ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Microwave Filter Company, Inc. operates primarily in the United States and
principally in one industry. The Company extends credit to business customers,
including original equipment manufacturers (OEMs), distributors and other end
users, based upon ongoing credit evaluations. Microwave Filter Company, Inc.
designs, develops, manufactures and sells electronic filters, both for radio
and microwave frequencies, to help process signal distribution and to prevent
unwanted signals from disrupting transmit or receive operations. Markets
served include cable television, television and radio broadcast, satellite
broadcast, mobile radio and commercial and defense electronics. Niagara
Scientific, Inc., a wholly owned subsidiary, custom designs case packing
machines to automatically pack products into shipping cases. Customers are
processors of food and other commodity products with a need to reduce labor
cost with a modest investment and quick payback.
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales by major product
groups for each of the fiscal years in the three year period ended September
30, 2007.
Product group (in thousands) Fiscal 2007 Fiscal 2006 Fiscal 2005
Microwave Filter:
Cable TV $1,922 $1,882 $2,598
RF/Microwave 1,497 1,624 1,561
Satellite 989 893 1,020
Broadcast TV 191 116 166
Niagara Scientific 35 21 188
------ ------ ------
Total $4,634 $4,536 $5,533
====== ====== ======
Sales backlog at 9/30 $ 503 $ 732 $ 693
====== ====== ======
|
Fiscal 2007 compared to fiscal 2006
Consolidated net sales for the fiscal year ended September 30, 2007 equaled
$4,634,233, an increase of $97,518 or 2.1%, when compared to consolidated net
sales of $4,536,715 during the fiscal year ended September 30, 2006.
Microwave Filter Company, Inc. (MFC) sales increased $83,325 or 1.8% to
$4,598,827 during the fiscal year ended September 30, 2007 when compared to
sales of $4,515,502 during the fiscal year ended September 30, 2006.
15
MFC's Cable TV product sales increased $40,339 or 2.1% to $1,922,205 during
the fiscal year ended September 30, 2007 when compared to Cable TV product
sales of $1,881,866 during the fiscal year ended September 30, 2006. Despite
the increase in sales, management continues to project a decrease in demand
for Cable TV products due to the shift from analog to digital television.
Digital Televison (DTV) is a new type of broadcasting technology that will
transform television viewing. DTV enables broadcasters to offer television
with movie-quality picture and sound. It also offers greater multicasting and
interactive capabilities. DTV is a more flexible and efficient technology than
the current NTSC "analog" broadcast system. Rather than being limited to
providing one analog programming channel, a broadcaster will be able to
provide a super sharp "high definition" (HDTV) program or multiple "standard
definition" DTV programs simultaneously using the RF spectrum more
efficiently. Providing several program streams on one broadcast channel is
called "multicasting." The number of programs a station can send on one
digital channel depends on the level of picture detail, also known as
"resolution." DTV can provide interactive video and data services that are not
possible with "analog" technology. Converting to DTV will eventually free up
parts of the scarce and valuable broadcast airwaves. Those portions of the
spectrum can then be used for other important services, such as advanced
wireless and public safety services (police, fire, rescue squads, etc.).
Televison stations serving all markets in the United States are currently
airing digital television programming, although they still must provide analog
programming until the target date set by Congress for completion of the
transition to DTV - February 17, 2009. That date may be extended, however,
until most homes (85%) in an area are able to watch the DTV programming. At
that point, broadcasting on the current (analog) channels will end and that
spectrum will be put to other uses reducing the need for analog filters which
MFC currently supplies. Until the transition to DTV is complete, television
stations will continue broadcasting on both their digital and analog channels.
MFC has developed and is supplying filters for digital television; however,
the demand for these filters is unknown at this time.
MFC's RF/Microwave product sales decreased $127,501 or 7.8% to $1,496,934
during the fiscal year ended September 30, 2007 when compared to sales of
$1,624,435 during the fiscal year ended September 30, 2006. The decrease can
be attributed to a decrease in sales to the U. S. Government. For the twelve
months ended September 30, 2007, sales to the U.S. Government equaled $200,681
compared to sales to the U.S. Government of $447,971 during the twelve months
ended September 30, 2006. The Company's RF/Microwave products are primarily
sold to original equipment manufacturers (OEMs) that serve the mobile radio
and commercial and defense electronics markets. Typical customers include the
U.S. Government, General Dynamics, Motorola, Rockwell Collins, Lockheed
Martin, Northrup Gruman and Raytheon. 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.
MFC's Satellite product sales increased $95,811 or 10.7% to $988,528 during
the fiscal year ended September 30, 2007 when compared to sales of $892,717
during the fiscal year ended September 30, 2006. The increase can be
attributed to the introduction of new products and an increase in demand for
filters which suppress strong out-of-band interference caused by military and
civilian radar systems and other sources. Management expects demand for these
types of filters to continue with the proliferation of earth stations world
wide and increased sources of interference.
16
MFC's Broadcast televison (BTV)/Wireless cable product sales increased
$74,676 or 64.1% to $191,160 for the fiscal year ended September 30, 2007 when
compared to sales of $116,484 for the fiscal year ended September 30, 2006
primarily due to an increase in demand for UHF Broadcast products.
Niagara Scientific, Inc. (NSI) sales increased $14,193 or 66.9% to $35,406
for the fiscal year ended September 30, 2007 when compared to sales of $21,213
for the fiscal year ended September 30, 2006. NSI sales consisted primarily of
spare part orders during fiscal 2007. NSI has been concentrating on quoting
low risk jobs in an effort to maintain targeted profit margins. Although this
may impact sales levels, it should improve profit margins and also allow
engineering resources to focus on higher priorities. Based on backlog, recent
quote activity and the general economic climate, management is expecting
little, if any, growth in sales for NSI for fiscal 2008.
At September 30, 2007, the Company's total backlog of orders, which
represents firm orders from customers, equaled $502,760 compared to $731,941
at September 30, 2006. The total Company backlog at September 30, 2007 is
scheduled to ship during fiscal 2008. However, backlog is not necessarily
indicative of future sales. Accordingly, the Company does not believe that its
backlog as of any particular date is representative of actual sales for any
succeeding period.
Gross profit increased $105,753 or %7.1 to $1,598,748 during the fiscal year
ended September 30, 2007 when compared to gross profit of $1,492,995 during
the fiscal year ended September 30, 2006. As a percentage of sales, gross
profit increased to 34.5% during the fiscal year ended September 30, 2007
compared to 32.9% during the fiscal year ended September 30, 2006. The
increases in gross profit can be attributed to the higher sales volume, lower
direct labor costs due to efficiency and lower depreciation expense this year
when compared to last year.
Selling, general and administrative (SG&A) expenses decreased $66,474 or
3.3% to $1,956,011 during the fiscal year ended September 30, 2007 when
compared to SG&A expenses of $2,022,485 during the fiscal year ended September
30, 2006. The decrease can primarily be attributed to lower printing and
mailing costs this year when compared to the same period last year. As a
percentage of sales, SGA expenses decreased to 42.2% during fiscal 2007 when
compared to 44.6% during fiscal 2006 due to both the higher sales volume and
the lower expenses.
Income from operations improved $172,227 to a loss of $357,263 during the
fiscal year ended September 30, 2007 when compared to a loss from operations
of $529,490 during the fiscal year ended September 30, 2006. The improvement
can primarily be attributed to the higher sales volume and lower SGA expenses
this year when compared to last year.
Other income decreased $15,689 to $64,920 for the twelve months ended
September 30, 2007 compared to other income of $80,609 for the twelve months
ended September 30, 2006. Other income is primarily interest income earned on
invested cash balances. The decrease in other income can primarily be
attributed to lower invested cash balances when compared to the same period
last year. Other income may fluctuate based on market interest rates and
levels of invested cash balances.
17
The Company recorded a provision for income taxes of $650 for the fiscal
year ended September 30, 2007 compared to a benefit for income taxes of
$37,532, or an effective rate of (8.4%)%, for the fiscal year ended September
30, 2006. As required by Statement of Financial Accounting Standards No. 109,
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.
Fiscal 2006 compared to fiscal 2005
Consolidated net sales for the fiscal year ended September 30, 2006 equaled
$4,536,715, a decrease of $996,683 or 18%, when compared to consolidated net
sales of $5,533,398 during the fiscal year ended September 30, 2005.
Microwave Filter Company, Inc. (MFC) sales decreased $829,927 or 15.5% to
$4,515,502 during the fiscal year ended September 30, 2006 when compared to
sales of $5,345,429 during the fiscal year ended September 30, 2005.
The decrease in MFC sales can primarily be attributed to the decrease in the
sales of the Company's standard Cable TV products.
MFC's Cable TV product sales decreased $715,890 or 27.6% to $1,881,866
during the fiscal year ended September 30, 2006 when compared to Cable TV
product sales of $2,597,756 during the fiscal year ended September 30, 2005.
The decrease in sales can be attributed to the transition from analog to
digital television. Digital Televison (DTV) is a new type of broadcasting
technology that will transform television viewing. DTV enables broadcasters to
offer television with movie-quality picture and sound. It also offers greater
multicasting and interactive capabilities. DTV is a more flexible and
efficient technology than the current NTSC "analog" broadcast system. Rather
than being limited to providing one analog programming channel, a broadcaster
will be able to provide a super sharp "high definition" (HDTV) program or
multiple "standard definition" DTV programs simultaneously using the RF
spectrum more efficiently. Providing several program streams on one broadcast
channel is called "multicasting." The number of programs a station can send on
one digital channel depends on the level of picture detail, also known as
"resolution." DTV can provide interactive video and data services that are not
possible with "analog" technology. Converting to DTV will eventually free up
parts of the scarce and valuable broadcast airwaves. Those portions of the
spectrum can then be used for other important services, such as advanced
wireless and public safety services (police, fire, rescue squads, etc.).
Televison stations serving all markets in the United States are currently
airing digital television programming, although they still must provide analog
programming until the target date set by Congress for completion of the
transition to DTV - April 7, 2009. That date may be extended, however, until
most homes (85%) in an area are able to watch the DTV programming. At that
point, broadcasting on the current (analog) channels will end and that
spectrum will be put to other uses reducing the need for analog filters which
MFC currently supplies. Until the transition to DTV is complete, television
stations will continue broadcasting on both their digital and analog channels.
MFC has developed and is supplying filters for digital television; however,
the demand for these filters is unknown at this time.
18
MFC's RF/Microwave product sales increased $62,794 or 4% to $1,624,435
during the fiscal year ended September 30, 2006 when compared to sales of
$1,561,641 during the fiscal year ended September 30, 2005. These products are
primarily sold to original equipment manufacturers (OEMs) that serve the
mobile radio and commercial and defense electronics markets. Typical customers
include the U.S. Government, General Dynamics, Motorola, Rockwell Collins,
Lockheed Martin, Northrup Gruman and Raytheon. 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.
MFC's Satellite product sales decreased $127,729 or 12.5% to $892,717 during
the fiscal year ended September 30, 2006 when compared to $1,020,446 during
the fiscal year ended September 30, 2005. 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.
Despite the decrease in 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 BTV/Wireless cable sales decreased $49,102 or 29.7% to $116,484 for
the fiscal year ended September 30,2006 when compared to sales of $165,586 for
the fiscal year ended September 30, 2005 primarily due to a decrease in demand
for UHF Broadcast products.
Niagara Scientific, Inc. (NSI) sales decreased $166,756 or 88.7% to $21,213
for the fiscal year ended September 30, 2006 when compared to sales of
$187,969 for the fiscal year ended September 30, 2005. NSI sales consisted
primarily of spare part orders during fiscal 2006. NSI has been concentrating
on quoting low risk jobs in an effort to maintain targeted profit margins.
Although this may impact sales levels, it should improve profit margins and
also allow engineering resources to focus on higher priorities. Based on
backlog, recent quote activity and the general economic climate, management is
expecting little, if any, growth in sales for NSI for fiscal 2007.
At September 30, 2006, the Company's total backlog of orders, which
represents firm orders from customers, equaled $731,941 compared to $692,595
at September 30, 2005. Approximately 76% of the total Company backlog at
September 30, 2006 is scheduled to ship during fiscal 2007. However, backlog
is not necessarily indicative of future sales. Accordingly, the Company does
not believe that its backlog as of any particular date is representative of
actual sales for any succeeding period.
Gross profit decreased $702,192 or 32% to $1,492,995 during the fiscal year
ended September 30, 2006 when compared to gross profit of $2,195,187 during
the fiscal year ended September 30, 2005. The dollar decrease can primarily be
attributed to the lower sales volume. As a percentage of sales, gross profit
decreased to 32.9% during the fiscal year ended September 30, 2006 compared to
39.7% during the fiscal year ended September 30, 2005. The decrease in gross
profit as a percentage of sales can also be attributed to the lower sales
volume, resulting in a lower base to absorb fixed expenses.
Selling, general and administrative (SG&A) expenses increased $111,534 or
5.8% to $2,022,485 during the fiscal year ended September 30, 2006 when
compared to SG&A expenses of $1,910,951 during the fiscal year ended September
30, 2005. The increase is primarily due to planned increases in promotional
expenses and higher payroll and payroll related expenses when compared to last
year.
19
Income from operations decreased $813,726 to a loss of $529,490 during the
fiscal year ended September 30, 2006 when compared to income from operations
of $284,236 during the fiscal year ended September 30, 2005. The decrease can
primarily be attributed to the lower sales volume this year when compared to
last year.
Other income increased $12,879 to $80,609 for the twelve months ended
September 30, 2006 compared to other income of $67,730 for the twelve months
ended September 30, 2005. Other income is primarily interest income earned on
invested cash balances. The increase in other income can primarily be
attributed to the rise in market interest rates during this fiscal year when
compared to the same period last year. Other income may fluctuate based on
market interest rates and levels of invested cash balances.
The Company recorded a benefit for income taxes of $37,532, an effective
rate of (8.4%), for the fiscal year ended September 30, 2006 compared to a
provision for income taxes of $39,755, or an effective rate of 11.3%, for the
fiscal year ended September 30, 2005. The benefit for the current year is
primarily due to the Company's ability to carry back it's operating loss to
fiscal 2005 and an increase in deferred tax assets offset by an increase in
the valuation allowance since the realization of the deferred tax benefit is
not considered more likely than not.
LIQUIDITY AND CAPITAL RESOURCES
MFC defines liquidity as the ability to generate adequate funds to meet its
operating and capital needs. The Company's primary source of liquidity has
been funds provided by operations.
September 30
2007 2006 2005
Cash & cash equivalents $1,266 979 $705,646 $1,251,594
Investments $0 $798,544 $822,651
Working capital $1,876,767 $2,063,269 $2,622,768
Current ratio 4.69 to 1 5.05 to 1 5.02 to 1
Long-term debt $ 0 $ 0 $ 0
|
Cash and cash equivalents increased $561,333 to $1,266,979 at September 30,
2007 when compared to $705,646 at September 30, 2006. The increase was a
result of $229,751 in net cash used in operating activities, $797,646 in net
cash used in investing activities and $6,562 in net cash used in financing
activities.
The net increase of $169,516 in inventories at September 30, 2007, when
compared to September 30, 2006, can primarily be attributed to the Company's
sales order backlog and our customer's scheduled delivery dates.
The Company provides for a valuation reserve for certain inventory that is
deemed to be obsolete, of excess quantity or otherwise impaired. The Company's
inventory valuation reserves equaled $389,726 at September 30, 2007 compared
to $389,200 at September 30, 2006. Based on current and expected inventory
levels, management believes any change to the inventory valuation reserves
will not have a material impact on future results of operations, capital
resources or liquidity. All such inventory items are written down to their
estimated net realizable value.
20
Cash used in investing activities during fiscal 2007 consisted of funds
provided by the sale of investments of $798,544 and funds used for capital
expenditures of $898.
Cash used in financing activities during fiscal 2007 consisted of funds used
to purchase treasury stock of $6,562.
At September 30, 2007, 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 foreseeable
future will be met by its existing cash balances, future cash flows from
operations and its current credit arrangements.
21
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL CONDITON OR
BUSINESS
An investment in our common stock involves a high degree of risk. The risks
and uncertainties described below are not the only ones we face. Additional
risks and uncertainties that we are unaware of, or that we may currently deem
immaterial, may become important factors that harm our business, financial
condition or results of operations. If any of the following risks actually
occurs, our business, financial condition or results of operations could
suffer. In that case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
Our stock was removed from The Nasdaq Capital Market System.
On May 3, 2007, Microwave Filter Company, Inc. (the "Company") received a
determination from the Listing Qualifications Panel of The Nasdaq Stock Market
indicating that the Panel has determined to delist the securities of Microwave
Filter Company, Inc. from the Nasdaq Stock Market, and will suspend trading in
the Company's shares effective with the open of business on Monday, May 7,
2007.
The Company's securities are currently quoted on The Pink Sheets
(www.pinksheets.com), an electronic quotation service for securities traded
over-the-counter, and the OTCBB (www.otcbb.com).
Demand for existing products may decline.
Demand for our products depends upon, among other factors, the level of
capital expenditures by current and prospective customers, the rate of
economic growth in the markets in which we compete and the competitiveness of
our products. Changes in any of these factors could have an adverse effect on
our financial condition or results of operations.
We must continue to assess and predict customer needs and evolving
technologies. We must develop new products, including enhancements to existing
products, and successfully manufacture, market and sell these products. If we
are unsuccessful in these areas, our financial condition or results of
operations could be adversely affected.
Our inability to introduce new and enhanced products on a timely basis.
Delays in development, testing, manufacture and/or release of new products
could adversely affect our sales and results of operations. In addition, there
can be no assurance that we will successfully identify new product
opportunities, develop and bring new products to market in a timely manner and
achieve market acceptance of our products, or that products and technologies
developed by others will not render our products or technologies obsolete or
noncompetitive.
22
Market acceptance of newly developed products may be slower than anticipated.
The markets for our products are competitive and may be characterized by
rapid technological change, new product development and evolving industry
standards. If technologies supported by our products become obsolete or fail
to gain widespread acceptance, our business could be harmed. Current and
potential competitors may have substantially greater financial, technical,
marketing, distribution and other resources than us, and have greater name
recognition and market acceptance of their products and technologies. Our
competitors may develop new technologies or products that may offer superior
price or performance features and may render our products and technologies
obsolete and noncompetitive.
Pricing pressures from our customers and/or market pressure from competitors
may reduce selling prices.
Many of customers are under continuous pressure to reduce costs and,
therefore, we expect to continue to experience pressure from these customers
to reduce the prices of the products that we sell to them. To offset declining
average sales prices, we believe that we must achieve manufacturing cost
reductions and increase our sales volumes. If we are unable to offset
declining average selling prices, our gross margins will decline, and this
decline could materially harm our business, financial condition and operating
results. We also compete with companies which have substantially larger
operations and greater financial, engineering, marketing, production and other
resources than we have. These competitors may develop their products more
quickly, devote greater marketing and sales resources, or offer more
aggressive pricing, than we can. As a result, this could cause us to lose
orders or customers or force reductions in selling prices, all of which would
have a material adverse impact on our financial position and results of
operations.
Difficulty in obtaining an adequate supply of raw materials or components at
reasonable prices.
The Company depends on outside suppliers for raw materials, components and
parts, and services. Although items are generally available from a number of
suppliers, the Company purchases certain raw materials and components from a
single supplier. If such a supplier should cease to supply an item, the
Company believes that new sources could be found to provide the raw materials
and components. However, manufacturing delays and added costs could result.
The Company has not experienced significant delays of this nature in the past,
but there can be no assurance that delays in delivery due to supply shortages
will not occur in the future. Substantial periods of lead time for delivery of
certain materials are sometimes experienced by the Company, making it
necessary to inventory varied quantities of materials.
Loss of key personnel or the inability to attract new employees.
Our success depends in large part on the continued service of our key
technical and management personnel, and on our ability to attract and retain
qualified employees, particularly those involved in the development of new
products and processes and the manufacture of existing products. The
competition for these individuals is significant, and the loss of key
employees could harm our business.
23
Off-Balance Sheet Arrangements
At September 30, 2007 and 2006, 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.
Critical Accounting Policies
The Company's consolidated financial statements are based on the application
of accounting principles generally accepted in the United States of America
(GAAP). GAAP requires the use of estimates, assumptions, judgments and
subjective interpretations of accounting principles that have an impact on
the assets, liabilities, revenue and expense amounts reported. The Company
believes its use of estimates and underlying accounting assumptions adhere to
GAAP and are consistently applied. Valuations based on estimates are reviewed
for reasonableness and adequacy on a consistent basis throughout the
Company. Primary areas where financial information of the Company is subject
to the use of estimates, assumptions and the application of judgment include
revenues, receivables, inventories, and taxes.
Revenues from product sales are recorded as the products are shipped and
title and risk of loss have passed to the customer, provided that no
significant vendor or post-contract support obligations remain and the
collection of the related receivable is probable. Billings in advance of the
Company's performance of such work are reflected as customer deposits in the
accompanying consolidated balance sheet.
Allowances for doubtful accounts are based on estimates of losses related to
customer receivable balances. The establishment of reserves requires the use
of judgment and assumptions regarding the potential for losses on receivable
balances.
The Company's inventories are valued at the lower of cost or market. The
Company uses certain estimates and judgments and considers several factors
including product demand and changes in technology to provide for excess and
obsolescence reserves to properly value inventory.
The Company established a warranty reserve which provides for the estimated
cost of product returns based upon historical experience and any known
conditions or circumstances. Our warranty obligation is affected by product
that does not meet specifications and performance requirements and any related
costs of addressing such matters.
The Company has deferred tax assets that are reviewed for recoverability and
valued accordingly. These assets are evaluated by using estimates of future
taxable income streams and the impact of tax planning strategies. Valuations
related to tax accruals and assets can be impacted by changes to tax codes,
changes in statutory tax rates and the Company's future taxable income levels.
The Company has provided a full valuation allowance against its deferred tax
assets.
24
NEW ACCOUNTING PRONOUNCEMENTS
In February 2007, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities, including an amendment
of FASB Statement No. 115". SFAS 159 permits entities to choose to measure
many financial instruments and certain other items at fair value at specified
election dates. This Statement applies to all entities, including not-for-
profit organizations. SFAS 159 is effective as of the beginning of an
entity's first fiscal year that begins after November 15, 2007. As such, the
Company is required to adopt these provisions at the beginning of the fiscal
year ended September 30, 2009. The Company is currently evaluating the impact
of SFAS 159 on its consolidated financial statements.
FASB Interpretation 48 was issued in July 2006 to clarify the criteria for
recognizing tax benefits under FASB Statement No. 109, Accounting for Income
Taxes. The Interpretation defines the threshold for recognizing the benefits
of tax-return positions in the financial statements as "more-likely-than-not"
to be sustained by the taxing authority and will affect many companies'
reported results and their disclosures of uncertain tax positions. The
Interpretation does not prescribe the type of evidence required to support
meeting the more-likely-than-not threshold, stating that it depends on the
individual facts and circumstances. The benefit recognized for a tax position
meeting the more-likely-than-not criterion is measured based on the largest
benefit that is more than 50 percent likely to be realized. The measurement of
the related benefit is determined by considering the probabilities of the
amounts that could be realized upon ultimate settlement, assuming the taxing
authority has full knowledge of all relevant facts and including expected
negotiated settlements with the taxing authority. Interpretation 48 is
effective as of the beginning of the first fiscal year beginning after
December 15, 2006 (the Company's 2008 fiscal year). The company is currently
analyzing the financial statement impact of adopting this pronouncement.
Accounting for Pension and Other Postretirement Benefits -- In September
2006, the FASB published Statement of Financial Accounting No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans. This
statement requires companies to report on their balance sheets the funded
status of pension and other post retirement benefit plans. The proposal would
also require companies to measure plan assets and obligations as of the
employer's balance-sheet date. As a result, companies would recognize on their
balance sheets actuarial gains and losses and prior service cost that have not
yet been included in income. This could significantly increase reported
liabilities for many companies with a corresponding reduction in equity
reported as accumulated other comprehensive income. The provisions for the
statement are effective for fiscal years ending after December 15, 2006, (the
Company's 2007 fiscal year) with earlier application encouraged. The Company
does not expect the adoption of SFAS No. 158 in fiscal 2008 to have an impact
on its results of operations or financial position.
25
In September 2006, SEC Staff Accounting Bulletin No. 108 was issued to
provide guidance on Quantifying Financial Statement Misstatements. Staff
Accounting Bulletin No. 108 addresses how the effects of prior-year
uncorrected misstatements should be considered when quantifying misstatements
in current-year financial statements. The SAB requires registrants to quantify
misstatements using both the balance sheet and income-statement approaches and
to evaluate whether either approach results in quantifying an error that is
material in light of relevant quantitative and qualitative factors. The SAB
does not change the staff's previous guidance in SAB 99 on evaluating the
materiality of misstatements. When the effect of initial adoption is
determined to be material, the SAB allows registrants to record that effect as
a cumulative-effect adjustment to beginning-of-year retained earnings. The
requirements are effective for annual financial statements covering the first
fiscal year ending after November 15, 2006 (the Company's fiscal 2007).
Fair Value Measurements. In September 2006, the FASB published Statement of
Financial Accounting No. 157, Fair Value Measurements. This Statement
establishes a single authoritative definition of fair value, sets out a
framework for measuring fair value, and requires additional disclosures about
fair-value measurements. The Statement applies only to fair-value measurements
that are already required or permitted by other accounting standards and is
expected to increase the consistency of those measurements. It will also
affect current practices by nullifying the Emerging Issues Task Force (EITF)
guidance that prohibited recognition of gains or losses at the inception of
derivative transactions whose fair value is estimated by applying a model and
by eliminating the use of "blockage" factors by brokers, dealers, and
investment companies that have been applying AICPA Guides. The Statement is
effective for fair-value measures already required or permitted by other
standards for financial statements issued for fiscal years beginning after
November 15, 2007 (the Company's fiscal 2009) and interim periods within those
fiscal years. Early application is permissible only if no annual or interim
financial statements have been issued for the earlier periods. The
requirements of the Statement are applied prospectively, except for changes in
fair value related to estimating he fair value of a large block position and
instruments measured at fair value at initial recognition based on transaction
price in accordance with EITF 02-3 or Statement 155.
26
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In an effort to provide investors a balanced view of the Company's current
condition and future growth opportunities, this Annual Report on Form 10-K may
include comments by the Company's management about future performance. These
statements which are not historical information are "forward-looking
statements" pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These, and other forward-looking statements,
are subject to business and economic risks and uncertainties that could cause
actual results to differ materially from those discussed. These risks and
uncertainties include, but are not limited to: risks associated with demand
for and market acceptance of existing and newly developed products as to which
the Company has made significant investments; general economic and industry
conditions; slower than anticipated penetration into the satellite
communications, mobile radio and commercial and defense electronics markets;
competitive products and pricing pressures; increased pricing pressure from
our customers; risks relating to governmental regulatory actions in broadcast,
communications and defense programs; as well as other risks and uncertainties,
including but not limited to those detailed from time to time in the Company's
Securities and Exchange Commission filings. These forward-looking statements
are made only as of the date hereof, and the Company undertakes no obligation
to update or revise the forward-looking statements, whether as a result of new
information, future events or otherwise. You are encouraged to review
Microwave Filter Company's 2007 Annual Report and Form 10-KSB for the fiscal
year ended September 30, 2007 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.