customer upon completion of a current contract.


 

 

 

 

 

 

 


<PAGE>                                9


 

Note 8.  Notes Payable

 

  On July 2, 2013, Microwave Filter Company, Inc. (the “Company”) entered into a Ten Year Term Loan with KeyBank National Association in the amount of Five Hundred Thousand and No/100 Dollars ($500,000.00). The amount of all advances outstanding together with accrued interest thereon shall be due and payable on July 2, 2023 (“Maturity”). The Company shall pay interest on the outstanding principal balance of this Note at the rate per annum equal to 4.5%. The net proceeds from the Term Loan will be available to provide working capital as needed. The total amount outstanding as of December  31, 2014 and 2013 was $442,291 and $483,453 respectively. Interest accrued as of December 31, 2014 and 2013 was $1,603 and $1,749 respectively.

 

  The Company has secured this Note by: (a) a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing which creates a 1st lien on real property situated in the Town of Dewitt, County of Onondaga, and State of New York and known as 6743 Kinne Street, East Syracuse, New York; (b) a General Assignment of Rents and Leases; (c) an Environmental Compliance and Indemnification; and (d) such other security as may now or hereafter be given to Lender as collateral for the loan.

 

 

Note 9Earnings Per Share

  The Company presents basic earnings per share (“EPS”), computed based on the weighted average number of common shares outstanding for the period, and when applicable diluted EPS, which gives the effect to all dilutive potential shares outstanding (i.e. options) during the period after restatement for any stock dividends. There were no dividends declared during the quarters ending December 31, 2014 and 2013. Income (loss) used in the EPS calculation is net income (loss) for each period. There were no dilutive potential shares outstanding for the periods ending December 31, 2014 and 2013.

 

 

Note 10. Recent Accounting Pronouncements

  None applicable.

 

 

 

 

 

 

 

 

 

 

 

 

 

 


<PAGE>                                10


 

  MICROWAVE FILTER COMPANY, INC.

MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

  

Business Overview

  Microwave Filter Company, Inc. operates primarily in the United States and principally in one industry. The Company extends credit to business customers based upon ongoing credit evaluations. Microwave Filter Company, Inc. (MFC) designs, develops, manufactures and sells electronic filters, both for radio and microwave frequencies, to help process signal distribution and to prevent unwanted signals from disrupting transmit or receive operations. Markets served include cable television, television and radio broadcast, satellite broadcast, mobile radio, commercial communications and defense electronics.


Critical Accounting Policies


  The Company's condensed consolidated financial statements are based on the application of United States generally accepted accounting principles (GAAP). GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. The Company believes its use of estimates and underlying accounting assumptions adhere to GAAP and are consistently applied. Valuations based on estimates are reviewed for reasonableness and adequacy on a consistent basis throughout the Company. Primary areas where financial information of the Company is subject to the use of estimates, assumptions and the application of judgment include revenues, receivables, inventories, and taxes. Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2014 describes the significant accounting policies used in preparation of the condensed consolidated financial statements. The most significant areas involving management judgments and estimates are described below and are considered by management to be critical to understanding the financial condition and results of operations of the Company.

  Revenues from product sales are recorded as the products are shipped and title and risk of loss have passed to the customer, provided that no significant vendor or post-contract support obligations remain and the collection of the related receivable is probable. Billings in advance of the Company's performance of such work are reflected as customer deposits in the accompanying condensed consolidated balance sheet.

  Allowances for doubtful accounts are based on estimates of losses related to customer receivable balances. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances.

  The Company's inventories are stated at the lower of cost determined on the first-in, first-out method or market. The Company uses certain estimates and judgments and considers several factors including product demand and changes in technology to provide for excess and obsolescence reserves to properly value inventory.


<PAGE>                                11


 

  The Company established a warranty reserve which provides for the estimated cost of product returns based upon historical experience and any known conditions or circumstances. Our warranty obligation is affected by product that does not meet specifications and performance requirements and any related costs of addressing such matters.

  The Company accounts for income taxes under FASB ASC 740-10. Deferred tax assets and liabilities are based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates which are anticipated to be in effect when these differences reverse. The deferred tax provision is the result of the net change in the deferred tax assets and liabilities. A valuation allowance is established when it is necessary to reduce deferred tax assets to amounts expected to be realized. The Company has provided a full valuation allowance against its deferred tax assets.


<PAGE>                                12


 

RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER  31, 2014 vs. THREE MONTHS ENDED DECEMBER  31, 2013

 

  The following table sets forth the Company's net sales by major product group  for the three months ended December  31, 2014 and 2013.

Product group

Fiscal 2015

   

Fiscal 2014

   

Microwave Filter (MFC):

     RF/Microwave

$

384,632 

   

$  

241,349 

   

     Satellite

307,206 

305,626 

     Cable TV

129,112 

   

   

84,685 

   

     Broadcast TV

26,321 

   

   

21,582 

   

Niagara Scientific (NSI):

2,656 

   

   

2,205 

   

      

   

   

      

   

Total

$

849,927 

   

$  

655,447 

   

      

   

   

      

   

Sales backlog at December 31

$

352,787 

   

$  

1,331,100 

   

 


  Net sales for the three months ended December  31, 2014 equaled $849,927,  an increase of $194,480 or 29.7%, when compared to net sales of $655,447 for the three months ended December  31, 2013.  The increase in sales can primarily be attributed to the increase in the Company’s RF/Microwave product sales.

   MFC’s RF/Microwave product sales increased $143,283 or 59.4% to $384,632 for the three months ended December  31, 2014 when compared to RF/Microwave product sales of $241,349 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 28% of total sales for the three months ended December  31, 2014 and approximately 10% of total sales for the three months ended December  31, 2013.

  MFC’s Satellite product sales increased $1,580 or 0.5% to $307,206 for the three months ended December  31, 2014 when compared to Satellite product sales of $305,626 during the same period last year. The increase can be attributed to an increase in demand for the Company's filters which suppress strong out-of-band interference caused by military and civilian radar systems and other sources. Although economic conditions do impact sales, management expects demand for these types of filters to continue with the proliferation of earth stations world wide and increased sources of interference.


<PAGE>                                13


 

  MFC’s Cable TV product sales increased $44,427 or 52.5% to $129,112 for the three months ended December  31, 2014 when compared to Cable TV product sales of $84,685 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 $4,739 to $26,321 for the three months ended December  31, 2014 when compared to sales of $21,582 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 $352,787 at December  31, 2014 compared to sales order backlog of $1,133,100 at December  31, 2013.  The decrease can primarily be attributed to one large OEM order received during the quarter ended December 31, 2013. The Company is still shipping on this order and management anticipates future orders from this Company upon completion of this current contract which ends in April 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. The total sales order backlog at December  31, 2014 is scheduled to ship by September 30, 2015.

  Gross profit for the three months ended December  31, 2014 equaled $310,114, an increase of $111,580 or 56.2%, when compared to gross profit of $198,534 for the three months ended December  31, 2013. As a percentage of sales, gross profit equaled 36.5% for the three months ended December  31, 2014 compared to 30.3% for the three months ended December  31, 2013.  The improvements 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 (SGA) expenses for the three months ended December  31, 2014 equaled $400,188, an increase of $33,641 or 9.2%, when compared to SGA expenses of $366,547 for the three months ended December  31, 2013.  The increase can primarily be attributed to higher 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, SGA expenses decreased to 47.1% for the three months ended December  31, 2014 compared to 55.9% for the three months ended December  31, 2013 primarily due to the higher sales volume this year when compared to the same period last year. 

  The Company recorded a loss from operations of $90,074 for the three months ended December  31, 2014 compared to a loss from operations of $168,013 for the three months ended December  31, 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 $3,952 for the three months ended December 31, 2014 compared to an expense of $3,881 for the for the three months ended December 31, 2013 primarily due to interest expense of $5,129 for the three months ended December 31, 2014 and interest expense of $5,598 for the three months ended December 31, 2013. 

<PAGE>                                14


 

  The (benefit) provision for income taxes equaled $0 for the three months ended December  31, 2014 and December  31, 2013. 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.

 

Off-Balance Sheet Arrangements

  At December  31, 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.


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.

 

   

December 31, 2014

 

September 30, 2014

   

   

   

   

   

Cash & cash equivalents

$1,004,705 

 

$1,081,567 

   

Working capital

$1,525,219 

 

$1,643,192 

   

Current ratio

5.02 to 1

 

5.33 to 1

   

Long-term debt

$399,211

 

$410,178

   


  Cash and cash equivalents decreased $76,862 to $1,004,705 at December  31, 2014 when compared to cash and cash equivalents of $1,081,567 at September 30, 2014. The decrease was a result of $26,633 in net cash used in operating activities, $38,599 in net cash used for capital expenditures,  $10,480 in net cash used for repayment of a note payable and $1,150 in net cash used to purchase treasury stock.  

 

  On July 2, 2013, Microwave Filter Company, Inc. (the “Company”) entered into a Ten Year Term Loan with KeyBank National Association in the amount of Five Hundred Thousand and No/100 Dollars ($500,000.00). The amount of all advances outstanding together with accrued interest thereon shall be due and payable on July 2, 2023 (“Maturity”). The Company shall pay interest on the outstanding principal balance of this Note at the rate per annum equal to 4.5%. The net proceeds from the Term Loan will be available to provide working capital as needed.

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

<PAGE>                                15


 

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995


  In an effort to provide investors a balanced view of the Company's current condition and future growth opportunities, this Quarterly Report on Form 10-Q includes comments by the Company's management about future performance. These statements which are not historical information are "forward-looking statements" pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These, and other forward-looking statements, are subject to business and economic risks and uncertainties that could cause actual results to differ materially from those discussed. These risks and uncertainties include, but are not limited to: risks associated with demand for and market acceptance of existing and newly developed products as to which the Company has made significant investments; general economic and industry conditions; slower than anticipated penetration into the satellite communications, mobile radio and commercial and defense electronics markets; competitive products and pricing pressures; increased pricing pressure from our customers; risks relating to governmental regulatory actions in broadcast, communications and defense programs; as well as other risks and uncertainties, including but not limited to those detailed from time to time in the Company's Securities and Exchange Commission filings. These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. You are encouraged to review Microwave Filter Company’s 2013 Annual Report and Form 10-K for the fiscal year ended September 30, 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.





<PAGE>                                16


 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

 

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

  Management’s responsibility includes establishing and maintaining adequate internal control over financial reporting. 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(f) and 15d-15(f) 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.



 

 

 

 

 

 

 

 

 

 

 

 


<PAGE>                                17


 

                     PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

          None.

Item 1A. Risk Factors

         Not applicable.

Item 2.  Changes in Securities

         The Company purchased 1,960 shares of common stock at an average price of $.59 per share

         into treasury during the three months ended December 31, 2014.  

Item 3.  Defaults Upon Senior Securities

         The Company has no senior securities.
   
Item 4.  Mine Safety Disclosures
    
          Not applicable.

Item 5.  Other Information

         None. 

Item 6.  Exhibits

         a.  Exhibits

            31.1  Section 13a-14(a)/15d-14(a) Certification of Carl F. Fahrenkrug
 
            31.2  Section 13a-14(a)/15d-14(a) Certification of Richard L. Jones

            32.1  Section 1350 Certification of Carl F. Fahrenkrug

            32.2  Section 1350 Certification of Richard L. Jones

   



<PAGE>                                18


 

  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, 2015       Carl F. Fahrenkrug
(Date)                              --------------------------
                                        Carl F. Fahrenkrug
                                        Chief Executive Officer

   February  13, 2015        Richard L. Jones
(Date)                               --------------------------
                                         Richard L. Jones
                                         Chief Financial Officer


<PAGE>                                19