Microwave
Filter Company and Subsidiaries
Condensed
Consolidated Balance Sheets (Unaudited)
|
|
|
March 31, 2016
|
|
|
|
September 30, 2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
905,045
|
|
|
$
|
896,667
|
|
Accounts receivable-trade, net of allowance for doubtful accounts of $4,000 and $4,000
|
|
|
531,540
|
|
|
|
392,888
|
|
Inventories, net
|
|
|
381,810
|
|
|
|
447,507
|
|
Prepaid expenses and other current assets
|
|
|
53,411
|
|
|
|
44,099
|
|
Total current assets
|
|
|
1,871,806
|
|
|
|
1,781,161
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
389,245
|
|
|
|
435,075
|
|
Total assets
|
|
$
|
2,261,051
|
|
|
$
|
2,216,236
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
85,328
|
|
|
$
|
74,610
|
|
Customer deposits
|
|
|
48,952
|
|
|
|
7,391
|
|
Accrued payroll and related expenses
|
|
|
66,859
|
|
|
|
56,371
|
|
Accrued compensated absences
|
|
|
151,791
|
|
|
|
139,315
|
|
Notes payable - short term
|
|
|
45,594
|
|
|
|
44,528
|
|
Other current liabilities
|
|
|
20,003
|
|
|
|
24,541
|
|
Total current liabilities
|
|
|
418,527
|
|
|
|
346,756
|
|
|
|
|
|
|
|
|
|
|
Notes payable - long term
|
|
|
342,527
|
|
|
|
365,650
|
|
Total other liabilities
|
|
|
342,527
|
|
|
|
365,650
|
|
Total liabilities
|
|
|
761,054
|
|
|
|
712,406
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Common stock, $.10 par value Authorized 5,000,000 shares, Issued 4,324,140 shares in 2016 and 2015, Outstanding 2,581,007 shares in 2016 and 2,581,466 in 2015
|
|
|
432,414
|
|
|
|
432,414
|
|
Additional paid-in capital
|
|
|
3,248,706
|
|
|
|
3,248,706
|
|
Accumulated deficit
|
|
|
(487,173
|
)
|
|
|
(483,575
|
)
|
Common stock in treasury, at cost 1,743,133 shares in 2016 and 1,742,674 shares in 2015
|
|
|
(1,693,950
|
)
|
|
|
(1,693,715
|
)
|
Total stockholders’ equity
|
|
|
1,499,997
|
|
|
|
1,503,830
|
|
Total liabilities and stockholders’ equity
|
|
$
|
2,261,051
|
|
|
$
|
2,216,236
|
|
See
Accompanying Notes to Condensed Consolidated Financial Statements
Microwave
Filter Company and Subsidiaries
Condensed
Consolidated Statements of Operations
(Unaudited)
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,105,853
|
|
|
$
|
839,433
|
|
|
$
|
1,873,400
|
|
|
$
|
1,689,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
653,651
|
|
|
|
528,946
|
|
|
|
1,162,393
|
|
|
|
1,068,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
452,202
|
|
|
|
310,487
|
|
|
|
711,007
|
|
|
|
620,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
352,357
|
|
|
|
390,153
|
|
|
|
711,521
|
|
|
|
790,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
99,845
|
|
|
|
(79,666
|
)
|
|
|
(514
|
)
|
|
|
(169,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
(3,092
|
)
|
|
|
(1,318
|
)
|
|
|
(6,084
|
)
|
|
|
(5,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
96,753
|
|
|
|
(80,984
|
)
|
|
|
(6,598
|
)
|
|
|
(175,010
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit) provision for income taxes
|
|
|
(3,000
|
)
|
|
|
(2,068
|
)
|
|
|
(3,000
|
)
|
|
|
(2,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
99,753
|
|
|
$
|
(78,916
|
)
|
|
$
|
(3,598
|
)
|
|
$
|
(172,942
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per common share
|
|
$
|
0.04
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
2,581,224
|
|
|
|
2,581,487
|
|
|
|
2,581,330
|
|
|
|
2,582,264
|
|
See
Accompanying Notes to Condensed Consolidated Financial Statements
Microwave
Filter Company and Subsidiaries
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
|
Six months ended
|
|
|
|
March 31
|
|
|
|
|
2016
|
|
|
|
2015
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,598
|
)
|
|
$
|
(172,942
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
47,059
|
|
|
|
53,904
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable-trade
|
|
|
(138,652
|
)
|
|
|
106,051
|
|
Inventories
|
|
|
65,697
|
|
|
|
350
|
|
Prepaid expenses and other assets
|
|
|
(9,312
|
)
|
|
|
8,054
|
|
Accounts payable and customer deposits
|
|
|
52,279
|
|
|
|
26,191
|
|
Accrued payroll and related expenses and compensated absences
|
|
|
22,964
|
|
|
|
37,526
|
|
Other current liabilities
|
|
|
(4,538
|
)
|
|
|
(2,705
|
)
|
Net cash provided by operating activities
|
|
|
31,899
|
|
|
|
56,429
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Property, plant and equipment purchased
|
|
|
(1,229
|
)
|
|
|
(39,002
|
)
|
Net cash used in investing activities
|
|
|
(1,229
|
)
|
|
|
(39,002
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayment of note payable
|
|
|
(22,057
|
)
|
|
|
(21,133
|
)
|
Purchase of treasury stock
|
|
|
(235
|
)
|
|
|
(1,196
|
)
|
Net cash used in financing activities
|
|
|
(22,292
|
)
|
|
|
(22,329
|
)
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
8,378
|
|
|
|
(4,902
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
896,667
|
|
|
|
1,081,567
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
905,045
|
|
|
$
|
1,076,665
|
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
9,125
|
|
|
$
|
10,048
|
|
See
Accompanying Notes to Condensed Consolidated Financial Statements
MICROWAVE
FILTER COMPANY, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2016
Note
1. Summary of Significant Accounting Policies
The
following condensed balance sheet as of September 30, 2015, which has been derived from audited financial statements, and the
unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and
regulations, although the company believes that the disclosures made are adequate to make the information not misleading. 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, 2016 are not necessarily indicative of the
results that may be expected for the year ended September 30, 2016. For further information, refer to the consolidated financial
statements and notes thereto included in the Company’s Annual Report on Form 10K for the year ended September 30, 2015.
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, 2016
|
|
|
September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
Raw materials and stock parts
|
|
$
|
319,849
|
|
|
$
|
367,344
|
|
Work-in-process
|
|
|
18,695
|
|
|
|
19,884
|
|
Finished goods
|
|
|
43,266
|
|
|
|
60,279
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
381,810
|
|
|
$
|
447,507
|
|
The
Company’s reserve for obsolescence equaled $429,255 at March 31, 2016 and September 30, 2015. The Company provides for a
valuation reserve for certain inventory that is deemed to be obsolete, of excess quantity or otherwise impaired.
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 31% of total sales for the six months ended March 31, 2016 and March 31, 2015. This
one customer has represented approximately 33%, 25% and 14% of total sales for the fiscal years ending September 30, 2015, 2014
and 2013, respectively. A loss of this customer or programs related to this customer could materially impact the Company.
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 March 31, 2016 and September 30, 2015 was
$388,121 and $410,178 respectively. Interest accrued as of March 31, 2016 and September 30, 2015 was $1,407 and $1,436, respectively.
The
Company has secured this Note by: (a) a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing which creates a 1
st
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 begiven to Lender as collateral for the loan.
Note
9. Earnings 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
ended March 31, 2016 and 2015. 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 March 31, 2016 and 2015.
Note
10. Recent Accounting Pronouncements
In
February 2016, the FASB issued FASB ASU No. 2016-02,
Leases (Topic 842)
. The core principle of Topic 842 is that
a lessee should recognize the assets and liabilities that arise from leases. For operating leases, a lessee is required to recognize
a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of
financial position. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by
class of underlying asset not to recognize lease assets and lease liabilities. The accounting applied by a lessor is largely unchanged
from that applied under previous GAAP. This ASU is effective for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. Earlier application is permitted. In transition, lessees and lessors are required to
recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company
is currently evaluating the effect that the adoption of this ASU will have on its financial statements.
MICROWAVE
FILTER COMPANY, INC.
ITEM
2. 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 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, 2015 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 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.
RESULTS
OF OPERATIONS
THREE
MONTHS ENDED MARCH 31, 2016 vs. THREE MONTHS ENDED MARCH 31, 2015
The
following table sets forth the Company’s net sales by major product group for the three months ended March 31, 2016 and
2015.
Product group
|
|
|
Fiscal 2016
|
|
|
|
Fiscal 2015
|
|
Microwave Filter (MFC):
|
|
|
|
|
|
|
|
|
RF/Microwave
|
|
$
|
470,361
|
|
|
$
|
482,615
|
|
Satellite
|
|
|
323,019
|
|
|
|
203,216
|
|
Cable TV
|
|
|
221,435
|
|
|
|
98,022
|
|
Broadcast TV
|
|
|
86,295
|
|
|
|
53,211
|
|
Niagara Scientific (NSI):
|
|
|
4,743
|
|
|
|
2,369
|
|
Total
|
|
$
|
1,105,853
|
|
|
$
|
839,433
|
|
|
|
|
|
|
|
|
|
|
Sales backlog at March 31
|
|
$
|
733,955
|
|
|
$
|
989,483
|
|
Net
sales for the three months ended March 31, 2016 equaled $1,105,853, an increase of $266,420 or 31.7%, when compared to net sales
of $839,433 for the three months ended March 31, 2015. The increase in sales can primarily be attributed to increases in the Company’s
Cable TV and Satellite product sales.
MFC’s
Cable TV product sales increased $123,413 or 125.9% to $221,435 for the three months ended March 31, 2016 when compared to Cable
TV product sales of $98,022 during the same period last year. The increase in sales can primarily be attributed to orders from
two customers with specific cable applications. Management continues to project flat or a decrease in demand for standard 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 are 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
Satellite product sales increased $119,803 or 59.0% to $323,019 for the three months ended March 31, 2016 when compared to Satellite
product sales of $203,216 during the same period last year. The increase in sales 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. 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
RF/Microwave product sales decreased $12,254 or 2.5% to $470,361 for the three months ended March 31, 2016 when compared to RF/Microwave
product sales of $482,615 during the same period last year. The Company’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
31% of total sales for the three months ended March 31, 2016 and approximately 35% of total sales for the three months ended March
31, 2015.
MFC’s
Broadcast TV/Wireless Cable product sales increased $33,084 or 62.2% to $86,295 for the three months ended March 31, 2016 when
compared to sales of $53,211 during the same period last year. The increase can primarily be attributed to the development of
wireless diplexers which were sold to one customer.
MFC’s
sales order backlog equaled $733,955 at March 31, 2016 compared to sales order backlog of $989,483 at March 31, 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. Approximately 93% of the total sales order backlog at March
31, 2016 is scheduled to ship by September 30, 2016.
Gross
profit for the three months ended March 31, 2016 equaled $452,202, an increase of $141,715 or 45.6%, when compared to gross profit
of $310,487 for the three months ended March 31, 2015. As a percentage of sales, gross profit equaled 40.9% for the three months
ended March 31, 2016 compared to 37.0% for the three months ended March 31, 2015. The increases in gross profit can primarily
be attributed to the higher sales volume this year when compared to the same period last year providing a higher base to absorb
overhead expenses.
Selling,
general and administrative (SGA) expenses for the three months ended March 31, 2016 equaled $352,357, a decrease of $37,796 or
9.7%, when compared to SGA expenses of $390,153 for the three months ended March 31, 2015. The decrease can primarily be attributed
to decreases in payroll and payroll related expenses and planned decreases in media advertising. 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 or elect to use accrued vacation. As
a percentage of sales, SGA expenses decreased to 31.9% for the three months ended March 31, 2016 when compared to 46.5% for the
three months ended March 31, 2015 due to both the higher sales volume this year providing a higher base to absorb expenses and
the lower SGA expenses this year when compared to the same period last year.
The
Company recorded income from operations of $99,845 for the three months ended March 31, 2016 compared to a loss from operations
of $79,666 for the three months ended March 31, 2015. The increase in operating income can primarily be attributed to the higher
sales volume and the lower SGA expenses this year when compared to the same period last year.
Other
income (expense) was an expense of $3,092 for the three months ended March 31, 2016 compared to expense of $1,318 for the three
months ended March 31, 2015. Interest expense equaled $4,460 and $4,899 for the three months ended March 31, 2016 and 2015, respectively.
Other income generally consists of sales of scrap material, the forfeiture of non-refundable deposits and other incidental items.
The
(benefit) provision for income taxes equaled a benefit of $3,000 for the three months ended March 31, 2016 and a benefit of $2,068
for the three months ended March 31, 2015. The benefit for both fiscal years can be attributed to a prior year’s federal
refund. 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.
SIX
MONTHS ENDED MARCH 31, 2016 vs. SIX MONTHS ENDED MARCH 31, 2015
The
following table sets forth the Company’s net sales by major product group for the six months ended March 31, 2016 and 2015.
Product group
|
|
|
Fiscal 2016
|
|
|
|
Fiscal 2015
|
|
Microwave Filter (MFC):
|
|
|
|
|
|
|
|
|
RF/Microwave
|
|
$
|
800,057
|
|
|
$
|
867,247
|
|
Satellite
|
|
|
573,462
|
|
|
|
510,422
|
|
Cable TV
|
|
|
316,477
|
|
|
|
227,134
|
|
Broadcast TV
|
|
|
176,517
|
|
|
|
79,532
|
|
Niagara Scientific (NSI):
|
|
|
6,887
|
|
|
|
5,025
|
|
Total
|
|
$
|
1,873,400
|
|
|
$
|
1,689,360
|
|
|
|
|
|
|
|
|
|
|
Sales backlog at March 31
|
|
$
|
733,955
|
|
|
$
|
989,483
|
|
Net
sales for the six months ended March 31, 2016 equaled $1,873,400, an increase of $184,040 or 10.9%, when compared to net sales
of $1,689,360 for the six months ended March 31, 2015.
MFC’s
RF/Microwave product sales decreased $67,190 or 7.7% to $800,057 for the six months ended March 31, 2016 when compared to RF/Microwave
product sales of $867,247 during the same period last year. MFC’s RF/Microwave products are sold primarily to OEMs 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 31% of total sales for the six months ended March 31, 2016
and March 31, 2015.
MFC’s
Satellite product sales increased $63,040 or 12.4% to $573,462 for the six months ended March 31, 2016 when compared to satellite
product sales of $510,422 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. 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
Cable TV product sales increased $89,343 or 39.3% to $316,477 for the six months ended March 31, 2016 when compared to Cable TV
product sales of $227,134 during the same period last year. The increase in sales can be attributed to orders from two customers
with specific cable applications. Management continues to project flat or a decrease in demand for standard 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 are 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 $96,985 or 121.9% to $176,517 for the six months ended March 31, 2016 when
compared to sales of $79,532 during the same period last year. The increase can primarily be attributed to the development of
wireless diplexers which were sold to one customer.
MFC’s
sales order backlog equaled $733,955 at March 31, 2016 compared to sales order backlog of $989,483 at March 31, 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. Approximately 93% of the total sales order backlog at March
31, 2016 is scheduled to ship by September 30, 2016.
Gross
profit for the six months ended March 31, 2016 equaled $711,007, an increase of $90,406 or 14.6%, when compared to gross profit
of $620,601 for the six months ended March 31, 2015. As a percentage of sales, gross profit equaled to 38.0% for the six months
ended March 31, 2016 compared to 36.7% for the six months ended March 31, 2015. The increases in gross profit can primarily be
attributed to the higher sales volume this year when compared to the same period last year providing a higher base to absorb overhead
expenses.
SG&A
expenses for the six months ended March 31, 2016 equaled $711,521, a decrease of $78,820 or 10.0%, when compared to SG&A expenses
of $790,341 for the six months ended March 31, 2015. The decrease can primarily be attributed to decreases in payroll and payroll
related expenses and planned decreases in media advertising. 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 or elect to use accrued vacation. As a percentage of sales, SGA expenses decreased
to 38.0% for the six months ended March 31, 2016 compared to 46.8% for the six months ended March 31, 2015 due to the higher sales
volume and the lower SGA expenses this year when compared to the same period last year.
The
Company recorded a loss from operations of $514 for the six months ended March 31, 2016 compared to a loss from operations of
$169,740 for the six months ended March 31, 2015. The improvement can primarily be attributed to the higher sales volume and the
lower SGA expenses this year when compared to the same period last year.
Other
income (expense) was an expense of $6,084 for the six months ended March 31, 2016 compared to an expense of $5,270 for the six
months ended March 31, 2015. Interest expense equaled $9,096 and $10,028 for the six months ended March 31, 2016 and 2015, respectively.
Other income generally consists of sales of scrap material, the forfeiture of non-refundable deposits and other incidental items.
The
(benefit) provision for income taxes equaled $3,000 for the six months ended March 31, 2016 and $2,068 for the six months ended
March 31, 2015. The benefit for both fiscal years can be attributed to a prior year’s federal refund. 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
March 31, 2016 and 2015, 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.
|
|
|
March 31, 2016
|
|
|
|
September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
Cash & cash equivalents
|
|
$
|
905,045
|
|
|
$
|
896,667
|
|
Working capital
|
|
$
|
1,453,279
|
|
|
$
|
1,434,405
|
|
Current ratio
|
|
|
4.47 to 1
|
|
|
|
5.14 to 1
|
|
Long-term debt
|
|
$
|
342,527
|
|
|
$
|
365,650
|
|
Cash
and cash equivalents increased $8,378 to $905,045 at March 31, 2016 when compared to cash and cash equivalents of $896,667 at
September 30, 2015. The increase was a result of $31,899 in net cash provided by operating activities, $1,229 in net cash used
for capital expenditures, $22,057 in net cash used for repayment of a note payable and $235 used to purchase treasury stock.
Net
cash provided by operating activities can fluctuate between periods as a result of differences in net income, the timing of the
collection of accounts receivable, purchase of inventory and payment of accounts payable. The increase of $138,652 in accounts
receivable at March 31, 2016 when compared to September 30, 2015 can primarily be attributed to the timing of shipments and collections.
Sales for the quarter ended March 31, 2016 equaled $1,105,853 compared to sales of $988,321 for the quarter ended September 30,
2015. The decrease in inventories of $65,697 can primarily be attributed to the timing of purchases and customer’s scheduled
delivery dates. The increase of $41,561 in customer deposits can primarily be attributed to a deposit received from a new international
customer.
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 the forseeable future will be met by its existing cash balances and future
cash flows from operations.
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 2015 Annual Report and
Form 10-K for the fiscal year ended September 30, 2015 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.